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Change is Coming. How Should the Healthcare Industry Respond to Amazon, CVS, and Walmart?

Disruptors are gathering their forces. Their eyes are fixed on a broad goal: to reshape the healthcare industry in the United States and reframe how customers approach their healthcare needs. If the disruptors have their way, the processes of selecting insurance plans, seeing primary care physicians, and filling prescriptions all stand to see significant changes.

Current players, on the other hand, are busily preparing for the coming change. And if they want to survive, preparation is essential. However, success - not survival - should be the goal. Amazon, CVS, Aetna, Walmart, and Humana seek to reshape

healthcare on their terms. Existing players have the incumbents’ advantage of time. They must exploit this advantage to shape healthcare to succeed.

Who are the disruptors, and what are their goals?

1. Amazon (with Berkshire Hathaway and JP Morgan)

Amazon and its partners have set a broad goal to reshape the healthcare industry on multiple fronts. Their joint effort with Berkshire Hathaway and JP Morgan, and spearheaded by Dr Atul Gawande, aims at improving quality of care while bringing down healthcare costs. On the pharmaceutical front, Amazon acquired PillPack, an online pharmacy already licensed to distribute pharmaceuticals in 48 states. Amazon’s business group is working towards supplying hospitals and clinics with medical supplies and devices. And, lest you think the healthcare industry isn’t a major priority for Amazon, on August 20, 2018, Amazon announced the hiring of Dr Maulik Majmudar. The star cardiologist will be working in an undisclosed role to guide and accelerate Amazon’s entry into the healthcare market.

2. CVS and Aetna

Despite public expressions of concern from the American Medical Association, the Department of Justice is unlikely to challenge the CVS and Aetna merger, and industry experts expect it to be finalized later this year. The merger’s ultimate goal is to create a nationwide network of “one-stop” clinics that combine primary care, urgent care, and pharmacy access in one convenient location. CVS and Aetna are confident that they can provide a uniquely satisfying consumer experience with better quality of care and lower costs.

3. Walmart and Humana

Walmart is rumored to be exploring an acquisition of Humana - and Humana’s sizable population of seniors. The combination of Walmart’s nationwide footprint delivering retail pharmacy, clinic and optometry services with Humana’s significant Medicare Advantage membership has the potential to disrupt the primary care, insurance, and retail pharmacy markets. While there’s no guarantee that the merger will proceed beyond the initial stages, it - along with the CVS/Aetna merger - has the potential to create a new class of vertically integrated healthcare players combining products, pharmacy, primary care, and insurance.

What should incumbent players do?

Disruptors are banking on their ability to capitalize on significant scale advantages allowing them to “own” a market, and their ability to provide a significantly better consumer experience (read: simpler and more affordable). And while disruptors may be able to achieve both those goals, they market structure won’t allow them to act quickly. It takes time to navigate regulations, licensure and enter into contracts with insurers, hospitals and build effective solutions.

Market incumbents must use the advantage of time. Current healthcare players must come up with their strategy to improve consumer experience while broadening their capabilities to compete, ahead of the disrupters. They can’t wait for Amazon and CVS to present their solutions. Disruptors are working under the assumption that they will change the rules and force the industry to play catch-up...but that won’t work if existing players change the rules first. After all, disruptors aren’t disruptors if they are playing the same game as everyone else. If existing players squander the next few years then their advantages disappear. If that happens, they’ll be fighting new giants with fewer arrows in their quiver.

This is an exciting time in the healthcare industry. Big changes bring big opportunities for aggressive, forward-thinking market players. Bancroft Group draws a wide network of healthcare executives and private equity investors to help companies successfully compete in this challenging time. Get in touch and learn more about how Bancroft Group can help you.

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