|THIS WEEK IN HEALTHCARE
What happened in healthcare this week—and what we think about it.
- Amazon launches direct-to-consumer virtual care platform. On Tuesday, the e-commerce giant unveiled its latest healthcare endeavor, Amazon Clinic, a “virtual health storefront” that can asynchronously connect patients to third-party telemedicine providers. It offers diagnosis and treatment for roughly 20 low-acuity health conditions—including acne, birth control, hair loss, and seasonal allergies—at flat, out-of-pocket rates. (The service does not currently accept insurance.) It also refills prescriptions, which customers can send to any pharmacy, including Amazon’s. At its launch, Amazon Clinic is available in 32 states.
The Gist: This is exactly the kind of venture at which Amazon excels: creating a marketplace that’s convenient for buyers and sellers (patients and telemedicine providers), pricing it competitively to pursue scale over margins, and upselling customers by pairing care with Amazon’s other products or services (like Amazon Pharmacy). Its existing customer base and logistics expertise could position it to replace telemedicine storefront competitors, including Ro and Hims & Hers, as the leading direct-to-consumer healthcare platform, at least among those that don’t take insurance. It bears watching to see how Amazon builds on this service, including whether it eventually incorporates insurance coverage, partners with health systems (similar to Hims & Hers), or connects Amazon Clinic to Prime in order to attract greater numbers of—generally young, healthy, and relatively wealthy—consumers.
- Sanford, Fairview health systems agree to merge. 47-hospital Sanford Health, based in Sioux Falls, SD, and 11-hospital Fairview Health Services, based in Minneapolis, MN, have signed a letter of intent to form a combined $14B health system that would retain Sanford’s name. Sanford has been seeking a health system partner for several years; most recently it was in talks with Intermountain Health, before they ended the process following a COVID-masking controversy with Sanford’s then-CEO. An announced merger with Iowa-based UnityPoint Health was also called off in 2019. Sanford had earlier attempted to combine with Fairview, in 2013, but abandoned plans after receiving pushback from Minnesota’s Attorney General, who was concerned that services could be cut, and that the system’s long-term partnership with University of Minnesota could be at risk.
The Gist: Perhaps Sanford has finally found its dance partner, one that gives it access to the booming Minneapolis metropolitan area, which the largely rural health system lacks. Like many recent mergers, the deal brings together two systems across non-overlapping markets, making it likely to pass antitrust scrutiny. Fairview has posted losses for the last two consecutive years, making it an easier pickup for Sanford, which can now introduce its 220K member health plan to a new market. We expect more health system mergers like this in 2023, as margin pressures are motivating many to seek the promise of shelter in scale.
- COVID public health emergency (PHE) likely to extend past January. The Department of Health and Human Services (HHS) appears set to extend the federal COVID PHE past its current expiration date of January 11, 2023, as HHS had promised to give stakeholders at least 60 days’ notice before ending it, and that deadline came and went on November 11th. Days later the Senate voted to end the PHE, a bill which Biden has promised to veto should it reach his desk. Measures set to expire with the PHE, or on a several month delay after it ends, include Medicare telehealth flexibilities, continuous enrollment guarantees in Medicaid, and boosted payments to hospitals treating COVID patients.
The Gist: Despite growing calls to end the PHE declaration, and even as White House COVID coordinator Dr. Ashish Jha has said another severe COVID surge this winter is unlikely, the White House is likely trying to buy time to resolve the complicated issues tied to the PHE, some of which must be dealt with legislatively. And with a divided Congress ahead, it remains to be seen how these issues, especially Medicare telehealth flexibilities—a topic of bipartisan agreement—are sorted out. Meanwhile the continuation of the PHE prevents states from beginning Medicaid re-determinations, allowing millions of Americans to avoid being disenrolled.
Plus—what we’ve been reading.
- Questioning the motives behind UnitedHealth Group (UHG)’s acquisition of Change Healthcare. UHG closed its $13B acquisition of data analytics company Change in early October, just weeks after the Justice Department failed in its bid to block the sale on antitrust grounds. In court proceedings, UHG denied it intended to use Change data to give its insurance arm, UnitedHealthcare, a competitive advantage against the rival insurers who use Change as an electronic data interchange clearinghouse. But a new ProPublica report highlights how communications between UHG and consulting firm McKinsey & Co. point to this potential data advantage as one of the clear upsides from acquiring Change. The McKinsey report was explicitly dismissed by the US District Court judge who, in his ruling in UHG’s favor, was persuaded by testimony from senior executives and evidence of UHG’s history of maintaining internal data firewalls.
The Gist: UHG has a longstanding business interest in maintaining the trust of rival insurers that use its data analytics unit, OptumInsight. Voluntary and internally imposed firewalls between the UHG’s insurance arm and its other businesses are key to maintaining this trust. Although Justice Department lawyers could not provide convincing evidence that UHG has or intends to breach its firewalls, there is still reason to monitor any such activity closely. The failure of the McKinsey report to sway the court against the deal illustrates how difficult it is for the Justice Department to challenge vertical mergers, even when there is compelling evidence that such deals may impact competition.