Can Amazon remake healthcare?

At a time when healthcare providers have turned to telemedicine, Amazon, the world’s largest online retailer, stunned Wall Street in late July when it announced it would acquire 1Life Healthcare Inc., which runs the telemedicine service. One Medical subscription-based primary care. service, for 3,900 million dollars. Investors and market watchers noted Amazon’s less-than-stellar forays into health care, while privacy advocates raised concerns about Amazon’s access to patients’ medical data. Others have expressed hope that Amazon will bring much-needed efficiencies and improve the customer experience for health care, as it has for retail shopping.

Amitabh Chandra is the Henry and Allison McCance Professor of 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 the Harvard Kennedy School. Chandra spoke to The Gazette about Amazon’s latest gamble and what it may mean for consumers.

Harvard Gazette: Given the size of your investment, what could Amazon’s recent acquisition of One Medical mean for the health care industry?

“Buying health care is nothing like buying the other items that Amazon might be selling.”

Chandra: Amazon is a huge company. I think we’re all excited because it’s Amazon, but the reality is that it’s a $4 billion expense for a company that has $160 billion dollars in current assets on their balance sheet that they can use to buy another company. So this is actually a very small acquisition for Amazon, very, very small.

Apart from this, the idea behind One Medical’s business model is twofold: to facilitate access to medical care and, through prevention and better management of primary care, to avoid later expenses. These are laudable goals. But One Medical certainly hasn’t figured out how to save money. They have been hemorrhaging money and have extremely low margins, in part because most health care spending goes to sick patients and cannot be easily reduced. Amazon has purchased the suction from One Medical, which again, is wonderful if they are successful. But from the perspective of an Amazon shareholder, or the hard evidence to date, it will likely cause that shareholder to lose money that One Medical shareholders were losing.

“Amazon has been interested in health care for more than 20 years, but its performance is between a C and a C+.”

Gazette: Why do you think Amazon decided to dive deeper into health care, an area where it hasn’t been very successful?

Chandra: When Amazon looks at healthcare, you probably see two opportunities where it could add a lot of value. First, the health care supply chain is a mess. There are so many middlemen selling to other people, and Amazon has done a great job of optimizing the supply chain. So they must be thinking that current insurers and other payers can’t improve the supply chain relative to what they can.

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The second area Amazon may think it can help with is price transparency: Prices are often opaque in health care. No one really knows the price of anything. But it’s a leap to think that by making pricing more transparent, we can save money on health care. There have been countless experiments around price transparency in healthcare, where patients have been given pricing information and there is no evidence that they use that information at the time they need their healthcare. Shopping for health care is nothing like buying the other items that Amazon might be selling, and these kinds of ideas involving more consumerism in health care haven’t worked, and it’s not that other companies haven’t. tried.

More broadly, Amazon has been interested in health care for more than 20 years, but its performance is somewhere between a C and a C+. They have been trying to run Amazon Care, just before the pandemic, to offer healthcare to their employees. The acceptance of that has been poor. Before the pandemic, they bought PillPack for about $800 million. It is not clear that PillPack has been able to displace any of the big pharmacies. They had a disaster in 2018 when they launched Haven, along with JPMorgan Chase and Berkshire Hathaway, which was a naive effort to reform health care. Haven closed in 2021. And in the late 1990s, they tried to buy drugstore.com. Therefore, they have been interested in health care for a long time, but without success. Medical care is difficult, and the general lessons of external medical care do not always apply to medical care.

Gazette: What does Amazon’s entry into primary care potentially mean for consumers’ access to healthcare? Amazon is a well-known and trusted brand, so the company could easily attract more customers. But it also has a reputation for crowding out competitors once they gain a foothold in a market, which could lead to limited choice and less access for consumers.

Chandra: I’m not that worried about them crowding out competitors yet. Maybe they will if they’re incredibly successful, but my point is that they’re not going to be incredibly successful. But, if they are, then that’s 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 that for? How are they going to use it? What safeguards will patients have in this new Amazon/One Medical healthcare about how their data will be used? I would like the regulators to think and fight with that issue.

“Amazon is good at selling other people’s products, but I don’t see it as a pharmaceutical company that can cure diseases.”

The other concern for regulators is that Amazon could bankrupt One Medical because it doesn’t know how to run a healthcare business, which is not just a logistics business. There isn’t much one can do about it, but it would be sad if One Medical would have been more successful if it were owned by United, CVS, Walgreens, or Humana than if it were owned by Amazon.

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Gazette: Amazon is very customer-oriented and is known for finding ways to streamline its operations to provide greater efficiency and save the company money. That can result in faster and more convenient service for customers. Getting medical care is anything but convenient or efficient. How could Amazon make customer experience more important in the service delivery business?

Chandra: I like the fact that Amazon could improve the customer experience in health care, because people are clearly frustrated by that. But despite the general frustration, improving the patient experience will not save money on health care. Improving the experience makes it easier to access health care and that increases spending. Second, most health care spending occurs at the end of life or on very sick patients. So improving the efficiency of primary care scheduling or immunization appointments or something like that, it’s not going to be a very big market. Other companies, such as Teladoc Health, have captured much more of the “patient experience” market than One Medical. There are already plenty of other well-established public companies that have realized that what you don’t want is a physical facility. What you want is more of a virtual relationship with your doctor. So if that really is the future, then buying a bunch of physical facilities at a 77 percent 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 accelerated that movement, and it’s here to stay. But to be clear: These telehealth visits enhance the patient experience. They don’t save money, in general. First, it’s easier for patients to schedule a visit, so more visits are scheduled. And second, almost all health spending is for very sick patients. That’s not where the One Medical model comes in, and that’s not where the telehealth model is. Thus, telehealth becomes less of a way to bend the cost curve than a way of facilitating access to health care.

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There’s this aspiration in health care that if we just got people more primary care and took care of things sooner, we’d be spending less on most of their conditions. That is certainly possible, but we have never figured out how to fulfill this aspiration in a systematic way. Aspiration 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 sobering reality of health care is that terrible things — Alzheimer’s, 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 a lack of primary care. It’s all the other expensive stuff we need when we’re really sick. And Amazon is not an expert in managing any of that.

“The fact that Amazon can introduce supply chain disruptions that increase its profit margin does not mean that patients benefit from Amazon’s increased profitability.”

Gazette: It sounds like Amazon has an opportunity to improve the health care business, but is that the same as fundamentally changing the field?

Chandra: If you ask me what the biggest challenges are in American health care today, I would say that health care in the US is really expensive and we desperately need more significant innovation for a whole host of diseases: diabetes, cardiovascular diseases, Parkinson’s, Alzheimer’s, and ALS. We want cures, not chronic disease control.

How does Amazon’s foray into health care help anyone? Just because Amazon can introduce supply chain disruptions that increase its profit margin does not mean that patients will benefit from Amazon’s increased profitability. Amazon could continue to charge the high prices but pocket the savings.

It’s also unclear how Amazon will reduce deductibles, copays and coinsurance. But we have to do these [things] because we know that patients respond to these financial barriers by reducing valuable care. Amazon is not going to fix that problem.

Amazon is good at selling other people’s products, but I don’t see it as a pharmaceutical company that can cure diseases.

In addition, Amazon also paid 77 percent more than One Medical’s market value. CVS looked at One Medical and decided not to acquire it. CVS has much more knowledge about health care, including the supply chain, than Amazon. So what does Amazon see in One Medical that CVS doesn’t?

This article originally appeared on the Harvard Gazette.

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