Amazon, LillyDirect and the New Health Infrastructures
Originally published October 2017 as ‘Apple, Amazon and the New Health Infrastructures’.
Updated July 2022 to integrate Amazon’s acquisition of One Medical
Updated March 2024 to integrate the ransomware attack on Change Healthcare
Updated March 2024 to integrate LillyDirect and Amazon Pharmacy Partnership
Updated April 2024 to integrate the forthcoming publication of “The Everything War: Amazon’s Ruthless Quest to Own the World and Remake Corporate Power”
Updated May 1, 2024 to integrate Pfizer establishing a “PfizerDirect” model for its Covid and migraine businesses
When the Levee Breaks
There are two kinds of organizations in the world: those who’ve been hacked, and those who don't know they've been hacked.
But what the ransomware attack on Change Healthcare also reminds is that 'infrastructure' is the true source of power and control in healthcare, the unrecognized, under-appreciated and under-valued Big Sexy around which real wealth depends and flows. Forget trying to ride the Big Wave hypefest that is generative Ai — technology “can” do anything. Which is part of the problem.
The new coins of the realm are minted through better care and service infrastructure, where maintenance of "security" and the restoration of "trust" are elemental to the brand experience.
Ransomware gangs, who brought in a record $1.1 billion in 2023, have besieged the U.S. health care system. Here’s a list compiled by cybersecurity firm UpGuard of some of the biggest data breaches in the healthcare industry, ordered by degree of impact. And here from the U.S. Department of Health and Humana Services is their list of data breaches and hacking cases currently under investigation.
Four of last year’s ten most disruptive ransomware hacks attacked health care providers, and affiliates of BlackCat/ALPHV — the group behind the attack, who according to Wired this morning (March 5) received a $22 million transaction on Bitcoin’s blockchain “that looks very much like a large ransom payment” by United Healthcare — alone took credit for attacks on at least three hospital systems and an electronic health records provider last year.
Writes the American Prospect in its coverage of the Change Healthcare hack (Zoomer Hackers Shut Down the Biggest Extortion Ring of All: A ransomware gang cripples UnitedHealthcare. Could a comprehensive antitrust investigation finish the job?):
But the sheer size of the data cache held by Change puts this breach in a different class. The company, which is believed to process at least half of all the health insurance claims filed in the entire country, is the agglomeration of dozens of smaller data providers, stitched together through the years.
“It’s an order of magnitude worse than anything I’ve ever seen,” says Luke Slindee, a Minnesota pharmacy consultant who has worked for United in the past. “Change has, over a long time period, become the IT vendor of an ungodly amount of things. The reason everyone is talking about pharmacies is because that’s one of the few places in health care where stuff actually happens in real time, but I guarantee you there are entire medical offices and clinics that are not able to do anything either … Everything about this is a disaster.”
The ability to process the economics of healthcare in the United States is the ability to manage the engine behind the world's largest economy.
Change Healthcare is the largest electronic clearinghouse in the business, processing 15 billion claims totaling more than $1.5 trillion a year. Change owns bill collectors, consultancies, IT outsourcing firms, a bare-bones pharmacy benefit manager (PBM) that administers co-pay assistance programs and processes Medicaid claims in 11 states, auditing and verification systems, and practice managers. “The healthcare system, and how payers and providers transact, would not work without Change,” the company boasted in one prescient presentation referenced in the DOJ’s failed 2022 antitrust lawsuit to block the company’s acquisition by UnitedHealth.
And sure enough, the Change ransomware outage has upended operations for untold numbers of health care providers.
Quantifying the impact remains a moving target, with the severity depending on how much organizations relied on Change. But three senior officials at the Department of Health and Human Services described it as serious.
Adding to the urgency was Senate Majority Leader Charles E. Schumer, who sent a letter to the Centers for Medicare and Medicaid Services on Friday, asking it to make accelerated payments to hospitals, pharmacies and other providers who have been impacted by the outage. Patients can’t get information on whether insurance will cover a treatment, while hospitals are struggling to bill patients and receive payments, the New York Democrat wrote.
“The delay in payments is costing hospitals across America millions for every single week this continues, and people are even struggling to get prescriptions filled at their local pharmacy,” Schumer said in a statement Sunday. “That’s why I am calling on CMS to use its authority to cut through the red tape and provide accelerated and advanced payments to impacted health care providers just as they did during covid.”
“We recognize the impact this attack has had on health-care operations,” an HHS spokesperson told The Washington Post, adding that the agency is working with UnitedHealth to avoid disruptions to patient care. The incident underscores the “urgency of strengthening cybersecurity resiliency across the ecosystem,” the spokesperson said.
This incident should underscore a different urgency.
Rather than trying to fix the past, to “strengthen the current ecosystem” by making it more resilient, we should be thinking about chopping the knot and constructing a new industry ecosystem altogether. How best can 'the market' and 'the government' collaborate with strategic imagination, with some originality in policy-making, on a roadmap that activates a new form of economic competition.
Markets Aren’t About Technical Push; They’re About Gravitational Pull
An Amazon Strategy *works* with a higher systemic logic, a completely different conceptual frame, almost as a sixth sense.
Amazon intuitively understands how to see and sustain itself as a self-generating market, one that is able to keep feeding an economic system that Andy Jassy believes has the potential to become a $10 trillion company — the world’s largest by valuation — over the next decade. Writes Dana Mattioni here in an excerpt from her forthcoming book, The Everything War: Amazon’s Ruthless Quest to Own the World and Remake Corporate Power:
"Amazon is the number one, two or three player in a staggering number of industries from e-commerce to cloud computing, giving the company unrivaled access to partner, seller and even competitor data. An intense culture combined with unparalleled leverage and data across industries has made Amazon one of the most powerful and most feared companies in business history.
As it continues entering industries, watching Amazon decimate rivals has become a pastime on Wall Street, with one firm even keeping a “Death by Amazon” index. The astonishing range of commercial activities the company entered has put it head-to-head with juggernauts such as FedEx, Google, Netflix, Microsoft, Apple, Walmart and Kroger. "
Anyone surprised that Amazon is buying a network of primary care clinics is misreading the $20 trillion shift happening in healthcare worldwide. All the money is moving to a new form of competition based on delivering a consumer-grade experience. In 2017, Apple considered the same sort of move. In breaking the news about Apple, CNBC said the discussions about expanding into primary care had been happening inside Apple's health team for more than a year (see: Apple explored buying a medical-clinic start-up as part of a bigger push into health care). CEO Tim Cook had previously said health is a major business opportunity for Apple, although "most analysts believed he was talking about how the iPhone and Apple Watch might monitor people's health," according to BusinessInsider.
The industry re-organization is happening in different ways and at different rates in different markets. But it has progressed to the point where the global trend is clear and rapidly accelerating: the center-of-gravity for health system strategy is on entirely new value propositions and enabling (if not guaranteeing) better outcomes. Winners will be those who can navigate this transition space with leadership and, like Amazon, a superior understanding of ecosystem-centered market strategy.
An Amazon’s strategy to sustain gravitational pull into its economic system, to manage itself as a self-generating system of growth, looks like this:
Missing from the conventional perspective in healthcare is understanding that technical pieces and inputs matter less than how they are assembled and interact within the context of a new economic system. The "things" themselves are secondary to the experience with their integration. In other words, the new business value to extract from healthcare is not from the discrete use of iPhone applications or the Apple Watch to make legacy operating systems more efficient, but the way these components can meld together to interact and form a broader architecture for managing information in a way that a competitor can’t.
Amazon is an infrastructural technology. It looks set to become the dominant design for healthcare delivery in the United States, the backbone to match clinical outcomes with business and administrative processes. To put it another way, Amazon has solved for ‘market interoperability’ at a national level. It is one or two acquisitions away from becoming its own health system.
An ‘Amazon Strategy’ Thinks at a System Level
Our brains, the neural engines of the mind, will have to work with a new frame around the new world we're encountering. The ecology of mentally processing a complicated zoo of interaction requires a different lens:
Seeing technology as a form of biology. "We are morphing so fast that our ability to invent new things outpaces the rate we can civilize them," says Kevin Kelly, the visionary thinker and founder of Wired who foresaw the scope of the internet revolution. We're less multichannel than infinite channel. All things being equal, the physics that govern the dynamics of technology creation outweigh the specific features of a piece of technology, or the particular instances in which it gets used.
Making agility a strategic imperative. Adapting to the disruptions of modernity rides on an operating model that is agile, one that is capable of managing a circular expansion of both problems and solutions as a living, breathing thing. Patience is needed to reward and nurture a steady accumulation of small net benefits over time.
Understanding ‘ecosystems’ as a management innovation, the interface to engage with patients-as-physicians-as-consumers-as-employees-as-customers.
Looking beyond the clinical setting to improve outcomes. More than 2 billion people worldwide are overweight or obese (reference here); more than 400 million people worldwide have diabetes. The next design frontier is less connected health, more distributed health. It's about dissolving boundaries between pieces -- market, industry, technology -- to sustain continuous health engagement as a new economic concept. In meetings with senior leaders, writes Dana Mattioli in her forthcoming book, Bezos would describe a world where customers didn’t visit Amazon.com once a month for various items like paper towels and batteries. Instead, Amazon would become embedded in the customer’s lifestyle.
Bezos came to call this the “daily habit,” which would make Amazon an essential part of people’s lives in both implicit and explicit ways. Where Walgreen’s (and many other retail pharmacies) is failing is in vision, positioning and roadmaps that lead to this objective. Which is why This Is How Walgreens' New CEO Thinks the Company Can Beat Amazon” is how Walgreens is misreading and misunderstanding where strategic differentiation comes from, via The Motley Fool on April 10:
CEO Wentworth is banking on that in-person experience paying off for the business and being a determining factor in its ability to succeed in the long term. In a recent interview with CNBC's Jim Cramer, Wentworth said Walgreens' accessibility will set it apart from the competition:
“We will beat Amazon because of the human interface that we offer in communities and neighborhoods, 8,600 locations today where you can come in if you actually are getting a drug that you want to talk about, if you have a health concern, if you want to get an over-the-counter product to go along with your drug.”
Becoming the authoritative source of a particular kind of information. As more and more data (and data providers) flood the market, a competitive position based solely on “data” becomes impossible to defend. Specialized cognition is the thing around which to build a system advantage. If you can construct superior insight into how to manage unique sub-populations, or invent the ‘large language model’ by which others organize care delivery and administrative processes, then you have better leverage. Think ‘the production of cardiometablic health’ as an economic idea, an original strategy story around which to reshape power and control in what Andreessen Horowitz calls ‘the mother of all markets”.
The health plan industry’s worst nightmare is employers realizing they are actually the insurance company. DJ Wilson, President and CEO of State of Reform, explored the concept of Amazon-as-health-insurance-company last month in a provocative blog:
Amazon looks for industries that are not sensitive to the customer, that have profits or premium pricing based on barriers to entry (often capital related), and looks to exploit those opportunities. It’s pretty straight forward. And, whether that industry is cloud storage space or groceries or “last mile” distribution networks, Amazon is thinking about it.
Amazon continues to forge ahead, seeking new areas to spread its tentacles, says Mattioli in her piece for the Wall Street Journal. “As regulators around the world decry the company as being too big, Amazon’s CEO Andy Jassy has told his senior leaders it isn’t big enough. Jassy recently told his deputies that Amazon could become a $10 trillion company — the world’s largest by valuation — over the next decade.”
If you understand how to work with systems, then it’s not hard to see how this is entirely possible.
LIllyDirect is the “Template” for Commercial Model Innovation
The deeper story here is about positioning leverage.
What is clear is that quality and convenience -- a consumer-grade experience -- is shaping the emergence of new healthcare infrastructures.
How can a pharmaceutical business create 'gravitational pull' into a better care and service infrastructure? How do brand teams break from the Standard Model of check-the-box marketing and sales? How does an industry as a whole pursue a different form of 'market access innovation', one based not on the technical potential of "drug" per se, but on embedding that drug in a unique health experience?
And in the process degrade the control of an embedded economic system?
In this case, that economic system orbits around two markets that "work" as a single form of energy -- one that generates about $518 billion in revenue every year (rough size of the pharmacy benefit management market) + another that generates about $100 billion in revenue every year (rough size of the employee benefits consulting market).
”In an email conversation with Mark Cuban co-founder of Cost Plus Drugs, TheStreet found that the Dallas Mavericks owner and Shark Tank investor had some insight on his own efforts to help distribute these medicines,” writes Jeffery Quiggle on Saturday (April 13). “He also had some encouraging words about Eli Lilly's new approach for serving patients in general.”
After following up with Cuban on TheStreet's coverage of diabetes and weight-loss medicines, he gave an update on his company's progress.
"We are talking to manufacturers about GLP-1s that we can sell through costplusdrugs.com," he explained in an email. "But we aren't there yet." Then Cuban offered a question and a statement for TheStreet about Eli Lilly. "Have you dug into LillyDirect?" Cuban asked. "I think they are doing it right and might be a template for others. I just think it's a template for manufacturers to better serve patients," he added.
A thought experiment:
How can Big Pharma make Big PBM and Big EBC incidental, if not irrelevant?
Something like this:
LillyDirect + AbbVieDirect + AmgenDirect + BiogenDirect + BristolMyersSquibbDirect + JNJDirect + MerckDirect + NovoNordiskDirect + PfizerDirect + RocheDirect + SanofiDirect, + TakedaDirect......an entire industry 'Powered by AmazonInside' able to cut out industry middlemen and sell straight to consumers. Writes Oliver Barnes in his reporting for the Financial Times of Pfizer’s follow of the LillyDirect model:
“Pfizer is developing an online platform for patients to order medicine including anti-Covid drug Paxlovid and a migraine nasal spray. The website is part of an effort by drug companies to sell drugs directly to patients and simplify a system for distributing medication that is facing growing criticism for its complexity. It comes after Eli Lilly, the world’s largest drugmaker by market value, launched a similar platform in an industry first earlier this year.”
Timothy Mackey, professor of global health at University of California San Diego, predicted that other pharma companies would probably follow Eli Lilly and Pfizer. “All it takes is one large company like Eli Lilly to do it and then more risk-averse companies follow suit.”
Call it the Big Strategic Rotation.
An Infrastructural Advantage
Healthcare is a system of mysterious tubes on a massive scale, with various portals that take money in, do expensive and incomprehensible things to it, and spits it out somewhere else. No one fully understands the machinery, least of all the people in charge.
The American Hospital Association called the cyberattack on Change, “the most serious incident of its kind leveled against a U.S. health care organization.”
The timing of the attack also hasn’t helped. Physician-owned groups often rely on credit lines and insurance claims for the early months of the year, until reserves are built up, to pay for salaries and supplies, said Anders Gilberg, the senior vice president of government affairs at the Medical Group Management Association, a trade body for independent physicians, in reporting by The Wall Street Journal.
Disruption is a clash between accelerating curves and our brain's wanting things to be linear. The problem with exponential systems is they catch us by surprise. And so institutions are doomed to be, always, in defense of whatever allowed them to be successful in the first place.
Power and profit flows from payments processing.
There are multiple billion-dollar business models and markets to develop based on standing up entirely new ‘care and service infrastructures’ — reorganizing the economics of healthcare to reward the ‘production of affordable health’. The path to get there is to make technology so immersive that it disappears into the experience.
But the situation at Change is especially worrisome, healthcare and cybersecurity experts said, because of damaging ripple effects for so many care providers linked to its claims-processing and other systems. Plus, medical businesses have high costs and typically operate without a lot of cash on hand, needing reliable insurance reimbursements to stay afloat.
“This is absolutely devastating financially for us,” said Jennifer Fenton, executive director of Equine Healing Collaborative, a nonprofit psychotherapy center with four locations in California. The center is owed more than $50,000 in unpaid claims and it furloughed five clinicians Thursday, Fenton said. Without relief, the remaining nine face the same fate next week, she said.
In Utah, one of the states whose Medicaid program uses Change, the week has been oddly liberating, says Benjamin Jolley, a compounding pharmacist and self-described “anti-monopoly crusader” in the state. After working through the weekend to reach out to tens of thousands of patients with unfilled prescriptions in the system, the state decided to simply put together a simple four-question Google form for pharmacies to file requests for reimbursement until the system is back up and running. “[It’s] janky and hacky, but it does the job,” said Jolley, who has filled $1,500 in Medicaid prescriptions since the outage started and filed for reimbursement yesterday. “Presumably if anyone asks for an abnormally high figure they’ll look at their history and give them a call.”
But the mere fact that a state government decided to reimburse pharmacists using a Google form is a powerful reminder that even massive health care bureaucracies can emancipate themselves from the tyranny of health care middlemen if they want to, says upstate New York community pharmacist Steve Moore, who has spent the past several years slowly but successfully lobbying his own state Medicaid authorities to banish the dominant PBMs they once contracted to manage their pharmacy benefits.
— Maureen Tkacik in American Prospect
The ability to quickly assemble new 'care and service infrastructures' is the ability to dislodge embedded economic systems, to degrade the control points like United Healthcare. This is about approaching commercial strategy through the lens of infrastructure-as-a-service, as the means to create gravitational pull into a new orbit, to invent leverage, to define the rules by which others have to play.
So in the spirt of never letting a good crisis go to waste:
Is it time for Apple (or Amazon or Fidelity Investments) to acquire a "core administrative platform" like TriZetto Healthcare Products (or HealthEdge or Zelis)?
A Different Financial System
"Here's the drill,” Jamie Dimon said on a conference call with his management team.
"You are about to experience the most unbelievable week in America ever, and we have to prepare for the absolutely worst case. This is about our survival. We need to prepare right now for Lehman Brothers filing.” Then he paused. “And for Merrill Lynch filing." He paused agin. "And for AIG filing." Another pause. "And for Morgan Stanley filing." And, after a final, even longer pause he added: "And potentially for Goldman Sachs filing."
....from Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System -- and Themselves
Minneapolis Star Tribune columnist Evan Ramstad draws a parallel between the epochal collapse of the world's financial system in 2007, described above in Andrew Ross Sorkin’s book, with the mushrooming chaos in the American Way of Healthcare powered by United Health Group. Writes Ramstad in his piece for United Healthcare’s hometown newspaper, American health care can’t afford for UnitedHealth to fail:
"In the last three weeks, we've seen how the Minnetonka-based company's immense size made it and thousands of companies that do business with it vulnerable to cyber criminals. It's a moment that exposes the tension between UnitedHealth's pursuit of efficiency and the country's need for a resilient health care system.
Investors care about efficiency, and UnitedHealth's 400,000 employees deliver.
The company's nearly $500 billion market capitalization — or, its value — is five times greater than a decade ago. Yet like the biggest banks and utilities, UnitedHealth has also become too big to fail, or more precisely too big for America to accept failure from it."
This conclusion misses.
Markets aren't about efficiency. They're about power and control.
There's only one "payer" in healthcare and that’s employers. Everyone else is a vendor, a middleman that simply occupies space, able to extract value from their positioning as a 'control point' across a $4 trillion system of multi-dimensional dysfunctionality. This includes United Healthcare and its competitor Blue Cross/Blue Shield. This includes Express Scripts and its competitor CVS Health. This includes Mercer and its competitor WTW. This includes Epic and its competitor Oracle.
Their administrative complexity gives these entitles an infrastructural advantage.
They're protected by kinetic energy and a default, if not lazy, way of procuring healthcare. Over decades they have dug wide economic moats that are impossible to cross and impervious to "fix" beyond a tweak at the edge.
The thing this moment needs is a new orbit for economic competition, a different physics, where 'gravitational pull' comes from the production of affordable health, not efficient "utilization management". While we can't afford to let UnitedHealth fail, we also can't afford to let it define and manage an operating system that stopped working decades ago.
The Real Wealth of Nations is at stake.
/ jgs
John G. Singer is the Executive Director of Blue Spoon Consulting. Blue Spoon is the global leader in positioning strategy at a system level. To engage: john@bluespoonconsulting.com
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