We are reaching an inflection point in healthcare, in which the sources of strategic control are shifting to the consumer. With consumers taking on a greater portion of healthcare cost and consequently making more active decisions about their healthcare, scale and network access are no longer enough to win hearts and minds (or pocketbooks). Rather, providing an alternative to the overly complex, opaque, and expensive experience of healthcare is becoming the more likely game-changer.
Incumbents are already making big moves and investing to get closer to the consumer. But as CVS and Aetna merge to create a new model of healthcare access, and UnitedHealth continues to acquire more and more provider assets (ICYMI: UHG is buying Davita clinics for $4.9 billion) to increase its proximity to the consumer, it begs the question: With about 85 million Prime users and approximately 40 percent share of US e-commerce, who is closer to the consumer than Amazon?
Amazon’s entry into healthcare is inevitable. (In fact, Amazon is already in healthcare. As are Google, and Apple, but that’s an article for another day). The recent rumors don’t shed much light on the timing and trajectory, and industry experts are hotly debating the extent to which Amazon could play in the space, but we look at 1) Amazon’s partnership with Merck to develop digital voice-enabled solutions for people living with chronic diseases, 2) the 1492 initiative leaked this summer indicating Amazon has healthcare tech in its sights, and 3) Amazon’s recent entry into OTC and acquisition of medical device licenses as just a few signals. These are just the things Amazon is telling us about; we can be sure much more is happening behind the scenes. (see infographic below on Amazon's Likely Strategy to Enter Healthcare)
The Industry is On Edge
Our favorite headline in the last few months about Amazon's effect on the industry is from The New York Times, “Hearing Amazon’s Footsteps, The Healthcare Industry Shudders.” Why is everyone so nervous? Consider the US healthcare market in which consumers pay more than those in other countries, receive lower-quality "products" (ones with worse outcomes, mortality, and rate of chronic disease), and endure a fairly poor experience in most cases. Now enter a company that prides itself on its relentless obsession with consumers, its hyper-focus on creating compelling value for consumers, and investing for the long-term. We have seen Amazon apply pressure on incumbents to erode long-standing sources of value across a range of retail categories and B2B services.
Drugs and Medical Devices Are the Logical Starting Point
At first, Amazon will stick with what it knows to provide a better consumer experience and lower cost. This has already happened. OTC drugs are cheaper on Amazon than many retailers and it has acquired distribution licenses in 12 states for medical devices and supplies. These high margin product lines have limited structural barriers to entry and significant market size (Est. $40-$80 billion). Cash pay drugs, especially generics, (Est. $5-10 billion) could also be low hanging fruit for Amazon, although licensing and pharmacy capabilities are more onerous to acquire, and there are other low cost competitors in the space (such as GoodRx and other discount cards).
But Amazon is Investing for the Long Term
As Amazon offers consumers services to address their basic drug and medical needs, it will be looking to play a bigger role in helping the consumer manage his or her health. Amazon can then capture a greater share of consumer healthcare spend, collect even more data to drive its personalization algorithms to better understand consumers’ health needs, and secure even more strategic control, perhaps ultimately influencing the system. This may come in many forms and can leverage Alexa, Prime, AWS, the Amazon Recommends insights engine (imagine what a health and healthcare insights engine could serve up!) to achieve "right time right place" influence that current players and digital health startups struggle to achieve.
What Could this look like? How could this play out over time? We see a number of interesting steps, leveraging Amazon’s existing assets and capabilities. The future Amazon could offer:
- Make targeted suggestions, provide timely information, and drive behavior through recommendations using Amazon’s wealth of consumer knowledge. This could drive sales for OTC drugs and medical devices, provide automatic prescription refills, and include timely information and advice around medical conditions.
- Simplify the complexity of the system through easy access to health information and concierge services. Companies like One Medical Group and ZocDoc have shown this can be done successfully on a standalone basis. Incorporating these kinds of capabilities into the Amazon ecosystem could give Amazon a window into the consumer’s healthcare decisions while providing consumers an experience they can’t get anywhere else – greater cost transparency, convenience scheduling and payments, and decision support for navigating the system. Although Amazon has not directly made any plays along these lines, there is interest and some experience within Amazon. Jeff Bezos personally invested in ZocDoc’s early rounds, and Amazon is now working with Cerner to finalize a deal to move their EHR data to the cloud.
Amazon’s Role in Care Delivery and Coordination
If Amazon can influence the consumer’s point of entry into the healthcare system, it can then steer care coordination and care management in a way we’ve only seen payers do to date.
- Virtual care integration: On-demand doctors via chat and video may be more accessible through Amazon’s ecosystem – “Alexa, can I talk to a doctor about my cough?”
- AI-driven patient risk prediction can significantly improve the effectiveness of care-coordination, driving more effective automated low-touch models as well as supporting high-touch care teams with ongoing monitoring and early detection. Amazon Web Services has already unveiled its end-to-end machine learning service SageMaker, which allows developers and scientists to build and run AI services for a wide range of applications, which could include care management for specific disease states.
- In-home care may not be outside the realm of possibility. Easy online scheduling combined with Amazon Key to provide access to patients’ homes enables entirely new levels and types of home-care services.
It’s Not an Easy Course to Chart. Even for Amazon.
None of this will happen overnight. The industry seems to be taking the threat from Amazon and others gaining proximity to the healthcare consumer seriously; many incumbents who traditionally enjoyed strategic control through unique assets and scale may struggle as they are increasingly beholden to players who control the front door. We are seeing players make moves on the chessboard to capture sources of economic value and to improve strategic control of consumer relationships. In the world of CVS/Aetna (with next-day Rx delivery), ESI/EviCore, Diplomat acquiring PBMs, and Walgreens aligning with Prime Therapeutics (to name but just a few moves) the window of opportunity is shrinking very quickly. The question facing healthcare leaders today is no longer whether they can be closer to the consumer, but how they can move closer to the consumer than Amazon.