Last month, two large retail and pharmacy companies made big moves in healthcare delivery: Amazon completed its purchase of One Medical, and CVS Health announced plans to buy Oak Street Health.
The deals aren’t unexpected, said Christopher Lis, managing director of global healthcare intelligence at J.D. Power. More than 31 million people are now enrolled in Medicare Advantage plans, key demographics for the primary care providers. Meanwhile, bringing care closer to or into the home could create cost efficiencies and improve care.
Lis sat down with MobiHealthNews to discuss the recent M&A moves and what plans retailers and pharmacies could have for care delivery.
MobiHealthNews: There are other retailers making similar moves in care delivery like Walmart and Walgreens. What opportunities are these companies seeing in the space?
Christopher Lis: I think there’s a lot of interest from some of these key players to expand their healthcare portfolios. In the case of CVS, we have some strong foundational businesses that have synergistic and strategic alignment. We have the CVS pharmacy, and, if we look across the country, 85% of Americans live within 10 miles of a CVS store. So, great access opportunities there. We have Caremark which is the PBM [pharmacy benefit manager]. And then we have Aetna, which is the insurer.
And Oak Street is a growing organization. I believe there are about 169 clinics at this point, and there’s a vision to establish 300 or more clinics by 2026. So I think CVS is looking at synergies both on the back end, as well as synergies related to CVS channels to grow and expand their presence in value-based healthcare.
And then Amazon is a little different, because Amazon has had some challenges in healthcare. Certainly their strength is in operational excellence with logistics and supply chain. They’re also well-known for their pricing transparency and increasing access to goods and services for consumers.
They do have some strength in pharmacy with PillPack and RxPass. But they are seeing some competition. Mark Cuban has this cost-plus model, which is lots of transparency around pharmacy pricing with transparency around the manufacturer’s price, and then increments of transparency around additional costs and markups. So digital pharmacies are going to present some challenges for retail healthcare as we know it.
If we look at the Amazon picture, what are the big risks? I think one is that we have some consumers and oversight organizations who are worried about how sensitive consumer health information will be used. So that needs to be addressed. Amazon will need to be very transparent going forward on how information is going to be used with these organizations.
Amazon is going to have to build trust with their business partners and with their consumers to make this successful, because they don’t have a legacy healthcare brand. Not yet. I think they have a big opportunity. They are certainly an organization to be watched carefully because of their excellence in supply chain logistics, transparency and consumer access.
MHN: What do you think are the benefits and downsides of these types of care delivery systems for patients?
Lis: I think the biggest opportunity will be building trust with the consumer, building trust with the patient. Because healthcare is very personal. The stakes are high. Especially in the case with Oak Street and One Medical, these organizations are serving high-risk patient populations, in some cases underserved areas. So there’s going to be a big opportunity for these organizations to build trust as they scale. For example, CVS Health with Oak Street, they’re talking about going from 169 to 300 clinics just in the next several years.
They’re going to have some challenges on a couple of fronts. Number one is that there are talent shortages in healthcare delivery that they’re going to have to wrestle with and overcome. We’re seeing staffing challenges, not only in the provider space, but also in the pharmacy space with pharmacy techs and so forth. There’s physician burnout that’s very real.
And on the consumer side, there’s this big opportunity to build trust as new brands enter the forefront. CVS does have some foundational advantages with the pharmacy and their PBM and Aetna. Outside the pharmacy space, Americans are going to Amazon for goods and consumer products.
Healthcare is very intimate. These are very important relationships that have to be built with care teams, very important decisions that need to be made. It’s very relationship-based. And I would say what we’re trying to do in the value-based healthcare industry is increase relationships and increase communications and what we call frequent touches. So the more interaction that we have with the patient, the evidence suggests that the outcomes will be better. And then the physicians and the staff at each of these centers will get to know the patients as it relates to social determinants of health.
MHN: Do you think this poses a threat to more traditional healthcare providers, the health system?
Lis: The top line theme is that healthcare innovation is here. It’s not a concept, and there are very substantial moves being made throughout the marketplace. While value-based healthcare has been discussed over the last 20 years, its momentum is accelerating very quickly during these last few years. Traditionally we were predominantly fee-for-service. We’re still predominantly there. There’s no doubt about that. But the incentives are moving in the direction of these value-based healthcare arrangements.
I think there are downward pressures in those traditional environments that will prompt those organizations to rethink innovation, to think about how they are going to gain market share as the nation moves toward more of these value-based healthcare arrangements. They’re going to have to think very creatively about what they’re going to do to advance those efforts forward, what are the strategic partnerships that are going to make as it relates to each organization’s core capabilities and strengths and assets.