Analysts believe Amazon, JPMorgan Chase, and Berkshire Hathaway's proposed partnership could start with a relatively modest internal health insurance offering and build upon that.
Amazon's anticipated venture into healthcare has the potential to disrupt traditional markets, especially pharmacy, pharmacy benefits, and supply chain, Standard & Poor's analysts say.
However, the Byzantine nature of the nation's $3.3 trillion healthcare sector will also determine the pace of that disruption.
"Given the sheer complexity of healthcare and its importance to our economy, change doesn't really come fast," Shannan Murphy, director of Corporate Healthcare Sector for S&P Global, said in a conference call Thursday.
"That said, we do think that change is coming slowly but surely, and certain elements of healthcare are more or less ripe for near-term disruption," Murphy said.
The vaguely worded announcement late last month that Amazon, JPMorgan Chase, and Berkshire Hathaway would create a nonprofit entity designed to reduce their employees' healthcare costs sent shivers through the pharmacy, pharmacy benefits, and supply sectors, with a loss of about $69 billion in market cap that day.
The market slide underscored investor jitters about sustainable margins given healthcare business models that provide limited pricing transparency, S&P says. However, the trio provided few details for their plans, which S&P analysts believe could start with an internal insurance offering and build upon that.
"All three companies are likely self-insured so they could try to tackle ancillary insurance services such as PBM," said Tulip Lim, director of S&P's corporate healthcare ratings. "This could help Amazon, especially if they wanted to get into the area of prescription drugs."
"But it's probably more likely that they would buy a PBM rather than build one, because operating a PBM requires certain competencies outside of the three's core, such as formulary management," she said.
The sectors most at risk for disruption are distributors of lab and medical supplies, but that comes with caveats.
"Even though Amazon is an e-commerce powerhouse, it might take a while before they take meaningful shares from certain rated players," Lim said. "That's because many of these companies cater to the acute-care market, which will be slower to buy meaningfully from Amazon."
John Commins is a senior editor at HealthLeaders.