Amazon.Com Inc. (NASDAQ:AMZN) accelerated the crash of the health care market on Jan. 30 by announcing an alliance with Berkshire Hathaway Inc. (NYSE:BRK.A) and JP Morgan Chase & Co. (NYSE:JPM) aimed at the health insurance space. This might be the test about whether AMZN stock is bulletproof.

Health insurer UnitedHealth Group Inc (NYSE:UNH) dropped 4.35%. Drug company Pfizer Inc. (NYSE:PFE) lost 3.3%. Pharmacist CVS Health Corp (NYSE:CVS) lost 4.14%. Medicare provider Centene Corp (NYSE:CNC) fell 2.32%. The one-day loss of market cap was estimated at $30 billion. 

Bloomberg’s story assuming success reminded this writer of Grant’s quote about Robert E. Lee. “Some of you always seem to think he is suddenly going to turn a double somersault, and land in our rear and on both of our flanks at the same time.”

Believe it or not, AMZN stock can fail.

Vertical Integration with AMZN Stock

If Amazon wants to take over health care, it’s going to have to buy some of the vertical integration Centene, United Healthcare and CVS already enjoy.

Centene owns facilities that provide care, handles its own drug disbursement, and has agreements with hospitals that give it control over costs. United Healthcare owns its own Pharmacy Benefit Manager, which is why CVS is buying Aetna Inc (NYSE:AET), connecting insurance income to its drug outgo.

Cost control is making health insurance great again. On Jan. 30 Aetna reported profits of $244 million, 74 cents per share, for the December quarter, up 75% from the $139 million or 39 cents per share it reported a year earlier.

The combination of CVS and Aetna will not only have visibility into drug costs, but front-line care as well, through CVS’ Minute Clinics.

Aetna opened for trade Jan. 31 at $188 per share, after agreeing to be purchased by CVS last month for $205 per share, including $62 per share in stock that has since risen in value almost 7%.

AMZN Stock Implications

The biggest driver of health care costs is non-compliance.

Patients don’t comply with doctor orders to exercise, eat well, stop smoking and cut back on the alcohol. As a result, chronic, preventable diseases like diabetes represent 75% of the nation’s health care bill.

Doctors resist best practices and some of their practices turn into rackets, costing tens of billions each year. 

Drug industry mergers have driven costs of even generic drugs so high that hospitals are uniting to make their own. 

Hospitals are creating local monopolies that jack up prices. It’s why rural consumers often pay much more for health insurance than those in urban areas.

All these moves are, technically, subject to disruption through vertical integration. The combination of Morgan, Berkshire and Amazon represent $1.6 trillion in market cap, and could cause significant disruption to all these cozy arrangements.

But it’s not going to be easy. Assuming a company that can’t keep grapefruits on a shelf is going to fly in and upend the entire health care space tomorrow is a big mistake.

The Bottom Line on AMZN Stock

Amazon, Berkshire and JP Morgan have not yet announced anything concrete, and technology alone won’t solve the problem of rising health care costs.

What it takes is someone with the power to say no. No to hospitals and doctors that inflate bills. No to drug companies that try to charge based on the value of a patient’s life. Most especially, no to patients who think they can eat, smoke, and drink all we want and get someone else to foot the bill after the inevitable crash.

The three say they want to focus on “technology solutions that will provide U.S. employees and their families with simplified, high-quality and transparent healthcare at a reasonable cost.” That may not mean competing with Aetna or United Healthcare at all, just supporting their efforts at cost control.

Those AMZN stock investors who panicked over this deal are going to be the biggest losers.

Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN.