Transforming U.S. Healthcare in the New Health Economy: Part 2
Tech giants and retailers leverage their expertise to disrupt health care systemIn case you missed it, heavy hitters from outside the traditional healthcare industry are invading, working hard to disrupt a market that needs a makeover. From retailers like Walmart to tech giants Google, Apple and Amazon, health care, as it is currently known to American consumers is on the cusp of major transformation.
From collecting, analyzing and utilizing data to wearable devices to monitor our hearts, technology companies are working hard to leverage their specific expertise to help consumers live longer, healthier lives. Retailers have entered the fray, bringing their considerable expertise in designing convenient, comfortable outpatient facilities where consumers can take advantage of health care without extensive waiting periods or extreme costs.
First, a look at how technology companies are working to transform the healthcare system in America.
The “Big 4” Tech Giants Innovate to Disrupt Healthcare System
Top tier tech innovators Google, Amazon, Apple and Microsoft are developing or collaborating on new tools for patients, doctors, consumers, healthcare insurers and medical researchers and have been investing in health start up businesses. Their goal? To disrupt and re-imagine the health care system.
Each tech giant has primarily concentrated on its own core strength:
Microsoft: online storage and data analytics services
Google: through its parent company, Alphabet, on data
Apple: on its consumer products
Amazon: on disrupting the pharmaceutical distribution via its acquisition of PillPack
Of the four companies, Google is the most active in the healthcare and life science industries. Google Ventures (GV), Alphabet’s venture arm has backed approximately 60 health-related enterprises. Nearly one third of Alphabet funds have been invested in healthcare and life sciences start ups and additional support is provided by Google professionals in engineering, PR and marketing and talent resources.
Tech giants know that consumers have changed and want the health care industry to change as well. Today, consumers are interested in monitoring their health and fitness and tend to want to share this data with their health care providers and even insurers, if it means reduced cost for care. Consumers are accustomed to using technology in their daily lives. Smart devices such as FitBit are being embraced by healthcare organizations and private companies to encourage the adoption of healthier behaviors such as walking more per day, exercising, etc.
Here are a few highlights of how these tech innovators have been positioning themselves to get more involved in American healthcare.
Apple Watch 4 Gains FDA approval
Developed to be far more than the typical smartwatch, the Apple Watch Series 4 has been cleared by the Food and Drug Administration (FDA) as a Class 2 medical device. The Apple Watch Series 4 can detect falls and:
- Features heart rhythm detection
- Delivers an alert following a fall and enables initiation of an emergency call
- Includes an SOS feature
- Includes a personal electrocardiogram (ECG) monitor
- Provides low heart rate alerts
This invasion into the regulated space of health care is one of the first incursions into medical devices by a consumer technology.
More Healthcare Mergers and Acquisitions and What it All Means
Recently, as horizontal mergers in the healthcare industry failed, there have been attempts at vertical mergers. Whereas a horizontal merger decreases the competition in the market, a vertical merger occurs between organizations within the same industry that are at different states of the production process, between companies in which one buys or sells something from or to the other.
The hot trend recently is retailers linking up with payers or providers, health insurers or health care systems that want to acquire home health care providers and rehabilitation facilities. This can provide both a more holistic approach to care as well as increased control over health care often from cradle to grave. The flush of vertical integration deals has been fast and furious but may start to encounter antitrust objections. In 2017, there were 967 mergers and acquisitions within the health care sector, 2.5 percent lower than in 2016. Insurers are gobbling up health care providers in advance of the mass introduction of value-based care initiative roll out so that they can keep control over a larger proportion of the insurance premium dollars. This also makes sound economic sense in the value-based care paradigm due to the incentives provided to keep consumers healthy. The vertical integration of health insurers and health care providers also makes sense for another reason: the sharing of data can provide vital insight, enable predictive data modeling and lead to better coordination of health care for patients.
Gen Xers and Millennials
Currently, Millennials and Gen Xers , especially patients suffering with chronic diseases are the most willing to pay for innovative health care solutions as compared to those in older generations. Consumers who have grown up in a world of convenience, easily customized choices and access anywhere, any time from any type of device are likely to embrace new healthcare models that provide greater access, affordability and options.
The 2017 OIiver Wyman study was conducted online of 2,016 American consumers in October and November 2016 and is one of the largest of its kind. Overall, survey respondents reported that they were mostly satisfied with their medical care, find the medical system confusing and complicated and have concerns about the cost of healthcare. A wide variety of expectations, experiences and concerns were reported including the forms of healthcare consumers are willing to pay for and value. No one strategy will satisfy everyone; healthcare solutions will need to be tailored to provide choice to accommodate the complexity of the consumer market.
According to the survey: “Paying attention to consumer segment differences, and tailoring products and offerings accordingly, will lead to higher consumer engagement, more efficient care, decreased overall costs, and a more vibrant market for insurance products.” Insight from the survey reveals that healthcare may not be different from other markets but rather would benefit from increased attention on customer segmentation.
In America, Millennials and Gen Xers make up almost half of the population and are more likely to be more likely to view healthcare as a consumer good than those in older age groups. These two groups tend to have a greater expectation for a wide range of healthcare services than those typically available. As these groups age, their need for healthcare services will undoubtedly increase and their desire for more varied healthcare service will impact the market.
The survey reveals concerns across all age groups about the cost, quality and accessibility of healthcare, especially rising prescription drug prices, insurance premiums and out-of-pocket costs. Millennials and caregivers tend to be view paying for additional services to meet their needs more positively.
Millennials tend to be interested in services which are technology-related, such as telehealth, on-camera visits with a doctor or an app which facilitates a consultation with a specialist. This group is also interested in advice and social support. Of the various generational groups, Millennials were the most interested in interacting with financial planning service representatives and patient advocates as well as with other patients suffering from similar health conditions. In general, this group’s responses tended to reveal a willingness to engage with the healthcare system routinely, rather than only during periods of crisis. More than 50% of Millennials want retail clinics and access to alternative health and wellness services that can be incorporated into daily life such as massage. The group views technology as the means to delivery healthcare conveniently but are not interested in simply being able to access the legacy healthcare system using technology.
Amazon Investment in Cancer Detection Startup Grail
Over $900 million has been raised for a start up business focused on developing a blood test to screen for cancer. Relying on efforts involving gene-sequence giant Illumina, Grail was originally funded by its former parent company and some Silicon Valley investors including Jeff Bezos, Bill Gates and Google Ventures. Other heavy hitters from Big Pharma have joined in including Bristol-Myers Squibb, Merck and Johnson & Johnson Innovation.
Google Parent Company Alphabet: Tech Giant Active in Health and Biotech
Alphabet acquired Senosis Health, a Seattle health monitoring company that uses smartphones as monitoring devices to collect key health metrics including pulmonary function and hemoglobin counts. Several apps developed by Senosis Health are currently going through the FDA’s clearance process for clinical testing.
The initial funding round was the largest to date for a medical diagnostics company.
Google’s Life Sciences Division Verily to Enter Insurance Market?
Partnered with Verily, Duke University School of Medicine and Stanford Medicine created Project Baseline, a study of 10,000 people over a four-year period. The study is working to understanding the onset and risk factors for disease.
Verily has also been engaged with health care insurers about jointly bidding on contracts which would entail assuming the risk for hundreds of thousands of patients, a move into the health insurance market. Using vast stores of data, Verily would focus on aggregating and analyzing information but would not buy or build a health insurance company. Instead Verily would concentrate on uncovering ways to bring health care costs down. If successful, the payor would share in the savings, however, if costs were not reduced, Verily may not make money from the contract.
Health Retailers Launch Healthcare Directly to Consumers
Aiming to capture market share, major retailers including Albertsons Companies/Rite Aid, CVS Health and Walmart are leveraging their relationship with consumers to get into the exam room. It seems as if a valuable lesson has been learned: consumers really are in the driver’s seat. Consumers today are re-evaluating healthcare based on their real-world experience of how services are delivered. Consumers want convenience in terms of operating hours and location, superior service and reasonable pricing.
Retailers familiar with their target audience have recognized this and have begun the foray into consumer healthcare, starting clinics in drug, grocery and discount stores. According to a 2017 study conducted by Oliver Wyman in collaboration with FORTUNE Knowledge Group, consumers are sick of the existing health care offerings and are open to significant change in healthcare models and solutions including telehealth and home visits.
Did you know that there is a shortage of primary care physicians in the United States nationwide? In states such as California, pharmacists are starting to be licensed to provide basic medical services. Not only is this significant due to where pharmacists typically work but also because there are more pharmacists in the United States than there are primary care physicians. This fact can aid retailers in utilizing pharmacists in retail store clinics. This can also be useful in another way, to help ensure that consumers are taking prescription drugs appropriately as pharmacy spending is one of the largest concerns for employers in managing healthcare costs.
The healthcare industry has recognized that it needs to change. The experience needs to be reinvented to meet the expectations of consumers with different expectations. Shifting the focus away from inpatient care, healthcare providers are seeking to make health care more convenient and locally accessible, lower cost by utilizing less capital-intensive health care delivery systems.
Remember when the retail industry was dominated by shopping malls? Similarly, both are expensive to operate and had to focus on drawing consumers from a wider market area for an extended visit. According to The Advisory Board, a healthcare consulting firm, inpatient visits to hospital declined 6% from 2006-2016. During the same time period, outpatient hospital visits increased 20.4%. According to a 2018 healthcare industry survey, the top priority for healthcare CEOs is increasing their outpatient market share. Accordingly, approximately 60 percent of spending on new healthcare facility spending is slotted for outpatient care only. Some healthcare businesses are designing their facilities to be similar to spas or stores as this approach has been found to be highly successful. Retailers are aggressively expanding into traditional healthcare due to the trend towards outpatient care.
Retailers are re-engineering the healthcare experience for patients by eliminating the need for visitors to sit and wait. Service hours and pricing are focused on meeting consumer expectations and exemplifying the brand experience.
Baby Boomers
More concerned than other generational groups about increasing healthcare costs, this group faces problems of aging and deterioration and is less accepting of new methods of care and interaction. Baby Boomers tend to have specific concerns about maintaining their health and independence but are less optimistic about the quality of their future healthcare.
Conclusion
Within the next ten years, health care in the United States will likely look vastly different. From tech giants to retailers, companies are fighting to find ways to reduce costs, increase convenience and meet consumer expectations for different generational groups, all while making people live longer and healthier lives.
Whether it is by wearing an Apple watch or visiting retail health care clinics in Walmart, CVS or your favorite store, modern healthcare will never be the same….
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