At this time when health care providers entered telemedicine, Amazon, the world’s biggest online dealer, was surprised by 1Life Healthcare Inc., which the subscription-based One Medical first-care. Service, for 3.9 billion dollars. Investors and market watchers have described Amazon’s less than stellar performance in health care, while privacy advocates have raised concerns about Amazon’s access to patient medical information. Still others expressed hope that Amazon’s move to retail would bring much-needed efficiencies and an improved customer experience to healthcare.
Amitabh Chandra is the Henry and Alison Mackenzie Professor of Business Administration and a faculty member in the MS/MBA program in Life Sciences at Harvard Business School. He is also the Ethel Zimmerman Wiener Professor of Public Policy and Director of Health Policy Studies at the Harvard Kennedy School. Chandra spoke to the paper about Amazon’s latest gamble and what it could mean for consumers.
Harvard Press: Given the size of the investment, what does Amazon’s recent acquisition of a medical mean for the healthcare industry?
“Shopping for health care is no different than shopping for other items that Amazon can sell.”
Chandra: Amazon is a big company. I think we’re all happy because it’s Amazon, but the reality is that $160 billion in current assets is a $4 billion cost to a company that’s on its balance sheet and could deploy to buy another company. So, this is actually a very small acquisition for Amazon—very, very small.
Along with this, the idea of a medical business model is twofold: to make healthcare easier to access, and to avoid downstream costs through prevention and better primary care management. These are laudable goals. But a medic certainly doesn’t know how to save money. They’ve been hemorrhaging money, and they have very low profit margins, because so much of health care spending is on sick patients that it can’t easily be cut. Amazon has bought into a medical need, which would be amazing if they succeed again. But given the strongest evidence to date from an Amazon shareholder, perhaps a medical shareholder will lose the money they lost.
“Amazon has been interested in healthcare for over 20 years, but their performance is between C and C+.”
Newspaper: Why do you think Amazon decided to dive deeper into healthcare, where they haven’t had much success?
Chandra: When Amazon looks at healthcare, they probably see two opportunities where they can add a lot of value. First, the supply chain in healthcare is chaotic. There are many middlemen who sell to other people, and Amazon has done an excellent job of streamlining its supply chain. Therefore, existing insurers and other payers must consider that they may not be able to improve the supply chain.
A second area where Amazon thinks it can help is in price transparency: Prices are often unclear in healthcare. No one knows the value of anything. But it’s a big deal to think we can save money in health care by making prices more transparent. There have been countless attempts at health care price transparency, with no evidence that patients are given price information and use that information when seeking health care. Shopping for health care is nothing like shopping for items Amazon can sell, and consumer-engaging ideas in health care haven’t worked — and it’s not like other companies haven’t tried.
Overall, Amazon has been interested in healthcare for more than 20 years, but their performance is between C and C+. Before the outbreak, they were trying to run Amazon Care to provide health care to their employees. It was weak to take that. They bought PillPack for $800 million before the outbreak. It’s unclear whether PillPack will displace any big pharma. In the year In 2018, Haven teamed up with JPMorgan Chase and Berkshire Hathaway for a modest effort to reform healthcare. Haven Folded in 2021. And in the late 1990s, they tried to buy Medicinestor.com. So, they have been interested in health care for a long time, but they have not succeeded. Healthcare is hard, and general lessons outside of healthcare don’t always apply to healthcare.
Newspaper: What does Amazon’s entry into primary care mean for consumers’ access to health care? Amazon is a trusted, well-known brand that can easily attract more customers. But it has a reputation for crowding out competitors once they hit the market, which can lead to limited choice and low accessibility for consumers.
Chandra: So far, I’m not that worried about crowding competitors. Maybe if they were incredibly successful they would do that, but my point is they won’t be incredibly successful. But, if they are, that’s talk the regulators should be aware of.
In the short term, my biggest concern is patient privacy. You’re going to get like 10 or 15 years of patient data from one treatment. What are you going to use that for? How are you going to use it? What protections will patients in this new Amazon/One Medical Health service have about how their information is used? I want regulators to think about this and fight.
“Amazon is good at selling other people’s products—but I don’t see it as a pharmaceutical company that can cure a disease.”
Another concern of regulators is that Amazon doesn’t know how to manage the health care business, so it could disrupt one treatment – it’s not just a logistics business. There’s not much one can do about it, but it would be a shame if a medical was more successful with United or CVS or Walgreens or Himana than if it was owned by Amazon.
Newspaper: Amazon is customer-driven and known for finding ways to streamline operations to deliver greater efficiency and save the company money. This can result in faster and more convenient service for customers. Access to medical care is anything but convenient or efficient. How does Amazon make customer experience more important in the service delivery business?
Chandra: I like the fact that Amazon might be able to improve the customer experience in healthcare, because people are upset about it. However, despite the general frustration, improving the patient experience does not save money in health care. Improving the experience makes access to health care easier and thus lowers costs. Second, the majority of health care spending is on end-of-life or terminally ill patients. So, improving the efficiency of primary care scheduling or vaccination appointments or something like that—that’s not going to be a very big market. Other companies, such as Teladoc Health, have taken the “patient experience” market even further than One Medical has. There are a bunch of other well-established, public companies that you know are brick-and-mortar facilities that you don’t want. What you want is a more virtual relationship with your doctor. And so, if that is indeed the future, buying more bricks and mortar at a 77 percent premium was actually the wrong answer.
Newspaper: Has the public’s new acceptance of telehealth changed the way providers view service delivery?
Chandra: We started to see the move to telehealth before the pandemic. Two and a half years of COVID has accelerated that movement, and it’s here to stay. But to be clear: these telehealth visits improve the patient experience. In general, it does not save money. First, scheduling visits for patients is easier, so more visits are scheduled. Second, almost all health care spending is on the sickest patients. A medical model is nowhere to be found, and a telehealth model is nowhere to be found. So telehealth is not so much a way to bend the cost curve as a way to make healthcare easier to access.
There’s this wish in health care that if people get more primary care and take care of things earlier, we’ll spend less on most conditions. That’s certainly possible, but we’ve never figured out how to systematically deliver on this wish. It might even be aspirational — like putting a man on Mars — but that’s very different from thinking about how we’re going to land a man on Mars. The sobering reality of health care is that terrible things—Alzheimer’s or cancer or an accident—can happen to anyone, including the healthiest people. This is the largest health care expense. The reason health insurance is expensive is not the lack of primary care. They are other precious things that we need when we are really sick. And Amazon is no expert at managing any.
Just because Amazon can introduce supply chain disruptions that increase its profit margins doesn’t mean patients will benefit from Amazon’s greater profitability.
Newspaper: Amazon seems to have a shot at revolutionizing the healthcare business, but is that really the same as changing the field?
Chandra: If you ask me what the biggest challenges are in American health care today, I would say that American health care is too expensive, and we desperately need more meaningful innovation for a whole host of diseases. and ALS. We want cures, not chronic disease control.
How does Amazon’s entry into healthcare help with both? Just because Amazon can introduce supply chain disruptions that increase its profit margins doesn’t mean patients will benefit from Amazon’s greater profitability. Amazon may continue to pay higher prices, but it will pocket the savings.
It’s also unclear how Amazon will reduce deductibles, co-pays and co-insurance. But we have to do this [things] Because we know that patients respond to these financial barriers by cutting back on valuable care. Amazon does not solve that problem.
Amazon is good at selling other people’s products—but I don’t see it as a pharmaceutical company that can cure disease.
Also, Amazon paid 77% more than the market value of One Medical. CVS passed a medical review. CVS is more knowledgeable about healthcare, including the supply chain, than Amazon. So what does Amazon see in a treat that CVS doesn’t?
This article was originally published by Harvard Press.
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