Triple Threat: Amazon, Berkshire, JPMorgan Rattle Health-Care Firm

By FeaturesDow Jones Newswires

Amazon.com Inc., Berkshire Hathaway Inc. and JPMorgan Chase & Co. shook up shares of health-care companies with a plan to form a company to reduce their workers' health costs, spurring alarm over potential competitive pressure.

The companies said the venture would be "free from profit-making incentives and constraints" and would develop technological solutions to provide simplified, high-quality health care for their hundreds of thousands of U.S. workers, but they offered few other details.

Continue Reading Below

"The ballooning costs of healthcare act as a hungry tapeworm on the American economy," Berkshire Chairman and Chief Executive Warren Buffett said in a statement. The companies, he said, believe "putting our collective resources behind the country's best talent can, in time, check the rise in health costs while concurrently enhancing patient satisfaction and outcomes."

Plans are still evolving and nothing has been decided beyond forming a company and moving ahead, according to people with knowledge of the matter. At one stage, there was discussion among some people about taking over administration of employees' pharmacy benefits and health-insurance benefits from the companies' current insurers and PBMs, according to a document from December viewed by The Wall Street Journal. But the document was an initial proposal and that idea isn't currently on the table, the people said.

The December document also took aim at some of the industry's middlemen, saying that past efforts to address health-costs didn't work "because they conceded the existence and role of intermediaries (PBMs, insurance administrators, wholesale distributors and pharmacies) which have a vested interest in maintaining the status quo." One person with knowledge of the matter said the focus now is on helping the current vendors work better, not replacing them.

Even with little detail available, the plan's potential threat to existing industries spooked investors and sent shares of insurers and PBMs lower Tuesday. Amazon had earlier triggered concerns in the health-care industry, with its ambitions a factor last year in CVS Health Corp.'s $69 billion bid for insurance giant Aetna Inc.

Amazon has been eyeing an entry into the pharmacy-services industry and has added health-care supply options to its business-to-business marketplace offering.

Together, Amazon, Berkshire and JPMorgan have more than one million employees, though not all of them in the U.S. The initiative is "undefined, but the resources of the three companies are enormous," said Matthew Borsch, an analyst with BMO Capital Markets.

Mr. Buffett, JPMorgan CEO James Dimon and Amazon Chief Jeff Bezos have known one another for years and have been talking about this idea formally and informally, according to people familiar with the matter. The plan came together in the past several months under the code name Project Lincoln, according to the December document and one of the people familiar with the matter.

Todd Combs, an investment officer at Berkshire and a JPMorgan board member; Marvelle Sullivan Berchtold, a managing director of JPMorgan; and Beth Galetti, a senior vice president at Amazon, are overseeing the entity's formation. Mr. Combs, who joined the JPMorgan board in 2016, was influential in connecting the companies and formalizing the plans, some of the people said.

Berkshire owns auto insurer Geico and a slew of other property-and-casualty insurance and reinsurance companies.

The CEOs decided to go public with the plans before the concept was fully fleshed out, the people familiar with it said, to start hiring and bring in new ideas and expertise.

The company aims to have a CEO in place by the end of 2018, according to the December document and a person with knowledge of the matter. One aim is for the initiative to create a health-care data warehouse. The companies hope the entire health-care project could at a minimum save them hundreds of millions of dollars and, if successful, could be a blueprint for others, the person said.

Over the longer term, according to the December document and the person with knowledge of the matter, the effort could tackle crafting new types of agreements with health-care providers, such as flat fees for episodes of care, and using technology to provide more tracking and care outside traditional health-care settings such as hospitals. The new company will likely prod health-care providers to employ digital health tools that enable them to share data with other providers and with patients.

Amazon and JPMorgan on Tuesday sent emails to employees saying nothing is immediately changing for their health-care offerings, according to internal memos reviewed by The Wall Street Journal.

Amazon currently uses Premera Blue Cross to administer its health benefits, and its pharmacy-benefit manager is Express Scripts Holding Co., according to a person with knowledge of the matter. JPMorgan uses UnitedHealth Group Inc. and Cigna Corp. for health coverage, and CVS Health Corp. for its pharmacy benefits, a person familiar with the matter said.

Cigna said Tuesday's announcement "reinforces what we at Cigna have been saying for years," that the old insurance model is "not sustainable." CVS said, "We welcome the opportunity to work with all market participants towards the goal of better health outcomes at lower costs."

Express Scripts said it looks "forward to hearing more about this new initiative and how we can work together to improve health care for everyone." Premera said it looks forward to working with Amazon "as we continue to seek innovative solutions for making healthcare work better." UnitedHealth didn't comment.

The rising cost of health care is a growing burden on payers, including employers, which are the biggest source of insurance coverage for Americans. Total U.S. health-care spending hit $3.3 trillion in 2016, or $10,348 per person. That represented 17.9% of the gross domestic product, up from 17.7% the year before.

Other companies have banded together in an effort to change health care, most notably some 40 big employers called the Health Transformation Alliance.Employers generally complain about the steadily rising cost of health care, along with growing indications of waste, sometimes-unnecessary procedures and rising prices for some types of care and prescription drugs. The annual cost of an employer health plan for a family hit $18,764 last year, according to an annual poll of employers performed by the nonprofit Kaiser Family Foundation.

The fractured nature of the U.S. health-care system makes it difficult for even the most significant companies to implement large-scale change. Often, they have large groups of employees in only a few health-care markets, limiting their ability to prod local providers to change their ways.

"Health care is so local," said Craig Dolezal, a senior vice president at Aon PLC. "Solving health care in America means solving health care in Dallas, and Phoenix, and New York....It's a big challenge to change the entrenched stakeholders and systems that are in place."

--Nicole Friedman and

Cara Lombardo

contributed to this article.

Write to Anna Wilde Mathews at anna.mathews@wsj.com, Emily Glazer at emily.glazer@wsj.com and Laura Stevens at laura.stevens@wsj.com

(END) Dow Jones Newswires

January 30, 2018 20:00 ET (01:00 GMT)

Continue Reading Below