Amazon 'Pouring Gasoline on the Fire': Health Plans Must Respond

The Amazon health plan promises to accelerate the disintegration of traditional healthcare silos. Health plans may be facing the same upheaval that Amazon brought to retailers.

Health plans are no longer competing just with each other for subscribers and healthcare provider participants.

They're competing with any business entity that decides to get in the game, led by the bold health plan announced recently by three financial giants—Amazon, JPMorgan Chase, and Berkshire Hathaway.

The announcement of that new plan shook up the healthcare community, with the business giants promising to improve employee healthcare options while lowering costs.

The new plan could change health plans the same way Amazon CEO Jeff Bezos changed how Americans shop, says David Friend, MD, MBA, managing director and chief transformation officer of the Center for Healthcare Excellence & Innovation with the consulting firm BDO. Friend also sits on the board of FallonHealth, a health plan in Massachusetts.

"Healthcare is about to be disrupted by three companies that are not in the healthcare industry. If you are a healthcare company and you thought your competition was the healthcare company across the street, that's no longer true," he says. "This will affect more than just health plans, touching hospitals and health systems as well. This potentially changes the whole field."

Remember Amazon's effect in retail

Health plan CEOs should remember what Amazon did to some of the most established, successful retail operations, he says.

"What was going on in the boardrooms of retail five or six years ago? In a lot of them, nothing, and those guys aren't around anymore. A lot of folks in healthcare are going to have to rethink their business models and how they're going to survive," Friend says "If you look at the carnage in retail, this is a preview of what's coming in healthcare. The smart ones will adapt and the others won't be around in five years because they'll get merged, acquired, or they'll fail."

Healthcare plans have fared well financially in the past five years, Friend says, but this kind of disruption will force them to look at what it takes to keep customers when they have new and innovative options.

Customer service will become a top priority, he says, as consumers gravitate toward companies that provide more user-friendly service and whatever turns out to be the healthcare equivalent of free two-day delivery for your books and other purchases.

"Amazon is probably the most consumer-friendly company on earth, and if you've ever been sick you know healthcare is the least consumer-friendly industry on earth. Amazon can move the ball tremendously in terms of technology," Friend says. "JPMorgan has the ability to finance tens of millions of potential customers with its credit cards, and lots of consumer data. Berkshire has all the balance sheet you need for reinsurance."

Plan will attract millennials

The Amazon plan will have a readymade audience with younger people, says Laura Kalick, JD, LLM, tax director in BDO's national healthcare and nonprofit and education practices.

"They see an offering from Amazon, and that's someone they buy things from nearly every day," Kalick says. "That's somebody they trust. If they come out with a product, they're going to get enormous buy-in from millennials that could just be unbelievable."

Buyer beware?

Kalick points out that the Amazon plan's description of a company "free from profit-making incentives and constraints" may be misleading at first glance.

The health plan would not qualify as a tax-exempt organization, but it could organize as a benefit corporation in which the fiduciary duty would not be to maximize the profits for shareholders but would be to further the mission of the organization and benefit society, she says.

The company could still make profits, but this approach would be a huge distinction from how healthcare is organized at this point, Kalick says. It would jibe with how Bezos has run Amazon, which has not focused on short-term profit.

That could be another big draw for consumers, Friend says.

"If you have one company with profits for its shareholders as its main concern, no matter what they say in the nice brochure to consumers, and [another company] says outright that your health is the first concern and profit is second, who are you going to buy your healthcare from?" Friend says.

Health plans must respond

Friend acknowledges that the Amazon plan is a big undertaking and it's natural for companies established in the industry to say the new partnership may be making promises it can't keep.

But he says the companies involved in the new plan have a tremendous track record for getting things done.

The Amazon health plan plays into the current trends in Washington to promote more consumer choice and regulate business less, Friend says.

He expects disruptions that are not obvious now, beyond simply providing a health plan. That could include everything from leveraging Amazon's Echo technology into the electronic medical record to using the company's delivery expertise to improve the supply chain and its purchasing power to lower the cost of drugs, he says.

"My advice to healthcare boardrooms is to take a very serious look at how things are changing around you. Things have already been changing, but things are accelerating at a fast pace," Friend says. "You cannot sit there and expect business as usual. They're pouring gasoline on the fire, so you better do something."