Hyperbolic reactions to Amazon’s healthcare venture level off

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When Amazon, JPMorgan and Berkshire Hathaway announced in January that they had joined forces to manage the healthcare of their immense employee population, the venture was hailed as a potentially game-changing development that could give employers the upper hand in their struggle to contain healthcare costs. But now that the industry has had a chance to digest the news, the reaction has become more measured.

Nearly three-fourths of the 300 healthcare professionals, large employers, investors and academics polled by the venture capital firm Venrock now believe that despite the dominant positions they hold in their respective industries, the three companies will face far more challenges than was originally acknowledged. That view was echoed repeatedly in interviews with knowledgeable industry observers.

“I would say that both the hype and skepticism are overstated,” says Jim Klein, president and CEO of the American Benefits Council.

The initial expectations were far too high, agrees Jack Kwicien, a managing partner at Daymark Advisors, a Baltimore-based consultancy that works with benefit advisers. “You can’t take three gigantic corporations and meld together a functioning executive team with a strategic vision, clear-cut goals and a path to market overnight.”

At a time when most healthcare combinations are aimed at vertically integrating the healthcare supply chain, Kwicien believes the Amazon venture must take a different approach. “Squeezing excess profits out of the supply chain in retail is one thing,” he notes. “Doing that in something as complex and intangible as the delivery of employee healthcare is an entirely different ball of wax.”

It’s reasonable to expect that these companies will beta test their approach internally before undertaking any large-scale rollout, says Robert Gearhart, Jr., a partner with benefits advisory DCW Group of Boardman, Ohio. That alone could take 12 months, he says, although others like Kwicien say it could take even longer.

A prudent strategy, Gearhart says, would be for the venture to pursue low hanging fruit and score a series of quick victories. That would enhance its credibility en route to tackling more complex challenges and allow it to adjust its strategy as it gains experience.

Spillover effect

The lessons learned by Amazon and its two partners will have a broad spillover effect, argues Kwicien, as brokers and benefit advisers seek to apply them to their own clients’ employee populations. He envisions, for example, the emergence of best practices on chronic disease management that could benefit self-funded plans.

Speculation about the long-term goals of the three companies remains rampant. “If these firms simply create a large buying cooperative, then they really aren’t doing anything very much different,” observes Joe Markland, president of HR Technology Advisors, a Boston-based a human capital management technology and services company.

If they pool resources and collaborate to adopt new technologies, on the other hand, then Markland acknowledges the potential for significant long-term changes. Potential examples include the use of artificial intelligence and machine learning to improve diagnosis and treatment, along with greater reliance on mobile technology to gather relevant patient information. Given the background and history of the three partners, he says, it’s not far fetched to think that they have something along these lines in the offing.

But the cynicism promoted about the venture by those with a vested interest in the status quo smacks of “wishful thinking more than anything else,” according to Gearhart. Kwicien agrees, noting that the venture has put some of the healthcare industry’s biggest players on the defensive “out of fear that it will actually succeed and pose a competitive threat.”

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Healthcare industry Healthcare plans Healthcare reform Healthcare costs Healthcare innovations Healthcare benefits Healthcare delivery Amazon Berkshire Hathaway JPMorgan Chase