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Amazon is likely to boost its own healthcare ambitions after exiting Haven JV

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Amazon is likely to boost its own healthcare ambitions after exiting Haven JV

Amazon.com Inc., JPMorgan Chase & Co. and Berkshire Hathaway Inc. are calling it quits on their healthcare joint venture, but the e-commerce company is forging ahead with solo ambitions in the healthcare space and will likely apply the knowledge it obtained from working with its soon-to-be former partners, according to health industry experts and analysts.

Haven, a Boston-based venture formed by the trio of large companies, will disband by the end of February. The three companies launched the technology-focused startup three years ago to reduce healthcare costs for their U.S. employees and eventually all Americans. Competing priorities, ambiguous goals and leadership issues may have led to Haven's demise, experts say. Haven's dissolve also comes at a time of heightened health concerns amid the coronavirus pandemic, creating demand for a more convenient model of care.

Haven said in a statement Jan. 4 that it made "good progress" exploring healthcare solutions and piloting new ways to make primary care easier to access, insurance benefits easier to use and prescription drugs more affordable. The three companies said they will continue to collaborate informally to address "specific needs of our individual employee populations and locations." Haven did not disclose the financial stakes each company had in the venture.

Amazon did not respond to inquiries, and a Haven spokesperson declined to comment further. Berkshire Hathaway did not respond to inquiries, and J.P. Morgan could not be reached.

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Experts say the e-commerce company can use what it has learned from the Haven experience and apply insights to healthcare programs in areas like telehealth and negotiations with healthcare providers.

Over the past three years, Amazon has introduced new ways to deliver care, including the Amazon Care virtual and in-person health clinic that debuted in 2019 for employees in the Seattle area and Amazon Pharmacy, an online pharmacy platform the company launched in November 2020 that offers prescription delivery and drug price transparency. Amazon could also pilot new programs that incentivize employees to lower their own healthcare spend, experts say.

"Amazon absolutely has a great opportunity to make a success of their healthcare ambitions on their own than through Haven," said Paddy Padmanabhan, founder and CEO of Damo Consulting, a growth strategy and digital transformation advisory firm that works with healthcare enterprises and global technology companies, in an interview. "I never saw Amazon sort of hitching their healthcare wagon to Haven at any point."

But the disbandment of Haven highlights the difficulties of disrupting a fragmented and highly regulated industry dominated by large incumbent players such as CVS Health Corp. and Walgreens Boots Alliance Inc. and rife with complexities, including a vast web of middlemen and insurance companies, experts say.

"It's a very complex and unique business model that these three groups had never necessarily been in the weeds on," said Paul Ceverha, managing director in the healthcare practice at AArete, in an interview.

Lessons learned

With insights gained through Haven, Amazon can leverage its workforce of more than 1 million employees and ability to reach millions of paid Prime subscribers to test new programs in areas ranging from insurance plans to telehealth services, a growing arena of opportunity as the pandemic has led consumers to avoid receiving in-person healthcare services.

"They are well-equipped and have tons of experience and exceptional execution on supply chain issues," said Ceverha.

U.S. telehealth services industry revenue has grown significantly over the past five years to $3.22 billion as of 2020, according to IBIS World.

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Amazon expanded its Amazon Care virtual services to employees throughout Washington state in September 2020. The company declined to comment on whether it planned to expand these services nationally.

Jeffrey Becker, a senior healthcare analyst with Forrester, said Amazon can inherit insights from Haven to help negotiate lower rates with surgeons and medical centers for specific treatments such as knee replacements for warehouse workers. Haven focused on the cost of care and how to bring that cost down through negotiations between healthcare providers and employers. "Haven hired a lot of people who have a lot of experience doing just that," he said in an interview.

Theoretically, Amazon could negotiate with a healthcare provider like Geisinger Medical Center in Pennsylvania and say, "you'll do our total knee replacements and [Amazon will fly its employees there] and it will still be cheaper because we're going to negotiate a really great all-inclusive package for total knee replacements," Becker said.

Amazon could also pilot programs that incentivize employees to make healthy choices and visit less costly health facilities, such as an urgent care facility as opposed to the emergency room, Ceverha said. "The ultimate advantage would be lower overall spend per employee," he said.

Amazon has utilized insights from other companies and groups before, said Mark Shmulik, vice president and senior analyst with AB Bernstein.

For example, Amazon used the platform from PillPack, the online pharmacy it purchased in 2018, to build out Amazon Pharmacy program and took insights from its 2017 purchase of Whole Foods Market Inc. to build its own grocery store concept. "They figure the best way to know about it is to buy it, learn it and then improve on it," he said.

But Amazon will not be able to scale a new healthcare solution, such as insurance, within a short period. A project like that could be years in the making and require collaboration with other healthcare players, he said.

"If anybody can change this legacy archaic way of doing things, it's Amazon," Shmulik said. "But we should level-set expectations on that pace of change."

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Amazon bought online pharmacy PillPack in 2018 and used the foundation of that company to build its Amazon Pharmacy platform, which debuted in late 2020.
Source: PillPack

Lofty ambitions

In January 2018, Amazon, Berkshire Hathaway and J.P. Morgan announced a venture that aimed to provide their U.S employees with "simplified, high quality and transparent healthcare at a reasonable cost," according to the group's press release. J.P. Morgan CEO Jamie Dimon said in the release that the goal was eventually to "create solutions that benefit our U.S. employees, their families, and, potentially, all Americans."

But analysts say the venture never gained significant momentum for several reasons, including vague goals, staffing issues and cultural differences.

Damo Consulting's Padmanabhan said the group hoped to leverage their collective pool of employees to uncover new best practices and discover new ways of providing healthcare services. The venture envisioned creating a model that could scale to the general public.

But the goals were so lofty and vague that the whole idea of the venture "didn't hold up to scrutiny," Padmanabhan said. "First of all, their goals were never clearly articulated," he said.

The joint venture also may have faced cultural clashes in terms of risk tolerance, priorities and cadence, experts say.

Amazon is "used to working at a faster pace that a lot of traditional companies are not used to working at," said Jason Goldberg, chief commerce strategy officer for Publicis, in an interview. "[CEO] Jeff Bezos always pushes this 'always Day One' ethos on everyone."

Some industry observers also questioned Haven's leadership. Atul Gawande, Haven's CEO until spring 2020, is a well-respected surgeon and author but lacked the business experience needed for the role, Padmanabhan said.

"That was not the case with Dr. Gawande," he said, adding that Haven was more of a "part-time gig" for Gawande, who continued to teach as a professor while operating as CEO. Haven COO Mitch Betses took over on an interim basis as Haven's CEO, and Gawande was never replaced.

Gawande is now serving on President-elect Joe Biden's coronavirus task force. His press office did not respond to requests for comment.

Haven may have lacked the funding it needed to make big strides, AB Bernstein's Shmulik said in an interview.

There may have been logistical issues with implementing healthcare solutions across all three companies' employee base across multiple geographies, said Padmanabhan.

Shmulik said there is likely a realization among the three companies that they can better customize solutions for their individual employees piecemeal rather than collectively.

"You don't have to worry about cultural clashes, cadence, pace of progress," Shmulik said. "What Amazon needs to go through from a culture perspective for a go or no-go decision could be very different than what Berkshire needed, and very different than what J.P. Morgan needed."