Healthcare is tricky: what Amazon and Oracle taught us this month

Healthcare is tricky: what Amazon and Oracle taught us this month

Healthcare is tricky: what Amazon and Oracle taught us this month

  • Posted by Jim Jordan
  • On August 28, 2022

Healthcare Mergers and Acquisitions: Learning from Past Mistakes

Healthcare is a complex and ever-changing industry. To be successful, companies need to have a deep understanding of the market and the products they are selling. Unfortunately, many companies have failed in the past by trying to enter the healthcare market without this understanding. Recently, there has been a new wave of mergers and acquisitions in the healthcare industry. Companies hope that by buying scale and experience, they can succeed where they have previously failed. Only time will tell if these companies have learned from past mistakes!

Broader market power is not healthcare market power.

Tech companies operate in a world of disruption and collapsing supply chains, processes, and information steps. Disrupting the current healthcare system will take patience and a continuous improvement attitude.

What was Haven Healthcare?

Haven Healthcare was a joint venture formed by Amazon, the online retail behemoth known for disrupting major industries; JPMorgan Chase, the largest bank in the United States by assets; and Berkshire Hathaway.

When the joint venture first appeared on the horizon in 2018, it posed an immediate threat to thousands and thousands of insurance companies and healthcare providers as it promised to disrupt the industry. Three years after, it failed.

Haven Healthcare had an inspired vision but could not navigate around the existing healthcare infrastructure.

The U.S. corporate giants decided to partner up to develop technological solutions that would provide simplified, high-quality, and transparent health care.

The initial menace of Haven for healthcare companies was in its market power. Big name, well-funded partners that teamed up to promote the initiative (Haven is a baby of three of the most well-known corporate giants in the U.S., Amazon, Berkshire Hathaway, and JPMorgan Chase). Ultimately, these big names were guilty of not matching their vision with the realities of the healthcare system.

Nonetheless, it still left the U.S. healthcare system in turmoil, exposing the industry’s natural state and its lack of readiness to welcome disruptive innovation.

Can Amazon succeed in healthcare?

Arguably, Amazon may have learned the most.

Amazon has failed in healthcare before, yet this has brought them much experience in healthcare. Amazon has at least 25 years of learning. The company started an online pharmacy in the U.K. in 1998 but shut down due to regulations. In 2008, it launched Amazon Pharmacy in the U.S. but stopped it after a few years. Partnering in the joint venture Haven Healthcare, they went from promise to closure in three years.

Companies must combine their skill sets with healthcare industry norms.

In 2017, Amazon launched a same-day delivery service for medicine in Japan. In 2019, they bought PillPack, a full-service online pharmacy. Amazon’s current success is that they have learned to combine its unmatched supply chain skills with the procedures of prescription authorization and the coding rules for health insurance reimbursement.

Healthcare has many puzzle pieces, and Amazon just bought another one

The healthcare industry is very different from other industries, It’s highly regulated, and many stakeholders are involved, including physicians, hospitals, insurance companies, and patients. In addition, drugs are complex products that require a lot of knowledge and expertise to sell correctly.

Amazon is acquiring One Medical and now must learn how to work with physicians.

Healthcare is a matrix of complex systems and relationships. Physicians are the gatekeepers to the healthcare system; they play a vital role in determining what drugs patients receive. Physicians are highly regulated when prescribing drugs, and there are many restrictions on how they can market and promote their products and services. This acquisition brings over 750,000 members and 188 medical offices in 25 markets.

Thirty percent of M&As fail due to culture.

Deloitte, one of the nation’s top consulting firms, details the plethora of tactical flaws companies make in executing their M&A. Will Amazon’s more than 25 years of experience allow them to integrate One Medical effectively?

Oracle may have just learned its first lesson.

Oracle, the world’s largest database company, recently bought Cerner, a top-two player in healthcare information technology. They recently rolled out their combined product, the Oracle-Cerner electronic health records system.

Rushing to leverage a merger could cause a loss of market share.

The term leverage means companies need less of those assets to support a specific sales level when they combine their assets. For example, if two companies spend $200 to keep a revenue of $2,000 combined, they may be able to spend $100 to support that same revenue of $2,000.

The Department of Veteran Affairs has had material issues with the new combined product.

FedScoop obtained a dataset that showed material problems. “The data includes 930 hours of “incomplete functionality” where the system was partially not working, over 103 hours of degraded performance, and almost 40 hours of “outage,” which means that the system was completely down.”

Oracle may not lose customers now, but they will not gain them either.

Installing a new electronic health system is expensive and time-consuming. It is most likely that Oracle will get a chance to repair the issue without consequence to their existing customer base. However, customers just deciding to move to Cerner will probably pause their decision or go to another provider, such as EPIC.

These companies are coming to healthcare, but at what cost to them

There is no doubt that the improvement in the business of healthcare requires the scale and expertise of these larger non-healthcare companies. However, their size and commitment of significant dollars are insufficient to disrupt and change such a complex system overnight.

Conclusion: To win through M&A, you must pay attention to change management

Managing change effectively is key to success in this rapidly changing landscape. Leveraging M&A activity is the path forward, but experienced domain talent and systems mustn’t be lost in pursuing leverage and rapid growth.

The critical challenge of managing change is determining how much change to introduce and when. Introducing too much variation all at once might be disruptive, causing havoc and resulting in products and services that fail. However, not enough transition results in losing any chance for long-term success. The problem is balancing value creation with market readiness while maintaining an acceptable level of risk. This careful method is likely the road to more financial leverage and market share.