AMAZON: Health Care DISRUPTION by DISINTERMEDIATION. (what the heck is that?)

“Hospitals are disappearing. While they may never completely go away, they will continue to shrink in number and importance….” (A)

“What do Ashton Kutcher(Airbnb), Donald Trump and Travis Kalanick (Uber) have in common? They recognized an opportunity and used it to their advantage. That trend: disintermediation—the opportunity to deliver a product or service to a consumer with higher perceived value than an incumbent’s by changing the fundamental way it is delivered…
Disintermediation is impacting every industry in our economy. Netflix put an end to Blockbuster’s fortune. Amazon and eBay disintermediated traditional retailing. And Instacart, Zirx, PostMates, Caviar, Taskrabbit and others hope to become established names in the fast-growing peer-to-peer economy that served 90 million Americans (44% of U.S. adults) last year.
What do successful disintermediators have in common? There appear to be four shared attributes:
They see unnecessary costs or unnecessary wrinkles in the traditional ways companies do business. They get rid of unnecesssary layers that incumbents view as “essential” and do business a new way.
They leverage online technologies to enhance access and use by their customers.
They are not afraid of retaliation by traditional incumbents. They play long-ball with the support of their investors and boards who see a new marketplace others don’t.
They relentlessly measure and monitor their own performance to maintain a strong value proposition for their customers. They do not believe their own publicity knowing they’re being chased by look-alikes wishing to ride the coattails of their success.
More than consolidation and the Affordable Care Act, disintermediation is the single greatest catalyst for change in the health system….” (B)

“The economic term for what’s happening in retailing is disintermediation—the removal of middlemen from a supply chain or a series of transactions.
Healthcare providers are experiencing their own disintermediation moment. Advancing technology and the growing ability of payers and patients to instantly access information electronically is transforming nearly every corner of healthcare.
The practice of radiology is probably farthest along the disintermediation road. Highly trained radiologists traditionally supervised imaging, interpreted the results and offered advice to the physician who ordered the image.
Today, physicians are using handheld ultrasound devices and loading images into picture archiving and communications systems that can be read anywhere by anyone at any time. Their consulting radiologist may be laboring over a computer screen in Bangalore…
But for providers, it means disintermediation may soon reach a tipping point where once reliable revenue streams have been mostly siphoned away. As in retailing, not all will survive.” (C)

“Triumphant in online retail, cloud computing, organic groceries, and streaming television, Amazon founder and chief disruptor Jeff Bezos is turning his seemingly limitless ambition to health care.
Amazon, launched as an Internet bookseller nearly 24 years ago, has branched into offerings including voice-commanded speakers infused with Alexa artificial intelligence and original TV shows streamed online at its Prime subscription service.
Health care now appears ripe for Bezos, who has earned a reputation for attacking high costs and inefficiencies…
“He has identified a market that is ready for disruption. The healthcare system in the US is ripe for reform.”
Bezos faces the challenge of taming skyrocketing costs throughout US health care from insurance and medicine to supplies and therapy.
“Just as with every other industry Amazon has entered, Bezos is envisioning lower-priced alternatives with frictionless services that could, over time, make a lot of money for Amazon,” Orsini said.
Barclays analysts said in a recent research note on Amazon’s potential in health care, “We are never dismissive of anything disruptive that Amazon is involved in. Amazon arguable has the best technical abilities of any company we cover.”..
Amazon’s pattern of success has caused fear to ripple through sectors it eyes.
When Amazon last year made the surprise buy of Whole Foods, shares sank of major retail chains Wal-Mart and Target.
S&P Global Ratings said in a research note that Amazon “has brought price transparency and convenience to many retail segments,” while shifting consumer expectations, thus creating problems for rivals.” (D)

“Amazon has made a science of cutting out the middleman, eliminating many of the brick and mortar stores that offered similar goods to the internet giant. While there may be good reason to mourn the loss of mom-and-pop bookstores, stores that suffered in the Amazon era, I can find no cause for sympathy for Walgreens and CVS. Pharmaceutical dispensaries such as these are likely to be cut out of a new health care model, with lower costs passed on to the patients themselves. But should you find yourself feeling a twinge of remorse for CEO Larry Merlo of CVS, who took home a cool 18 million dollars in salary last year, no doubt a charity can be established in his name to benefit struggling CEOs.” (E)

“Amazon, Berkshire and JPMorgan can perhaps rope themselves off from this for-profit ecosystem and deliver better, faster and cheaper healthcare for their employees, especially with appropriate subsidies. In other words, if Amazon, Berkshire and JPMorgan behave like the US Federal Government performs in the Obamacare marketplace, it could work. If they stay inside their own ropes, it could stop there. But if the number of covered lives increases to twenty or thirty million, all bets are off. Can it work? Yes. They need to (1) swerve past the huge cash cow in the road (and free up most of that cash for reinvestment back into the network), (2) focus initially on themselves and then (3) enlist other companies and providers into their network. As the network adds other companies (and covered lives) – they will build bargaining power they can leverage. But unless they acquire some meaningful scale, they will never defeat the (profit) force that defines and dominates the US healthcare market. At the end of the day, their joint effort is about a rapid technology-driven demonstrations followed by immediate, incentivized expansion. ..With scale, the Consortium can bargain and reward; without it, the Consortium becomes a self-funded boutique with three customers.” (F)

“Amazon is attempting to transform its medical products business into a major supplier to U.S. hospitals and outpatient clinics that could compete with large distributors. Amazon has reportedly met with hospital executives on several occasions, most recently in late January, to discuss an expansion of its business-to-business marketplace, Amazon Business, into one where hospitals could shop to stock outpatient locations, operating suites, and emergency rooms. Amazon Business already sells a limited selection of medical supplies. The company recently sent employees to a large Midwestern hospital system, where officials are testing whether they can use Amazon Business to order health supplies for the system’s approximately 150 outpatient facilities. The pilot is customized for the hospital system’s catalog of supplies, according to a hospital official overseeing the efforts, allowing employees to compare prices the system negotiates with its distributors against those in the Amazon Business marketplace. Amazon said it is building technology to serve health care customers, and seeking to sell hospitals on a “marketplace concept” that differs from typical hospital purchasing, which is conducted through contracts with distributors and manufacturers. So far, some hospitals have been reluctant to buy supplies from Amazon Business, for reasons including lack of options and lack of control over purchases and shipping, which hospitals closely safeguard to ensure prompt arrival of goods.” (G)

“Deepening its move into healthcare, Amazon is pushing to turn its developing medical supplies business into a major supplier to U.S. hospitals and outpatient clinics, reports The Wall Street Journal…
“1. Amazon Business, the company’s separate business-to-business marketplace, already sells a limited selection of medical supplies — ranging from sutures to hip implants — as well as industrial supplies and office supplies. However, Amazon is hoping to expand this marketplace into one where hospitals could shop to stock emergency rooms, operating suites and outpatient facilities…
3. Recently, Amazon Business sent employees to a large hospital system in the Midwest with roughly 150 outpatient facilities to test Amazon Business as a medical supplier. Essentially, the pilot is testing if the system can effectively order healthcare supplies for all of its facilities. The pilot is customized for the healthcare system’s catalog of supplies and allows employees to compare prices the hospital negotiates with its distributors and the supplies in Amazon Business’ marketplace…
5. Over the past year, Amazon slowly acquired more than 10 wholesale pharmacy licenses from state pharmaceutical boards. The licenses are held in Alabama, Arizona, Connecticut, Idaho, Louisiana, Michigan, Nevada, New Hampshire, New Jersey, North Dakota, Oregon and Tennessee. These licenses are necessary for selling medical equipment to licensed professionals…” (H)

“The online retailer’s plan to enter the hospital supply chain could bring major cost savings for hospitals.
Hospital CFOs are likely to welcome the most recent foray from Amazon into the healthcare market, as it should lead to lower supply costs, second only to labor as a major cost center, an investment banking analyst says.
Distributing medical supplies is so closely aligned with what Amazon already does on a huge scale that this new project is almost certain to threaten existing medical suppliers and distributors, with hospitals and health systems reaping the rewards…
On the heels of announcing a new health plan, Amazon is now looking to become a major supplier of medical products to U.S. hospitals and outpatient clinics, competing directly with suppliers such as McKesson, Cardinal Health, and Owens & Minor, according to a report in The Wall Street Journal.
The move on healthcare’s supply chain seems to bear out analysts’ predictions that Amazon’s threat to shake up the health insurance industry might be only the first step in tearing down other healthcare silos as well.
The company’s entrance into the medical supply chain could bring “massive change,” says W. Robert Friedman Jr., managing director in the healthcare practice of Dresner Partners Investment Banking.
“Hospitals are under tremendous financial pressure due to the reduction in Medicare rates and Medicaid. The major expense for hospitals is the cost of labor but supply is right behind it as a big percentage of their core operations,” Friedman says. “If hospitals can order directly from Amazon, which then ships directly to their distribution outlets, this would be a major transformation in the distribution component of the healthcare industry.” (I)

“Is Amazon about to do to orthopedic device makers and distributors what it did to retail goods?
The report that Amazon has been holding meetings with hospital execs to learn about their needs caused the stocks for companies like Cardinal Health, Inc. and Owens & Minor, Inc. that distribute medical supplies to tumble.
Who Is Threatened?
The threat of Amazon becoming a supplier shouldn’t be a cause for alarm for medical device manufacturers, according to Needham & Company, LLC analyst Mike Matson.
Amazon, in effect, wants to be the new middle man between manufacturers and hospital in a period of disintermediation in healthcare….
Matson writes that Amazon has typically disrupted middlemen much more than manufacturers. In his view, Amazon’s model “may work for ‘lower tech’ products but is unlikely to work with ‘higher tech’ products.” He believes that Amazon, “would simply represent another distribution channel for lower tech products. And with med tech pricing already under pressure, we don’t expect this to intensify with Amazon’s entry.” (J)

“Amazon sells branded over-the-counter medications such as Advil, Mucinex and Nicorette as well as options from Perrigo’s generic GoodSense brand.
Basic Care, Amazon’s recently launched exclusive line of Perrigo OTC health products, is a possible challenge to pharmacy retail chains.
CVS Health, Walgreens Boots Alliance and Rite Aid are losing traffic as people shop for OTC products online, including on Amazon.
Amazon has quietly launched an exclusive line of over-the-counter health products in a possible challenge to pharmacy retail chains that could spark a price war and put pressure on store-brand profit margins.
Technically, the company doesn’t own these products, which are produced by private-label manufacturer Perrigo, but it does put Amazon in a position to squeeze other retailers. The e-commerce giant launched the Basic Care line in August, including 60 products ranging from ibuprofen to hair regrowth treatment.
Pharmacies make money when people walk in looking to grab medicine and end up buying cosmetics and other goods. They’re already losing traffic as people shop for those products online, including on Amazon. Giving them another possible reason to skip the store could hurt even more.
“It’s a very different world, and having Amazon jump in is not a good sign for existing brands, either branded or private label, because the way Amazon works is its ability to take on unprofitable ventures for a time to see how things go,” said Matthew Oster, head of consumer health research at global market research firm Euromonitor International.
“And the fact they have a near monopoly in e-commerce gives them a lot of scale that can allow them to undercut price. So that aspect should be concerning for whoever their competitors are in that space,” he said.” (K)

“…Don’t get too excited. Not even a company as crafty as Amazon, or a bot as all-knowing as Alexa, can fix our nonsensical health care system.
The problem with America’s largely employer-based health insurance system for workers is not something these companies can necessarily fix. The problem is that its basic architecture is upside-down.
The health care system has neither market economics nor budgets to contain costs, so prices go up willy-nilly. To make matters worse, as most working Americans get their coverage through employers, they are forced to re-enroll each time they switch jobs — something people do at least 10 times by the time they are 50, according to the Labor Department, or their employers switch health plans. All of this hurts patients by disrupting the continuity of care and promoting unnecessary doctor-switching.
At the heart of America’s system is the central feature of patient and provider conspiring to spend what is mostly other people’s money. Though that is not unique to America, what is unique is that those other people have virtually no power to set limits.
While providers, such as hospitals and drug companies, often have monopoly or near-monopoly powers, the people who foot the bill are fragmented into thousands of insurance pools run by dozens of insurance companies, all but one of which — UnitedHealth Group — has a national market share in the single digits.
That’s why prices keep going up at rates well above inflation. It’s not a fair fight.
The three companies — particularly Amazon — are known for their ability to disrupt industries. But in health care, they aren’t up against an old-school industry fallen behind the times; they’re facing powerful monopolies or near-monopolies brimming with technology of their own.” (L)

“Blueshift Research thinks Amazon (NASDAQ: AMZN) has the potential to disrupt traditional Rx and medical and dental supply sales and distribution channels in as little as six months if it was to acquire a supply distributor, a mail order pharmacy, or a PBM.
They said a full disruption from Amazon would take two years, however, disruption of the medical and dental supply channels will be much faster due to their higher profit margins and fewer regulatory requirements.” (M)

“The prospect for escalating disintermediation in our industry seems certain. Conditions are ripe. Business schools use case studies to show how incumbent organizations facing disintermediation transformed themselves. In each, the organization was guided by data and facts about their market, reputation, performance, and positioning. They are led by visionary CEOs that see the future and a small team of competent managers focused on execution. They make bold changes with the support of their boards and take friendly fire from insiders threatened by loss of control or change. And they make some mistakes along the way.
Is healthcare ripe for disintermediation? Clearly yes. But are our leaders and boards ready? That’s to be determined. And lest we forget, it’s the consumer, our patients, who will be the ultimate judge of their success and our responses.”(B)

“The burgeoning collaboration between Amazon, JPMorgan Chase and Berkshire Hathaway seeking to transform the American health care system is long on ambition and short on details.
By their own admission, the companies are stepping up to the plate without much experience playing the game, which could easily translate into a swift strikeout.
Any prediction about the alliance’s plans must glean insight from Amazon’s success, which has been based on removing entire layers of product sales and distribution and adopting new ways of thinking. That’s caused massive disruption in the retail and tech industries.
With retail, Bezos refused to travel the well-worn path established by leaders in the business. Victims that failed to adapt, such as bookstore chain Borders, are gone. Others, such as Sears, are teetering.
The lesson for health care? The system you know today won’t necessarily exist in its current form for much longer if Bezos, Buffett and Dimon get their way.
To shake up health care, “it takes bold thinking on the part of thought leaders who are willing to go out there and stake a claim that they will be able to do something grand,” said Jean Abraham, a health care administration professor at the University of Minnesota and former senior economist on health issues for the White House Council of Economic Advisers.” (N))

“Hospitals will also continue consolidating into huge, multihospital systems. They say that this will generate cost savings that can be passed along to patients, but in fact, the opposite happens. The mergers create local monopolies that raise prices to counter the decreased revenue from fewer occupied beds. Federal antitrust regulators must be more vigorous in opposing such mergers…
As these trends accelerate, many of today’s hospitals will downsize, merge or close. Others will convert to doctors’ offices or outpatient clinics. Those that remain will be devoted to emergency rooms, high-tech services for premature babies, patients requiring brain surgery and organ transplants, and the like. Meanwhile, the nearly one billion annual visits to physicians’ offices, imaging facilities, surgical centers, urgent-care centers and “doc in the box” clinics will grow.
Special interests in the hospital business aren’t going to like this. They will lobby for higher hospital payments from the government and insurers and for other preferential treatment, often arguing that we need to retain the “good” jobs hospitals offer. But this is disingenuous; the shift of medical services out of hospitals will create other good jobs — for home nurses, community health care workers and staff at outpatient centers.” (A)

(A) Are Hospitals Becoming Obsolete?, b EZEKIEL J. EMANUEL, https://www.nytimes.com/2018/02/25/opinion/hospitals-becoming-obsolete.html
(B) Is Health care Ripe for Disintermediation?, by PAUL KECKLY, http://thehealthcareblog.com/blog/2016/01/19/is-health-care-ripe-for-disintermediation/
(C) Editorial: Healthcare disintermediation heads for a tipping point, by Merrill Goozner, http://www.modernhealthcare.com/article/20170811/NEWS/170819983
(D) After stunning growth streak, Amazon ambitions seem boundless, https://borneobulletin.com.bn/after-stunning-growth-streak-amazon-ambitions-seem-boundless/
(E) How Amazon Could Succeed in Overturning the Old Healthcare Model, by Aaron Krumins, https://www.extremetech.com/extreme/264130-amazon-succeed-overturning-old-healthcare-model
(F) Amazon, Berkshire & JPMorgan Can Fix Healthcare With Technology – And By Studying Winners, by Steve Andriole, https://www.forbes.com/sites/steveandriole/2018/02/19/amazon-berkshire-jpmorgan-can-fix-healthcare-with-technology-and-by-studying-winners/#1db71ab63a02
(G) Amazon’s latest ambition: To be a major hospital supplier, http://www.pharmacist.com/article/amazons-latest-ambition-be-major-hospital-supplier
(H) Amazon pushes to become a major hospital supplier: 7 things to know, by Alia Paavola, https://www.beckershospitalreview.com/supply-chain/amazon-pushes-to-become-a-major-hospital-supplier-7-things-to-know.html
(I) Supply Chain Is Natural Step for Amazon, Potential Boon for CFOs, by Gregory A. Freeman, http://www.healthleadersmedia.com/finance/supply-chain-natural-step-amazon-potential-boon-cfos
(J) AMAZON, ORTHOPEDICS AND DISTRIBUTION DISRUPTION, by Walter Eisner, https://ryortho.com/breaking/amazon-orthopedics-and-distribution-disruption/
(K) Amazon has quietly launched an exclusive line of over-the-counter health products, by Angelica LaVito, https://www.cnbc.com/2018/02/20/amazon-has-quietly-launched-an-exclusive-line-of-over-the-counter-health-products.html
(L) Alexa, could health care be fixed?, https://www.usatoday.com/story/opinion/2018/02/20/amazon-berkshire-hathaway-jpmorgan-chase-cure-editorials-debates/301127002/
(M) Amazon (AMZN) Could Disrupt U.S. Healthcare System in as Little as Six, https://www.streetinsider.com/dr/news.php?id=13850015&gfv=1
(N) How Amazon, JPMorgan, Berkshire could transform American health care, by Nathan Bomey, https://www.usatoday.com/story/money/2018/02/25/amazon-jpmorgan-berkshire-health-care/350625002/

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