Alexa, build me a venture.

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February 05, 2018

What you missed in the Amazon, Berkshire Hathaway, and JPMorgan healthcare announcement.

ICYMI, last week, Amazon, Berkshire Hathaway, and JP Morgan announced they were teaming up to launch a new Healthcare company. They’ll be developing “technology solutions that will provide U.S. employees and their families with simplified, high-quality and transparent healthcare at a reasonable cost.”

The internet (and the stock prices of America’s biggest health insurance providers) reacted. Strongly.

And then came the speculation:

Are they starting with health insurance needs for their own employees? Are they building out infrastructure and interfaces for healthcare suppliers? Are they creating and selling a new type of insurance? Are they doubling down on non-taxable Health Spending Accounts (HSA’s)? Are they doing all the above?

But by jumping ahead to the what-if scenarios, we’re missing the most significant part of the announcement.

The three companies, which bring their scale and complementary expertise to this long-term effort, will pursue this objective through an independent company that is free from profit-making incentives and constraints.

In other words: they’re launching a startup.

A startup with deep pockets, unparalleled industry expertise, and access to the kinds of data and partnerships that founders dream of.

The practice of launching a net new company in partnership with other corporations (or “new venture co-creation”) isn’t new. This is one of the biggest announcements of it’s kind that we’ve seen in a while.

Until Alexa starts prompting you to top up your HSA, the independent structure of this venture is the most significant part of this announcement. Here’s why:

Independence shelters the team from company and shareholder priorities

Capturing more of the healthcare market by improving service isn’t a new idea. It’s a drool-worthy market: healthcare costs make up a tenth of any country’s GDP on average, or $7 trillion in 2017. But to date, the impact hasn’t gone far beyond cloud-computing services for existing providers, easier data interfaces, or the odd wearable or two.

This process has been slowed, no doubt, by executive and stakeholder priorities. Focus on quarterly growth and revenue targets doesn’t exactly drive decisions that lead to truly disruptive new technology.

Selling a complementary device like the Apple Watch, adding a new feature like HealthKit, or selling existing products like cloud services into a new market are things investors and executives can get behind.

But building and selling a radically new product? Into an unfamiliar market? Through channels that quite possible haven’t even been invented yet? Most boards would balk at that.

By setting up “an independent company that is free from profit-making incentives and constraints”, the three are preventing executive and investor behaviour from being the stumbling block that trips up the new venture before it even gets off the ground.

Independence reduces the regulatory burden on the NewCo

From FDA requirements to HIPAA compliance to the Affordable Care Act, healthcare comes with a barrage of regulations. Learning to navigate the complex compliance waters of the healthcare industry is something all healthtech startups face. Though many struggle to do so, it comes with the territory. You learn to do it, or you go under.

But if you add the regulatory requirements that any of Amazon, Berkshire Hathaway, and JPMorgan face in their respective industries? Suddenly, you need a compliance team for your compliance team. While any of the three partners could have, in theory, created their own new division or subsidiary to explore the healthcare space, that team would have faced the dual burden of existing and new regulation

The resulting slow down while lawyers and regulators crossed the T’s and dotted the I’s would have been all the advantage that upstart competitors would need to get the upper hand.

(Remember, 2017 saw an all-time high in digital health funding. There are a lot of hungry and, now, well-funded companies jockeying for position in the space).

Without ownership details, it’s hard to say for sure the extent to which the regulations that govern the three do, or don’t apply to this new company.  But it’s a safe bet that by creating a fourth, independent entity, the three are relieving the new venture of as much of the regulatory burden as possible.

With Amazon’s domain knowledge of interfaces and customer experience, Berkshire’s expertise in insurance through their ownership of Gen Re insurance, and JPMorgan’s experience with financial instruments like Health Savings accounts, the new company certainly has the combined expertise to make it where others have failed – no matter the structure.

Will this new company act like most other startups? Or is this structure something new altogether?

Only time will tell. But with an independent structure, it’s being given the best possible shot at success.

Watch this space – we sure are.

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