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Is the Amazon health-care venture enough to make a big enough splash?

Is the Amazon health-care venture enough to make a big enough splash?
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Corporate giants have jolted the U.S. health industry in recent weeks with announcements of new partnerships and ventures aimed at disruption.  

Last week, Amazon, JPMorgan Chase & Co. and Berkshire Hathaway created a sensation when they announced they were forming a company to reduce health care costs for employees.  

Days before that, Apple said users would be able to access and store personal health records from different providers in the Health app of its operating system iOS 11.3’s beta version.

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Around the same time, a group of health systems, fed up with rising costs, announced they would form a nonprofit generic drug company. And who can forget the splash made by CVS Health’s plan to acquire Aetna?

 

The moves by these new entrants signal the continuing desire of large companies — many from outside health care — to transform the U.S. health industry, which most view as rife with inefficiencies, unsustainable costs and unhappy customers. 

Employers, consumers and the market in general appear to be losing patience with traditional players, which have largely continued to tread their well-worn paths.

So we see these powerful players trying to shake up the health ecosystem. CVS Health and Aetna may join retail pharmacy, pharmacy benefits management and payer solutions.

In partnership with provider networks such as Johns Hopkins Medicine and Cedars-Sinai, Apple is offering consumers health record access that would be as easy as accessing songs and selfies.

The venture by Berkshire Hathaway, JPMorgan Chase & Co. and Amazon, while ill-defined so far, likely will try to use technology to bend the cost curve for their employees.

Armed with tech know-how and a laser focus on consumers, new entrants have been wrestling with the U.S. health industry’s complexities for years.  

A substantial portion of the Fortune 50 is involved in health care in one way or another, with up to half of them classifiable as new entrants.

The U.S. health industry is in the midst of a slow but seismic shift fueled by consumerism, a move toward paying for value instead of volume, technological advances, care decentralization and growing interest in wellness.  

Their success is not assured, at least not in the short term. Many employers have banded together in attempts to stem rising health-care costs for their businesses and employees. But employer health cost trends have continued to outpace general economic inflation.  

Even taking a simple step toward consumerism, such as making personal health records accessible, remains difficult. Apple’s attempt to unify healthcare records under a single platform follows efforts by other major technology companies to turn EHR data into strategic assets. Some have been short-lived. Yet times have changed—as have consumers.

So after the splash in the press release, will the wave be big enough to transform the U.S. health-care system? 

Can these new entrants reconcile the regulatory barriers?

Most industries are regulated, of course, but health care — dealing as it does with life and death — is particularly so.

Health care regulation spans all government branches and the private sector. Many new startups have tried to enter but have left or sought out less regulated parts of the industry, such as wellness.

Selling and distributing drugs requires costly and complex supply chains overseen by the FDA, DEA, state pharmacy boards and more. Technology solutions require access to data that are hard to share because of privacy regulations.

No regulatory barrier is insurmountable. But solving these issues requires time, investment and talent.

It’s not a problem that will be solved by appointing a few former healthcare executives to a board or executive positions; it’s one that will require deep digging to employ clinicians, data scientists, and regulatory and compliance specialists.

Will these new entrants buy or borrow that expertise from the traditional health industry? Will new companies end up being beholden to the legacy system that holds the people and knowledge that unlock the regulatory doors?   

Will the corporate spin-off  be in it for the long haul?

Traditional health organizations know that it often takes a long time to achieve returns on investment. U.S. health insurance companies are just now logging profits in their health insurance exchange businesses, years after the Affordable Care Act marketplaces opened.

Physician groups that transform themselves into accountable care organizations often don’t see bonuses for years. New entrants sometimes fail to understand that the third-party payment system has trained consumers to spend freely when insurance pays for their care but to avoid care when they’re spending their own money.  

And the more significant question may be: Will any of this result in a less expensive health system? Put another way, when you invest to create a new health model, will the model have less expensive inputs and components or just re-create the existing system and costs?  

Will consumers capitalize on these changes?

In recent years, in our Health Research Institute (HRI) consumer surveys, we have found consistent openness to new ways of accessing care, especially if those ways are more convenient, digital and affordable. This is true even of older consumers.

In 2017, for example, HRI found that almost half of consumers 65 and older were open to sending a digital image of a skin problem to a dermatologist using their smartphones.  

But many consumers still want to see a doctor face-to-face, and they don’t want to shop around for the best price when their child has the flu. How will these new companies help consumers navigate the options, and most important, motivate them to use the most cost-efficient one? For several years, state government and large employers have been pushing for more pricing transparency, but these efforts have had little effect on costs.

Challenges surely lie ahead for these companies’ ambitious projects, whether they are new entrants or legacy healthcare companies building new partnerships. But the industry seems to have reached a tipping point. We are likely to continue to see powerful players taking serious actions to try to fix a system that has so far failed to do much more than tinker around the edges.

Kelly Barnes is the U.S. Health Industries and Global Health Industries consulting leader at PricewaterhouseCoopers (PwC). PwC's clients include companies in the health care industry.