Why Walgreens Boots Alliance Fell 5% Today

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What happened

After Amazon.com (NASDAQ: AMZN), Berkshire Hathaway (NYSE: BRK-A)(NYSE: BRK-B), and JPMorgan Chase (NYSE: JPM) announced that they're teaming up to find ways to revolutionize healthcare, shares of Walgreens Boots Alliance (NASDAQ: WBA) dropped 5.2% at 11:00 a.m. EST.

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So what

Walgreens Boots Alliance is a giant in pharmacy retail. It also manages prescription plans for others and offers in-store healthcare services. Its sales total in the tens of billions of dollars annually, and the company became even bigger recently when it agreed to acquire roughly 2,000 stores from Rite Aid (NYSE: RAD), the nation's third-largest retail pharmacy chain.

Clearly, Walgreens Boots Alliance is deeply entwined in the current healthcare system, and that perhaps puts it in the crosshairs of Amazon.com, Berkshire Hathaway, and JPMorgan Chase's newly formed joint venture.

Amazon, Berkshire Hathaway, and JPMorgan Chase plan to combine their experience in technology, insurance, and finance to disrupt healthcare to deliver "simplified, high-quality and transparent healthcare at a reasonable cost." The companies haven't specifically said how they plan to achieve that auspicious goal, but Amazon's been long rumored to have an interest in the pharmacy business, and each of these companies has vast resources that can be leveraged to reshape how patients access and pay for medicine.

Now what

Longer-living baby boomers are driving healthcare demand higher and drugmakers are achieving breakthroughs in treatment at a record-setting pace. As a result, the Centers for Medicare and Medicaid Services estimates that U.S. healthcare spending will increase from about 18% of gross domestic product today to nearly 20% by 2025.

Reining in climbing healthcare costs is an important challenge and so far, the country's had limited success. Despite a slowing in healthcare spending growth recently, healthcare costs are still increasing faster than inflation, and rising drug costs are one reason why. According to the CMS, drug costs represent 10% of U.S. healthcare spending, or more than $300 billion annually.

It's anyone's guess if Amazon, Berkshire Hathaway, and JPMorgan Chase can move the needle on drug costs, but if they do it in a way that circumvents retail pharmacy stores, then Walgreens Boots Alliance's sales could suffer.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Todd Campbell owns shares of Amazon. His clients may have positions in the companies mentioned. The Motley Fool owns shares of and recommends Amazon and Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

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