Amazon healthcare initiatives wake up an industry slow to change
The healthcare industry is rife with runaway costs and unrivaled bureaucracy, with established companies either unwilling or unable to fix their most fundamental problems. Amazon's entry into this market will no doubt pressure traditional players to shake things up.
Amazon is a company that scans business landscapes with a mercenary's eye. The healthcare sector appeared in its crosshairs several years ago, and its early ventures have already forced traditional companies into action.
For example, Amazon acquired PillPack, an online pharmacy service, in June 2018 for $753 million. No doubt this acquisition influenced the $69 billion CVS-Aetna merger a few months later, followed quickly by Cigna's acquisition of Express Scripts for $67 billion. And there are frequent rumors of potential mergers between large corporations and healthcare companies. One persistent rumor has Walmart acquiring Humana Inc., the country's fourth largest health insurer, which Aetna tried to bag in 2015.
There is serious money in play in the healthcare industry. Global healthcare spending totals nearly $8 trillion a year, according to figures from Forrester and CNBC. For comparison, global retail spending totals $2.4 trillion annually. In 2018, private sector employers in the U.S. spent nearly $700 billion on healthcare for employees. Per capita cost of healthcare in the U.S. in 2018 was $10,224, which is 28% higher than any other nation.
Amazon healthcare initiatives
The healthcare industry lacks Amazon's logistical expertise, said Jeffrey Becker, a senior healthcare strategy analyst at Forrester Research.
"The leadership behind Amazon's healthcare effort is equally put off by over-complications, having been described as 'incredibly allergic to market inefficiency,'" he said. "This is a team we expect to tackle the most complex healthcare problems head on with simple solutions and a relentless pursuit of process improvement."
With its expertise in cost cutting and reengineering for greater efficiency, Amazon has embarked on multiple healthcare initiatives. A central part of that strategy is Haven Healthcare, a joint venture Amazon formed in January 2018 with Berkshire Hathaway and JPMorgan Chase, which was intended to drive down insurance costs for the three companies' 1.2 million employees.
Haven is a nonprofit with the main objective to work directly with big healthcare providers, for example, Fresenius, Catholic Health Initiatives, or Cedars-Sinai, for better coverage and pricing. Haven bypasses health insurance companies to reduce premiums, deductibles and other costs.
Other companies, such as Walmart, use this strategy of buying healthcare direct from providers instead of insurers. To achieve the desired savings, a company must have legions of employees, Amazon counts 840,000 on its payroll, that are also well distributed geographically.
Amazon's healthcare forays in 2019 alone...