VOLUME XX, ISSUE 21
March 22, 2018
Amazon has been making waves in different
parts of the healthcare industry over the past 12 to 24 months, but its
recently announced alliance with JPMorgan Chase and Berkshire Hathaway
demonstrated that Amazon’s ambitions go much further than simply selling
healthcare products.
True, the initiative is
still in its infancy and is limited to employees of the three partners, but the
statement sparked a flurry of speculation and sent the stocks of insurers and
major healthcare companies into a tailspin. Now that Dr. Atul Gawande has been appointed to lead this joint
healthcare venture, many industry watchers are now asking: How far will Amazon,
the master disrupter, take this?
The answer: very far,
it’s safe to assume. Anyone who continues to think of Amazon as just a very big
digital retailer needs to think again. From an online bookstore, to an online
everything store, to a leader in cloud computing, to a business-to-business
(B2B) ecommerce platform, to a provider of in-home services, to a
brick-and-mortar food purveyor — over the course of its existence, Amazon has
continued to expand on its original business model. The company has repeatedly
shown that it has the capabilities, the patience and the deep pockets to
disrupt industry after industry. Healthcare is no exception.
L.E.K. Consulting has
three reasons to believe Amazon is serious about healthcare. First, as one of
the largest private employers in the United States, Amazon would reap huge
financial benefits from lowering the high cost of healthcare in this country.
Second, the numerous inefficiencies of the healthcare system present enticing
avenues for Amazon to explore, and as CEO Jeff Bezos has famously stated, “Your
margin is my opportunity.” Finally, healthcare is just the kind of big, complex
problem that Bezos likes to sink his teeth into. An unabashed “Star Trek” fan
with a utopian view of the future, Bezos has always aspired “to boldly go where
no one has gone before.” The fact that he has personally invested billions in
space exploration with his company Blue Origin shows he is willing to put his
money where his mouth is. While healthcare poses a more earthbound challenge,
Bezos strongly believes that Amazon has a role to play in making things better.
Indeed, Amazon has many
of the core competencies that are needed to compete in healthcare — from data
analytics to technology and innovation (see Figure 1). Furthermore, the company
is already testing the waters both at home and in markets outside the U.S. For
example, in Japan it will begin offering Prime Now drug deliveries directly to
consumers who have approval from a pharmacist. Stateside, the company has begun
recruiting for multiple healthcare-related positions, and some news outlets
have reported that it has a clandestine health team working on medical records
and virtual doctor visits. Its joint initiative with JPMorgan Chase and
Berkshire Hathaway will give it broad leeway to experiment and learn more about
operating in this space before entering it more aggressively.
As Amazon turns its aggressive focus to
healthcare, what will the onslaught look like, and what might the impact be
across different parts of the healthcare landscape? We believe there are five
potential points of entry, with increasing levels of complexity from simple
product distribution (see Figure 2).
This one is a no-brainer
because Amazon is already there: It currently sells a broad array of general
medical supplies and durable medical equipment (DME) to consumers. Given its
core competencies in logistics and distribution and its existing B2B ecommerce
platforms, expansion into wholesale distribution is a logical next step. In
fact, the company has already obtained licenses to distribute medical supplies
directly to providers in a variety of medical settings in 43 states. In those
states, licensed professionals can enroll in the Amazon Business Professional
Healthcare program to order restricted-access products.
If Amazon begins selling
to hospitals, this could significantly disrupt the established group purchasing
organization (GPO) contracting model. As a result, some original equipment
manufacturers (OEMs) are already starting to sell older or more established
equipment directly into hospitals without sales reps. On the
business-to-consumer (B2C) front, Amazon could also disrupt the self-pay DME
market by providing price-transparent, simplified online platforms for patients
to buy consumable or durable DME for in-home use. Increased transparency and
disintermediation for both B2B and B2C markets will likely lead to price
reductions and margin compression. This is a wake-up call for existing DME and
medical supply retailers, who will need to focus on greater customer engagement
in the purchasing process.
2.
Mail-order and retail pharmacy
Amazon appears to also
have mail-order pharmacy players in its sights. It has secured approval as a
wholesale distributor from 12 state pharmaceutical boards. While the company
faces some hurdles in complying with drug storage and distribution regulations,
these challenges are hardly insurmountable. Amazon has another ace in the hole
with its recent
acquisition of Whole Foods. Stores could be used to house
brick-and-mortar pharmacies that would be powered by Amazon’s mail-order
fulfillment capabilities. Amazon has other significant capabilities that
strengthen its position in this space. For example, its digital platform,
predictive analytics and customer data could be leveraged to create digital
health tools that track and influence patient behavior. This, in turn, might
give it entry into some of the less intuitive areas of healthcare delivery.
Should Amazon choose to
enter the mail-order pharmacy space, its ability to quickly deliver products
(Prime Now is striving for two-hour delivery times) would put pressure on
existing mail-order pharmacies to improve delivery times for essential
prescriptions. Traditional retail pharmacies are also likely to feel the heat
and may have to respond by diversifying their offerings (for example, by
offering blood tests). Furthermore, if Amazon can come in as a low-cost player,
existing pharmacies and pharmacy benefit managers (PBMs) will almost certainly
experience margin compression.
3.
Pharmacy benefit manager
PBMs leverage the
combined purchasing power of health plan enrollees to lower prices for
prescription drugs, a strategy with which Amazon is certainly familiar. Because
the PBM market is fairly consolidated, Amazon would most likely enter the space
either by partnering with a large PBM such as Express Scripts or by purchasing
a smaller player like Prime Therapeutics. This would give it access to the
requisite claims adjudication systems and networks of pharmacies. Its
relationship with millions of Amazon Prime customers makes it an attractive
partner for a PBM, and once again its data-analytic capabilities could be
leveraged to improve patient compliance and health behaviors. As with other
sectors, if Amazon became a low-cost PBM alternative, this would apply downward
pressure on prices, and existing PBMs might need to create more user-friendly
offerings (e.g., online portals, tracking).
4.
Telemedicine or in-home healthcare
The three points of entry
discussed above leverage Amazon’s capability in logistics and distribution, as
well as its ability to negotiate rock-bottom prices. But Amazon has shown that
it’s more than a distributor of boxes. With its deep knowledge of machine
learning, the company has launched its enormously successful Echo, a smart
speaker that connects to the voice-controlled intelligent personal assistant
service Alexa, currently the market leader. With more than 20 million Echos
sold in the U.S. to date, the possibilities for rolling out a host of new
voice-activated services are extensive, and healthcare could be among them.
Indeed, Bezos has talked publicly about the role for Alexa in the future of
healthcare delivery.
The first step toward
this could be offering telemedicine through current Echo devices whereby Alexa
would contact available physicians for a consultation. The Echo Show, which
combines traditional smart speakers with a screen, provides the opportunity for
video telemedicine, helping with conversion as consumers become familiar with
the concept of in-home healthcare. The next step could be for Amazon to
facilitate frictionless in-home visits from provider networks at simple,
transparent prices. A move like this could apply downward pressure on the price
to treat common illnesses at doctors’ offices or walk-in clinics and could
force those establishments to diversify their services (for example, by
offering telemedicine, late-night hours, weekend hours or in-home nurse
visits).
Of course, Amazon’s
leading the “Uberization” of medicine is hardly a shoo-in. Developing provider
networks could prove a challenge unless the company is able to acquire some
existing telemedicine providers. Furthermore, there is no guarantee that
consumer trust in Amazon would transfer to the area of personal healthcare. But
it remains a potential direction, and one that healthcare providers should take
seriously.
5.
Artificial intelligence-powered diagnostics and continuous care
There is every sign that
Bezos’ long-term vision for Amazon could start to disrupt healthcare provision
as we know it, and the last frontier to feel the impact of that vision may be
in-home diagnostics and care delivered through artificial intelligence (AI).
Amazon has already made tremendous strides in AI, as witnessed by Alexa’s
burgeoning capabilities. In fact, one of Alexa’s “skills” — first-aid
information and voice-driven self-care instructions for a variety of situations
— has been implemented by none other than the famed Mayo Clinic.
Machine learning drives
many of Amazon’s offerings, from its customer recommendation engine to
optimization at its service centers. A conceivable next step for Amazon could
be to use its AI capabilities to turn Echo into an in-home diagnostic tool,
without the need for a human doctor. The company could seek to further remove
the human element from basic healthcare by leveraging next-generation Alexa
technology (for example, offering a first-line diagnosis, providing reminders
to take meds and auto-replenishing prescriptions).
Some consumers may resist
the idea of receiving healthcare advice without the involvement of a medical
professional, and certainly the idea would face regulatory and safety hurdles —
not to mention pushback from physician organizations such as the American
Medical Association. Nevertheless, removing medical professionals from basic
diagnostics would drastically lower cost-to-serve, applying downward pressure
on volume and price for doctor and nurse practitioner visits. Furthermore, if
Amazon were to apply commercial principles to healthcare referrals (for
example, by creating a service marketplace or instituting pay-to-play), this
could profoundly disrupt traditional referral patterns.
To live
long and prosper, keep Amazon on your radar
Many people, including
business executives, continue to view Amazon through the lens of their personal
experience as consumers — meaning they tend to think of it as an online
retailer. But dismissing Amazon as a master mover of boxes would be a big
mistake. It is at core a technology company, and it is driven by a central
belief that technology can be applied to most problems. Jeff Bezos has made it
abundantly clear that he considers healthcare to be one of those problems, and
that it fits within the company’s vision to tackle it. With a relentless and
resourceful culture, an effective global distribution network, and an agile
technology infrastructure, Amazon has the potential to make meaningful strides
toward realizing that vision. Any players in the space would do well to move
beyond having a mere digital strategy and step up their game by developing an
Amazon strategy. After all, with a founder who finds a touchstone in the
starship Enterprise, Amazon is likely to find new frontiers just about
everywhere it goes.
No comments:
Post a Comment