By Anna Wilde Mathews, Emily Glazer and Laura Stevens
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.
"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)
Copyright (c) 2018 Dow Jones & Company, Inc.
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