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Amazon's entry into health care could ramp up competition in Pittsburgh

| Tuesday, Jan. 30, 2018, 2:54 p.m.
The UPMC sign sits atop the U.S. Steel Tower in downtown Pittsburgh on Jan. 11, 2018.
Nate Smallwood | Tribune-Review
The UPMC sign sits atop the U.S. Steel Tower in downtown Pittsburgh on Jan. 11, 2018.

Barely three months ago, UPMC vowed to become the “Amazon of health care.”

But is Amazon beating the health giant to the punch?

The announcement Tuesday by Amazon, JPMorgan Chase and Berkshire Hathaway on plans to create a company to help workers get health care at reasonable costs has the potential to change hospital stays and possibly how a pill is delivered to a patient.

And that could eventually mean lower health care costs for the Greater Pittsburgh region.

“The ballooning costs of (health care) act as a hungry tapeworm on the American economy,” said Warren Buffett, the billionaire investor and CEO of Berkshire Hathaway, in a statement announcing the new company. “Our group does not come to this problem with answers. But, we also do not accept it as inevitable. Rather, we share the belief that putting our collective resources behind the country's best talent can, in time, check the rise in health costs while concurrently enhancing patient safety and outcomes.”

James McTiernan, area vice pres­ident of Gallagher Benefit Services Inc., a downtown Pittsburgh insurance health benefit company, said the venture has the potential to streamline health care delivery.

“It's exciting,” he said. “The way to access goods and services is changing dramatically.”

The three companies did not provide details of their plan, and whether it involves providing health insurance or building actual hospitals to provide care.

All they said was their company will be independent and “free from profit-making incentives and constraints.” Plus, the new company's initial focus would be on technology, which could mean streamlining.

Amesh Adalja, a physician who works in the Pittsburgh market, said he welcomes the partnership and views it as a positive alliance.

“Amazon changed the traditional book-selling market,” said Adalja, adding that the venture could increase innovation in health care.

“It could allow health care to benefit from the digital revolution,” he said.

Stephen Foreman, associate professor of Health Care Administration at Robert Morris University, said it is unclear what this will mean for Pittsburgh and the rest of Western Pennsylvania, where UPMC and Allegheny Health Network dominate the market.

“The industry has evolved to where it is for a reason,” said Foreman, who has been involved in the health care field for 40 years. “You have to give them a lot of credit for concentrating on the health care problem.”

Foreman doesn't expect UPMC or Alle­gheny Health Network to have much of a reaction — at this point.

“It's going to have to be large companies who are willing to innovate,” Foreman said.

“They are too busy going after each other,” he said. “Until someone has an idea of what this venture means, I have no theories.”

“But, if Amazon can make drone delivery work, then perhaps,” Foreman said.

UPMC, which recorded $14 billion in revenue in 2016, did not provide a person who could comment on what the three companies are doing.

In November, Jeffrey Romoff, UPMC's president and CEO, announced plans to construct three specialty hospitals at a cost of $2 billion. During that announcement, Romoff said, “UPMC desires to be the Amazon of health care.”

Allegheny Health Network and Highmark Health also announced plans last fall for a $700 million expansion plan to build a new hospital in Pine and four smaller hospitals, including one in Hempfield and the others at undisclosed locations throughout the region.

“The announcement today outlines a concept and suggests how these employers are taking a more active role in their health care,” said Aaron Billger, a Highmark spokesman. “At Highmark, we see all-size employers actively engaged in their employee benefits. We have robust collaborations to work with employers to manage their costs and deliver customized solutions for their employees.”

The joint effort between the three companies is still in the early planning stages, but it will be spearheaded by Todd Combs, an investment officer of Berkshire Hathaway; Marvelle Sullivan Berchtold, managing director of JP Morgan Chase, one of the largest banks in the United States; and Beth Galetti, an Amazon senior vice president, according to a statement on JPMorgan's website.

Pittsburgh is one of 20 cities or regions still in the running for Amazon's second headquarters. As many as 50,000 high-paying jobs and $5 billion in investment are at stake.

Suzanne Elliott is a Tribune-Review staff writer. Reach her at selliott@tribweb.com or via Twitter @41Suzanne.

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