At a time when healthcare providers have bet on telemedicine, Amazon, the world’s largest online retailer, surprised Wall Street in late July when it announcement it would acquire 1Life Healthcare Inc., which operates subscription-based primary care service One Medical, for $3.9 billion. Investors and market watchers have noted Amazon’s less-than-stellar forays into healthcare, while privacy advocates have raised concerns about Amazon’s access to patient medical data. Still others have expressed hope that Amazon will bring much-needed efficiencies and better customer experiences to healthcare, just as it does to retail shopping.
Amitabh Chandra holds the Henry and Allison McCance Chair in Business Administration and Chair of 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 Research at Harvard Kennedy School. Chandra spoke to the Gazette about Amazon’s latest bet and what it could mean for consumers.
GAZETTE: Given the size of its investment, what could Amazon’s recent acquisition of One Medical mean for the healthcare industry?
CHANDRA: Amazon is a huge company. I think we’re all excited because this is Amazon, but the reality is that this is a $4 billion outlay for a company that has $160 billion in assets to term in its balance sheet that it can deploy to buy another business. So this is actually a very small acquisition for Amazon – very, very small.
This aside, the idea behind One Medical’s business model is twofold: to facilitate access to healthcare and, through prevention and better management of primary care, to avoid downstream expenses. These are laudable goals. But One Medical certainly hasn’t figured out how to save money. They have hemorrhaged money and their margins are extremely low, in part because most healthcare spending is on sick patients and cannot be easily reduced. Amazon has embraced One Medical’s aspiration, which again is wonderful if they are successful. But from an Amazon shareholder’s perspective, or the hard evidence to date, this is likely going to cause that shareholder to lose the money that One Medical shareholders were losing.
GAZETTE: Why do you think Amazon decided to dive deeper into healthcare, an area they haven’t had much success in?
CHANDRA: When Amazon looks at healthcare, they likely see two opportunities where they could add a lot of value. First, the healthcare supply chain is a mess. There are so many middlemen selling to other people, and Amazon has been extremely successful in streamlining the supply chain. So they have to think that current insurers and other payers can’t improve the supply chain over what they can.
The second area where Amazon may think it can help is price transparency: Prices are often opaque in healthcare. No one really knows the price of anything. But it is a leap to think that by making prices more transparent, we can save money in health care. There have been countless experiments around price transparency in healthcare, where patients have been given price information and there is no evidence that they use that information when they need their care. health. Buying health care has nothing to do with buying other items that Amazon might sell and those kinds of ideas involving more consumption in health care haven’t worked – and they don’t. not like other companies haven’t tried.
More generally, Amazon has been interested in healthcare for more than 20 years, but their performance is between C and C+. They tried to run Amazon Care, just before the pandemic, to provide health care for its employees. Adoption of this has been poor. Before the pandemic, they bought PillPack for something like $800 million. It is not clear that PillPack was able to displace any of the large pharmacies. They had a disaster in 2018 when they launched Haven, along with JPMorgan Chase and Berkshire Hathaway, which was a naïve effort to reform healthcare. Haven closed in 2021. And in the late 1990s they tried to buy drugstore.com. So they have been interested in health care for a very long time, but without success. Health care is difficult, and general lessons learned from outside health care don’t always apply to health care.
GAZETTE: What does Amazon’s entry into primary care potentially mean for consumer access to healthcare? Amazon is a trusted and well-known brand, which makes it easy for the company to attract more customers. But it also has a reputation for crowding out competitors once they gain a foothold in a market, which could potentially lead to limited choice and reduced access for consumers.
CHANDRA: I’m not worried about them crowding out competitors just yet. Maybe they will if they’re incredibly successful, but what I’m saying is they won’t be incredibly successful. But, if they are, then this is a conversation regulators need to be aware of.
In the short term, my big concern is patient privacy. They’re going to get something like 10 or 15 years of patient data from One Medical. What are they going to use it for? How are they going to use it? What guarantees will patients in this new Amazon/One Medical healthcare system have about how their data will be used? I would like regulators to think about this issue and wrestle with it.
The other worry regulators have is that Amazon could screw up One Medical because it doesn’t know how to run a healthcare business — which isn’t just a logistics company. There’s not much you can do about it, but it would be sad if One Medical had been more successful if it was owned, say, by United or CVS or Walgreens or Humana, than s it belonged to Amazon.
GAZETTE: Amazon is very customer-focused and is known for finding ways to streamline its operations to provide greater efficiency and save the company money. This can result in faster and more convenient service for customers. Getting medical care is anything but practical or effective. How could Amazon make customer experience more important in service delivery?
CHANDRA: I love that Amazon may be able to improve the healthcare customer experience because people are clearly frustrated with it. But, despite the general frustration, improving the patient experience won’t save money on healthcare. Improving the experience makes it easier to access health care and increases spending. Second, most health care expenditures are made at the end of life or for very ill patients. So improving the efficiency of primary care scheduling or vaccine appointments or something like that – it’s not going to be a very big deal. Other companies, like Teladoc Health, have captured far more of the “patient experience” market than One Medical. There are already a bunch of other well-established public companies that have figured out that what you don’t want is a brick-and-mortar setup. Rather, what you want is a virtual relationship with your doctor. And so, if this is really the future, then buying a bunch of physical installs at a 77% premium was exactly the wrong answer.
GAZETTE: Has the new public acceptance of telehealth changed the way providers view service delivery?
CHANDRA: We had already started to see a move towards telehealth before the pandemic. Two and a half years of COVID has accelerated this movement, and it’s here to stay. But let’s be clear: these telehealth visits improve the patient experience. They don’t save money, in general. First, it is easier for patients to schedule a visit, so more visits are scheduled. And second, almost all health care spending goes to very sick patients. That’s not where the One Medical model works, and that’s not where the telehealth model is. Thus, telehealth does not become a means of bending the cost curve as much as a means of facilitating access to health care.
There is this aspiration in health care that if we gave people more primary care and took care of things sooner, we would spend less on most of their conditions. It is certainly possible, but we have never understood how to achieve this aspiration in a systematic way. Suction might even be possible – like putting a human on Mars – but that’s quite different from thinking we know how to land a human on Mars. The sad reality of health care is that terrible things — Alzheimer’s disease, cancer, or an accident — can happen to anyone, including very healthy people. And that’s the bulk of health care spending. The reason health insurance is expensive is not the lack of primary care. These are all the other expensive things we need when we’re really sick. And Amazon is no expert in handling all of this.
GAZETTE: It looks like Amazon has a chance to improve the healthcare industry, but is that the same as fundamentally changing the field?
CHANDRA: If you ask me what are the biggest challenges in American health care today, I would say that health care in the United States is very expensive and we desperately need more meaningful innovations for a whole range of diseases – diabetes, cardiovascular diseases, Parkinson’s, Alzheimer’s, and ALS. We want cures, not chronic disease management.
How is Amazon’s foray into healthcare helping either? Just because Amazon may be able to introduce supply chain disruptions that increase its profit margin does not mean that patients will benefit from Amazon’s greater profitability. Amazon could continue to charge the high prices but pocket the savings.
It’s also unclear how Amazon will reduce deductibles, co-payments and coinsurance. But we have to do these [things] because we know that patients respond to these financial barriers by cutting back on valuable care. Amazon is not going to fix this problem.
Amazon is good at selling other people’s products, but I don’t see it as a drug company that can cure disease.
In addition, Amazon also paid 77% more than the market value of One Medical. CVS looked at One Medical and refused to acquire it. CVS knows much more about healthcare, including the supply chain, than Amazon. So what does Amazon see in One Medical that CVS doesn’t?
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