“The classic Big Tech arrangement for healthcare is I, important leader at health-tech company X, understand that healthcare needs improvement and it’s a passion project for me.”Jonathan Slotkin, M.D., Chief Medical Officer, Contigo Health
Big Tech is disrupting the healthcare industry. That’s the expectation, at least. As industry outsiders, companies like Alphabet, Amazon, and Microsoft have the potential to help fix a healthcare system that is messy, wasteful, and wildly expensive in a way insiders can’t. Whether funding startups, building wearables, or powering research on the cloud, they’re trying to shake up the $3.8 trillion industry. The pandemic has only helped them make inroads.
But there’s been a flurry of reporting over the past several weeks (in fact, since the beginning of this year) about the scaling back or demise of significant health care projects by the major tech players. The most recent shocker was that Dr. David Feinberg was leaving Google Health to join Cerner, a major EHR company, as their President and CEO.
This news begs the question: why do the FAMGA companies (Facebook, Apple, Microsoft, Google, and Amazon) have such a difficult time creating successful health care businesses? (I would include IBM in this list, but that doesn’t make a catchy acronym, does it?) And, is the Silicon Valley culture of “Fail first, fail fast, fake it till you make it” compatible with the conservative nature of health care?
My conference presentations over the past five years have usually included a section on the potential impact these companies might have on our health system members. And the Q&A period that followed always had pointed and insightful questions about what to watch out for and how to plan for the potential disruption these companies might cause. So I went back through all the announcements since the beginning of 2021 to see if there were any signals about why these companies can’t seem to crack (or hack) the “health care code.”
What does the research show? – Big tech companies often struggle to find success when they try to launch new health businesses. Amazon, JPMorgan, and Berkshire Hathaway chose to shut down their joint healthcare company, Haven, after just three years. They hoped it would improve care and lower cost, but the team struggled to carve out meaningful lines of business. Google and Microsoft tried to reimagine personal health records and similarly shuttered those projects in 2012 and 2019, respectively, because of low uptake.
“We learned a lot about the difficulty of changing around an industry that’s 17 percent of GDP. We were fighting a tapeworm in the American economy, and the tapeworm won.”Warren Buffett, CEO, Berkshire Hathaway
Some excellent reporting by Blake Dodge and Hugh Langley in Business Insider gives us some clues on what’s keeping these companies from successfully standing up health care businesses. Let’s see what they found through their research and interviews with insiders. First, how big tech companies are funding and handling their bets can make it difficult to take off. The ventures have to maintain the corporate team’s goodwill, for starters. Then they’re up against the clock to prove they can generate revenue. That’s no small feat when the core businesses at all of these companies — shipping, search, and tech tools — take priority over side efforts in healthcare.
Generally, these projects usually start as a pet project for the company CEO, as noted in the quote by Dr. Slotkin at the top of this post. But, something is missing at the start of this equation: making sure whatever the healthcare team will do aligns with the moneymaking parts of the business. That means the healthcare team can struggle to coordinate resources on a timeline that its corporate backers are satisfied with.
Even health units with enough leeway or funding to make their own decisions can find themselves competing against the clock as the patience of tech executives run thin. Haven received $100 million from its founding companies — but only three years to do something big. Crucially, it didn’t start with a singular mission or area of the industry it wanted to focus on. But changes in a traditional healthcare company’s strategic direction can take the better part of a decade.
Verily gets money from Alphabet and outside financial backers, including Silver Lake and Temasek. But there’s a cap on how much negative influence it can have on Alphabet’s balance sheet, as well as general pressure to cut costs. That can be a strength: If it brings in more revenue, it can burn more cash, creating incentives to build a market that works. But it also means that, unlike Google Health, Verily has to meet more aggressive financial goals. Alphabet wants it to drive value in the market while its cash-burning long-term bets are under scrutiny from investors. Verily said on August 5th it plans to launch a new AI research and development center in Israel. The center will focus on using AI to address issues and inefficiencies facing the medical field, with Verily picking up some of Google Health’s projects, including the company’s initiative exploring the use of AI in colorectal cancer screenings.
“We are still very much committed to health and the work that Google Health started. Moving teams closer to the work of some of our core areas will be good for execution. Looking forward to sharing our progress over time!”Karen DeSalvo, Chief Health Officer, Google
Google Health had 700 employees but began moving more than 130 employees into other areas of the company, including Search and the newly acquired Fitbit group. Google Health hired Charles DeShazer, MD, in March to be its director of clinical products. At Google, his role will focus on the development of Care Studio, Google’s EHR search tool pilot program.
“I think they’re scaling back — they were letting 1,000 flowers bloom and some of them are going to get clipped.”Robert Wachter, M.D., Chairman, Department of Medicine, UCSF
Amazon Care is facing a tight timeline to scale, too. At first, it was moving slowly. Employee pilots that began in 2019 only recently expanded to all of Washington state. Now the pressure is on to expand nationally this year. Amazon Care has approached Aetna, which CVS Health owns, and several regional insurers like Premera Blue Cross to join their networks as a covered benefit. But so far, no success. Decisions on investment from corporate are driven weighted to one measure. How quickly can a new business scale to $100 million in annual revenue? And Amazon’s health arms like Amazon Pharmacy are a bet that they can lead to more transactions on Amazon.com. While healthcare might not be critical to its earnings yet, it could serve as an important way to get more people onto its Amazon Prime service.
“Amazon is moving “as fast as we can” to make the full suite of Amazon Care services available to other locations.”Babak Parviz, Vice President, Amazon Care
Because tech companies are organized around tech products, healthcare bets can emerge, overlap with similar projects, and even compete for resources. That makes companywide coordination difficult. At Microsoft, its cloud division, communication platform Teams, and research and development group can be competitive with each other when it comes to the healthcare business. However, unlike its big tech rivals, Microsoft has focused on collaborating with existing legacy health systems instead of carving out a new path in healthcare
“We need to talk very eloquently of what is happening in healthcare because of technology.”Satya Nadella, CEO, Microsoft
Apple has made sensors, fitness programs, and a personal health record service that works through its phones. It’s clear that Apple’s strategy is to use their health initiatives as a way to sell hardware, including to researchers and health plans. Apple’s health unit has seen its fair share of departures, and the effort to innovate primary care with Crossover Health’s clinics doesn’t seem to be panning out.
“I really believe that if you zoom out to the future and you look back to ask: ‘What has Apple’s greatest contribution been?’ It will be in the wellness-and-health area.”Tim Cook, CEO, Apple
IBM made a big splash when they introduced Watson Health in 2015. But it didn’t take long for Watson Health to face its share of criticisms for high-profile setbacks and challenges, with reports noting that the platform often struggled with interoperability, high-quality data collection, faulty decisions, and limited training mechanisms. Its failed partnership with MD Anderson Cancer Center in 2017 brought a fresh wave of criticism to the business. In April 2019, IBM announced it was winding down Watson’s work on AI-enabled drug discovery due to poor financial returns. The company also hasn’t shown significant payback from its various business acquisitions. IBM spent several billion dollars on acquisitions to build up Watson. Former senior IBM executive John Kelly once touted the initiative as a “bet the ranch” move. It didn’t live up to the hype. Watson Health has struggled for market share in the U.S. and abroad and currently isn’t profitable. In fact, IBM is reportedly planning to sell Watson Health, its $1 billion AI-based data analytics offering for the health industry, in a move by CEO Arvind Krishna to trim costs and switch focus towards leadership in the hybrid cloud computing market.
“The challenges turned out to be far more difficult and time-consuming than anticipated.”Manoj Saxena, a former general manager of the Watson business
You’ll notice that I haven’t discussed Facebook yet. That is intentional. I’m not on Facebook. I will not purchase any products from Facebook. And, I’ve disabled any apps that share information with Facebook. The press has published many articles on disinformation, privacy, information gathering, and other issues. My personal opinion is that Facebook is an existential threat to society. And I’m not alone in that opinion. Listen to any of Kara Swisher’s podcasts or read one of her articles on the subject of Facebook, Mark Zuckerberg, et al., and you see what one of the most respected tech journalists in the industry thinks.
“The short-term, dopamine-driven feedback loops that we have created are destroying how society works. No civil discourse, no cooperation, misinformation, mistruth.”Chamath Palihapitiya, former vice-president for user growth at Facebook
And then there’s Walmart. Walmart is rethinking how it wants to do primary care after slowing down its clinic rollout. Walmart’s vision was to become “America’s neighborhood health destination.” The push deeper into healthcare came as competitors like Amazon and CVS Health bulked up their healthcare ambitions. This May, Walmart Health announced it would acquire a small telehealth company, MeMD, thus adding virtual care to its strictly in-person healthcare business. Leadership changes, competing business priorities brought on by the coronavirus pandemic, and the complexity of scaling a massive healthcare operation have slowed the clinic rollout.
Walmart Health lost its most prominent champion when Greg Foran left the company in 2019, followed by Sean Slovenski in August. Foran is now the CEO of Air New Zealand Group, and Slovenski runs the testing startup BioIQ. Last December, Walmart announced Dr. Cheryl Pegus as Walmart’s executive vice president, Health & Wellness. It appears that the primary-care-clinic strategy has become less central to Walmart’s approach, despite early signs that the business could have fueled Walmart’s bottom line once it reached a national scale.
“My goal is that we have done the work on Walmart Health as a model, to really get it to work from a consumer perspective and get it to work in a way that it scales effectively, that we are able to reach more people.”Marcus Osborne, Senior Vice President, Walmart Health
My take – There are plenty of lessons Big Tech offers to help healthcare shift from a provider-centric to a patient-centric model. Despite all of the changes outlined above, I’m convinced that the FAMGA companies will continue to move into health care, albeit in a more focused manner. I think that Christina Farr, a venture capitalist with Omers Ventures and former tech reporter for CNBC, captures the current situation best in this quote:
‘Big Tech faces a “go big or go home” dilemma. To build a significant biz in health, there’s very few things they can do short of becoming a health plan/delivering care. But risk is high. And doing so impacts core businesses e.g. cloud.
The takeaway here isn’t: “Health care is hard.” It is. But they could absolutely be huge players in this space. The bigger takeaway is that for very large companies to really move in & move in with purpose, you need to be all in from the very top.”Christina Farr, Omers Ventures
Companies like Microsoft, Google and IBM will focus their future efforts in health care around their cloud offerings, quantum computing, and machine learning.
Companies like Amazon, Apple, and Walmart will focus on the consumer experience because of their commitment to understanding what consumers want and need, their knowledge and expertise in providing it, and the technologies these companies have developed or honed to support this approach. I’ve long contended that companies that focus on reducing friction in accessing health care (one of the biggest complaints of patients and their families) can, and ultimately will, be successful. Traditional providers can no longer afford to let “patient-centric” be a mere tagline.