Speaker 1: In the nineteen nineties, Amazon dot Com was a quirky
Speaker 1: online book selling start up looking to take advantage of
Speaker 1: the early days of the World Wide Web. Now having
Speaker 1: long moved on from ripping apart the book business, Amazon
Speaker 1: is a retailing and technology behemoth with an impact felt
Speaker 1: throughout many other industries and around the world, not to
Speaker 1: mention the daily lives of most Americans. Just recently, Amazon
Speaker 1: joined forces with two other big names, Berkshire Hathaway and J. P. Morgan,
Speaker 1: to figure out how to bring down healthcare costs. Today
Speaker 1: on Benchmark, we'll talk about whether Amazon can disrupt healthcare
Speaker 1: like it's disrupted the rest of the economy. Welcome to Benchmark.
Speaker 1: I'm Scott Enman, economics editor with Bloomberg News in Washington
Speaker 1: with Daniel moss Is traveling this week, So let's talk
Speaker 1: about Amazon. I'm old enough to remember when it was
Speaker 1: brand new and only sold books online. Now it's founder,
Speaker 1: Jeff Bezos, is the world's richest person, with a net
Speaker 1: worth estimated by Bloomberg at more than a hundred billion dollars.
Speaker 1: It's even started opening actual bookstores that you can walk into.
Speaker 1: They have their own video service and some pretty entertaining
Speaker 1: original shows and movies. Even my kids like to ask
Speaker 1: Alexa to play songs and tell jokes. But one area
Speaker 1: that Amazon has basically shied away from his healthcare, particularly
Speaker 1: the byzantine, expensive employer linked system that's a hallmark of
Speaker 1: life in the United States of America. It accounts for
Speaker 1: several trillion dollars of gross domestic product, which is about
Speaker 1: eighteen percent of the economy. Amazon is just starting to
Speaker 1: dip its toes into this area. We'll talk in a
Speaker 1: couple of minutes with Laura Rosner, an economist who will
Speaker 1: discuss how Amazon could affect prices in this industry and
Speaker 1: the broader economy. But first I want to bring in
Speaker 1: my colleague, Spencer Soaper. He's a reporter for Blomberg in
Speaker 1: Seattle who covers Amazon. Spencer, thanks for joining us on
Speaker 1: Benchmark today. Glad to be here. So Spencer, can you
Speaker 1: just tell us a little bit about this new healthcare
Speaker 1: venture that Amazon announced. What exactly are they doing? We
Speaker 1: we don't know exactly what they're doing other than making
Speaker 1: a lot of waves. Um. They announced a partnership with
Speaker 1: Berkshire Hathaway and JP Morgan. All we know is that
Speaker 1: they're frustrated with the growing costs of providing health care
Speaker 1: for their workers and the complexity around providing health care
Speaker 1: for their workers. This is something that Amazon CEO Jeff
Speaker 1: Bezos and Berkshire Hathaway CEO Warren Buffett, and JP Morgan
Speaker 1: CEO Jamie Diamond have commiserated with uh you know about
Speaker 1: for some time now, um, and now they've decided to
Speaker 1: team up to see what they can do. But beyond
Speaker 1: them teaming up and collaborating, we really don't know how
Speaker 1: far this could go. It could be as simple as
Speaker 1: simply combining their employees and insured you know, estimated to
Speaker 1: be about maybe two and a half million people insured
Speaker 1: by the three companies together, if you include their employees
Speaker 1: and dependence to have you know, just better bargaining power
Speaker 1: in the marketplace. And it could be as complex of
Speaker 1: them actually reaching into the healthcare industry and providing services,
Speaker 1: whether it be UH pharmacy services or urgent care services,
Speaker 1: or even on site healthcare services. So we're really not
Speaker 1: sure how far and deep they're willing to go. Now,
Speaker 1: why do you think Amazon has waited this long to
Speaker 1: do something in the healthcare industry, Well, we know they've
Speaker 1: been interested. At least Jeff Bezos has been interested in
Speaker 1: healthcare for some time. Many years ago, the company actually
Speaker 1: invested in drug store dot Com, which was ultimately purchased
Speaker 1: by Walgreens and and shuttered, But at that time Bezos
Speaker 1: was interested in drug store dot com and pharmacy in
Speaker 1: particular as a gateway to older shop rs. UH. It
Speaker 1: was a time when you know, maybe the fifty plus
Speaker 1: crowd was a little wary of e commerce, wary of
Speaker 1: putting their credit card information online, and saw a more
Speaker 1: convenient pharmacy experiences a way to get them acclimated to
Speaker 1: e commerce. That vision never really materialized, and to this day,
Speaker 1: Amazon's lack of a pharmacy service when you consider them
Speaker 1: getting into groceries and think about all of the big
Speaker 1: box retailers and grocers that have pharmacy options in their
Speaker 1: stores like Walmart and Kroger and Target and Costco. This
Speaker 1: is a disadvantage for them because every time you go
Speaker 1: to or even a CVS or Walgreens, every time you
Speaker 1: go to one of these stores to refill a prescription,
Speaker 1: you have to walk through abundant choices of other retail
Speaker 1: products that you can buy, and and Amazon capitulates those
Speaker 1: purchases to to these pharmacies. But the reason they haven't
Speaker 1: gotten into it is it's very common. Plex is highly regulated,
Speaker 1: and so that differentiates it from their core business of
Speaker 1: selling you know, largely unregulated products online. There there are
Speaker 1: layers of middlemen and government bureaucracy to fight through, which
Speaker 1: would be a new frontier for for Amazon. I think
Speaker 1: this is a good time now to bring in Laura Rosner.
Speaker 1: Laura as a senior economist and partner with Macro Policy
Speaker 1: Perspectives LLC, a research firm in New York. Previously, she
Speaker 1: was a researcher at the Federal Reserve Bank of New York,
Speaker 1: as well as an economist at Barclay's and BNP Power Box.
Speaker 1: She joins us by phone today. Laura, thanks so much
Speaker 1: for coming on our podcast. Hi, thank you very much
Speaker 1: the pleasure. Laura. We've heard Spencer just now talking a
Speaker 1: bit about the healthcare business, about drug prices. You've done
Speaker 1: some research into this area. Can you tell us a
Speaker 1: little bit about how drug prices work, or how healthcare
Speaker 1: prices work, and how someone like Amazon could potentially affect
Speaker 1: change in the sure So, I mean, let's start with
Speaker 1: some context for so for more than a decade, growth
Speaker 1: and healthcare spending has outfaced growth in total GDP, and
Speaker 1: health care inflation has outstripped total inflation in our economy.
Speaker 1: So rising healthcare costs is not something new. I think
Speaker 1: it's combining with changes in demographics and is creating some
Speaker 1: urgency to uh to improve the situation in general. You
Speaker 1: know again, I'm h and let me start over here.
Speaker 1: I mentioned that total health care prices in our our
Speaker 1: economy have been growing faster than overall inflation. Despite that,
Speaker 1: we've seen the differential narrow over the last several years.
Speaker 1: And one reason for that is that the government has
Speaker 1: been taking a more active role in negotiating down healthcare prices,
Speaker 1: both both services and potentially drug prices too. So now
Speaker 1: if we have a new partnership with potentially a private
Speaker 1: sector firms playing a more active role in negotiating down
Speaker 1: those prices, I would think that that could really add
Speaker 1: to some of the disinflationary forces in the economy. Right now, Lord,
Speaker 1: can you tell us a little bit more, I mean,
Speaker 1: how could these companies negotiate prices in the private sector.
Speaker 1: Wouldn't they really need some massive size and scale or
Speaker 1: is that something that you know based on your research,
Speaker 1: they might be able to accomplish. So sure. Let me
Speaker 1: first say when I mentioned the government is using their
Speaker 1: market power to negotiate prices lower. The government can do
Speaker 1: that because it accounts for about thirty seven percent of
Speaker 1: total healthcare expenditures through its Medicare and Medicaid programs, so
Speaker 1: it has a huge footprint and it can set prices
Speaker 1: rather than just take them. Now, the three companies that
Speaker 1: have formed this partnership, they're very large too, but not
Speaker 1: as large as the government, so they'll probably my guests
Speaker 1: is they'll probably look to other ways to increase efficiencies
Speaker 1: and force uh lower prices. And again we know we
Speaker 1: know very little at the at the time, but some
Speaker 1: possibilities are using the dominance of Amazon in e commerce
Speaker 1: to introduce things like comparison shopping to healthcare insurance and
Speaker 1: also prescription drugs. Also just creating electronic marketplace that increases
Speaker 1: transparency and price discovery, also public information about health care services.
Speaker 1: We could see UH it open up the door to
Speaker 1: suppliers to provide services to a broader range of customers,
Speaker 1: um and tying these prices more to supply and demands.
Speaker 1: So a lot of the changes was seeing Amazon already
Speaker 1: implement in other products. Um again, the frequency of price change,
Speaker 1: the data collection, all of this has really disrupted a
Speaker 1: lot of different industries, including textbooks where it started, also apparel.
Speaker 1: Now it's just getting into groceries. So I don't see
Speaker 1: any reason why we couldn't see some of those tactics
Speaker 1: also applied to healthcare, despite some of the hurdles and
Speaker 1: obstacles that were mentioned earlier. And I'll also say, as
Speaker 1: an economics editor, I frequently edit stories about the current
Speaker 1: phenomenon of low inflation, not just in the United States
Speaker 1: but in the global economy, and we've written about how
Speaker 1: Amazon has played a role, or at least some people
Speaker 1: blame Amazon for keeping prices down, which you know, may
Speaker 1: in turn, you know, make global economic growth a little
Speaker 1: more sluggish in this part of the cycle than it
Speaker 1: had been in previous decades. Laura, do you agree with
Speaker 1: that thesis? And as much as holding down healthcare prices
Speaker 1: is a good thing, is that something that could further
Speaker 1: hold down inflation the global economy and keep us talking
Speaker 1: about this topic in years to come. Sure it's a
Speaker 1: great question. So first of all, yes, I think Amazon
Speaker 1: definitely has had an effect on retail pricing and core
Speaker 1: goods inflation. However, we should keep in mind that's only
Speaker 1: a small share of our total inflation goods prices excluding
Speaker 1: food and energy, or only of our total consumer basket. Um.
Speaker 1: So Amazon has had an impact and I would expect
Speaker 1: that impact to continue over time. Another source of the
Speaker 1: disinflation that is related to this partnership but isn't directly
Speaker 1: a consequence of Amazon by any means, is just the
Speaker 1: government and again our nations desire to lower healthcare costs
Speaker 1: across the board. Healthcare is a our share of our economy.
Speaker 1: Healthcare costs has been rising faster than total inflation. The
Speaker 1: said that its inflation target at a time when healthcare
Speaker 1: costs were rising a lot faster. Now they're not, and
Speaker 1: the Amazon partnership looks like it could bring more disruption
Speaker 1: to those prices and maybe even bring them down even further.
Speaker 1: So we're going to see a period where, due to this,
Speaker 1: in part innovation and changes in business models, we're seeing
Speaker 1: less health care inflation, and that's lowering total inflation. It's
Speaker 1: not a sign that the economy is weak. It's not
Speaker 1: a sign that we're losing momentum or that we're near deflation.
Speaker 1: It's just going to make it harder for the FED
Speaker 1: to achieve its inflation target. And it and it says
Speaker 1: that all health equal, the FED can afford to be
Speaker 1: a little more patient and normalizing its policy in order
Speaker 1: to get overall inflation up to that two percent level.
Speaker 1: And we're talking just after the stock market has undergone
Speaker 1: a pretty steep drop, and you know, partly on fears
Speaker 1: that the Fed was going to race rates faster because
Speaker 1: inflation was rising, because wages were rising a little faster.
Speaker 1: So this, all things being equal, would lean a little
Speaker 1: bit against the narrative of inflation rising at a faster
Speaker 1: pace than the FED having to raise rates. Right absolutely.
Speaker 1: In fact, I really think the market is going to
Speaker 1: be disappointed if it's looking for an acceleration and inflation.
Speaker 1: There are a lot of forces that will likely keep
Speaker 1: inflation lower this expansion, even as we move towards the later,
Speaker 1: the later phases of this expansion, Even if we see
Speaker 1: actual weakness in the stock market and tightness in the
Speaker 1: labor market, there are forces such as technology such as healthcare,
Speaker 1: that are lowering inflation, depressing it relative to where it
Speaker 1: should be given where we are in the cycle, and
Speaker 1: and I think ultimately the market will be a little
Speaker 1: disappointed when inflation comes in more muted. Again, it's not
Speaker 1: a bad thing. I think any central banker would love
Speaker 1: to have, you know, the puzzle of pretty low, stable
Speaker 1: inflation and a tight labor market and a booming economy.
Speaker 1: Those are that's a great problem to have. A lot
Speaker 1: of people would like to have that problem. But let's
Speaker 1: talk a little bit more about Jeff Bezos and what
Speaker 1: he wants. I want to go back to Spencer again.
Speaker 1: I know you said that the details are kind of
Speaker 1: scant on this partnership. Bezos is working with Buffett and
Speaker 1: Diamond on this new venture. But knowing Jeff Bezos and
Speaker 1: how he gets into a business and disrupts it, takes
Speaker 1: it over. Is Jeff Bezos looking for anything less than
Speaker 1: some kind of total domination in the healthcare industry? Spencer,
Speaker 1: I don't know about total domination, but definitely increased efficiency,
Speaker 1: lower prices, and greater selection. When you think about healthcare,
Speaker 1: if you're in an employer sponsored plan, which much of
Speaker 1: the country is, your choices are locked in. And Amazon's
Speaker 1: entire business model has been giving customers the most abundant
Speaker 1: inventory at affordable prices with the greatest convenience. And so
Speaker 1: you can think of any number of friction points in
Speaker 1: your experience that they'll be targeting. They'll be looking at
Speaker 1: any inefficiency, looking at eliminating middlemen. Um and Laura mentioned earlier,
Speaker 1: just this notion of transparency, that's something that Amazon really
Speaker 1: brought to retail goods with where people are even show
Speaker 1: rooming on their smartphones. You know, you're in the aisle
Speaker 1: of target looking at a product and you can check
Speaker 1: on your phone to see if you get a better
Speaker 1: deal from Amazon. This notion of price transparency that they
Speaker 1: brought to the retail world is really absent in healthcare,
Speaker 1: where you basically get a prescription, go to a pharmacy,
Speaker 1: show him your health plan, and and pay what you're
Speaker 1: told you're you're you're pretty much locked in. And so
Speaker 1: if there are there are a number of opportunities that
Speaker 1: they'll be looking for to increase consumer choice, eliminate inefficiencies,
Speaker 1: and and and lower prices. Now, Spencer, they also said
Speaker 1: that they're going to do this through an independent company
Speaker 1: that's free from profit making incentives and constraints. How does
Speaker 1: that jibe with Amazon's philosophy. Jeff Bezos is desired to
Speaker 1: also give shareholders profits, and you know same for Buffet
Speaker 1: and Time and as well well. Bezos isn't really known
Speaker 1: for giving shareholders profits, so it aligns with his strategy.
Speaker 1: That's where there may be some tension with UH, with
Speaker 1: his partner C. E O S and his venture, but
Speaker 1: he has a famous saying, your margin is my opportunity.
Speaker 1: And so if you look at the double digit off
Speaker 1: at margins of the insurance industry, you know that's certainly
Speaker 1: a place where where they're going to be looking for
Speaker 1: some fat that that can be trimmed. And Laura, that
Speaker 1: same thing would hold for inflation. If you're looking to
Speaker 1: reduce profit margins, if you don't have that kind of
Speaker 1: margin pressure, that's something else that's probably going to be
Speaker 1: weighing on prices, right, Yeah, I would expect So I
Speaker 1: think I think again, if you look at the examples
Speaker 1: in the retail industry, apparel, appliances, digital textbooks, I mean,
Speaker 1: there are a lot of examples of where technology has
Speaker 1: reduced inflation rates, not just the price level, but actually
Speaker 1: it's changed price setting behavior. And I think that there's
Speaker 1: scope and it will be interesting to see how this
Speaker 1: partnership UH evolves in what what implications it has for
Speaker 1: this much larger share of the consumer basket, which is healthcare. Well,
Speaker 1: twenty years ago, I'm not sure most of us could
Speaker 1: have envisioned how Amazon would be part of our daily
Speaker 1: lives today, and I'm sure we're going to be saying
Speaker 1: something similar to twenty years from now. Laura Rosner, Spencer Soaper,
Speaker 1: thank you so much for joining us on Benchmark today.
Speaker 1: Thank you. Benchmark will be back next week. Until then,
Speaker 1: you can find us on the Bloomberg terminal, Bloomberg dot com,
Speaker 1: or Bloomberg app, as well as wherever you enjoy podcasts,
Speaker 1: including Apple Podcasts, Bloombercast and Stitcher. Please take the time
Speaker 1: to rate and review the show while you're there, and
Speaker 1: you can also find us on Twitter. You can follow
Speaker 1: me at at scott Landman and Spencer. Your handle is
Speaker 1: at Spencer Soaper. Benchmark is produced by tofor for HEAs
Speaker 1: the head of Bloomberg Podcasts is Francesca Leaving. Thanks for listening.
Speaker 1: See you next time. Stat Paper or a boy