JPM JP Morgan Chase and Co

By Anna Wilde Mathews and Joseph Walker 

The planned venture by Amazon.com Inc., Berkshire Hathaway Inc. and JPMorgan Chase & Co. to overhaul their workers' health care follows years of similar efforts by employers to change a complex and entrenched industry, with mixed success.

The three big companies shook up health-care firms' shares Tuesday by saying they will form a not-for-profit company to reduce costs and improve the health-care experience of hundreds of thousands of U.S. employees. People with knowledge of the matter said nothing had been decided beyond creating the new company, but worries about the potential threat pushed down shares of insurers and pharmacy benefit managers.

Yet even with its high-profile backers, the project will face many of the same barriers as did previous employer efforts to come together to reform the giant U.S. health-care sector, which represents about 17.9% of the gross domestic product.

"This is not a new idea," said Lonny Reisman, a former executive at Aetna Inc. who helped create an employer coalition in the 1990s that crafted deals with health-maintenance organizations. Do employer groups "have enough clout to actually change the nature of health-care delivery and pricing?" he said. "I don't think they've been very successful."

Earlier employer alliances have mostly been able to point to incremental gains, such as cheaper pharmacy-benefit rates for members or improvements in public quality measures of health-care providers and health insurers. They haven't managed "in a wholesale way to transform an industry, which is what these guys are trying to do," said Jim Winkler, a senior vice president at consulting firm Aon PLC. "It is really hard to do."

The Health Transformation Alliance, founded in 2016, is perhaps the highest-profile existing employer effort, with 46 members including American Express Co., Johnson & Johnson and Macy's Inc. -- as well as JPMorgan and Berkshire's BNSF Railway Co.

A JPMorgan spokesman said the bank, after joining weeks ago, hasn't yet joined any of the alliance's initiatives. A BNSF spokesman didn't respond to a request for comment.

The alliance this year began contracting with two pharmacy-benefit managers, or PBMs, to provide lower prices and more transparency on fees and rebates. This year, 21 companies are participating in the contracts, and four more are slated to join next year, alliance CEO Robert Andrews said in an interview. The PBM contracts will save the 21 current participants at least $600 million over three years compared with their previous deals, he estimated.

The alliance is also contracting with health-care providers in certain markets to care for employees with diabetes, hip and knee replacements and lower back pain. The contracts are supposed to pay doctors based on how well they meet targets such as quick recovery times.

In June, the alliance began an effort to meld member companies' health-claims data into International Business Machines Corp.'s Watson software.

It may take more radical steps in the future, such as forming its own PBM if its current pharmacy-benefits contracts don't meet its goals. "Who can deliver that is still an open question, whether it's our own PBM or another existing organization," Mr. Andrews said. "We're looking at every option on the table."

Many large employers have joined purchasing coalitions focused on pharmacy benefits, some formed by big consultants such as Aon and Willis Towers Watson. These coalitions typically negotiate deals with PBMs on behalf of their members. The members get "better pricing and a packaged set of services," said Julie Stone, a practice leader at Willis Towers Watson, due partly to "the size the coalition has grown to and the leverage" it generates with suppliers.

One challenge for employers seeking to make large-scale changes is that health-care markets are fractured and vary widely by market. Even large national employers often have limited populations in a particular location.

"You need critical mass locally to leverage a pricing advantage," said Brian Marcotte, chief executive of the National Business Group on Health, which offers advice and research for employers but doesn't seek to purchase services for its members. "You still need the delivery system to provide the care."

Health-care vendors can fight back against employers' cooperative work. An employer group, the Pharmaceutical Coalition, in 2015 dissolved a drug-pricing transparency initiative after PBMs started requiring the employers to sign "very tight nondisclosure agreements," said Amanda H. Beck, a spokeswoman for the HR Policy Association, an umbrella group that spearheaded the coalition. The group's members, which included Caterpillar Inc., had aimed to create stricter standards for pharmacy-benefit contracting, such as sharing all discounts and rebates with coalition members.

Employers themselves also may struggle to unite, because they often have far different cultures, employee populations and geographies. "Employers have a very hard time coming to agreement on the exact same contract terms," said Suzanne Delbanco, executive director of Catalyst for Payment Reform, which is backed by employers but doesn't negotiate contracts on their behalf. She says her group has helped increase transparency on health-care prices and move insurers toward new methods of paying health-care providers.

--Emily Glazer and Nicole Friedman contributed to this article.

(END) Dow Jones Newswires

February 01, 2018 11:47 ET (16:47 GMT)

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