Blog Post

Berkshire Hathaway and JPMorgan Chase Will Transform Healthcare Deliverability and Drive ROI

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By now you’ve read about every possible innovation Amazon might bring to the table through its partnership with JPMorgan Chase and Berkshire Hathaway to create a health system for its employees. That leaves us with a lingering question—what do JPMorgan Chase and Berkshire Hathaway have to contribute to healthcare?

Some have pointed out the overt, reminding us of JPMorgan Chase’s access to massive capital and of Berkshire Hathaway’s insurance holding, Geico. But the two companies have been strengthening skill sets that will arguably prove far more valuable to the future of healthcare than their capital reserves and insurance experience: JPMorgan Chase has stealthily been building out a mobile banking platform that delivers community banking to the masses and drives fintech innovation. Berkshire Hathaway has a track record for return on investment (ROI). These skills represent some of the answers to challenges the health industry has grappled with for decades—physical distribution channel capabilities, interoperability, and ROI. Will these two companies, as part of this new healthcare triumvirate, solve a problem that traditional healthcare hasn’t yet been able to?

JPMorgan Chase Can Transform Interoperability and Physical Distribution Channels

JPMorgan Chase has the tools to transform interoperability in healthcare, including the most-used mobile banking app in America in 2017, with access to 28.4 million active users. That many active users on a healthcare app would increase patient engagement, create an obvious channel for cloud-based healthcare delivery, and promote interoperability within health systems. JPMorgan Chase’s app represents not only the company’s experience building a digital solution that can engage large populations but also its ability to manage sizable groups with varying needs—skills that will no doubt help the new triad in the healthcare industry.

JPMorgan Chase’s mobile app only represents a portion of its fintech investments. In March 2018, it announced a partnership with Alexa, where users will be able to ask Alexa for the firm’s research reports. This program could represent a pilot for the use of smart speakers on a larger scale, something the health industry has been experimenting with. Recently, Harvard Business Review published an article on smart speakers in hospitals and health systems, asserting that the virtual assistants were beginning to penetrate health systems. This innovative use of technology is the beginning of a path toward interoperability.

The banking behemoth has been investing in its technological services in recent years. In 2016, JPMorgan Chase aligned with many fintech companies, including OnDeck and Virtu Financial Inc. It also made an undisclosed equity investment in and acquired InvestCloud. InvestCloud creates “financial digital solutions, pre-integrated with the cloud,” including mobile and desktop apps and dashboards. This year, JPMorgan Chase will increase its tech spend by 15%, with most of that going toward mobile- and web-based services. The consumer’s desire for data accessibility and convenience is thriving—at least enough to merit a $10.8 billion investment. These consumer desires will translate to healthcare, where these types of investments would greatly improve patient experience and engagement with their care plans, potentially boosting returns.

Digital assets aren’t all that JPMorgan has access to. As of December 2017, the company has almost 5,300 physical branches across the United States. As more people bank remotely, JPMorgan Chase will need to evolve these physical locations to allow for the provision of other services. It is quite possible for JPMorgan to provide some basic healthcare services at these locations, thereby opening up the potential for people to bank and get healthcare services in the same location. By way of comparison, there are 1,100 minute clinics across the United States. JPMorgan Chase has an almost 500% advantage in brick-and-mortar locations, representing access to large populations of health consumers across the country and the ability to impact physical distribution channels in healthcare.

The next problem for Amazon and JPMorgan Chase is how do they take their healthcare capabilities and make money? Therein lies the strength of Berkshire Hathaway in the partnership.

Berkshire Hathaway Knows How to Drive ROI

The healthcare industry has long struggled with ROI. That is where Berkshire Hathaway’s experience comes into play. Todd Combs, a board member of JPMorgan Chase and the chief investment officer of Berkshire Hathaway, knows more than a little about ROI. From 2005 to 2010, he was the CEO and director of Castle Point, which during that time had cumulative returns of 34%, so it was no surprise that Todd was named the Berkshire Hathaway point person on the healthcare partnership. In addition to being Warren Buffett’s right hand, Combs knows how to manage cost to drive returns, which seems to be Buffett’s focus. “It would be very easy, I think, to go in and shave off 3% or 4% just by negotiating power,” Buffett said on CNBC in late February. “We’re looking for something much bigger than that.” Since 1965, when Buffett took control of Berkshire Hathaway, there has been a compound annual return of 20.8% in stock value (a percentage gain of slightly less than 2 million).

As a company that knows how to drive returns, Berkshire Hathaway’s first move will likely be to cut out pharmacy benefit managers. But that is probably the “very easy” piece that Buffet referred to in February. His plans to maximize ROI are likely much larger, reflected simply by the decision to put Todd in charge.

While the venture is still relatively new and the partners are staying quiet on progress to date, the desire to “do something much bigger” is in the eyes of Warren Buffett. As leaders in healthcare, we need to continue to move the industry forward to ensure we deliver care in new and exciting yet reliable and effective ways.