Amazon, CVS are spending big in healthcare — health systems must respond

Nontraditional healthcare companies are digging deeper into healthcare delivery with acquisitions and partnerships. Health systems have to keep an eye on the disrupters and respond in the best way possible for patient care.

Amazon entered into an agreement to acquire One Medical, a virtual and in-person primary care platform, for $3.9 billion earlier this year. CVS Health shortly thereafter succeeded in signing an agreement to acquire home health company Signify Health for $8 billion. Walmart, Google and more continue to make partnerships and acquisitions strengthening healthcare and technology offerings.

Even though Amazon recently announced it would shutter its virtual care service Amazon Care, the initiative was hardly a failure.

Amazon typically experiments a lot when entering a new arena to see what sticks and then consolidates under one leader. In healthcare, that leader is Neil Lindsay. He sent the email out to Amazon Health Services employees addressing Amazon Care's closing and noted the company learned from the initiative.

"Amazon is a technology company and a learning company. They learn from what they do. If something is not meeting expectations, they'll stop doing it," said Sara Vaezy, executive vice president and chief strategy and digital officer at Renton, Wash.-based Providence. "Everything is done in an iterative fashion. A lot of Amazon Care, once they finalize the acquisition of One Medical, will become somewhat redundant."

One Medical has an EHR, employer relationships, clinicians, and the hybrid model of physical and virtual assets already built into the business model.

Health systems are at various stages of digital transformation and balancing the virtual and in-person care continuum. Disruptors like Amazon, CVS Health and Walmart dipping further into healthcare delivery could capture patients from systems late to adopt virtual care. Providence is not one of those systems.

"We've been working on virtual care for a while. For us, Amazon's acquisition of One Medical doesn't change anything," Ms. Vaezy said. "We've been in a market that has been earlier in these developments, a market where disruption is happening quite a bit by the 'pay-viders' of the world and nontraditional disruptors like Amazon. We've been anticipating virtual care to pick up steam for several years."

The nontraditional disruptors entering the healthcare space have created different market dynamics and service fragmentation, as every company is trying to carve out their own unique space to own aspects of the patient journey.

"In the fragmented environment, data interoperability, data infrastructure and operating systems that power health systems is important because they can create connectivity amid fragmentation," Ms. Vaezy said. "We've been preparing for this and started to build some of the tech platforms that enable us to become good partners in these types of environments. You can't slow down the natural wave of how the market evolves. We're not trying to slow down how disruption happens in the market; we're trying to respond to it and do what is best for the patients."

Providence is spending a lot of time on enabling interoperability and building a connectivity framework for patients to glean value out of the technology deployed. Ms. Vaezy is also thinking about what could come next for the big disrupters.

"Most of the companies are publicly traded and they have to go where the dollars are," she said. "There are a few places where the healthcare dollars are: Medicare Advantage, pharmacy and insurance. Those are a couple of the areas where I think they will go. Insurance would be new for Amazon, but if it were me, that's what I would do."

Amazon, CVS Health and other disruptors tend to saturate their traditional core markets and then move into new domains where there are significant profit pools, including the provider space, which is less capital-intensive than hospitals where there is a lot of real estate involved. Hospitals are bound by real estate, which is a capital-heavy model for care compared to telehealth.

"We haven't moved into a new economic model swiftly enough to make the economics work for us with our huge fixed cost base," Ms. Vaezy said. "We are still bound by traditional economic models and huge buildings. The disruptors have got the ability in retail to change prices so they can continue to make a margin. We cannot do that."

The disruptors are also focused on applying technology to improve quality and lower the cost of care, which could be a big challenge for health systems as companies like Walmart refine their approach to centers of excellence and value-based care.

"We need to be really good partners for these folks," Ms. Vaezy said. "The delivery of care is becoming more and more decentralized to all of these different market players to where folks are at home and work. Health systems, we are out of time. There is this urgency that we need to adopt as health systems that we haven't fully leaned into for many years. Now the financial situation with the vast majority of health systems being the way it is, there is no more room to entrench ourselves or dig our heels around the old models of doing things."

Most health systems face big challenges to keep costs down in the inflationary environment and remain strategic about their digital assets to stay competitive as healthcare becomes more decentralized and fragmented. Ms. Vaezy advised not pulling back on digital spend, but instead making strategic investments in digital technology to prepare for the future.

"Digital will be a cornerstone of being a good partner to disruptors going forward," she said. "How you aggregate and capture demand is going to change, and you need to be progressive, especially as the environment gets more decentralized and competitive. Digital is how you do that."


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