Health Systems, Health Care and Big Tech--It's (Really) Complicated

With recent news from Apple and Google on their restructuring of significant health related initiatives, there’s been a lot of buzz around ‘big tech bailing on health care’. The reactions from health system leaders I’ve bumped into after those announcements were in the vein of “I guess they’re finding out health care is hard.” It was the same reaction after Haven was wrapped up.

Given my tenure with Amazon and my current role at Providence, I think there’s more to this news than just “health care is hard.” In fact, I have the opposite reaction to the news from Google and Apple: I’m concerned.

As an industry, we’re on an unsustainable trajectory. Poor customer experience is still the norm, not the exception. There are more manual processes than I have ever seen in any industry and there are significant barriers to data liquidity. We’re using technology that, in the case of EMR, is encumbered by old core technology and massive technical debt. It’s driving away patients who are used to far more digital convenience in the rest of their lives and burning out our clinicians that care for them. The list is long. We need the help.

If some of the most well-resourced, determined companies on the planet, employing some of the smartest people are retreating, what does that mean for the overall healthcare industry? Furthermore, is that good?

What’s really happening with big tech and healthcare

I spent almost a decade of my career at Amazon and have since led Digital Innovation at Providence, a large mission-based non-profit health system based in the Seattle area. My experience gives me a unique perspective on this situation, and I can tell you: Big Tech is not exiting health care; they are simply changing their approach. These big tech companies, like their smaller and mid-sized counterparts, slow down the burn, reorganize or pivot all the time.

For example, Amazon is a master of the pivot. They’ve turned failures like the auctions platform they launched to compete with eBay in the early 2000s (yes, they had auctions) into Fulfillment by Amazon (FBA), which powers their third-party sales platform. That business now accounts for more than half of their paid unit sales.  Remember the Fire phone? No, you don’t because no one bought one. Part of that phone morphed into Alexa. When someone asked Jeff Bezos about the failure of the Fire phone he quipped “I assure you, we’re working on even bigger failures right now.” Risk, failure, and pivoting is part of their business. And while health care technology is in fact challenging, not all the problems big tech is having in the space is just because #healthcareishard.

Some of these technology companies are getting into care delivery, which is a complex, highly regulated, and (right now) a very labor intensive and supply-constrained business. Amazon Care will have the same challenges that One Medical, health systems, and anyone else delivering care services do, and there’s no getting around some of the “physics” involved.

In addition, healthcare still has massive problems with the core platforms and technologies that the health systems and payors maintain that keep data siloed. We, as an industry, are decades behind other industries. There is still massive technical debt. There’s not an easy way around these challenges.

Less obvious are big tech internal challenges. Many of my former colleagues at the big tech companies, say these organizations have become enormous, complex, matrixed businesses themselves. It’s harder to get hard things done in these organizations now. They also have the challenges of managing a portfolio of businesses across many industry sectors. They’ll push more resources where they see near-term traction and retract in others.

With that in mind, we can expect big tech companies to realign and then make inroads where their strategy meshes well with their strengths. If I was to pull out my crystal ball, I’d wager that:

• Amazon will do well in DTC pharma, OTC, and at some point, pharmacy benefit management. The jury is out on care delivery via Amazon Care because it’s really complex. That said, Amazon, when committed, is the most successful tech company in the world at growing beyond its existing competencies. Remember, they weren’t in hardware before Kindle, and practically invented scalable cloud computing.
• Walmart, don’t forget, is already the third largest pharmacy by store count. I think they also have a good shot at care delivery because they run pharmacies and complex services organizations. Just serving their own employees will drive significant economics back to them.  
• Microsoft has wisely stuck to its core competency and strength in selling cloud services and technology to enable the industry participants. Note that it’s not without competition, as Google and Amazon are also selling similar enabling services into the industry.
• Google still has Verily, FitBit, and other very important health care properties and technology working in health care as a colleague pointed out to me on Twitter. I think the danger as they fold their health care business into their operating units, health care will be de-emphasized.
• Apple - who knows? We only have a sense of their direction based on the limited public statements and launches they’ve made. I think the Apple Watch could be a great all-purpose platform for RPM. Problem is it’s a closed platform, only on iOS, and it’s expensive.

What could change things? Acquisitions.

Microsoft showed a commitment to this approach with the Nuance acquisition—a brilliant move, in my opinion. The acquisition has given them access to extremely valuable data and a team that understands the complexity of health care workflows and who is also embedded within the system of record—the EMR. Not bad. I believe this will put Microsoft ahead of its competitors in health care.

I’m surprised big tech hasn’t done more of this. It’s a pretty standard strategic move. It delivers a core of people running a business that really understands health care. It’s much harder to get to a critical mass by hiring a few senior leaders from health care. It’s hard to dabble and experiment in health care without critical mass.  

It’s time for health systems to lean into digital and drive change

While big tech pivots, reorganizes, or whatever, health systems still have the competitive threats of well-funded disruptors and national payor-providers. Health care also has massive workforce challenges, a broken fee-for-service system, and the COVID-19 pandemic, which is becoming endemic and creating wide-spread workforce burnout. It could be tempting for health systems to take solace in this news, say “told you so”, and go back to business as usual--which is beyond challenging right now with COVID, competition, and labor shortages. Instead, we need to step up and lead disruption.

Remember, health tech companies (big and small) have several disruptive advantages compared to health systems. They are digital first; have fewer financing constraints; have lower fixed cost and capital infrastructure; they target only our profitable services; have (sometimes) massive audiences; and they have a focused value proposition and brand. Furthermore, they are getting traction. Teledoc grew over 100% in Q2 in which their comp was the beginning of COVID in 2020.

However, health systems are uniquely positioned to drive the change that patients need. We deliver most of the care, know the complexity of that care intimately, and have trusted brands. Given the complexity of the health care industry and the data and privacy issues involved, understanding the complexities and scale of health care is critical to driving sustainable innovation and health systems are domain experts, as such, the onus is on us to disrupt from within and not view these changes as a signal to slow down from the momentum of 2020.

Because of this, health systems need to disrupt their existing businesses quickly – but do so deliberately and in partnership with the tech companies (big and small) who can propel them forward—and other health systems. So how do we partner?

There are several key tenets to keep in mind in this area of tech partnership:

• Self-Disrupt Now. Identify where you must succeed and lead the disruption in the industry either alone or in partnership. This may mean setting up businesses that deliver a better customer experience and business model but may, at some level, compete with existing businesses you own. If you self-disrupt, you have a vote in the outcome. If you don’t, you’re at the disruptor’s mercy. At Providence, we’ve launched new disruptive businesses and spun out the technologies that we invented to power them so other health systems could make use of them as well.
   
• Build Internal Capabilities and People. At Providence, we’ve managed to recruit leaders from major and up-and-coming tech companies to experiment, build and scale meaningful technologies. They’re also helpful in partnering effectively with both big and small tech. They can translate tech to health care and eventually vice-versa.
   
• Invest and Partner. Where the health system is creating value in a relationship, invest in emerging companies to align incentives. We now have 26 portfolio companies in Providence Ventures’ portfolio. These companies we expect will generate a significant financial return upon exit but are delivering far more value via the new revenue streams, cost and quality improvements, they generate via close, aligned collaboration with our health system.
   
• Industry Collaborations. There are many areas where Providence can’t do it alone and need the collaboration of other health systems. Examples include Providence’s partnerships with Truveta around data and CivicaRx around generic drugs.
   
• First Mover Partnership. If a tech company is doing something disruptive in your industry, first determine if what they are doing will improve patient experience, cost, or quality. If so, try to think of ways to engage, partner or guide. There is big option value in negotiating early, favorable terms in a disruptive model.
   
• Embrace Coopetition: Understand that we will partner some areas with tech companies and compete in other areas.

Yes, big tech has made multiple unsuccessful forays into health care over the years, however they’ll always be back. The opportunity is just too big. There will also, no doubt, be several high-visibility failures in the venture-backed health tech sector as well that will lead the industry to question the viability of disruptive models, their investor’s commitment to health care, and more. We’ll hear again that health care is too hard.

These companies represent the finest examples of learning organizations who take lessons from past failures and adjust. Typically, after retrenchments like these, learnings are assessed, capital gets more focused on winners, and the remaining disruptors who’ve survived become more effective. Out of these hard times come disruptive business models. Think Amazon (retail) and Google (advertising) out of 2001 and Airbnb (hotels) and Uber (transportation) out of 2008.

Health systems, in my experience, represent the finest examples of mission-based companies who are delivering health care for the public good. It should be a health system’s mission to keep the digital transformation focused on providing compassionate health care for everyone—regardless of coverage or their ability to pay. I think the pandemic has made this mission even more important to me. I am incredibly proud of and personally fulfilled by the work that my team has done to support so many patients in need and our caregivers who are giving it all on the front line through digital technology. I know I speak for my team that it’s been a privilege to help in even a small way.

Disruption will come. The question is who leads it. Health systems need to lean forward and drive disruption through partnerships. Together, we can bring our domain expertise and the full continuum of care into these partnerships to create unique, accessible, convenient, and affordable health products and services for our communities. That means paying less attention to the manic hype cycle of who’s in and who’s out, but instead driving partnerships with committed big and small tech companies that will accelerate disruption into better, more convenient health care for our communities.

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Aaron Martin is the Executive Vice President and Chief Digital and Innovation Officer for Providence where he leads Digital, Marketing, and Ventures for Providence. Aaron is also Managing General Partner for Providence Ventures where he is responsible for early stage/venture technology and device investments for the $300M Providence Venture fund.   

Aaron has more than 25 years of experience in product, ventures and technology, including leadership of the Amazon teams that transitioned traditional publishing from physical books to Kindle. He has experience as an executive/founder at two venture-backed startups and has held strategy positions at McKinsey & Company. He currently serves on the board of Wildflower Health, Avia, Xealth and Kyruus. He is also a board member of Presbyterian Healthcare Services in New Mexico. Aaron holds a BS in Economics and Music from Austin College and an MBA in finance and health care management from The Wharton School. 

Read more about the Providence Digital Innovation Group, the group Aaron leads, here.