BRK.B Berkshire Hathaway Inc

By Anna Wilde Mathews, Dana Cimilluca and Emily Glazer 

The high-profile health-care partnership JPMorgan Chase & Co. struck last week with Amazon.com Inc. and Berkshire Hathaway Inc. has created consternation among some clients of the lender's investment-banking arm, according to people familiar with the matter.

The new initiative, announced Tuesday, sent shock waves through a number of health-care stocks. Its aim, to overhaul health care for the three companies' legions of employees, sparked concern that it could siphon business from existing health-care players.

Shares of health insurers UnitedHealth Group Inc., Cigna Corp., Humana Inc., Anthem Inc. and Aetna Inc. dropped after the news emerged. Other sectors of the health-care industry also felt the sting.

A couple of the big insurers expressed concerns to JPMorgan officials following the announcement, some of the people said.

In a reflection of the sensitivity of the subject, JPMorgan Chief Executive James Dimon hit the phones Tuesday to assuage clients' concerns, people familiar with the matter said. So did some of the firm's health-care bankers, who get paid handsomely to help clients with mergers and other deals and worry the move could cost them business.

"The response has been overwhelmingly positive," said JPMorgan spokesman Brian Marchiony. "We've had hundreds of phone calls and emails from client CEOs, doctors and health-care administrators looking to see how they can get involved." He added, "We see this as an opportunity to work with the industry to tackle the issues facing our country."

On a Thursday conference call with industry analysts to discuss earnings, Cigna CEO David Cordani said such employer moves create "more opportunity versus less for us, because we seek to be an integrated partner from a services standpoint."

JPMorgan, the largest U.S. bank by assets, is eager to avoid even a small disruption to its health-care investment-banking franchise, a powerhouse on Wall Street that took in $682 million in revenue in the U.S. last year. Its leading market share of 14% was trailed by Goldman Sachs Group Inc. at 10.6% and Morgan Stanley at 7%, according to Dealogic.

Though details of the project are scant, the idea is for the three companies to launch a not-for-profit company to reduce costs and improve the health-care experience for hundreds of thousands of U.S. employees.

JPMorgan health-care bankers learned of the plan only at around 9 p.m. the evening before it was announced, according to people familiar with the matter.

A small team largely including members of JPMorgan's corporate-strategy group, which delves into big-impact projects across the firm, quietly worked on the plan for several months with Mr. Dimon and counterparts from Amazon and Berkshire, people familiar with the process said. Marvelle Sullivan Berchtold, a managing director in the strategy group, is JPMorgan's point person. She joined the bank in August after stints as global head of mergers and acquisitions for pharmaceutical company Novartis AG and as a senior official at GSK Consumer Healthcare, a division of drugmaker GlaxoSmithKline PLC.

After the plan was announced, JPMorgan bankers fielded calls from clients concerned and confused about the impact.

Mr. Dimon began making calls from his office atop the bank's Park Avenue headquarters, these people said. In those conversations, Mr. Dimon told clients the planned health-care initiative is for JPMorgan, Amazon and Berkshire employees only.

Simultaneously, JPMorgan bankers nearby on Madison Avenue were reiterating those points to clients, with some also telling them the initiative is akin to a group purchasing organization, a type of setup used by hospitals to buy supplies, so the companies can get better deals for their employees, some of these people said.

The bank isn't getting into business with Amazon, which earlier jolted health-care companies with moves like adding health-care supply options to its business-to-business marketplace. Worries about a potential

Amazon entry into the pharmacy-services business were a factor in   CVS Health Corp.'s $69 billion proposed acquisition of insurance giant Aetna. 

JPMorgan bankers were also taking incoming calls from technology companies, including health-care tech firms, intrigued by the initiative's potential to disrupt the industry, a person familiar with the matter said, adding that there's possibility for additional business from those firms.

At one stage, there was discussion about whether the venture should take over administration of employees' pharmacy and health-insurance benefits from the current insurers and pharmacy-benefit managers, according to a document from December reviewed by The Wall Street Journal. But the document was an initial proposal and that idea isn't currently on the table, people familiar with the matter have 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 has said the focus now is on helping the current vendors work better, not on replacing them.

In 2017, JPMorgan spent $1.25 billion on medical benefits for employees based in the U.S., where the medical plan covers almost 300,000 individuals, including employees and their family members, the bank disclosed earlier in January.

Write to Anna Wilde Mathews at anna.mathews@wsj.com, Dana Cimilluca at dana.cimilluca@wsj.com and Emily Glazer at emily.glazer@wsj.com

(END) Dow Jones Newswires

February 04, 2018 07:14 ET (12:14 GMT)

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