Big Tech and the healthcare system

March 22, 2018

Big Tech and the healthcare system

Sebastiaan Crul
March 22, 2018

Big Tech and the healthcare system

Sebastiaan Crul
March 22, 2018
Photo courtesy of Annie Spratt. © Unsplash

Big Tech and the healthcare system

March 22, 2018

With much fanfare, Amazon, Berkshire and JP Morgan have announced that they will build their own healthcare system for their employers. Likewise, Apple has announced that it will open its own healthcare centers for its employees in an attempt to offer better and more affordable care. These plans do not only pertain to employees. Tech’s ambitions seem to reach further and may entail a full-on attack on the healthcare value chain.

Our observations

  • In January, Amazon, Berkshire Hathaway and JP Morgan announced that they will set up a new health care company for their employees. If successful, the new company may serve other customers as well. Most analysts regard Amazon’s initiative as a major step towards breaking into the health care sector.
  • In a similar vein, Apple has announced that it will set up primary care clinics for its staff. These clinics are to provide high-quality care, but much emphasis is also placed on prevention and lifestyle improvements. Along with these clinics, Apple is also increasingly active in the market of health-related hard- and software and, for instance, personal health records stored on iPhones.
  • The American health care system is notoriously expensive, as Americans spend 17- 18% of GDP on healthcare. When it comes to the overall quality, however, the U.S. is well behind other developed nations (which spend about half as much). Since employers typically pay for workers’ health insurance, they have a clear incentive to reduce costs. Also, each year, illness prevents 69 million Americans from going to work for one or more days, which results in a $260 billion loss for the American economy.
  • Through its subsidiary Verily, Alphabet is also seeking inroads into the health care sector. Eye-catching projects include health-tracking smartwatches and contact lenses, big data analytics (e.g. through DeepMind’s AI system). Verily also strives to provide care to low-income patients.
  • While tech is moving into healthcare, more traditional actors are engaging in M&A activity to get a stronger hold on the healthcare value chain. Insurers, care providers, pharmacies and pharmacy-benefit managers (i.e. the middlemen between insurers and pharmaceutical industry) are forming new combinations in an attempt to reduce costs and make for more favorable incentives (e.g. a stronger focus on prevention and efficiency).

Connecting the dots

Entering healthcare is a logical next step for Big Tech. The American healthcare sector especially is both an enormous as well as a troubled market. Health-related expenses in the U.S. are almost double those of other developed nations while quality is lagging behind. The causes are multitude, but misguided incentives and non-cost-conscious patients and doctors, employing unnecessary or overly expensive tests and treatments, are a leading factor. So are high treatment costs, which are driven by the market power, i.e. local monopolies, of health care providers.It seems that better and cheaper healthcare can only be achieved through organizational and technological change, both of which are mutually dependent.Organizational change is already underway with several companies striving to integrate tasks within the value chain. Such vertical integration is supposed to enable better cooperation between insurers and healthcare providers and also allow for more sensible incentives; from pay-per-treatment to rewarding prevention, cost savings and, most importantly, overall health gains. With ongoing M&A, companies are capturing a larger share of the healthcare stack, which consists of physical infrastructure (i.e. hospitals and clinics), platform (insurance and care management), data and intelligence (on treatments and individual health records) and the actual health services and interfaces (prevention, diagnosis and treatment through on- and offline contact with physicians). Digital technology will be crucial to such an integration of tasks and this is also where Big Tech comes into play. Amazon and others could help increase efficiency in logistical chains of pharmaceuticals and optimize the utilization of clinics and hospitals. Much more than that, on the basis of their data mastery and proximity to consumers, they could add transparency in terms of costs and efficacy of treatments and differences between suppliers. As such, they could help both patients and practitioners make more cost-conscious decisions and strengthen their position in negotiations with suppliers. Eventually, Amazon or Google may even take a more pro-active position and become the actual platforms that connect consumers and providers of care.Whether or not they will also strive to become full-stack health companies remains to be seen. The question really is where they can add most value and where their contribution is truly scalable; brick-and-mortar clinics and actual doctors don’t fit their profile. The steps announced by Amazon and Apple suggest they are willing to step beyond known digital territory, e.g. hiring doctors, but so far, these plans are limited to services for their employees. More realistically, these companies will try to learn as much as possible from such a hands-on approach in order to develop digital and scalable solutions that can have an impact well beyond their own workforce.

Implications

  • As employers, tech companies have a clear incentive to focus on prevention and, as consumer-oriented businesses, they have a deep understanding of consumer behavior and methods for nudging consumers. The combination of both may yield effective and scalable programs to stimulate more healthy lifestyles. Interestingly, similar to Amazon’s Web Services, such a program could be developed for internal purposes and then be made available to others.
  • It is unlikely that Big Tech will immediately seek to conquer the entire health stack, but several traditional actors in the sector, with capabilities that are difficult to obtain otherwise, may become acquisition targets for tech companies that want to expand their healthcare offerings.
  • Since healthcare is heavily regulated, new entrants may face high barriers to entry. At the same time, policy changes may also, by force, create windows of opportunity that would not occur in an uncontrolled market. Unease about rising healthcare costs in the U.S. may, however, lead to stronger enforcement of transparency and more favorable rules for innovative new entrants.
About the author(s)
Economist and philosopher Sebastiaan Crul writes articles on a wide range of topics, including rule of law in digital societies, the virtualization of the lifeworld and internet culture. He is currently working on his doctoral degree on the influence of digitalization on mental health and virtue ethics, having previously published dissertations on the philosophy of play and systemic risks in the finance industry.
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