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February 6, 2018

Jamie Dimon to health care industry: Don't worry about Amazon-Berkshire-JPMorgan venture

Daily Briefing

    JPMorgan CEO Jamie Dimon said health care executives shouldn't worry about disruption from a recently announced partnership with Amazon and Berkshire Hathaway, as the partnership will serve only employees at the three companies, according to individuals familiar with the matter.

    Read Advisory Board's initial take on the partnership

    Dimon's statements may represent a narrowing of the vision that the partnership initially expressed. In a press release announcing the group's formation, Dimon had said its goal was "to create solutions that benefit our U.S. employees, their families, and, potentially, all Americans."

    According to the Wall Street Journal, JPMorgan is the largest U.S. bank by assets, and its health care investment-banking franchise reported $682 million in revenue in the United States last year.

    Partnership details

    The three companies last week said they plan to launch a health care company for their 1.2 million U.S. employees.

    The companies released limited information about the new partnership, but said the goal will be to improve employee satisfaction with health care and reduce health care costs. The company will focus initially on "technology solutions" that would provide "simplified, high-quality, and transparent health care at a reasonable cost." The three companies said the new health care company will be "free from profit-making incentives and constraints."

    According to a December document obtained by the Journal, the companies early in their discussions considered whether the new company should take over pharmacy and health insurance benefits. The document also showed that officials considered whether to target some of the industry's middlemen, stating that past efforts to rein in health care costs have failed "because they conceded the existence and role of intermediaries like PBMs, insurance administrators, wholesale distributors, and pharmacies, which have a vested interest in maintaining the status quo."

    An individual with knowledge about the matter told the Journal those initial ideas are not being pursued and that the partnership's current focus is on helping vendors work more efficiently, rather than replacing them.

    However, news of the new company caused a stir in the health care industry. The announcement led to a dip in health care stocks, and according to Journal, sources say at least two of the United States' five largest insurers contacted JPMorgan officials to share their concerns about potential effects on the industry, the Journal reports. People familiar with the matter also said JPMorgan's health care bankers fielded calls from clients concerned about the new venture's potential effects.

    Dimon says the partnership will serve only employees at the three companies

    According to the Journal's sources, Dimon told health care executives that the partnership would not interfere with their business endeavors because the partnership is designed to serve only employees from Amazon, Berkshire Hathaway, and JPMorgan.

    JPMorgan's health care bankers reiterated those comments when they fielded questions from clients about the partnership's implications the day the companies announced the agreement.  The company's health care bankers likened the partnership to a group-purchasing organization, which allows a group of hospitals to buy supplies together to negotiate better deals, individuals familiar with the matter said. Similarly, the partnership will allow the companies to negotiate better prices for their employees.

    JPMorgan spokesperson Brian Marchiony said JPMorgan has received "overwhelmingly positive" feedback from the health care industry regarding the partnership. Marchiony said JPMorgan has "had hundreds of phone calls and emails from client CEOs, doctors, and health care administrators looking to see how they can get involved." Marchiony added that JPMorgan "see[s] this as an opportunity to work with the industry to tackle the issues facing our country."

    An individual familiar with the matter also said JPMorgan bankers received calls from technology firms, including those in the health care sector, that were curious about the new business prospects (Wilde Mathews et al., Wall Street Journal, 2/4; Baker, "Vitals," Axios, 2/5; Berkshire Hathaway release, 1/30).

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