Vertical Win-tegration
Amazon is asking about health insurance, vertical integration is bad and there's going to be a lot more of it, and more.
Things That Happened
FHIR it up. The CDC announced that it’ll be rolling out an app in May meant to make it easier for hospitals, labs, and everyone who is performing tests and caring for COVID-19 patients to share electronic case reports with public health authorities. This crisis is exposing the cracks in our national health IT strategy, most notably the lack of a widely-utilized electronic conduit for providers to report case data to public health agencies.
As Aaron Miri and Daniel O’Neill point out in their Health Affairs Blog post on the data infrastructure necessary to coordinate a response to the pandemic, reporting of case data to public health agencies has been voluntary (even for facilities that receive federal money to implement EHR systems.) This means that in this public health crisis, authorities don’t have the data they need to understand the spread of the virus and coordinate the activities of healthcare providers. The CDC’s app will make it easier to share data, but unless data sharing is made compulsory it won’t have much of an effect.
Hypothetical questions… Jason Del Rey reported in Vox this week that Amazon sent a survey to their 900,000 marketplace sellers asking if they’re happy with their current health insurance. What could it mean? See Things Worth Unpacking below for analysis.
InstaCost. Instacart and Costco are teaming up to offer home delivery of prescriptions filled by Costco’s pharmacy. While most brick-and-mortar pharmacies offer delivery services through the mail, same-day delivery with a partner like Instacart (who also delivers from CVS) can be a way to stave off their online challengers (PillPack, Alto Pharmacy, et al.)
A Mural for free. GE and Microsoft announced they’re hastening the release of their Mural Virtual Patient Monitoring Software in order to help hospitals manage COVID-19 patients. They’re also waiving all fees (aside from those related to implementation) until 2021. The system helps providers centrally monitor and manage more ICU patients, so it’s easy to see how it’d be useful right now.
Indie shock. MGMA conducted a survey, mostly among independent medical practices, in the first week of April, that showed a staggering 60% decline in patient volumes on average. 48% of surveyed practices reported furloughing staff, while 22% have already held layoffs. I wrote last week about the devastating effect this crisis is having on small practices, but it’s worth hammering home that this crisis is likely to shutter a fair number of independent medical practices.
Purchase in place. While they probably couldn’t find toilet paper, Blue Shield of California subsidiary Altais managed to find something to buy. Specifically, they announced an agreement to purchase a 2,700 physician group, Brown & Toland, based in Oakland, California. Given that insurance companies are weathering this storm nicely, and the fact that so many smaller practices are having a rougher go, we can expect the pace of provider group acquisitions to pick up throughout the year.
Party line. Teladoc, the only major public telehealth company, reported a 70% year over year increase in Q1 visit volumes. They did so while also upping their Q1 revenue targets by about 6%. Off the main stage, Telehealth startups received funding in aggregate of $788M in Q1, while BCBS of Massachusetts reported a 5,100% increase in telehealth claims in March compared to their 2019 monthly average. Utilization numbers during the crisis won’t last, but we should expect the overall trend towards a wider embrace of telehealth to hasten a bit.
Electing to stay home. Johnson & Johnson is predicting a 65-80% decline in elective surgical procedures in Q2. While this will be devastating to their medical devices unit, it’ll be just as devastating to everyone else involved in performing and paying for those surgeries.
Things Worth Unpacking
Amazon started asking its sellers about their health insurance. Jason Del Rey reported in Vox this week that Amazon sent a survey to sellers inquiring about their current health insurance coverage, and more tellingly, asking “Are you interested in alternative health insurance options?”
The obvious question that arises from this revelation: Is Amazon thinking about offering health insurance to its sellers? We can’t arrive at any definitive answers today, but we can take a look at Amazon’s typical strategies to determine if it even makes sense for them to offer this.
Amazon likes to build products and services that make your overall experience with Amazon richer, and thus make it less likely you will use other retailers to buy stuff. The classic example of this is Prime Video. The service debuted in 2011 as an additional benefit to Prime members; your Prime membership fee now got you fast & free shipping and a library of content in the vein of Netflix and Hulu. Giving Prime members this added benefit made it more likely they’d continue to pay for the membership, and thus more likely they’d continue to buy things from Amazon.
Amazon likes to deepen relationships with customers by creating ecosystems of value, where each product and service feeds the other, and ultimately provides a customer experience that is well-priced and extremely difficult for any competitor to match.
Returning to the question at hand: how would a health insurance offering fit into the above strategic considerations? I would argue that it’s entirely possible Amazon would be looking at offering health insurance to its sellers. Here’s why.
Amazon’s third-party seller marketplace is monumentally important to the company. It generates more e-commerce revenue than Amazon does through direct sales. And while Amazon has an increasingly diverse set of offerings, e-commerce is still the very heart of the business. Amazon finds itself beholden to the sellers who generate this critical portion of revenue - sellers who aren’t themselves entirely devoted to Amazon. They have options to sell their products through other marketplaces and on their own e-commerce sites. Aside from changing marketplace fees and tweaking the fundamental economics, Amazon would do well to find more ways of keeping this seller base loyal, and even incentivize them to devote more of their business to the Amazon platform.
Outside e-commerce, Amazon is a part of Haven, the joint project with JPMorgan and Berkshire Hathaway aimed at improving health insurance. Haven has begun offering plans (administered by Aetna and Cigna) to certain employees of the three partners. It’s also important to note that Haven describes itself as “free from profit-making incentives,” which is a cagey way of implying non-profit without legally ruling out the chance they might generate a surplus. I would argue it’s more important as a statement of intent: Haven is not a joint-venture by the three companies to create a profitable insurance company.
Amazon has a seller base, comprised of small to medium sized businesses, that it wants to keep happy. Amazon also has, at its disposal, Haven’s health insurance products. While a health insurance offering for sellers through Haven certainly wouldn’t be free like Prime Video was for Prime members, it would likely come as some added benefit for sellers achieving certain performance thresholds on the platform.
It would also significantly deepen the relationship between Amazon and its sellers. The transactional elements would become secondary to annual insurance contracts; giving up on selling products through Amazon would also mean looking for a new health insurance plan. Haven’s offering, a zero-deductible, no cost-sharing plan, is also likely much better than anything Amazon’s SMB sellers can currently find on the market.
Throwing caution to the wind and leaping to the furthest possible conclusion, you could argue that offering health insurance could be a first step for Amazon in creating a platform on which you build an entire e-commerce business. It’d come with all the technology for selling, fulfillment tools, and even the administrative services like insurance, accounting, and legal. This would, in turn, feed the overall e-commerce machine by creating new sellers to sell on the marketplace, whose products would in turn attract more customers.
Wether it’s the opening salvo in a new B2B vertical, or just an added benefit to keep sellers happy and loyal, in offering reasonably priced health insurance to sellers, Amazon would be creating an ecosystem of value for sellers in the same way it did for consumers. And that has worked out pretty well for them.
Things To Read
What’s this going to cost me? A group of intrepid researchers from the Kaiser Family Foundation reported this week on how national health costs are likely to be affected by the pandemic. While I’d encourage you to peruse the report on your own, here are some key takeaways:
Coronavirus related spending will ultimately depend on a number of variables that aren’t entirely predictable (infection rates, hospitalization rates, severity of cases), but indexing off known costs of care for pneumonia the median cost per hospitalized patient is around $20,000, skyrocketing up to $88,000 for those who require ventilation.
There’s also the cost of testing, which will be immense at around $30 - $100 per patient
Delayed elective procedures will reduce overall spending in 2020, but it will balance out with an increase in 2021 spending. There is also the concern that those delayed procedures will entail higher acuity care later, thus leading to an overall increase in spending for those cases.
Regulations have never fallen faster. The coronavirus crisis has forced HHS to pull back over 50 regulations, allowing providers more leniency and support in how they practice. Crystal Yednak at PWC compiled a handy list of the most notable regulations that have been temporarily altered.
Vertical is the new horizontal. One of the most pernicious and arguably destructive practices in our healthcare system has been the spate of vertical acquisitions among providers - mostly in the form of hospitals acquiring smaller physician practices. In their Health Affairs Blog post, Thomas Greaney and Richard Scheffler argue that regulators have largely ignored vertical acquisitions, and that it has allowed rampant anti-competitive behavior throughout the industry.
Thanks for reading The Healthcare Handout, a regular update on tech and business in healthcare from Isaac Krasny. Criticize, praise, hire, or otherwise get in touch with Isaac via isaac@healthcarehandout.com, or on twitter @isaackrasny
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