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BRK/JPM/AMZN healthcare tie up


petec
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WOW. Buffett and Munger have always stated that healthcare is too bug a problem to crack, when asked at the annual meeting, and then Munger talks about chairing a community hospital as a form of penance for his extreme good fortune.

 

Someone from Amazon must have brought the blueprint for something exceptional

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This is great news.

 

What analysts describe as a relative disadvantage (new player with a yet undefined vision) may be one of its greatest entrepreneurial strengths.

 

The idea of starting with a cash flow negative pilot project makes sense before a scalable model is deployed.

 

Healthcare is based on science but its delivery is far from scientific. Just comparing regional variations would meet the definition of haphazard. A lot of what is considered “complex” could be simplified with the introduction of efficiency and discipline.

 

The timing is excellent as true “reform” will likely take precedence over idleness factors.

 

It appears that there is great potential to increase quality and satisfaction (patient, provider, insurer) AND to decrease cost. If that is achievable, the “profit” can be shared.

 

Creative destruction at work. Bring it on.

 

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I know that Warren has a LOT of respect for Bezos, and both him and Charlie hold him in high regard. I'm sure Warren said that Bezos was the best businessman of his generation, or the last two decades, or some other sort of high praise like that.

 

It will be interesting to see what comes of it. Living in the UK with our free National Health Service, it paints a huge contrast to healthcare in the USA. I love the US, but healthcare for the less fortunate isn't one of its strong points.

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Great to see this. After all, Berkshire is a heavily American business, the17% healthcare inflation is the"tapeworm" Buffett talks about.

 

My wife is a healthcare worker for30 years and even seen from her perspective, the healthcare system is coming apart. 

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I have to agree with longinvestor & rb here,

 

What's the basis for this platform with regard to headcount?

 

Berkshire: 367,671 [berkshire Annual Report 2016, p. 116, - add to that at least the employees at Flying J]

Amazon: ? [i don't know, and I don't bother to look it up - please fill in.]

JP Morgan Chase & Co.: ? [i don't know, and I don't bother to look it up - please fill in.]

 

- - - o 0 o - - -

 

It's a lot.

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Between the three of them they'll probably have 1 million policies covering 2-2.5 million people. It's a lot.

 

Now for the what ifs. What if other companies join? Off the top of my head Wells Fargo, Coca-Cola (with it's bottlers), and American Express. If Wells joins all the majour banks will have to join as well. We're talking about a lot of people here.

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Interesting to note that Mr. Buffett and Mr. Munger have been unusually vocal concerning the financing aspect of healthcare and seem to back a single-payer system.

 

But the internal focus will initially be on the health benefit cost per employee aspect in a way perhaps that is related to how 3G capital would look at every step along the way to cut cost. The bottom line would include the value that the employee would perceive as the end result in terms of health benefits. Friction expected along the way but a potential win-win.

 

And then, the model could be expanded, whoever pays the bill at the end of the line.

 

 

 

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What's the basis for this platform with regard to headcount?

 

Berkshire: 367,671 [berkshire Annual Report 2016, p. 116, - add to that at least the employees at Flying J]

Amazon: ? [i don't know, and I don't bother to look it up - please fill in.]

JP Morgan Chase & Co.: ? [i don't know, and I don't bother to look it up - please fill in.]

 

Amazon: 541,900

http://money.cnn.com/2017/10/26/technology/business/amazon-earnings/index.html

 

JPM: 240,000

https://www.jpmorganchase.com/corporate/About-JPMC/about-us.htm

 

Combined: 1,150,000

 

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The demographic of this 2MM people and their health profile is probably very desirable too.  What works within this small group may not work for the population at large.  Will they be covering retirees?  How do they draw the line of who qualifies, and what is covered, and how are they covered, etc., etc.  There's no doubt this will be great for these three companies.  How does it impact the overall healthcare system in the US?  We'll find out. 

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"How does it impact the overall healthcare system in the US?  We'll find out."  We will indeed.

 

The intent is long term but the short term focus will be on the cost/quality curve for their own employees. Private firms have had the option of outsourcing the health care benefit management. The decision is becoming more costly and it appears more and more to be a poor value proposition.

 

For those interested in comparing their own premiums with averages, here's an interesting link:

  https://www.kff.org/interactive/premiums-and-worker-contributions/#/

 

The "premium" is the total cost and you can adjust the graph for single/family status and can "compare" with employee contribution which is a fraction of total cost.

Interesting to note that the total cost, even if the trend has somewhat improved comparing to the 1980's-90's period, continues to grow at relatively high rates.

Also interesting to remember that rising health costs have been only one of the few items keeping CPI above zero in our (still) largely disinflationary world.

 

The "big three" announcement has been met with some doubts: "The new company will have to align itself with main industry players". Helpful to remember that many previous attempts have failed but, lately, many similar endeavors are coming to life. Intel has made some regional progress on this front. Also, in 2016, many self-insured employers (including American Express, BNSF, Coca-Cola, Verizon...) have formed the Health Transformation Alliance. The essence of these initiatives, at this point, is to "cooperate" and gain scale/leverage. So far, these groups show some promise but have not been able (so far) to address the fundamental cost drivers of unnecessary care and avoidable complications.

 

In a way, health care is a puzzle of components that are essentially commoditized. The way the incentives are set up, at this point, prevents competition and the associated downward pressure on prices as ill-defined collusion forces make prices "sticky". Also, over the years the third-party "shield" (on a net basis, obviously not the case if you have to deal with higher deductibles and higher co-payments) has become larger, delaying the impetus for significant reform as many participants tend to think that there is a free lunch somehow. The new "project" spearheaded by Amazon likely will target the whole supply chain.

 

Some analysts have mentioned that the fear of healthcare disruption will have to be reconciled with today's reality. The treatment of a tapeworm infection rests on the necessity to evacuate it. But first, you have to put it to sleep.

 

 

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"Amazon seems like a nice elephant."

I'm not sure what you mean? Are you referring to the elephant acquisitions that Mr. Buffett talks about?

 

If that's the case, maybe there is something to learn.

 

My understanding is that Mr. Buffett always carries his loaded elephant gun but is known to have said that he enjoyed shooting fish in a barrel.

He does not seem to use an enterprise value to revenue ratio as a selection criteria.

 

In many ways, what Amazon has accomplished in the last 20 years is nothing short of extraordinary. I submit though that it is priced now for more of the same.

 

Here is a link that I read earlier today that is superficial and sensational in nature but that nonetheless helps to put things in perspective:

https://thefelderreport.com/2018/01/31/amazon-adds-a-mcdonalds-in-market-cap-in-the-month-of-january/

 

Funny because there may be some interesting parallels between Jeff Bezos and Ray Kroc.

 

 

 

 

 

 

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"Amazon seems like a nice elephant."

I'm not sure what you mean? Are you referring to the elephant acquisitions that Mr. Buffett talks about?

 

If that's the case, maybe there is something to learn.

 

My understanding is that Mr. Buffett always carries his loaded elephant gun but is known to have said that he enjoyed shooting fish in a barrel.

He does not seem to use an enterprise value to revenue ratio as a selection criteria.

 

In many ways, what Amazon has accomplished in the last 20 years is nothing short of extraordinary. I submit though that it is priced now for more of the same.

 

Here is a link that I read earlier today that is superficial and sensational in nature but that nonetheless helps to put things in perspective:

https://thefelderreport.com/2018/01/31/amazon-adds-a-mcdonalds-in-market-cap-in-the-month-of-january/

 

Funny because there may be some interesting parallels between Jeff Bezos and Ray Kroc.

 

Yes, and I meant it half jokingly.

 

I was imagining WEB & JB sitting down in Gorat's, with Bezos pitching him the healthcare idea, and Buffett saying "you know what, you'd have a lot more time to crush this idea, if you didn't have to do SEC filings & analyst calls."

 

The joking half was, of course, due to the the seemingly crazy valuation, and the huge leverage they'd probably have to take on to swallow Amazon.

 

Everyone here knows that I'm not a balance sheet ninja, and instead, am a story guy (this will undoubtedly bite me some day.)

 

I just love the concept of how BRK has freed up so many execs to run their businesses & re-allocate divs to capex (I know, no divs to re-allocate at Amazon, just having fun riffing on an idea here.)

 

---

 

I don't know much about Kroc, other than what was included in the movie "the Founder."

I'd guess that innovative processes and a relentless drive would be the main things the two men share in common.

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"Amazon seems like a nice elephant."

I'm not sure what you mean? Are you referring to the elephant acquisitions that Mr. Buffett talks about?

 

If that's the case, maybe there is something to learn.

 

My understanding is that Mr. Buffett always carries his loaded elephant gun but is known to have said that he enjoyed shooting fish in a barrel.

He does not seem to use an enterprise value to revenue ratio as a selection criteria.

 

In many ways, what Amazon has accomplished in the last 20 years is nothing short of extraordinary. I submit though that it is priced now for more of the same.

 

Here is a link that I read earlier today that is superficial and sensational in nature but that nonetheless helps to put things in perspective:

https://thefelderreport.com/2018/01/31/amazon-adds-a-mcdonalds-in-market-cap-in-the-month-of-january/

 

Funny because there may be some interesting parallels between Jeff Bezos and Ray Kroc.

 

Yes, and I meant it half jokingly.

 

I was imagining WEB & JB sitting down in Gorat's, with Bezos pitching him the healthcare idea, and Buffett saying "you know what, you'd have a lot more time to crush this idea, if you didn't have to do SEC filings & analyst calls."

 

The joking half was, of course, due to the the seemingly crazy valuation, and the huge leverage they'd probably have to take on to swallow Amazon.

 

Everyone here knows that I'm not a balance sheet ninja, and instead, am a story guy (this will undoubtedly bite me some day.)

 

I just love the concept of how BRK has freed up so many execs to run their businesses & re-allocate divs to capex (I know, no divs to re-allocate at Amazon, just having fun riffing on an idea here.)

 

---

 

I don't know much about Kroc, other than what was included in the movie "the Founder."

I'd guess that innovative processes and a relentless drive would be the main things the two men share in common.

 

Invert.  With Amazon growing so fast it will soon be able to swallow BRK.  WEB can retire and with Bezos at the helm all of Berkshire's cash can be used to grow Amazon instead of being allocated to buying companies.

 

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"Amazon seems like a nice elephant."

I'm not sure what you mean? Are you referring to the elephant acquisitions that Mr. Buffett talks about?

 

If that's the case, maybe there is something to learn.

 

My understanding is that Mr. Buffett always carries his loaded elephant gun but is known to have said that he enjoyed shooting fish in a barrel.

He does not seem to use an enterprise value to revenue ratio as a selection criteria.

 

In many ways, what Amazon has accomplished in the last 20 years is nothing short of extraordinary. I submit though that it is priced now for more of the same.

 

Here is a link that I read earlier today that is superficial and sensational in nature but that nonetheless helps to put things in perspective:

https://thefelderreport.com/2018/01/31/amazon-adds-a-mcdonalds-in-market-cap-in-the-month-of-january/

 

Funny because there may be some interesting parallels between Jeff Bezos and Ray Kroc.

 

Yes, and I meant it half jokingly.

 

I was imagining WEB & JB sitting down in Gorat's, with Bezos pitching him the healthcare idea, and Buffett saying "you know what, you'd have a lot more time to crush this idea, if you didn't have to do SEC filings & analyst calls."

 

The joking half was, of course, due to the the seemingly crazy valuation, and the huge leverage they'd probably have to take on to swallow Amazon.

 

Everyone here knows that I'm not a balance sheet ninja, and instead, am a story guy (this will undoubtedly bite me some day.)

 

I just love the concept of how BRK has freed up so many execs to run their businesses & re-allocate divs to capex (I know, no divs to re-allocate at Amazon, just having fun riffing on an idea here.)

 

---

 

I don't know much about Kroc, other than what was included in the movie "the Founder."

I'd guess that innovative processes and a relentless drive would be the main things the two men share in common.

 

Invert.  With Amazon growing so fast it will soon be able to swallow BRK.  WEB can retire and with Bezos at the helm all of Berkshire's cash can be used to grow Amazon instead of being allocated to buying companies.

 

Bam!

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... I don't know much about Kroc, other than what was included in the movie "the Founder."

I'd guess that innovative processes and a relentless drive would be the main things the two men share in common. ...

 

To me, a pretty accurate - and short - description from you about what these two men have in common, DooDiligence.

 

Thank you to villainx and Cigarbutt for bringing this up about Mr. Buffett's thoughts about compensation for the next Berkshire CEO. That has skipped my attention.

 

Cigarbutt, somehow, I like the concept of shooting fish in a barrel with an elephant gun!

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One of the things I admire most about Mr. Buffett is his unique ability to act rationally, whatever the circumstances.

On the question of spotting opportunities, making "stupid" mistakes and buying stocks after significant price appreciation: "We've done it before".

Now, he is sitting on a pile and as far as I know, he hasn't pulled the trigger.

It is fair to say that BH would not bet against Amazon but they also would not invest in it at this point.

I think that represents a reasonable position.

https://www.cnbc.com/2017/05/08/warren-buffetts-one-word-answer-for-why-he-hasnt-purchased-amazon-shares.html

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Berkshire Website Announcement [2018.01.30].

 

After reading it carefully, I speculate, that is an idea shared between [Mr. Dimon and Mr. Combs] and Mr. Bezos, without having any idea about who initiated the contact.

 

Somehow one get the feeling from the announcement, that Mr. Buffett must have said to Mr. Combs something like "It's "your idea" [in the meaning : "It's your idea" or "You came to me with the idea"], so you do it.".

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Somehow I personally consider this initiative an employer-owned PBM, that will be running on some kind of non-profit basis.

 

Attached is a part of note 1 from Novo Nordisk Annual report 2017 released yesterday. It's ludicrous. Gross sales af DKK 216 B, net sales of DKK 112 B, US rebates etc. alone of DKK 100 B.

 

Novo Nordisk diabetes US market share 39 percent. Very rough calculation of total potential savings [with a lot of short cuts with regard to not taking NVO product mix etc. into consideration], here assuming without diabetes pharmas earnings affected: Savings potential for diabetes alone ~ DKK 100B / 39 percent minus J/V internal operation costs ~ DKK 256 B minus J/V internal operation costs ~ USD 43 B minus J/V internal operation costs.

 

What US politics haven't been able to fix so far, will eventually be fixed by Corporate America.

NVO_-_Gross_to_Net_Sales_Reconciation_2017_-_20180208.PNG.0e6e3a6acad12038a826868a70aeabd1.PNG

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