Will there be an "Amazon Effect" on Healthcare

posted by Dave Baccile on Friday, October 26th, 2018

Amazon Effect

In January of this year, Amazon.com Inc., Berkshire Hathaway Inc., and JPMorgan Chase & Co. teamed up to form a joint venture aimed at cutting wasteful spending on healthcare.  The well-known CEOs of each of these companies - Jeff Bezos, Warren Buffett and Jamie Dimon, respectively - decided to work together in an effort to address rising healthcare costs that are negatively affecting the welfare of their employees as well as company profitability.  Amazon's Bezos summed it up by saying, "The healthcare system is complex, and we enter into this challenge open-eyed about the degree of difficulty. Hard as it might be, reducing healthcare’s burden on the economy while improving outcomes for employees and their families would be worth the effort. Success is going to require talented experts, a beginner’s mind, and a long-term orientation."

Healthcare spending has risen from 6.9% of GDP in 1970 to 17.9% of GDP* in 2016 with projections continuing to rise as aging baby boomers begin to use more healthcare services in the coming years.  Amazon has a history of disrupting major industries by focusing on improving efficiencies and creating better services at a reduced cost to the customer.  From books, to retail to data storage, Amazon has approached each area with a fresh vision unencumbered by old notions and legacy models.  Turning its attention to healthcare, Amazon no doubt sees a bloated industry weighed down by bureaucracy but ripe for change.  By teaming up with Berkshire Hathaway and JPMorgan, the joint venture is focusing on improving the healthcare for roughly 1.2 million employees in aggregate.  That sort of scale will play an important role in developing new technologies intended to deliver transparent, customized healthcare solutions at the lowest cost possible.

The joint venture recently named Atul Gawande as its CEO to lead the effort going forward.  Dr. Gawande is a practicing surgeon and well-known writer for the New Yorker magazine.  In accepting the role, he stated, "I have devoted my public health career to building scalable solutions for better health care delivery that are saving lives, reducing suffering, and eliminating wasteful spending both in the U.S. and across the world."  Dr. Gawande has written articles citing many cases in which "overtesting, overdiagnosis and overtreatment" have led to poor outcomes with expensive price tags. 

While the joint venture will be independent and "free from profit-making incentives and constraints", Amazon will almost certainly be looking for ways to benefit as it disrupts yet another industry.  To that end, it has already made acquisitions that are making incumbents nervous.  In June, Amazon announced its intent to acquire online pharmacy PillPack, Inc.  PillPack employs technology that sorts and packages medications for customers who take five or more prescriptions daily.  The acquisition is an early step toward readying Amazon for possible new healthcare initiatives.  In fact, Amazon has made clear its global aspirations for the medical-supplies marketplace stating, "Our mission is to make Amazon the preferred shopping destination for healthcare customers".  Whatever the motivation, it will take great effort and resources on the part of Amazon as well as the joint venture to be able to effect meaningful change. 

Importantly, benefits of these initiatives have the potential to extend beyond just patients and employers. It is no secret that healthcare professionals feel increasingly overwhelmed by patient demands as the aging populations of the world tax the limited resources of healthcare systems everywhere.  To the extent that the joint venture can come up with solutions for optimizing the delivery of healthcare while incorporating a more holistic approach, both patients and providers will benefit. 

 *Source: Kaiser Family Foundation analysis of National Health Expenditure (NHE) data from Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group

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