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Incumbents Disrupting Incumbents: How Tech Giants are Upending Traditional Healthcare Payor Business Models
Previously, we outlined what would motivate tech giants to enter the healthcare market. Now let’s turn our attention to the impact these moves will have on healthcare payors. There are many ways to frame this discussion but to get started, let's ask a few rather obvious questions. Where do tech giants have an advantage and where do they have the highest chance of being successful?
Unsurprisingly, tech giants are leveraging their strengths in the healthcare market and already have a strong track record of focusing on the customer…really, really focusing on the customer. Armed with hardware (phones, tablets, wearables, computers, etc.) and/or software (applications, web sites, cloud services, mobile apps, etc.) expertise, these behemoths have established a direct channel to millions of consumers. This direct contact produces an incredibly large and continuous stream of data points, enabling captive marketing, seamless delivery and testing of new offerings, as well as the ability to constantly explore and innovate with real customers. This direct-to-consumer model could upend the traditional employer-centered model of health insurance.
So, how exactly is the direct-to-customer relationship playing out for some of these companies? Take Apple, a company well known for its product design, for example. Approximately 90 million smartphone owners in the US use an iPhone, 81 million Americans own an iPad, and unknown millions of US consumers have purchased Apple Watches (Apple does not disclose Apple Watch sales). With IoT technology and wearables on hand, consumers use these devices to track their health and wellness. Apple is enabling its customers to create and monitor new streams of health data through its new FDA-approved watch, which lets users track steps, monitor their heart rate, perform an EKG and detect falls.
Additionally, Apple has been investing heavily in their health records initiative to potentially solve one of the most ubiquitous and frustrating problems in the industry – accessing personal medical records. Apple has a growing list of healthcare institutions that support health records on iPhones, enabling customers to view important data, such as immunizations, lab results, medications and vitals in Apple’s Health app. Apple has a loyal brand following and, as it’s a tech company, is often considered much more trustworthy than hospitals or insurers in keeping customer information secure, giving them quite the competitive edge in the healthcare arena.
Another example of the direct-to-consumer model is Amazon, which has more than 100 million Amazon Prime subscribers, over 90% of which includes US members. Amazon’s scale, reach and logistics model are legendary. In 2018, Amazon made two very public moves that could capitalize on these capabilities – a very high profile health venture collaboration with JPMorgan and Berkshire Hathaway and the acquisition of online pharmacy PillPack. The Amazon/JPMorgan/Berkshire venture aims to improve outcomes, care and satisfaction, and is free from profit-making incentives and constraints. As such, the new company has rather wide latitude to utilize Amazon's vast resources. The PillPack acquisition is yet another extension of Amazon’s online ordering/mail delivery business model and further entrenches Amazon in the healthcare space.
Google is most commonly known for its search engine, but Google’s parent company Alphabet has invested in over 60 healthcare-related companies since 2009. Some notable direct-to-consumer investments include 23andMe, Doctor on Demand and Oscar Health Insurance. When not investing in healthcare companies, Alphabet has acquired companies outright, such as Deep Mind AI, or built capabilities themselves, such as Verily Life Sciences.
What does all this investment and interest mean to the healthcare insurance companies of today? Three areas of concern are the traditional employer-provided healthcare model, increasing consumer expectations around the healthcare experience, and the introduction of artificial intelligence (AI) into all things healthcare.
- Employer-Provided Healthcare – As of 2017, 181 million Americans received health insurance through their employers, which highlights the traditional model for today’s payors. In this model, the payor courts employers who typically provide a large and captive group of customers for the payor. Historically, this model makes sense since the payor does not have a direct relationship with the customers beforehand. As evidenced above, this is not a problem in the slightest for tech giants. They can (and likely already do) communicate with millions of consumers anywhere, anytime and through the channel most preferred by each customer.
- Increasing Consumer Expectations – How would you rate your experience with the healthcare system? For 71 percent of Americans, the answer is not good…not good at all. In fact, most Americans categorized the healthcare system as in a state of crisis or having major problems. This is a dream come true for organizations expert in not only defining, but redefining customer experiences. Apple revolutionized the mobile experience, Google transformed the search experience and Amazon upended the retail experience, so why not the healthcare experience?
- The Introduction of AI – As tech giants continue to gather more and more data on patients through their direct contact, the question becomes what would, or will, they do with this data? With data rapidly becoming the new currency, the possibilities are rather vast. However, any company hoping to compete over the next few years will need to address the ubiquitous AI question; how can an organization apply AI to lower costs, be more efficient and create new opportunities? The excursions of Apple, Amazon and Google into AI are well-documented, but present-day payors are taking note too. Cigna has recently created a $250M venture fund for promising early stage ventures, which would include AI. Earlier this year, Cigna also launched “Answers by Cigna,” which is a new skill available on Amazon’s Alexa to answer over 150 of the most common healthcare questions. UnitedHealth’s Optum has invested in Buoy Health, which is described as an ‘AI-powered digital health assistant.’ Payors are not only gobbling up products, but talent as well, evidenced most recently by Anthem’s hiring of a Google search executive.
So what’s a payor to do? Well, you know the saying – if you can’t fight them, get acquired. Conveniently, the act of fighting makes a payor much more competitive and attractive as an acquisition target. It’s already clear the industry is very aware of the disruptors, and many are acting appropriately. Continued investments in customer relationships, the experience and AI are no longer optional; thanks to the tech incumbents, they have become the new table stakes in health insurance.