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What began as a purely cloud-based healthcare play for Amazon is evolving into an ecosystem of health IT and services propelled by the proliferation of value-based care (VBC) reimbursement models in the US. But it has been an uncertain and unfamiliar journey for the tech giant. Its recent $3.9bn planned acquisition of telehealth firm One Medical, coming weeks before its failure to land Signify Health, indicate that its healthcare strategy is still very much a work in progress.
The Signify View
Amazon’s healthcare DNA lies in providing pure cloud storage infrastructure to host hospital/healthcare IT systems through Amazon Web Services (AWS). AWS is a market leader in healthcare cloud, and overall contributes around two-thirds of Amazon’s total revenues.
However, over the last three years, Amazon has shown sustained interest in healthcare IT and services, albeit with limited success to date as it dabbled on the fringes of the market. Determined to make a more definitive play in the telehealth market in particular, the company has in the last 12 months switched tactics, focusing on acquiring the competencies, reach (and knowledge of how to navigate complex healthcare regulation) it feels it needs for true market penetration. Its recent $3.9bn purchase of primary telehealth concierge business One Medical is proof that Amazon is no longer prepared to play second fiddle to existing vendors. It now seeks to disrupt them.
Amazon is betting big on the VBC reimbursement model transformation in the US, in which healthcare providers are financially incentivised to keep people out of hospital, ease pressure on beds and reduce the costs of healthcare provision. The global market for IT (e.g. risk stratification tools, care management tools and patient outreach tools) to support VBC implementation is forecast to reach $11.3bn in 2025, up from $6.8bn in 2021, with the US accounting for 80% of that market. See figure below.
Amazon the Aggregator
Amazon has been targeting the lucrative data aggregation market since December 2020, when it launched HealthLake. HealthLake aggregates structured and unstructured EHR data, along with data from other sources, into an index-structured database. Organisations can then analyse population health trends, outcomes and costs, and identify the most appropriate intervention for the patient population. This is a key process in any IT solution aimed at supporting VBC implementation, because it provides the building blocks for healthcare providers looking to migrate to VBC. HealthLake’s launch, while several years after the respective product launches of the leading vendors in this space, now positions Amazon well to capitalise on the market growth outlined above.
That said, the VBC IT market is maturing more slowly than forecast five years ago. The below diagram illustrates a maturity model typically followed in the US to implement IT solutions supporting VBC. The components required for each step include tools to aggregate data, perform risk stratification and cohort ID, provide care coordination and patient outreach. Although market maturity remains some way off, investment over the next three years will move processes along the model and drive additional growth. Amazon needs to develop its solutions and partnerships with third-party vendors to capitalise on growth that the maturity model will bring in the VBC IT market.
Amazon Care Falls Short
Amazon Care was created in 2019 partly to leverage the abovementioned VBC market potential. It initially offered Amazon employees virtual (and some at-home) consultations with health professionals, and was then subsequently marketed to other large organisations. Amazon Care proved little more than a corporate dalliance, however. Its August 2022 announcement that the business would shut by the end of 2022 came as a shock to staff and the market.
This was surely no mere coincidence. Mere weeks before Amazon Care had dropped its bombshell, Amazon’s $3.9bn cash bid for One Medical, a premium, membership-based primary telehealth concierge, had been accepted.
On the face of it, One Medical makes perfect sense for Amazon, being a near replica model of what Amazon Care wanted to be; a comprehensive, wide reaching primary telehealth provider centred around VBC. It is match fit and ready to capture new market opportunities far faster than Amazon could ever have achieved by going it alone.
One Medical’s 767,000-plus members (mostly insured staff of companies) pay $199/year to access a US-wide network of primary care doctors in around 180 clinics. Around 20% of consultations are face-to-face.
In the last 12 months it has targeted the Medicare Advantage value-based reimbursement scheme, where One Medical bills insurance firms for the services it provides. More than half of its $255m revenue in the last quarter came from Medicare, largely through contracts with private insurance firms signed up to Medicare Advantage.
Signifying a New Strategy
Confirming its new-found appetite for acquisitions in the telehealth and value-based care space, Amazon followed up the One Medical deal with a much larger bid for Signify Health. Although it ultimately lost out to US retail pharmacy company CVS, which paid $8bn, but, like One Medical, Signify would have been a good strategic fit for Amazon as it assembles the various pieces of the strategic VBC jigsaw.
Signify’s services would have complemented Amazon’s HealthLake IT portfolio. It boasts a network of around 10,000 physicians and clinicians across the US focused on complex care, strong revenue growth (up 16% year-on-year between Q2 2021 and 2022) and with a model predicated on VBC.
Big Tech’s Healthcare Troubles
Amazon’s Signify failure underscores the difficulty big tech has had in consistently moving beyond cloud infrastructure and cracking healthcare IT and services. Microsoft pulled the plug on its HealthVault fitness platform in 2019, while numerous telecoms firms have also tried, and largely failed, to make inroads in the sector. Alphabet’s path has some similarities to Amazon. It too has enjoyed success via its Google Cloud services. The August 2021 announcement that it was disbanding Google Health should not be read as an indication it is stepping back from the healthcare sector. Far from it, the recent announcement of the additional $1bn investment in Alphabet-owned Verily, the October 2022 launch of an AI-powered medical imaging suite, alongside Google’s 2021 launch of Care Studio and subsequent partnership and integration with Meditech are all clear signs that it expects to be a leader in healthcare IT too, and that its sees value-based care as a springboard to disrupt the existing IT vendor ecosystem.
What Next for Amazon?
Amazon will continue to bet big on VBC, and will be inspired, rather that deterred, by its experiences around Amazon Care and Signify Health. No longer prepared to operate around the fringes of the market, it is now in the mood to disrupt the established vendors, and sees acquisitions as the way to do so.
Amazon’s future moves should be viewed through the lens of its patchy track record in healthcare to date (outside of cloud). But, to its advantage, it has a proven suite of tech solutions (HealthLake, Amazon Comprehend and Amazon Transcribe) which could effectively complement some future acquisitions.
When Deep Pockets Aren’t Enough
The last three years have been a roller coaster for Amazon in healthcare. It will have learned lessons from its experiments and failed ventures, not least that healthcare is a far more complex, heavily regulated area than it is used to. Deep pockets alone are not enough.
The market is highy competitive, illustrated by CVS outbidding Amazon for Signify Health. And then there are regulatory headwinds; the One Medical deal is undergoing a second round of scrutiny by the Federal Trade Commission (FTC), and there are anti-trust concerns around the firm, in particular how it manages patient data.
However, the One Medical deal suggests Amazon now has a clearer focus than ever on where it wants to be, and how it wants to get there. Expect more acquisitions in the coming 12 months as it looks to complete the jigsaw puzzle.
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