What’s really driving Amazon’s healthcare partnership

Industry observers have been speculating about Amazon’s intentions with its Berkshire Hathaway and JPMorgan Chase healthcare partnership from day one. What’s clear is that the online retailer will initially focus on taming its own rising employee healthcare costs before taking its approach to the marketplace where it hopes to mine new revenue streams.

That’s what industry thought leader Nelson Griswold suggested in the closing keynote address at his recent fourth annual Ascend NextGen Benefits Growth & Leadership Summit in Nashville. He likened the venture to Amazon Web Services (AWS), which was created to undercut the cost of Amazon’s internal data management.

Griswold, co-founder of the Ascend Summit and managing director of NextGen Benefits Mastermind, said the $500-a-month subscription service not only fixed Amazon’s massive data management costs, but has since been turned into a profit center.

Amazon hopes to do the same with healthcare. Sometime within the next 18 months, he predicted, it will acquire a telemedicine company with which it will integrate the popular Alexa artificial intelligence product, negotiate contracts with doctors and leverage its enormous scale to slash the company’s fully-insured healthcare costs.

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Amazon.com Inc. offices in Seattle, Washington. Photographer: Daniel Berman/Bloomberg

That tab is $2.5 billion annually with a back-of-the-napkin estimated cost of $10,000 per employee per month based on a U.S. workforce of roughly 250,000, he said.

“Alexa can learn how to diagnose the common cold,” Griswold wryly said.

Amazon’s healthcare tab, which includes an estimated $675 million annual drug spend, also could explain why the company announced last June that it would acquire the online pharmacy Pill Pack for a reported less than $1 billion price tag, according to Griswold.

Similar inroads could be made with Grand Challenge, Amazon’s in-house think tank, which he said is working with AWS on a project dubbed Hera that involves taking unstructured data from electronic medical records to identify incorrect CPT (Current Procedural Terminology) codes or misdiagnoses.

Amazon also is expected to pursue fractional ownership opportunities in hospitals by disrupting the hospital supply chain, especially with regard to commoditized items such as bedpans and gauze, according to Griswold. He predicts that AWS more than likely will be used to provide low-cost or no-cost data services to hospitals in exchange for deals that will significantly lower hospitalization costs for Amazon employees.

The end game, or meta strategy, is to make a profit from Amazon’s employee benefits obligation — which Griswold said has proven to be a massive operational expense that’s a drain on the bottom line — by selling this solution to others in the free market.

Therein lies a lesson for forward-thinking benefit brokers and advisers, who he said can out-maneuver Amazon to grow market share and their bottom line. The key is embracing a host of innovative self-insured solutions, transparency and accountability, as well as agreeing to performance-based fees that align with their employer clients’ cost-containment objectives.

“Everything they are doing you can do for your clients,” he added. “They can’t move the needle fixing billing. They can move the needle with the strategies you have learned.”

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