There is big news today regarding the healthcare sector, and we aren't referring to the better than expected earnings reports from Aetna (AET) and Pfizer (PFE).
The irony is that the big news doesn't even come from a healthcare company. Rather, it comes from JPMorgan Chase (JPM), Amazon.com (AMZN), and Berkshire Hathaway (BRK.B), which have launched an initiative to tackle the rising cost of healthcare for their U.S. employees.
Those three companies are going to be partnering to form an independent company whose aim is to improve employee satisfaction and to reduce costs. The kicker for the healthcare sector is that this company is going to be "free from profit-making incentives and constraints."
The latter is a warning shot to investors in other healthcare companies that profit margins are at risk of compression. That concern isn't stemming so much from the partnership of these three companies, which employ close to 1 million people combined, but rather from the idea that other companies could also take up the model being pursued by these three companies.
There weren't a lot of details about the formation of the independent company. It was simply said that the initial focus will be on technology solutions that allow for simplified, high-quality and transparent healthcare at a reasonable cost.
However, with quotes in the press release from Warren Buffet, who said "The ballooning costs of healthcare act as a hungry tapeworm on the American economy," Jeff Bezos, who described the healthcare system as "complex," and Jamie Dimon, who said the goal is to create solutions that benefit the company's employees and, potentially, "all Americans," there is no mistaking the fact that this initiative is for real and will be an industry disruptor at some point.
The press release conceded that this endeavor is "in its early planning stages," so don't expect its disruptive intent to hit the income statements of other healthcare-related companies soon. Nevertheless, today's news, and its longer-term implications for the healthcare sector, is hitting many healthcare stocks now.
Aetna (AET) is down 3.0% in pre-market trading; UnitedHealth (UNH) is down 6.8%; Cigna (CI) is down 5.3%; Anthem (ANTM) is down 7.0%; Humana (HUM) is down 4.9%; CVS Health (CVS) is down 5.8%; Walgreens Boots Alliance (WBA) is down 3.7%; Merck (MRK) is down 1.0%; and Pfizer (PFE) is down 1.6%.
The Health Care Select Sector SPDR ETF (XLV), meanwhile, is down 2.0%.