Can Amazon remake well being care?

At a time when well being care suppliers have gone all in on telemedicine, Amazon, the world’s largest on-line retailer, shocked Wall Road in late July when it introduced it will purchase 1Life Healthcare Inc., which runs the subscription-based One Medical primary-care companies, for $3.9 billion. Buyers and market watchers famous Amazon’s less-than-stellar forays into well being care, whereas privateness advocates raised issues about Amazon’s entry to affected person medical knowledge. Nonetheless others have voiced hopes Amazon will convey much-needed efficiencies and improved buyer expertise to well being care because it has to retail buying.

Amitabh Chandra is the Henry and Allison McCance Professor of Enterprise Administration and school chair of the MS/MBA program in life sciences at Harvard Enterprise College. He’s additionally Ethel Zimmerman Wiener Professor of Public Coverage and Director of Well being Coverage Analysis at Harvard Kennedy College. Chandra spoke to the Gazette about Amazon’s newest gamble and what it might imply for shoppers.

GAZETTE: Given the dimensions of its funding, what might Amazon’s current acquisition of One Medical imply for the well being care trade?

CHANDRA: Amazon is a gigantic firm. I feel we’re all excited as a result of it is Amazon, however the actuality is that it is a $4 billion expense for an organization that has $160 billion {dollars} of present property on its stability sheet that they will deploy to purchase one other firm. So, that is really a really small acquisition for Amazon—very, very small.

This apart, the thought behind the enterprise mannequin of One Medical is twofold: to make well being care simpler to entry, and thru prevention and higher major care administration to avert downstream spending. These are laudable objectives. However One Medical actually has not discovered how to save cash. They have been hemorrhaging cash, they usually have extraordinarily low margins, partially as a result of most of well being care spending is on sick sufferers and cannot be simply diminished. Amazon has purchased into One Medical’s aspiration, which once more, is great in the event that they succeed. However from the angle of an Amazon shareholder, or the hard-nosed proof so far, it’s most likely going to trigger that shareholder to lose the cash that One Medical shareholders had been dropping.

GAZETTE: Why do you suppose Amazon determined to plunge additional into well being care, an space they have not had quite a lot of success in?

CHANDRA: When Amazon appears to be like at well being care, they most likely see two alternatives the place they might add quite a lot of worth. First, the provision chain in well being care is a multitude. There are such a lot of intermediaries promoting to different individuals, and Amazon has accomplished extraordinarily properly by streaming the provision chain. In order that they should be considering that the present insurers and different payers cannot enhance the provision chain relative to what they will.

The second space the place Amazon might imagine it could actually assistance is on worth transparency: Costs are sometimes opaque in well being care. No person actually is aware of the worth of something. Nevertheless it’s a leap to suppose that by making the costs extra clear, we are able to get monetary savings in well being care. There have been numerous experiments round worth transparency in well being care, the place sufferers have been given data on costs and there is no proof they use that data on the time they want their well being care. Looking for well being care is nothing like searching for the opposite gadgets that Amazon is perhaps promoting and these sorts of concepts involving extra consumerism in well being care haven’t labored—and it isn’t like different corporations haven’t tried.

Extra usually, Amazon has been thinking about well being look after over 20 years, however their efficiency is someplace between a C and C+. They have been making an attempt to run Amazon Care, simply earlier than the pandemic, to supply well being care to its staff. The take up of that has been poor. Earlier than the pandemic, they purchased PillPack for one thing like $800 million. It isn’t clear that PillPack has been in a position to displace any of the massive pharmacies. That they had a catastrophe in 2018 after they launched Haven, together with JPMorgan Chase and Berkshire Hathaway, which was a naive effort to reform well being care. Haven folded in 2021. And within the late Nineteen Nineties, they tried to purchase drugstore.com. So, they have been thinking about well being look after a really very long time, however unsuccessful. Well being care is difficult, and common classes from outdoors well being care do not all the time apply to well being care.

GAZETTE: What does Amazon’s entry into major care imply doubtlessly for shopper entry to well being care? Amazon is a trusted, well-known model so the corporate might simply appeal to extra prospects. Nevertheless it additionally has a status for crowding out opponents as soon as they get a foothold in a market, which might doubtlessly result in restricted alternative and fewer entry for shoppers.

CHANDRA: I am not that nervous about them crowding out opponents simply but. Possibly they’re going to try this in the event that they’re extremely profitable, however my level is they are not going to be extremely profitable. However, if they’re, then that is a dialog that the regulators want to pay attention to.

Within the quick run, my nice fear is affected person privateness. They are going to get one thing like 10 or 15 years of affected person knowledge from One Medical. What are they going to make use of that for? How are they going to make use of it? What safeguards will sufferers on this new Amazon/One Medical well being care have on how their knowledge shall be used? I would really like regulators to consider and wrestle with that situation.

The opposite fear for regulators is that Amazon might bungle One Medical as a result of it does not know find out how to run a well being care enterprise—which isn’t solely a logistics enterprise. There is not a lot that one can do about this, however it will be unhappy if One Medical would have been extra profitable if owned by say, United or CVS or Walgreens or Humana, than if owned by Amazon.

GAZETTE: Amazon is very customer-driven and recognized for locating methods to streamline its operations to supply larger efficiencies and save the corporate cash. That may end up in sooner, extra handy service for purchasers. Getting medical care is something however handy or environment friendly. How may Amazon make the shopper expertise extra vital within the enterprise of delivering companies?

CHANDRA: I like the truth that Amazon may be capable of enhance the shopper expertise in well being care, as a result of persons are clearly pissed off by that. However, regardless of the final frustration, bettering the affected person expertise will not be going to save cash on well being care. Bettering the expertise makes it simpler to entry well being care and that will increase spending. Second, many of the spending in well being care occurs on the finish of life or on very sick sufferers. So, bettering the effectivity of major care scheduling or vaccine appointments or one thing like that—that is not going to be a really huge market. Different corporations, like Teladoc Well being, have captured rather more of the “affected person expertise” market than One Medical has. There’s already a bunch of different well-established, public corporations which have discovered that what you do not need is a brick-and-mortar facility. What you need is extra of a digital relationship together with your physician. And so, if that is actually the longer term, then shopping for a bunch of brick-and-mortar amenities at a 77% premium was precisely the flawed reply.

GAZETTE: Has the general public’s newfound acceptance of telehealth shifted the way in which suppliers view supply of service?

CHANDRA: We would already began to see a transfer towards telehealth earlier than the pandemic. Two and a half years of COVID accelerated that motion, and it is right here to remain. However to be clear: These telehealth visits enhance the affected person expertise. They do not get monetary savings, on the whole. First, it is simpler for sufferers to schedule a go to, so extra visits get scheduled. And second, virtually the entire spending in well being care is on very sick sufferers. That is not the place the One Medical mannequin acts, and that is not the place the telehealth mannequin is. So, telehealth does not turn out to be a strategy to bend the price curve as a lot as a strategy to make well being care simpler to entry.

There’s this aspiration in well being care that if we solely received individuals extra major care, and took care of issues earlier, we might be spending much less on most of their situations. That is actually potential, however we have by no means discovered find out how to ship this aspiration in a scientific method. The aspiration may even be potential—like placing a human on Mars—however that is fairly totally different than considering that we all know find out how to land a human on Mars. The sobering actuality of well being care is that horrible issues—Alzheimer’s or most cancers or an accident—can occur to anybody, together with very wholesome individuals. And that is the majority of well being care spending. The rationale that medical insurance is dear will not be the dearth of major care. It is all the opposite costly stuff that we’d like after we’re actually sick. And Amazon is not any skilled in managing any of that.

GAZETTE: It appears that evidently Amazon has a shot at bettering the enterprise of well being care, however is that the identical as actually essentially altering the sector?

CHANDRA: In case you ask me what the largest challenges in American well being care are at present, I might say that US well being care is absolutely costly, and that we desperately want extra significant innovation for a complete host of illnesses—diabetes, heart problems, Parkinson’s, Alzheimer’s, and ALS. We would like cures, not persistent illness administration.

How does Amazon’s foray into well being care assist with both? Just because Amazon may be capable of introduce supply-chain disruptions that enhance its revenue margin doesn’t imply that sufferers will profit from Amazon’s larger profitability. Amazon may proceed to cost the excessive costs however pocket the financial savings.

It is also not clear how Amazon will decrease deductibles, co-payments, and co-insurance. However we have to do these [things] as a result of we all know sufferers reply to those monetary boundaries by slicing again on invaluable care. Amazon’s not going to repair that downside.

Amazon is sweet at promoting different individuals’s merchandise—however I do not see it as a pharmaceutical firm which may treatment illness.

Additionally, Amazon additionally paid 77% greater than the market worth of One Medical. CVS checked out One Medical and handed on buying it. CVS is much more educated about well being care, together with the provision chain, than Amazon is. So, what does Amazon see in One Medical that CVS doesn’t?

This story is revealed courtesy of the Harvard Gazette, Harvard College’s official newspaper. For extra college information, go to Harvard.edu.