Rae Woods (00:01): From Advisory Board, we're bringing you a Radio Advisory. My name is Rachel Woods. You can call me Ray. For the past few weeks we've been talking all about disruptors. We talked about the landscape of what disruption actually looks like in health care. We talked to Walgreens, a leading retail pharmacy, and we talked about an unexpected retailer that's throwing their hat in the ring. Of course, that's Best Buy. To round out our series on disruption I want to talk about possibly the biggest disruptor of all. You knew it was coming folks. Amazon. To talk about Amazon, their recent acquisition of One Medical and the sunsetting of Amazon Care, plus all the massive deals we've seen in the aftermath, I've brought John League and Ty Aderhold. John, Ty, I want to say welcome, but let's just be honest with our guests. This is not the first time that we have had this conversation or tried to have a conversation about Amazon. John League (01:08): Well, I've been having conversations about Amazon pretty much nonstop for the past, I don't know, however long it's been since they announced- Rae Woods (01:14): Three weeks. It's four weeks? John League (01:16): ... [inaudible 00:01:16]. Yeah. Just, forever. So, yeah. Ty Aderhold (01:22): And those conversations keep changing because Amazon keeps changing. Rae Woods (01:23): I know. So you have to all cross our fingers, cross our toes. I'm going to admit this episode is being recorded on a Thursday. It's going to come out on Tuesday. Nothing is allowed to happen in health care in the next four days, all right? Nothing is allowed to happen. John League (01:38): Way to go, Rae. We are totally re-recording this on Monday. Rae Woods (01:42): God, did I jinx us? John League (01:44): Yep, you absolutely did. Rae Woods (01:45): All right. So you two are having conversations about Amazon I'm guessing every single day now, which means you are incredibly versed in what is happening now with the retailer and what's been happening and kind of gurgling under the surface for the last several years. Give us a recap. What does Amazon's path in health care look like? Ty Aderhold (02:10): Okay, John, I'll attempt this and then correct me if I miss something here. But the way I generally think about it is you have, back in the day Haven, then Amazon adds their own sort of virtual and home-based care with Amazon Care. Then they shut down Haven. Then they buy One Medical and then just three weeks later shut down Amazon Care. So we have this pattern of acquisition adding new features while also sunsetting things that maybe weren't going so well. John League (02:49): And don't forget, they bought PillPack and that was supposed to be their big logistical push. Amazon knows how to move things around. So this is going to be a huge disruption for pharmacy and that never really took off either. Rae Woods (03:04): Give me a through line for all of these acquisitions and kind of shutting down of different business models. Are they just throwing spaghetti at the wall? Or do you think there is a pattern to their thought process here? John League (03:19): I don't have any inside scoop on what they're doing. I, like most everybody else in the industry, am just observing the moves in sequence. I think the thing that distinguishes Amazon in all of the businesses and all of the moves that it makes is that it is willing to just keep trying stuff if it wants to be in a market, in thinking about what is the best customer-obsessed version of this that we think we can make? And then they build it, and if it works and it goes to scale, that's great. But the moment it stops meeting whatever need Amazon thinks it is fulfilling, they are perfectly happy to just drop it like a hot rock. And I think that is what we've seen on an enormous scale with its health care ambitions. Ty Aderhold (04:13): John, I think they're also iterating and adjusting perhaps their idea or business model of how they will be able to change health care. If we think back to Haven, that was all about saving on the employee health care cost side of things. And then when you get to Amazon Care- Rae Woods (04:33): Yeah. All the fluff aside, it was about reducing employee health care costs. Ty Aderhold (04:37): Right. And then Amazon Care was still partially that. It was also a little more consumeristic side of things, a little more going the virtual care route, getting more involved in care delivery. But still, a big piece of it was the employee health care side. They actually signed up contracts with other organizations to manage their employee health care costs. They weren't doing a great job of it, but they were attempting to do that. And now when we look at One Medical as a centerpiece, it's pretty far removed, I think, directly from that employee saving costs value proposition. This is much more a direct consumer play at the moment. So I think we've seen an evolution of how they're attempting to get into that health care delivery business. Rae Woods (05:25): Because they're not going to be limiting the One Medical universe to their own employees. Ty Aderhold (05:30): Right. My expectation is that their business will look a lot like One Medical's existing business has so far, and they're just going to grow and expand it. Rae Woods (05:42): Yeah. We kind of touched on it. I just want to go there further and address the elephant in the room, which is the, dare I say, failures of Amazon in the past, Haven being one big one, and then most recently Amazon Care. What are you hearing from the market as you're having all of these conversations when people talk about these failed attempts? Or would you bring up these failed attempts? John League (06:13): I think it's easy to use them to dismiss what Amazon is trying to do here. I think that probably misses the point. Amazon at its core is a technology company with a customer obsession, and how can we make it easier for the customer to buy from us? I think in those kinds of environments, fail-fast is the name of the game. I think the question for them, you don't fail-fast just to fail. You're not trying to just make a little notch each time you burn a business to the ground that you started up very quickly. What they're trying to do is learn. And I think if you look at what they're doing, they are learning. Haven failed, but that doesn't mean they didn't learn anything from it. And if you look at the different ways that the companies who participated in Haven have gone on since then, you see very distinct visions of the world. (07:09): JPMorgan has Morgan Health. That is not the same thing as what Amazon has been doing. I think this was just a meeting of the minds kind of thing. I don't even know. But how they have evolved since then, Amazon is getting closer and closer and closer to the consumer and to care delivery with every move that it makes. The question that we've had is, will they get better or will they just do enough to get by? And I think when you look at what was in the Washington Post several weeks ago about some of the early tensions or the ongoing tensions between growth and care delivery that Amazon had, when you look at their willingness to abandon Amazon Care and pay a lot of money for an established, well-regarded provider like One Medical, I think that demonstrates they are learning, they are figuring out, to Ty's point, what is the business model that is both able to work in care delivery but also aligned with what we want to do about satisfying customers. Rae Woods (08:14): And let's just be very, very clear. A "failure" for Amazon is nothing if a traditional health care incumbent organization put out a product and pulled it back. Even just the word failure I want to put in air quotes because it's not really seen as a loss for a company like Amazon like it would if a health system put forth a new product or a new kind of ambulatory enterprise, then had to roll it back. Ty Aderhold (08:45): Right. Amazon has the ability to iterate and fail at scale in a way that almost no other health care organization can, just because of the resources that they have and their willingness to lose money. And they've shown this in other industries, their willingness to lose money in the short term in order to develop a product and a market share that long-term will generate them profit. Rae Woods (09:15): That doesn't just differentiate them from other health care organizations. I think that sets Amazon apart from most organizations, period. Ty Aderhold (09:22): Yeah. Rae Woods (09:23): Let me tell you the two reactions that I'm hearing from the market, and I want you to gut check me on these. The first is one that we already are talking about, which is almost this bring it on attitude. Amazon, you try to get into our industry. I've seen you fail and try again and fail again because look, health care is complicated and I just want to see you attempt to do what we can do in our business. And on the other end is another extreme reaction which, and Joe get ready to bleep this out, is well, we're (beep). There's nothing that any of us can do to actually keep up with Amazon. Now those might be extreme reactions, but are those anywhere near what you are hearing? John League (10:17): Ty, what did you hear this week? Ty Aderhold (10:20): I think this week I've mostly heard the former, where people aren't that concerned, and I think it's almost a mentality of... Or, I think it's the boy who cried wolf effect here. There's been years and years of Amazon's doing this in health care. Amazon's attempting this. They've rolled out a new X, Y, Z. And I don't think people have the capacity to freak out once again at this latest move, even if I think- Rae Woods (10:57): Or with everything else happening in the world? We just don't have the capacity to freak out anymore. Our cortisol levels are too high already. Ty Aderhold (11:08): Exactly. But I don't think that means there aren't people out there who are freaking out. I think there's probably some very specific organizations and leaders who definitely are on the more we're (beep) side of things. Rae Woods (11:26): But those are the reactions from, when I say traditional incumbents, I'm mostly meaning providers. I'm talking about health systems. I'm talking about frankly employed medical groups, not even independent medical groups that fall into those two extreme spaces. But we've also already seen some pretty significant reactions from the rest of the market, especially people in the market that have money to spend. What has that reaction been? John League (11:50): Well, this is where it gets interesting and I think the path forward to some sort of long-term transformation is incredibly path dependent, meaning Amazon has made this move. Now, what are UHG and CVS going to do? Well, we saw what CVS is going to do. They just won the bidding war for Signify Health, paid about two-and-a-half times what the company was going for back in June. Actually got it back above its IPO price for the first time in a year-and-a-half on that sale. I don't think they command that premium value if Amazon is not in the market, if there aren't others looking to build out more assets and continue to differentiate and diversify their portfolios of offerings and what they can control and how they can guide patients and members through the care continuum. I think that- Rae Woods (12:56): Oh, absolutely not. John League (12:57): ... is really where we're looking. You've had the health plan folks on the pod before to talk about health solutions companies. Like this is exactly what this is designed for. And I think the next phase is maybe even more daunting for a lot of the kind of players that you just mentioned, Rae, when you look at Walmart and UHG partnering on an MA plan in Florida. Like, is the next phase of partnership not between my small regional medical group and a big player that I can assist in the market I'm in, but the next phase of partnership in health care is actually between these gigantic companies, Amazon and Humana. I'm just making that up. But let's just throw out some big logos. UHG and Walmart, Amazon and Humana, L Events and Verizon. Is the next phase here this sort of like the titans all pair up and then maybe everybody is (beep) to use the technical term that you've introduced. Rae Woods (14:03): Well, and again, those partnerships that you're describing, this comes back to an insight that we've been talking about on this podcast for years. They do not include hospitals. These are giant companies trying to come together to build a different in kind health care system that includes a physician arm, an ambulatory physician arm, but does not necessarily include an acute care enterprise. And what I have just been amazed by as I'm watching the news is, who is reacting? Well, let's just change that. I'm not amazed at who's reacting, but I'm amazed at how quickly folks are reacting and how much money they're willing to spend. I think it was the day after the Amazon One Medical announcement was made, CVS said, "Hey, hey, hey, we're going to buy somebody, too. We're going to buy somebody, too." And then they spent how much money on Signify? John League (14:57): Eight billion. Rae Woods (14:59): Oh, my goodness. Ty Aderhold (15:01): I know. And I mean it's important to note, Amazon might be the headline-maker here, but I don't know if they kicked off this arms race. Looking back, I think the Walgreens VillageMD acquisition is just as important to kicking off this run on acquiring physicians. Rae Woods (15:23): And reminder, if you want to hear more about Walgreens plan and maybe being ahead of the curve, we did an episode on that two weeks ago, so check that out in our feed. In general, and push back on me if this is the wrong way to characterize it, but I think what I keep talking about are frankly extreme reactions from the market. On the incumbent side, there's the extreme reaction of putting our head in the sand or saying, "Just you try," the extreme reaction of fear, the kind of shuddering that happens when Amazon hits the headlines. (15:59): But then there's also this extreme reaction of, "We've got to buy up as much of the market as possible. Make sure that we have a caregiving arm and being willing to spend a ton of money to do that." And I wonder, what in your mind is the ultimate conclusion of some of these extreme reactions? I have a sense of what it is, at least for the providers. I don't know about what the conclusion is for the big players, but for the incumbents, I think the conclusion is the same. They both end up doing nothing. Ty Aderhold (16:32): In my mind, for some of these big players the conclusion has to be that physicians, especially physicians who are willing to work in a hybrid model or a mostly virtual model, are going to come at a premium, and that is going to stay true for the foreseeable future. Rae Woods (16:54): And we haven't mentioned yet on this episode the other big player that's trying to buy up docs, which is private equity, not to mention other very powerful entrepreneurial independent physician practices that we call super practices that are looking to get bigger as well. Maybe they're not paying in the billions, but they're certainly willing to pay a premium for the right kinds of partners. Ty Aderhold (17:14): And Rae, when you mention private equity, I think it's important to think about as well the life cycle of private equity and where some of these practices might end up when and if private equity decides, "Okay, it's time to sell here." A natural landing spot could be some of these existing big players who have bought physician practices. So you could see an Amazon or a CVS become in 10 years, 15 years, a natural exit point for some of these private equity-owned physician practices. John League (17:48): I love that you said life cycle, Ty, because, right, when we think about those extreme reactions, I think people are overlooking how this evolves over time. In the short term, Ty is absolutely right. This is largely going to continue to be focused on that direct-to-consumer, maybe into that employer market that One Medical is already trying to partner with. When I ask people, when I'm out on the road, I'm giving presentations, I ask folks, "Do you think we're going to wind up in a world where nothing really changes? Is it a world where Amazon has a pretty robust consumer offering that is also attractive to employers?" Or, the third option, "Do you think this is super transformative for the industry?" Almost all the time, two-thirds, three quarters of the people fall in that middle market. (18:41): They think there will be some sort of bundle of Amazon offered services that attract a lot of consumers who are willing to pay One Medical's $199 a year. You could see a world where it's part of Amazon Prime in some markets or something like that. That's relatively easy to see. I think the challenge is understanding how these things evolve over time, and I say that for a couple of reasons. One is the path dependent thing that I'd said before. How do all of these other players respond? The other element is, what if Amazon really does do something on its own that is substantially more transformative than this? That could be amazing. (19:32): I've heard people posit, "Maybe they buy an insurer. Maybe they try to come up with their own plan." I'm not sure they have that kind of appetite for risk and certainly regulation that they've never had before. But the thing I wonder is, what if they do this and they don't wind up staying in the market? What do we wind up with then? Because if they're willing to drop these assets like a hot rock if they don't fulfill their potential now, what if that sort of remorseless disinvestment happens farther down the road when they're even bigger? Rae Woods (20:05): Oh, interesting. John League (20:05): I'm not saying that's going to, but that's something I don't think we've even considered here- Rae Woods (20:11): No. John League (20:12): ... and that to me could be potentially scary because one of the things that I hear is the sense of loss that a lot of the folks who used Amazon Care are already starting to feel. Rae Woods (20:24): Right. Yeah. That is so interesting, and it comes back to not what is the conclusion for the entire health care market, but what does the short, medium, and long-term mean for Amazon? And what ripple effects is that going to have for the market? John League (20:39): Just because they aren't able to be successful in the long-term, which I think there are a lot of people in health care who either want to believe that or are hoping for that, rooting for that, like, "Ha ha, they'll see. They won't be able to do this." Just because it doesn't work in the long-term doesn't mean it can't have enormous disruptive dislocative effects in the short term. Rae Woods (21:52): I do want you to do some predicting for me on Amazon's next move. John, you kind of started to tease at this that there's a couple of options that you're speculating on in terms of what Amazon could look like in let's say the next five years. What does that look like? Ty Aderhold (22:10): So, Rae, I think there's three potential paths here. The first one is, really there's not much more disruption than what we see right now. One Medical grows slightly as it's part of Amazon and brought in, but the model stays the same. There's not much additional change that happens. So sort of the minimal disruption- Rae Woods (22:32): Meaning this is the end. This is as far as Amazon is going. Ty Aderhold (22:36): Exactly. The second one, which John has already alluded to some, is this idea of Amazon building some sort of bundle. They combine their pharmacy services with the hybrid care model that One Medical offers. They roll it out to their employees down the line, they roll it down to other employers down the line. It becomes an offering that is able to disrupt some parts of the industry. They actually realize this now five, 10-year-long goal of saving money on employee health care costs. I think the third one is perhaps the most scary, and this is the biggest disruption level. (23:17): I think this would involve more vertical integration, continued acquisition by Amazon, and I think it would also include leveraging some of their data capabilities and data assets in ways that we may not even be considering. Amazon has their own version of an EHR, long term. As they partner with other organizations they might require some of that EHR data to come to them as they partner with health systems. And what happens with that data long term for an organization that is really smart in their consumer insights and has been for a long time across all of their services. Rae Woods (23:59): So which one do you think is the most likely? Ty Aderhold (24:02): I think they're going to attempt to get to number three. I don't think, and as much as I say massive disruption's really hard, there's an execution challenge here. I don't think Amazon is a company that makes moves like this just to maintain the status quo. So I think they will put all of the resources they can, all of the very smart data scientists and other employees that they have towards solving this challenge and towards maximizing the assets that they now have in this hybrid care model of One Medical. And so I think five, 10 years down the line we will see massive disruption. The one caveat I'll put here is that that disruption may not come just from Amazon alone. If Amazon goes this route, so will UHG, so will CVS. All of these organizations have some of those capabilities as well, and we'll see what's happening in an attempt to keep up. Rae Woods (25:14): Which is maybe the more important thing to be paying attention to. It's not the Amazon fear factor, it's the catalyst that Amazon has been, again, very, very quickly for some of these other industry giants to just be willing to spend money to diversify, get into care delivery, start to look like and imagine this kind of health solutions company. But John, I want to get your take. Which scenario do you think is the most likely? John League (25:41): I agree with Ty. I think their ambition is enormous here. I think the challenge to our health care leaders in understanding how to respond and potentially participate here is looking beyond Amazon as like this monolithic giant that can do all of these consumer things. And let me drill down into that for just a second. I gave a presentation to a roomful of health care executives the other day, and I asked them, "How many of you are sure you know what One Medical does?" Ty Aderhold (26:31): I love this. John League (26:31): And no one raised their hand. Now- Rae Woods (26:39): Wait, how many advisory board people were like, "I'm actually a One Medical member." John League (26:41): I probably tipped them off by putting in there, "Are you sure you know what One Medical does?" But I think there is a sense we've been waiting for this move for a long time in many ways, right, Rae? We've expected that someday there would be one of these external technology disruptors, Amazon, Apple, Facebook, Google, would make a move in this way and finally bring some sort of care delivery into their orbit. And now it's finally happened, and I'm not sure everybody really understands what that means. The potential- Rae Woods (27:21): Especially given that One Medical... I just want to make sure everyone's aware. One Medical also includes Iora. Let's not forget that this consumer-focused, God, I hate that I'm about to say this, millennial-focused primary care option that's targeted towards people like you and me, also includes a heavy focus on chronic disease management for people with multiple chronic conditions, and does it very well. And that's Iora. John League (27:47): Right. And I think people overlook what they actually bought and only see it in terms of an incursion. Someone is here who doesn't belong and they are going to make things harder for everyone else. I think probably the more constructive way to think about that is looking at what they have prioritized, which is, number one, primary care. But number two, a hybrid mode of care that isn't just telehealth and home visits. One Medical made their name largely on being convenient to people who live in urban areas, right? That is what Amazon has prioritized. And then look at what they deprioritized. To your point earlier, Rae, they're not buying hospitals. They didn't buy a health plan, right? They went straight to care delivery. So when you look at that, I think that is instructive for where their moves will be pointed. (28:50): The thing that I think makes the long-term transformative ambition more likely, from my perspective is, Amazon is a truly unique player in that because of all of its other assets. If it does build out this bundle, we finally have a player in health care who can make money while delivering health care services without making money on those health care services. If you can embed a health care element into prime and use that to attract folks or drive the other elements of the business, that is probably fine with a vertically integrated organization like Amazon. That is largely what CVS and UHG have at their disposal. I think it's the integration execution that Ty mentioned. That challenge is big for Amazon, but it also exists for all of these other players who are looking to bulk up. Rae Woods (29:49): That's exactly where I was going to go next. If the ambition is true structural change in health care, what is the biggest challenge for Amazon? What's the biggest thing that's going to get in the way of that goal? John League (30:04): Well, we haven't talked about patients yet. Ty Aderhold (30:07): Completely, I think. For Amazon to realize their ambitions, they need to convince a lot of people that they should trust and use an Amazon health care service. And I think that's not a given, and I think that's going to be hard for them to make the case. I don't think it's impossible. There's a lot of ways that Amazon could improve the consumer experience and convince people that this is actually better than what you're used to receiving. But at the moment, I don't think Amazon necessarily has the brand to get a ton of people excited to go get their health care from them. Rae Woods (30:50): So let me ask the blunt question. How afraid should industry stakeholders be of Amazon? A end of the catalyst that Amazon has been for the health care industry? Ty Aderhold (31:04): I would say they shouldn't be terrified, but I think they should be wary. And I think this comes back to that data piece I mentioned earlier. Now I wouldn't be terrified because today all we've really seen is this One Medical acquisition. Again, I don't think there's going to be immediate disruption or changes, but I think you should be wary just because of the data capabilities that Amazon has. I actually just saw a headline yesterday. It was announced that Amazon was rolling out a new HealthLake service that's a data lake that will connect with EHRs. So again, I think there's a lot of room for Amazon to continue to invest in capabilities that they're really good at, that health care traditionally is not very good at, and that makes me wary. John League (31:58): I don't think they should be afraid. I think they should be attentive. Amazon has an opportunity here because health care does not work for a lot of people. Getting access, having convenience, being able to, in many ways, sort of set your own terms of engagement, if you will, in the ways that we are accustomed to in our consumer interactions with literally every other service industry that we have to transact with. Amazon is here because they see an opportunity to do something better. They are not beholden to all of the legacy incentives that we have. (32:44): Although by acquiring One Medical and working with Iora and now being in the system, they have sort of handcuffed themselves to some of those, but they can move in ways that really the incentives that current players have don't allow them to. I think the message here is to figure out, what is it they are prioritizing? And does that matter in our market? Does that matter to our patients? Is what Amazon is working towards solving problems that we haven't been able to solve yet? I think that's the part to be attentive to. I think the market dynamics and the partnerships and the timeline will take care of themselves. I think everyone wants the experience of care to be better. Amazon is entering the market because they think they can make that a reality faster than everybody else. Ty Aderhold (33:42): And, Rae, I want to call out one thing in John's answer there. I think it's very easy for everyone to pay attention to Amazon right after this One Medical acquisition for the few weeks after it, when the Amazon Care announcement happened, and then six months from now not be paying attention. But I think there's a lot to learn from the smaller moves that are made over the next six months, the next couple of years, that will actually tell us where this is going and where Amazon is headed with their strategy. Rae Woods (34:20): Well, John, Ty, thanks for coming on Radio Advisory. John League (34:25): Again. Rae Woods (34:25): Again? Ty Aderhold (34:28): Glad to be here. John League (34:29): It was fun. Like I said, I've been talking to everybody about this recently. Glad to talk to you guys about it. Rae Woods (34:34): Honored to be added to that list. Look, I get it. If Amazon's moves in health care cause a fear-based reaction, it's understandable. But to do nothing, that's unacceptable. Look, you don't need to be buying whole physician groups or spending billions of dollars like some of these other players are to make moves to match what Amazon is trying to do with health care. Focus on making care more accessible, more consumer-focused, and more affordable. And when you do that, remember, we are here to help. I love that you explained fear of missing out. Ty Aderhold (35:40): I've got FOMO on a slide that we're using now and I don't h