Here's why the biggest healthcare company in the US is wary of Amazon, Berkshire Hathaway, and JPMorgan's plans to disrupt healthcare
- Healthcare giant Optum recently filed a lawsuit against a former employee who joined the healthcare joint venture created by JPMorgan, Amazon, and Berkshire Hathaway.
- Optum is the health-services arm of the healthcare giant UnitedHealth Group, which also offers health insurance and operates doctors' offices.
- The lawsuit shows just how seriously established healthcare companies are taking the new venture and how much it could hurt their businesses.
- "I always say to my team, 'Anytime they sneeze, our stock catches a cold,'" a senior executive at Optum said in unsealed testimony.
The healthcare industry is bracing for the new venture Amazon, Berkshire Hathaway, and JPMorgan are striking up.
In January 2018, the three companies said they would create a healthcare joint venture that's aimed at lowering healthcare costs for the companies' employees. At the time, news of the partnership sent healthcare stocks plummeting, especially health insurers and members of the pharmaceutical supply chain that might be impacted by the three business giants getting into their lines of work.
Since then, we haven't learned much more about what shape the still-unnamed joint venture will take, apart from some of the hires the company's made. That's starting to change, thanks to a lawsuit filed in Massachusetts against a former Optum employee. Optum is the health-services and technology arm of the healthcare giant UnitedHealth Group, which is the largest healthcare company in the US by revenue. The filing makes clear that established healthcare companies are viewing the venture as a competitive threat.
Testimony in the case from Mike Weissel, an executive vice president at Optum, shined light on how the healthcare giant perceives the competitive threat from the joint venture. The testimony was unsealed after a motion brought by the parent companies of Stat News and The Wall Street Journal.
During his testimony, Weissel said that investors in UnitedHealth were keenly interested in news about the venture, and that its announcements affected UnitedHealth's share price.
"I always say to my team, 'Anytime they sneeze, our stock catches a cold,'" Weissel said. "So the market is definitely paying attention and thinks that this is going to be impactful on us."
The lawsuit, filed on January 16, came a day before David Smith, a former senior executive at Optum, was scheduled to start working at the joint venture as its director of product strategy and research. The complaint said that by joining the health venture, Smith is in breach of contract and could reveal Optum's trade secrets.
On Friday, a judge in Massachusetts ruled that Smith could continue working at the health venture while the case goes to arbitration.
"We are committed to protecting our confidential information and will aggressively do so in arbitration," Optum spokesman Matt Stearns said in a statement Friday. He declined to comment on the testimony in the case. A representative of the health venture previously declined to comment on the testimony, and didn't respond to a request for comment on Friday's ruling.
The threat of the new venture
As part of the testimony, Weissel recalled that the announcement of the Amazon-Berkshire-JPMorgan venture in January 2018 occurred while he was at an annual growth conference with Optum salespeople. He was just about to go onstage to talk about the year ahead for the company.
The news of the new venture sent shockwaves through the industry, and Weissel recalls UnitedHealth's stock dropping in reaction to the announcement.
The three employers are big customers of companies like Optum's parent UnitedHealth. Its insurance arm, UnitedHealthcare, covers roughly two-thirds of JPMorgan's employees, for instance, according to the testimony.
To be sure, a lot of players in the healthcare industry could be considered competitors to Optum. It's a big business that spans pharmacy benefits, primary care, and analytics. Weissel said in his testimony that he estimates Optum operates in a roughly $1 trillion market out of the $3.6 trillion US healthcare system, leaving a remaining $2 trillion or so where Smith could have gone to work without competitive issues arising.
From the beginning, Amazon, Berkshire Hathaway, and JPMorgan have said that their venture will be "free from profit-making incentives and constraints." Weissel was skeptical of that not-for-profit mindset as a reason for not being considered a competitor to a company like Optum.
"I understand that they say they're not here for profit. But probably 50 percent of the healthcare industry with which we compete would say the same thing," Weissel said. "Every Blue Cross Blue Shield plan in the country, other than Anthem, is not for profit. 50 percent of the hospital systems in the United States are not for profit."
To start, the companies have said that their joint venture is focused on the health of their employees. But Weissel said he was skeptical it wouldn't go beyond that. Should the venture crack the code and find a way to lower healthcare costs for employees while improving the experience, he expects the company to take that out to other employers around the US.
"Once it has that, it will take them to the rest of the market," Weissel said.
Working together
The health venture's chief operating officer Jack Stoddard, who also testified as part of the trial, said he doesn't think the healthcare joint venture is a competitor to Optum or other existing healthcare companies.
However, he said he understood why incumbent healthcare companies - many of which count Amazon, Berkshire Hathaway, and JPMorgan among their customers - might feel threatened.
"I can understand why, when their customers create our entity and put them on notice that the status quo is no longer good enough, that there is a fear of change. So I understand that," Stoddard said. "But that is not competitive to their business. It is about finding new solutions for our employees and their families."
In the end, the health venture and Optum could still work together. Stoddard mentioned that prior to the lawsuit, he had brought up to the venture's CEO, Atul Gawande, that Optum would make for a good partner in primary care.
"Ironically, Optum is one of the largest providers of primary care in the country. I had already said to our chief executive officer before all this took place, we should go partner with Optum because they might be a good partner to help us think about primary care."