Is Amazon’s attempt to disrupt the healthcare industry heroic or villainous?

“Amazon, JPMorgan Chase, and Berkshire Hathaway announced on Tuesday that they intend to form a new company that manages health care for their hundreds of thousands of U.S. employees, the idea being that a unified, not-for-profit entity can reduce workers’ expenses.

“The surprising trio of the nation’s largest online retailer, largest bank by assets, and most famous investor (Warren Buffett, the chief executive of Berkshire) riding to the rescue of the beleaguered health system already rocked insurance stocks and thrilled health-care experts who have long dreamed of a technological solution to ‘bend the curve’ of inexorably rising medical costs.”

The immediate interest of the three companies is obvious – reducing the cost of providing healthcare benefits to their combined workforce. But if they succeed in developing a new and much cheaper healthcare model, the opportunities for expansion are clear and will hardly be lost on a company like Amazon.

Though the announcement was light on detail, it made a heavy impact on the markets:

“Across the economy, Amazon has become a kind of deflationary Death Star, so well-known for its high-volume, low-profit model that stocks plummet in every sector it threatens to enter. Indeed, within minutes of the announcement, shares fell for pharmacy managers and drugmakers.”

“Deflationary Death Star” is a brilliant turn of phrase, though one more suggestive of villainy than heroism. But if any one business can reorganise an entire sector of the economy, to eliminate the friction between its working parts, then it’s Amazon. As Nigel Cameron says the opportunity for market disruption is huge.

One might venture that Amazon (and its partners) are doing to the American health care system what the National Health Service did to the British health care system in the post-war period – i.e. bring a vast array of divergent interests under one roof to align incentives and squeeze out costs.

Just how well the NHS has succeeded over the decades is matter of much debate. Certainly in regard to the application of information technology, the record is a chequered one. Can Amazon use its technological mastery to crack the problem of reorganising something as complex as comprehensive healthcare for millions of people?

If they succeed where governments have failed,  it might not just be the private sector that finds itself under competitive pressure:

“For Amazon to take the lead in taming medical-cost inflation continues an interesting trend in tech, with visionaries like Jeff Bezos, Bill Gates, and Elon Musk taking on the traditional roles of government, whether by spending hundreds of millions of dollars on basic research, sending rockets to space, revolutionizing infrastructure, or building new health-care companies.”

Thompson notes the irony of “three for-profit corporations [seeking] to create a nonprofit institution to do what traditionally has been done by the ultimate nonprofit institution—the U.S. federal government.”

As well as their commercial competencies, the three-way partnership has a key advantage that the US government does not: they don’t have to listen to lobbyists. When politicians try to reform an industry, they have to consult with it, meet with its representatives and otherwise give it the time of day. Lobbyists are adept at manipulating this process and thereby protecting their clients’ interests.

However, Amazon and friends don’t want to reform US healthcare, they’re out to disrupt it.

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Peter Franklin is Associate Editor of UnHerd. He was previously a policy advisor and speechwriter on environmental and social issues.

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