Amazon's healthcare move takes aim at U.S. costs

Amazon's healthcare move takes aim at U.S. costs

Amazon's healthcare move takes aim at U.S. costs

Amazon, Warren Buffett and JPMorgan are forming a new company to try to hold down the health-care costs of their employees, sending shares of health-care companies down sharply across the entire industry.

The companies announced that this partnership is aimed at improving employee satisfaction and reducing costs.

The new company will likely work with the HMOs, rather than create a new insurer, Faber said. Or it could move directly into buying prescription drugs.

Much of the burden falls upon business, as about half of all Americans receive health insurance through their own or a family member's employer.

In the email, obtained by CNBC, Amazon's HR boss Beth Galetti wrote that the new partnership will take a "considerable amount of time" to come to fruition, and that "nothing is changing" to Amazon's current health-care offering to employees. Drug distributors Cardinal Health (CAH.N), AmerisourceBergen Corp (ABC.N) and McKesson Corp (MCK.N) were off 1 percent to 3 percent. The companies outlined few concrete steps in their announcement, and making big changes to the entrenched, inefficient US health system will likely prove more complicated than Jeff Bezos and Warren Buffett imagine, some health experts say.

The announcement hit Wall Street at 7am on 30 January and within the first two hours of trading the market value of the largest listed healthcare insurance and pharmacy stocks had dropped by billions of dollars.

"The three companies, which bring their scale and complementary expertise to this long-term effort, will pursue this objective through an independent company that is free from profit-making incentives and constraints", Berkshire Hathaway said in a statement.

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The new, not-for-profit venture will initially focus on technology for "simplified, high-quality and transparent healthcare" for their more than 500,000 USA employees, the companies said. Although the new company would only service the US employees of the three major businesses in its early stages, it is the first major move by Amazon into the USA healthcare market.

And at about the same time, health and financial consulting firm Mercer started running employer collectives to help companies save on pharmacy costs. However, JPMorgan Chairman and CEO Jaimie Dimon said, "our goal is to create solutions that benefit our US employees, their families and, potentially, all Americans". "For better or worse, there are warped incentives baked into every aspect of the US health care system, from medical innovation to care delivery to insurance and benefit management", Fein told CNBC.

Warren Buffett, chairman and CEO of Berkshire Hathaway, said in the press release that the joint group is not approaching the health care problem with immediate answers, but won't accept it as inevitable. Amazon is already perceived as a potential threat to many US businesses.

Several of the biggest losers on a down day for the market Tuesday were health care companies.

Shares of United States health insurers and benefit managers weakened on Tuesday following the announcement.

Erik Gordon, a professor at the University of Michigan's Ross School of Business, predicted that the companies would attempt to modernize the frequently cumbersome process of making appointments with physicians by making it more like booking a restaurant reservation on OpenTable, while eliminating the need to regularly fill out paper forms on clipboards. And it has been blamed for the decline of department stores, toy stores and bookstores.

Take for instance its deal to purchase Whole Foods Market past year, sending shockwaves throughout the grocery industry globally. Murphy reported from Indianapolis.

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