While health insurance industry stock prices have recovered following the announcement that Amazon, JPMorgan Chase and Berkshire Hathaway plan to deliver quality healthcare at lower costs, industry thinking should still be shaken up by the potential potency of this venture to disrupt healthcare.
As we’ve previously noted, we think that a “healthcare on-demand” consumer-to-business (C2B) platform will emerge that will significantly upend traditional healthcare business models. We think insurers (both health plans and P&C companies) will likely develop new business models. Non-healthcare companies, including tech and financial services companies, will leverage their expertise to bring new solutions to healthcare. In this one announcement, we see all of those forces at play.
Amazon clearly has the technology – and not just in retail: It’s a web hosting powerhouse; its digital assistant Alexa brings artificial intelligence to millions of Prime customer households; and its Whole Foods stores offer a physical channel to potential pharmacy and medical customers. Chase has a network for processing payments. Berkshire Hathaway owns hundreds of insurers and reinsurers. The three together blend several of the business models we’ve envisioned, including the C2B platform, the insurance powerhouse and the integrated health-wealth manager.
With powerful companies in adjacent industries aligning to create new healthcare solutions, this venture has the potential to be highly disruptive. The Amazon-Chase-Berkshire announcement proposes to focus on “technology solutions that will provide … simplified, high-quality and transparent healthcare at a reasonable cost.” Amazon has the platform experience necessary to connect consumers to providers and let the market drive pricing; meanwhile, the healthcare industry has yet to achieve price transparency, let alone market-driven pricing. True market-driven pricing could undermine the value proposition of HMOs and PPOs and threaten traditional health plan business models. After all, there’s no need for a curated network of low-cost providers when consumers can use a platform – not an outdated network directory – to select a provider that meets their cost and value criteria. If the Amazon coalition achieves its objectives, it’s a game changer.
Curing the Cost Conundrum
Healthcare inflation has outpaced the Consumer Price Index every year except one in the last 10 years, due to not only increased utilization but also rising prices for drugs, medical devices and hospital services. These costs are landing squarely on consumers and employers. The Kaiser Family Foundation reports average premiums for family coverage for employees were almost $19,000 in 2017, with workers paying about 30% of those costs — plus deductibles and co-pays. According to news reports, growing costs like these sparked conversations among Jeff Bezos, Jamie Dimon and Warren Buffet about how they could make healthcare simpler and more affordable.
The new company is expected to begin by offering the following services to their combined one million-plus employees through an Amazon platform:
- Low-cost primary care through telehealth services (“on-demand access to personalized healthcare anywhere, anytime”) or Whole Foods locations (or other retails chains Amazon might acquire).
- Test kits for most primary care conditions, sold online through Amazon Now, Amazon Prime or at Whole Foods, reducing lab costs.
- Mail-order services priced at $5 for most routine pharmaceuticals.
- Insurance products for catastrophic care, with riders for chronic and other special conditions through Berkshire Hathaway, with access to best-outcome providers (e.g., Mayo for cardiac conditions, MD Anderson for certain types of cancer, etc.).
- Health and wealth services through JP Morgan Chase that provide holistic financial advice, including 401k, health insurance and health savings account (HSA) recommendations, based on each employee’s individual situation.
Services like these, backed with analytics and AI-driven insight, could help the new organization eliminate any aspect of the industry value chain that adds cost without value. The fledgling company has access to volume, too: Amazon has an estimated 90 million customers of its Prime service. Can Prime Health be far away?
What to Do Now
In their reaction to the announcement, many health organizations said the announcement is yet another signal that consumers and employers can’t continue bearing healthcare’s high costs.
It’s also a clear sign the market has taken control of how the healthcare system will be transformed, given that healthcare seems to be off the federal government agenda. Shaking the status quo even more, it’s within the realm of possibility that big regulatory barriers to reform, such as HIPAA, could tumble if the federal government became aggressive about deregulating healthcare.
Business can’t continue as usual. While we’ve recommended taking key steps such as upgrading infrastructure and streamlining operations to be more customer-centric, here are some additional strategies for healthcare organizations to consider:
- Use industry incumbent status to your advantage. It’s invaluable to understand the intricacies of healthcare’s uniquely difficult supply chain – the regulations, privacy and security, specialties, sub-specialties, etc. New industry entrants will require this knowledge in order to create new opportunities and supporting business models.
- Look for innovative ways to partner with the tech giants attempting to disrupt healthcare. Rather than attempting to acquire, build or invent your own proprietary on-demand healthcare channel, your organization should proactively consider incorporating the disruptors into your business strategy and into your technology stack – because it simply may not be possible to out-invest or out-innovate the market. Numerous health plans have been serially acquiring digital health start-ups with the hope of selling an innovative and disruptive platform to providers and other health plans. Amazon’s play may warrant re-evaluating these strategies. It could be better to embrace an open technology stack through application programming interfaces (APIs) and partner with the tech giants than to build a proprietary silo.
We’ve written about “the Amazon effect” on supply chains in many industries, from publishing and retail to transportation and music, all of which have been forever changed by platforms that connect consumers directly to producers. When we said the same would happen in healthcare, the repeated question was, “But who will be ‘the Amazon’ – the big disintermediation force – in healthcare?” Our answer, now more than ever, remains: Amazon.
Patricia (Trish) Birch, Senior Vice-President with Cognizant Consulting’s Healthcare Practice, co-authored this blog.