Healthcare is a huge industry – no wonder Amazon is muscling in | John Naughton

Boss Jeff Bezos is ahead of the game again, spying an opportunity for big data to transform the system

‘Health groups suffer as Amazon, Berkshire and JP Morgan team up,” proclaimed the front-page headline in Wednesday’s Financial Times. The report below the line revealed that the online giant had teamed up with Warren Buffett’s conglomerate, Berkshire Hathaway, and America’s biggest bank to create a not-for-profit healthcare group whose mission is to reduce the healthcare costs for their combined payroll of nearly a million employees.

Launching the initiative with his customary folksy bluntness, Buffett said that “the ballooning costs of healthcare act as a hungry tapeworm on the American economy. Our group does not come to this problem with answers. But we also do not accept it as inevitable.” If this – plus the fact that the new venture is to be a not-for-profit enterprise – was intended to be soothing, then it failed. The announcement immediately wiped billions off the valuations of the corporate tapeworms that have for decades fastened like leeches on the US healthcare system. And it’s not Buffett that scares them, but Jeff Bezos, Amazon’s chief executiveCEO and founder.

They’re right to to be scared. The healthcare market – in the US as well as everywhere else – is one of the biggest industries there is. What’s more, it’s guaranteed to grow forever – or at least until nuclear Armageddon or climate change wipes us out. Accordingly, several of the digital giants have their beady eyes on it. Alphabet (Google’s holding company) has at least nine life science and health companies up and running. So it seemed likely that Amazon would also want to get in on the act. But what everybody expected is that it would do so in a conventional way – by buying a pharmacy chain, for example, much as it got into the grocery business by buying Whole Foods.

If that’s what people expected, then they haven’t been paying attention to Bezos, or indeed to the way Amazon has grown and prospered under his leadership. And at each point in that astonishing progress, people have viewed his decisions through a rear-view mirror. Thus, at the beginning, Amazon was seen as “just” an online bookstore. Then it was “just” the Walmart of the web, and later “the everything store”. Then it was Walmart plus an eBay-type marketplace. And so on.

My guess is that we will see the same thing with the healthcare venture: it will be seen as a simple cost-cutting exercise. Suppose, says an analyst in the FT, a quarter of the one million employees of Amazon, Berkshire and JP Morgan are covered by health insurance costing on average $19,000 a year, one third of which is paid by employees. Suppose further that deployment of Amazon’s formidable cost-cutting systems results in a 10% reduction in costs (which seems a conservative estimate to me). There’s an immediate saving of $300m-$500m a year for the three partners. Ergo: the new venture is just about efficiencies and costs. This, of course, is already bad news for the tapeworms, whose inefficiencies and wastefulness are legendary. But it’s not an entirely new ball game.

Anyone familiar with Amazon’s history would see it differently. Those one million employees will be the equivalent of the company’s Prime customers: users who inadvertently tell Amazon and its algorithms what works and doesn’t work, because their annual subscription provides free delivery and therefore makes them more likely to order stuff on spec. So in due course we can expect the lessons learned from the not-for-profit venture to be incorporated into an offering to Amazon’s American customers. In which case the online retailer will have become one of the leading providers of health insurance in the US.

As an industry, healthcare has two components. First, there’s the delivery bit – the interactions between patients and the skilled personnel and specialist institutions that provide diagnosis, treatment, nursing and care. Then there’s the computational and data side – medical records, image scanning, test results, administration, etc. This second component is where the tech companies see their opportunities. After all, handling, manipulating and exploiting data is what they do. And since they’re better at it than the medical profession, they think it gives them an edge.

In the preliminary draft of a new research paper published last week, some Google AI engineers claim that machine-learning software is significantly better than existing software at predicting outcomes – such as whether a patient will die in the hospital, be discharged and readmitted, and what their final diagnosis will be. The study, which analysed the health records of more than 216,000 adults in two university hospitals over the period 2009-2016, includes a startling claim that the technology could predict patient deaths 24-48 hours earlier than other methods – which, of course, might allow time for doctors to administer lifesaving procedures in some cases.

You can see where this is heading: the belief that mastery of big data might yield clinical benefits. At the moment it’s just an article of faith among the tech companies, but in some cases it might turn out to be well founded. If so, then they’ve discovered their entry point into the healthcare industry. When they’re in, though, they’ll find that Bezos is already there.

Contributor

John Naughton

The GuardianTramp

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