Amazon healthcare initiatives wake up an industry slow to change
Amazon's entrance into healthcare pushes established healthcare businesses to address and improve longstanding logistical and technological issues.
The healthcare industry is rife with runaway costs and unrivaled bureaucracy, with established companies either unwilling or unable to fix their most fundamental problems. Amazon's entry into this market will no doubt pressure traditional players to shake things up.
Amazon is a company that scans business landscapes with a mercenary's eye. The healthcare sector appeared in its crosshairs several years ago, and its early ventures have already forced traditional companies into action.
For example, Amazon acquired PillPack, an online pharmacy service, in June 2018 for $753 million. No doubt this acquisition influenced the $69 billion CVS-Aetna merger a few months later, followed quickly by Cigna's acquisition of Express Scripts for $67 billion. And there are frequent rumors of potential mergers between large corporations and healthcare companies. One persistent rumor has Walmart acquiring Humana Inc., the country's fourth largest health insurer, which Aetna tried to bag in 2015.
There is serious money in play in the healthcare industry. Global healthcare spending totals nearly $8 trillion a year, according to figures from Forrester and CNBC. For comparison, global retail spending totals $2.4 trillion annually. In 2018, private sector employers in the U.S. spent nearly $700 billion on healthcare for employees. Per capita cost of healthcare in the U.S. in 2018 was $10,224, which is 28% higher than any other nation.
Amazon healthcare initiatives
The healthcare industry lacks Amazon's logistical expertise, said Jeffrey Becker, a senior healthcare strategy analyst at Forrester Research.
"The leadership behind Amazon's healthcare effort is equally put off by over-complications, having been described as 'incredibly allergic to market inefficiency,'" he said. "This is a team we expect to tackle the most complex healthcare problems head on with simple solutions and a relentless pursuit of process improvement."
With its expertise in cost cutting and reengineering for greater efficiency, Amazon has embarked on multiple healthcare initiatives. A central part of that strategy is Haven Healthcare, a joint venture Amazon formed in January 2018 with Berkshire Hathaway and JPMorgan Chase, which was intended to drive down insurance costs for the three companies' 1.2 million employees.
Haven is a nonprofit with the main objective to work directly with big healthcare providers -- for example, Fresenius, Catholic Health Initiatives, or Cedars-Sinai -- for better coverage and pricing. Haven bypasses health insurance companies to reduce premiums, deductibles and other costs.
Other companies, such as Walmart, use this strategy of buying healthcare direct from providers instead of insurers. To achieve the desired savings, a company must have legions of employees -- Amazon counts 840,000 on its payroll -- that are also well distributed geographically.
Amazon's healthcare forays in 2019 alone include:
- It introduced Amazon Care, a telemedicine app for its own employees. Care provides video consults and dispatches medical professionals as needed to an employee for tests, shots and in-person procedures.
- It bought Health Navigator, an online provider for symptom checking and triage tools for routing patients appropriately.
- It joined forces with healthcare companies via AWS, its cloud computing business, to create HIPAA-compliant conversational interfaces to support virtual clinics.
- It launched Amazon Comprehend Medical, which detects useful information in unstructured clinical text, such as physician's notes, discharge summaries, test results and case notes.
With Haven as the centerpiece, Amazon's various healthcare offerings could be repackaged into some kind of healthcare-as-a-service option.
Healthcare must embrace technology
Healthcare companies must overcome technology resistance, said Elizabeth Mitchell, CEO of the Pacific Business Group on Health (PBGH), a consortium that includes Boeing, Safeway, Walmart and Wells Fargo, among others.
"Healthcare is about 30 years behind any other industry with regard to effectively using technology," she said, adding that too many proprietary products make real integration impossible. Electronic medical records are an example of this, Mitchell explained -- billions are spent on incompatible systems that work poorly, if at all.
"It's amazing to me how little effective technology has been leveraged," she added. Mitchell said she witnessed such dynamics firsthand as a former executive at Blue Shield of California, a health plan provider. "I know there's awareness of this, but there hasn't been much movement."
Signs of change
Forrester's Becker said he sees change afoot. Humana recently signed a seven-year partnership with Microsoft's Azure for cloud services, artificial intelligence capabilities and collaboration technologies. Humana also partnered with Doctor On Demand for virtual primary care physician services that triage and route patients more efficiently to the correct services.
UnitedHealth Group, the nation's largest health insurance company, built the United Nerve Center, which combines IoT technology with disease-specific programs for tracking and other functions. The United Nerve Center issues real-time streaming data for UnitedHealthcare's chronically ill patients and allows its providers to spot deterioration in the early stages.
These moves by Humana and UnitedHealth Group are more advanced than Amazon's healthcare initiatives at the moment, according to Becker. So far, Haven has kept a low profile, except for shuffling executives; COO Jack Stoddard left the company after less than a year and Atul Gawande relinquished his CEO title in May 2020 but is still chairman of Haven's board. In the midst of a global pandemic, Becker would like to see Haven use the opportunity to showcase its expertise and innovation while the nation's attention focuses on healthcare.
Amazon's influence in healthcare goes beyond technology
Becker points to another nontechnology phenomenon in healthcare driven in part by Amazon's entrance: Insurance companies, known as "payors" in the insurance industry, buying medical provider groups.
The CVS-Aetna merger, for example, now has 1,700 digital clinics. These clinics are typically operated by provider groups as the first point of contact for someone who needs medical attention. Handled properly, being that first point of contact can save an employee and their employer money. It's also a way for companies to "own" a customer -- in this case, a lot of customers.
"United [Healthcare] is the largest employer of providers in America because [it's] gone on a buying spree," Becker said. "The payors are aggressive about vertical integration and using a merger and acquisition strategy to own the first point of contact with that brick and mortar healthcare market." Payors are also buying primary and urgent care centers but not hospitals, which are less cost effective, he added.
Whether Amazon can transform healthcare with its technology and logistics expertise is still an open question. But there's not much debate over whether the company is up to the task. Haven faces some big obstacles as it tries to work directly with providers and re-create all the administrative systems and processes that insurers typically handle. But Amazon shows time and again it's willing to play the long game.
"Companies look to maximize revenue and that's what markets do, but it's often at odds with good patient care," PBGH's Mitchell said. It's a health imperative to have patient, drug interaction and other information shared effectively. "This is not a technology problem, this is a business problem," she said.