Stock market trends are influenced by investor perception. This perception is in turn influenced by decisions made by the companies. Stocks rise or fall in value based on corporate decisions that aren't always comprehended by investors.
While health stocks registered a fall and bond yields rose, the stock market fell on Tuesday, January 30, 2018, a second straight day of falling. News of the Amazon ($AMZN) – Berkshire Hathaway ($BRK-A, $BRK-B) – JP Morgan ($JPM) alliance, formed with the purpose of reducing costs for their American employees, has been the reason for healthcare stocks bringing down the major indexes. The press release indicated that the companies will join to collaborate on technology, insurance and financing for creating a new non-profit company. The stated goal has been to ensure transparency in the healthcare they offer, at a cost that is reasonable.
Unchecked Rise in Healthcare Costs a Major Concern
Healthcare costs in America have increased significantly in an unchecked manner. As a result, the Centers for Medicare and Medicaid Services (CMS) reports that over $3.3 trillion was spent by the US on healthcare in 2016. That translates to more than $10,348 per individual. Healthcare expenditure therefore makes up 17.9% of the GDP of the country, a rise from around 12% in 1990. Berkshire Hathaway's Warren Buffett calls the expenditure-plagued US healthcare sector a "hungry tapeworm".The CMS also estimates that healthcare spending in the US will increase 5.5% annually all through 2025. That would increase the country's healthcare expenditure to close to 20% of the GDP.
The Fragmentation of Healthcare Makes It Complex
Amazon's Jeff Bezos believes that fixing the healthcare system in the US is a tough task because of its complexity. This view is coming from someone who has revolutionized retail and other sectors of the economy. Bezos considers the healthcare sector in the US to be fragmented. Access to healthcare and the costs involved depend on where the person lives. Improving access will require satisfying the interests of all entities involved in the industry including hospitals, primary care physicians, specialists, medical equipment companies, drug manufacturers, distributors, pharmacies, insurers, etc. These entities cover a significant section of the American economy. Despite the complexity, Bezos expressed commitment to improving healthcare outcomes for employees while reducing the sector's burden on the economy.
Jamie Dimon, CEO of JPMorgan, wants more transparency in healthcare. And he believes that an alliance involving three of America's major corporations that span key industries can together hire over a million employees and make a significant impact on the way health is administered.
The plan for the alliance initially seems to revolve around technology-driven solutions for enhancing the healthcare system, with employees of these companies testing these solutions for their real world application. Watch this space!
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