“Talented experts, a beginner’s mind and a long-term orientation.”
Those arguably have been Amazon’s key tools in its disruption of industries before, but when Amazon CEO Jeff Bezos said those words on Tuesday, he was talking about, of all things, healthcare.
Healthcare represents about a fifth of the U.S. economy — a market snarled with exponentially rising costs, obtuse policy and inadequate solutions that have mostly evaded the best efforts of policymakers for decades. That includes the sweeping reforms brought on by President Barack Obama (and dismantled in part by recently enacted tax reform under President Trump).
“The ballooning costs of healthcare act as a hungry tapeworm on the American economy,” said Warren Buffett, Bezos's partner in a new effort — an independent company "free from profit-making incentives and constraints" being formed by Buffet’s Berkshire Hathaway, Amazon and JPMorgan Chase. “We share the belief that putting our collective resources behind the country’s best talent can, in time, check the rise in health costs while concurrently enhancing patient satisfaction and outcomes.”
It’s a tall order, but even the tentative, vague outline of a plan put forth by the three players roiled retail and healthcare players. Shares of CVS Health, whose own ambitions led to its $69 billion purchase last month of health insurer Aetna, plummeted on the news, along with those of insurers UnitedHealth Group and Anthem.
But Bezos doesn't shy away from tall orders. Furthermore, Amazon puts its focus where Americans put their money, and Americans put a lot of their money into healthcare. U.S. healthcare spending rose 4.3% in 2016 to $3.3 trillion, or $10,348 per person, according to the U.S government. "Amazon wants to be part of everyone's daily expenditures," Magid's Sargent said. "Grocery is the current focus of their attention, but healthcare spending is another VERY large pocket of spending that Amazon has its eye on."
It’s early days — Bezos and his cohorts emphasized that on Tuesday — but the alliance has “tremendous potential,” according to Maulik Bhagat, managing director in the healthcare practice of global consultancy AArete, which specializes in data-informed performance improvement.
“At 1.1 million employees and growing, they are already a decent sized ‘health plan’ in themselves and could essentially operate as its own payer entity or possibly an ‘Accountable Care Organization’ for their employees,” Bhagat said in an email. “At a minimum it gives them more power in holding their existing payer vendors more accountable for health and cost outcomes for their employees. It gives them a chance to deliver better healthcare and reduced costs and change the market dynamics in the commercial healthcare space.”
All three firms also have customers, who could conceivably become among the those eventually privy to their new dynamics, he also said.
“Expand this to the number of captive and loyal customers these firms collectively touch and you suddenly have the possibility of this becoming a huge disrupting development,” according to Bhagat.
Controlling costs is benefit No.1
The employer community largely looked upon the deal positively.
“My first reaction is that anytime companies with this type of profile are interested in fixing a problem like healthcare costs, it’s good,” Shandon Fowler, healthcare and HR tech consultant with Four8 Insights, told HR Dive. “It will force others to pay attention.”
Frank Easley, senior vice president with Aon’s health and benefits division, echoed that sentiment. “We’ve always encouraged companies to take an active role” in managing their healthcare, he said.
The ever-rising cost of healthcare remains a dominant narrative in the employee benefits space with no real solution. The real question for observers, then, is: What’s next?
This isn’t the first time major U.S. employers have tested the increasingly fraught waters of more direct healthcare management. The Health Transformation Alliance boasted partnerships from Coca-Cola, Verizon and American Express.
But Amazon, Berkshire Hathaway and JPMorgan have name recognition, most notably Amazon for its reputation as a disruptor, Fowler said. To most observers, it’s no surprise that big-name employers are now loudly demanding a space at the healthcare negotiation table.
“For the past couple of decades, employers haven’t really used their leverage or they used it in a minimal capacity. It’s been up to provider networks and insurers to have that battle,” Fowler said. “Now with this announcement, employers are saying very loudly we are going to use our leverage to get something better for ourselves and our employees.”
"New entrants with fresh approaches like these may be just the prescription our ailing health care system needs."
CEO of the National Business Group on Health
For employers, Amazon’s foray into healthcare — whatever it ends up looking like — may be one of the louder shots in their continued fight to corral an unruly healthcare system. Brian Marcotte, CEO of the National Business Group on Health, hopes all three companies can put their business experience to use.
“New entrants with fresh approaches like these may be just the prescription our ailing health care system needs,” Marcotte said. “This industry is ripe for disruption and the collective resources of these three companies, emerging technologies and Amazon’s customer obsession and supply chain savvy gives me optimism that they will pursue a consumer-focused model that will transcend the fragmented, provider-centric delivery system that we have today.”
Benefits sustainability is a perpetual threat hanging over employers’ heads; if costs keep climbing, employers may have to completely reconsider how such benefits are offered, even though they are a key retention tool.
“If employers sit on the sidelines and let it be decided by insurers and providers, they may end up with a system that doesn’t fit their needs so well,” Easley said.
Doing what Walmart hasn’t—and won’t
We’ve been here before, and it was another retail giant — Walmart — who tried to leverage its scale to deliver healthcare to Americans.
It was just a few years ago that Walmart declared its intent to expand access and simplify healthcare options for customers through the “Healthcare Begins Here” program, developed with PwC. The retail giant still provides pharmacy services, health clinics, durable medical equipment, immunizations and wellness days, where customers can have their blood pressure taken. But none of those efforts garnered the headlines that Amazon did on Tuesday.
“Walmart pioneered this with their $4 generic drugs,” Spencer Millerberg, CEO at marketplace analytics firm One Click Retail, said in an email. “But they stopped short by not completely addressing issues the government and private businesses couldn’t solve. Where Walmart left off, Amazon is picking up.”
Expectations are running high for Amazon to succeed where Walmart hasn't, perhaps because Walmart’s approach is aligned with an existing system, while Amazon is all about disruption. It's a consequence of not only Bezos's mindset but also the patience of Amazon's investors, who consistently demonstrate a high level of comfort with the long view.
It’s all about that interface
Technology, many observers say, will be the crux of Amazon’s effort in healthcare, as it has been in all aspects of its sprawling empire. Amazon employs data, not just to drive down prices or improve its distribution, but also to solve consumers’ problems. It’s the premise behind the e-commerce giant’s Prime program and corollary efforts like Prime pantry: Algorithms based on search and buying patterns help consumers find what they need or want, and the goods are delivered swiftly, sometimes that day, and sometimes for free.
Walmart has long used data, too, to bring efficiencies to its supply chain. While that has helped render it the largest, most productive distributor of consumer goods in the world, it hasn’t necessarily brought it the kinds of insights that Amazon seeks — and finds — and that would be most applicable to tackling healthcare.
“Walmart and Amazon have both invested heavily in specific infrastructures that they leverage with their consumer base,” Magid’s Sargent said. “Walmart's investment is in its vast physical stores, while Amazon's investment is in its core technological infrastructure, including algorithms that allow you and I to search for millions of products. Amazon's infrastructure best addresses the pain points of the current healthcare problems (the need for technological streamlining). Walmart's infrastructure doesn't align with this primary need.”
Beyond technology, is trust
Amazon's potential to succeed in revolutionizing healthcare for American consumers doesn't just lie in its employment of "talented experts, a beginner’s mind and a long-term orientation” or even its technological prowess, however. The e-commerce giant also enjoys a level of trust that few other retailers do. And health and wellness is already a big part of its business, according to One Click Retail's Millerberg.
“An Amazon disruption of healthcare is a welcome focus for Americans who already trust Amazon with over $5 billion of their health and personal care purchases last year, and nutrition and wellness growing a massive 44% on Amazon in 2017," he said. "Clearly these consumers have voted with their wallets that they trust Amazon with their health product needs. More affordable and simple to use, healthcare is a natural extension of that trust."
That stems in part from Bezos's ethos. Although he's among the richest people in the world, when it comes to disruption, Bezos is interested in "disappearing" the margin, rather than snatching it for himself, according to Bryan Gildenberg, chief knowledge officer of Kantar Consulting.
"Imagine him working to build a health insurance business where he doesn’t want your margin for himself but just wants to get rid of it altogether," Gildenberg said in an email. "Figuring out how to rebuild not just the customer interface but the entire economic construction of the U.S. health insurance industry could lead to massive cost savings, and a fundamental shift in how insurance works."
That's been a tantalizing, if confounding, idea for companies, (even those that, if they're large enough, self-insure) because healthcare costs continue to spiral. Amazon and its partners have set out to find a Holy Grail, to rein in a runaway system. If they succeed, Amazon may have yet another invaluable service to offer businesses, and perhaps even individuals.
Could Amazon's customers someday add health insurance to their list of Prime perks, alongside streaming video, free two-day delivery and all the rest? Maybe, said IHL Group Principal Analyst Greg Buzek.
"But I think the most logical step would be more for this to lead to a group prescription option for Prime users," he said. "Amazon gets the same great data on consumers but without the escalating costs from potential hospitalization. If limited to prescriptions, this can be a really compelling offer with the potential to be the single largest drugstore chain embedded in it."
Even that limited benefit would be radical. And for rivals in the retail space, it would be that much more competition from Amazon, that much more stickiness in its Prime membership, that many more reasons consumers have to go to Amazon for goods and services.
As Bezos himself said, what Amazon's healthcare project ultimately looks like remains to be seen, and it will be years before it takes shape. But it may be inevitable that healthcare delivery will someday be a feature of Amazon's always-evolving consumer sphere.
“Amazon is about being so much more than the company that sells you your toothpaste or server space or streaming videos," Danny Silverman, CMO at e-commerce solutions and research firm Clavis Insight, said in an email. "They are playing for the entire ecosystem that surrounds shoppers and consumers, and in doing so, must have a stake in every key area of that ecosystem. With Echo, Amazon has captured the home. With healthcare, they capture the next, most valuable layer of the ecosystem — the system that keeps us well and healthy. Selling services isn’t new to Amazon. Something like 'Prime Health' is entirely viable. It would be just another one to add to the ecosystem.”