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What could Amazon’s approach to health care look like?

by HBR

February 13, 2018 | 1:43 pm
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It is clear from some of its recent moves that Amazon.com sees the 18% of U.S. gross domestic product dedicated to health care as fertile ground for expansion. Consider its decision to pursue the market for pharmaceutical distribution, or the recent announcement that it will be teaming up with Berkshire Hathaway and JPMorgan Chase to reduce the health care spending of the more than 1 million employees that work for the three companies.

This latest move has engendered robust debate. Proponents liberally term it “disruptive,” seeing a natural diversification opportunity for the firm that aspires to be “earth’s most customer-centric company.” Meanwhile, skeptics highlight Amazon’s lack of expertise in health care, a sector that many deem resistant to the competitive forces that characterize the retail and web services markets in which Amazon has thrived. Given this state of affairs, it’s worth thinking about Amazon’s efforts in a conditional manner: If Amazon succeeds in changing health care, how might it do so? (Disclosure: I own a very small number of Amazon shares.)

MAKING ROUTINE TRANSACTIONS SEAMLESS AND RELIABLE. The introduction of Amazon Prime, which provides two-day delivery for many Amazon orders for a fixed annual fee, represented a huge shift in Amazon’s early business model. The move eliminated a key barrier for consumers, who no longer had to combine many items in a single order to save on shipping. This expertise could be used to improve health care delivery by addressing the administrative hassles and scheduling challenges faced by patients seeking routine services in a one-stop setting.

The inconveniences associated with parking, waiting and missing time at work cause many patients to either dread the process of receiving care or to forgo it entirely. Amazon’s acquisition of Whole Foods has given it a retail footprint that could allow it to offer basic health care services such as those found at retail clinics operated by CVS or Walgreens. Amazon’s history of competing on price for the delivery of routine products and services will likely serve it well should it decide to offer similarly routine — though hugely important — health care services such as immunizations, blood draws and strep throat cultures.

PASSIVE DATA CAPTURE. One of the most compelling (and, to privacy advocates, most concerning) aspects of Amazon is the wealth of data it can capture about the purchasing habits of its customers. What’s more, this data capture is passive and thus does not require consumers to enter much, if any, information on their own. Amazon’s recent move into cashier-less retailing with its Amazon Go store in Seattle offers a glimpse into how the company’s data-capture capabilities could be used in the health care industry.

After swiping their phones over a sensor, customers at Amazon Go are tracked as they pick up products or return them to the shelves. As a result, Amazon knows exactly what’s in a shopper’s possession when he or she walks out of the store. The total shopping bill is automatically charged to each customer’s Amazon account.

Similarly, many hospitals are adopting real-time location systems to track the movement of people and equipment throughout their facilities. These systems can tell an executive precisely how much time each of the hospital’s operating rooms or inpatient beds have been occupied, or it can inform a provider who is running  behind schedule exactly how long the next patient has been waiting. This information can be helpful in improving the execution of the complex services provided by many health facilities.

DATA ANALYTICS. By simplifying data capture, Amazon frees up resources to analyze that information for the purposes of business intelligence. What are consumers purchasing and in what combinations? Which purchase decisions do consumers appear to labor over and which do they seem to make quickly? Turning that lens to health care data could be a powerful tool, a point that has not been lost on the many health care companies building analytics tools of their own.

Amazon could provide a wealth of integrated data that links an individual’s medical record with his overall purchasing patterns, genetic information (particularly if Amazon eventually offers blood draws) and activity patterns. This type of data integration is increasingly sought after by health care delivery systems that are trying to target care based on a patient’s specific preferences or genomic information.

TURNING ITSELF INSIDE OUT. A final and critical aspect of Amazon’s expertise is the company’s willingness to turn itself inside out. Specifically, Amazon has a knack for transforming its efforts to solve its own operational challenges into future commercial products and services. Perhaps the most famous result of this willingness is Amazon’s cloud computing unit, Amazon Web Services.

AWS emerged from a 2003 strategic retreat, during which Amazon executives noted the challenges that units at the company faced in having to “reinvent the infrastructural wheel” each time they initiated a new service offering. These executives agreed that if such issues were challenging for Amazon, they must surely be plaguing smaller internet companies. That realization hatched AWS as a service offering cloud computing infrastructure on a “pay-by-use” basis.

When AWS was introduced, Amazon did not necessarily know which AWS services web developers — who had previously not been Amazon customers — would most need or use. But the beauty of AWS’ business model was that Amazon didn’t need to know that. Rather, AWS let developers decide which services they wanted to use. Amazon then watched those usage patterns and adjusted its offerings accordingly.

Health care is similar. Amazon has an internal challenge — managing the health spending of its employees — that is shared by many other companies. Yet Amazon likely does not have a full “solution” in mind just yet. Rather, it has hypotheses to test. By creating a space in which those ideas can be tested, Amazon may be able to play a key role in allocating resources to solutions that show themselves, over time, to be promising.

As the debate over Amazon’s potential to transform health care continues, it’s important to acknowledge that the company’s path forward is marked by many uncertainties. To the extent that success in the industry requires a deep institutional knowledge of health, medicine and insurance, Amazon may face an uphill battle. If, however, the key to success lies in a greater attention to operational execution, data analysis and customer service, Amazon may find a significant opportunity.

(Robert S. Huckman is the Albert J. Weatherhead III professor of business administration at Harvard Business School and the faculty chair of the HBS Health Care Initiative.)

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by HBR

February 13, 2018 | 1:43 pm
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