Healthcare's new entrants: Who will be the industry's Amazon.com?
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Healthcare’s new entrants:
Who will be the industry’s
Amazon.com?
Health Research Institute
April 2014Contents
Heart of the matter................................................... 2
Executive summary................................................... 2
An in-depth discussion.............................................. 4
Consumers are ready to move;
billions of dollars up for grabs..............................................4
Bring on the new entrants...................................................7
Democratization of care:
Cheap, easy and close to home.............................................8
Case study: CellScope......................................................8
Case study: Hospital at Home...........................................9
Clear opportunity.............................................................. 10
Case study: Wal-Mart .................................................... 11
Growth curve.................................................................... 11
What this means for your business.......................... 13
Conclusion.............................................................. 15
Acknowledgments................................................... 18Heart of the matter
As healthcare’s incumbents
As the health sector’s center of gravity shifts toward inch toward a value-driven
customers, savvy new players are moving fast to world, their customers—
employers and individuals—are
capitalize on the change. These new entrants are signaling they may not wait.
poised to shake up the industry, drawing billions A new survey by PwC’s Health
of dollars in revenue from traditional healthcare Research Institute (HRI) found
that consumers are willing to
organizations while building lucrative new abandon traditional care venues
markets in the burgeoning New Health Economy. for more affordable and convenient
alternatives. Nearly one in two
respondents said they would choose
Executive summary These new entrants—from the retail, new options for more than a dozen
technology, telecommunications, common medical procedures, such
The $2.8 trillion US healthcare consumer products and automotive as using an at-home kit to diagnose
industry is being upended by industries—are fashioning the strep throat or having chemotherapy
companies attuned to the needs and contours of this expanding market. administered at home. This simple
desires of empowered consumers. They regard their global reach, shift in the market threatens at least
These new entrants are nibbling customer insights, commitment $64 billion of traditional provider
at the edges of the traditional to transparency and trusted revenue. More will follow.
healthcare ecosystem, setting the brands as critical assets to capture
stage for a New Health Economy. and dominate the fragmented The neighborhood drugstore is a
health sector (see Figure 1). leading indicator of the consumer
migration to more affordable and
convenient care options. “Five
years ago, hardly anyone went
to a drugstore for a flu shot,”
Walgreen Co. President and CEO
Figure 1: New entrants are moving first and fastest toward building a
Gregory Wasson told investors at the
new health economy centered around the consumer, transparency,
convenience and prevention
JP Morgan Healthcare Conference
in January.1 Today, Walgreen’s share
Over time these newer players will draw billions from traditional of the $10 billion immunization
healthcare systems while expanding the fitness and wellness space. market is 4%, with room to grow.
“We intend to continue to grow share
not only in this growing pharmacy
$267 billion market, but as well in the larger
Fitness and and growing healthcare space,”
wellness market said Wasson, whose company now
offers a wide range
of medical services,
from lab testing to
$2.8 trillion school physicals to
US healthcare chronic condition
system management.
nts
Entra
New
Source: HRI analysis and Centers for Medicare and Medicaid Services National Health Expenditures (2012)
PwC Health Research Institute | Healthcare’s new entrants: Who will be the industry’s Amazon.com 2HRI also found: follow. Within a decade, the health For traditional healthcare
business will look and feel like other organizations:
• Two dozen of 2013’s Fortune 50 consumer-oriented, technology-
companies are healthcare new enabled industries. Soon, it will • Always put the consumer at the
entrants.2 Of those, seven are have its own Amazon.com-style, center. Evaluate everything
retailers; eight are technology iconic, new economy brands. from operating hours to
and telecommunications availability of clinicians via
companies. Two are What this means for digital devices to transparency
automakers, including Ford your business of pricing and quality.
Motor Co., which is developing
services for chronic condition While opportunities abound, • Figure out what matters most.
management while driving. healthcare remains a complex and Traditional health companies
highly-regulated ecosystem. One of will find it harder to compete
• New entrants will propel the biggest barriers to change, its on commodity services as
the democratization and third-party payment system, is unlike lower-priced options emerge.
decentralization of healthcare, that of any other industry. Success Decide whether to chase
empowering consumers to will require an understanding of commodity revenue or develop
access care anywhere. market needs, consumer desires, new revenue models anchored
regulatory requirements and on core capabilities while
• Consumer interest in price and investing in new ones.
reimbursement complexities.
quality transparency has sown a
hot new market. This is the fertile • Focus on the business model. Base For new entrants:
ground that produced Castlight business models on generating
Health, which provides employers • Develop a new value equation.
value in the New Health Economy.
and employees easy-to-use cost Don’t be discouraged by
and quality dashboards. The • Not all innovation is created traditional ways of thinking
startup debuted with a value of equal. Aim for disruptive leaps about healthcare. Focus on
more than $3 billion in its initial as customers will reward truly the customer, who wants
public offering in March.3 transformative services and and needs change and is
products. Embrace a fast, frugal, critical to enabling it.
• New players are reshaping and frequent, failure model to
expanding the $267 billion US • Emphasize quality. Match or
quickly develop and test ideas.
fitness and wellness industry, beat incumbents on quality by
which presents rapid paths • Turn the tables. Consider a using innovative approaches
to market, abundant sources consumer-to-business (C-to-B) such as virtual networks of
of data and opportunities to strategy, using consumer data experts for second opinions.
create new market segments. to refine business models,
(See “About this Research” on While the US healthcare system
enhance customer experience
page 18 for more information.) is famed for producing life-saving
and earn greater loyalty.
Cash-based and less regulated medical interventions, it has failed
than much of healthcare, this • Engage risk management early. The to create efficient business models
market features lower barriers- traditional rules of healthcare still that deliver outcomes commensurate
to-entry and fewer risks. apply. Involve regulatory, legal with costs. As the system moves in fits
and compliance counsel early. and starts into a consumer-oriented
Early glimmers of healthcare’s digital future, the race is on to become
versions of OpenTable and Hotwire • Collaborate. Blend the the Amazon.com of healthcare.
can be seen in upstarts such as best of emerging ventures
ZocDoc and iTriage, while others and incumbents, filling
are pitching 24-7, flat-fee online skill and asset gaps.
evaluation and treatment. Fortune
A new entrant is a disruptive,
50 telecommunications companies • Think bigger than a website.
are constructing the networks to Healthcare’s next-generation recent arrival to a market or
link stakeholders and their data. consumer is mobile and lives industry. These may include
online. It will take more than companies whose core businesses
Incumbents face critical decisions a website and a handle on reside entirely outside of the
about whether to compete with these a social media service such new industry, or businesses
emerging healthcare players, or as Twitter to thrive in the expanding into new roles.
align with them. Consolidation will New Health Economy.
PwC Health Research Institute | Healthcare’s new entrants: Who will be the industry’s Amazon.com 3An in-depth discussion
Abundant opportunity in the expanding health
sector is attracting new players from far afield,
from Fortune 50 retailers and telecom companies to
fledgling startups backed by venture capital. These
new entrants are moving fast with fresh ideas about
how to satisfy consumers’ appetites for better health
and more convenient, affordable, high-quality care.
They are in the vanguard of the on computer algorithms. of delivering care are available
New Health Economy, the next They are striving to be the now, or are under development.
era in the health sector’s slow disruptors that transform health,
transformation to a truly consumer- similar to the shakeups sparked by Respondents were asked how
centered, competitive market. In Netflix, Amazon.com and Apple. likely they would be to opt for an
short order, a company’s success will alternative, such as diagnosing
depend on its ability to compete, Consumers are ready strep throat using an at-home kit or
deliver results and focus on the having chemotherapy administered
customer’s needs and desires.
to move; billions of at home. They also were told the
dollars up for grabs new options would cost them less
Consumers already are primed than traditional ones such as a
to abandon traditional modes Consumers are ready to abandon hospital or physician’s office.
of care for new ones, suggesting traditional care models for ones
billions in healthcare revenue that echo experiences in banking, About half indicated they were
are up for grabs now, according retail and entertainment. likely to choose these alternatives
to a December 2013 consumer for themselves. More than 50%
survey commissioned by HRI. In HRI’s new consumer survey said they would opt for home or
respondents were presented with online services for minor services
Non-traditional players are creating a series of familiar medical tests such as a having a rash evaluated.
these new modes of care—from and treatments, from strep throat More than one-third would consider
home diagnostic kits that snap into diagnosis to administration of alternatives for more sophisticated
smartphones to online services that chemotherapy, in new settings care such as infusion therapies (see
triage and prescribe treatments based closer to home and often enabled Figure 2 on the following page).
by technology. These new ways
PwC Health Research Institute | Healthcare’s new entrants: Who will be the industry’s Amazon.com 4Figure 2: New entrants are creating options consumers want, threatening
billions of dollars in hospital and physician revenue
How likely would you be to choose these options, if they cost less than the traditional 54.5%
choice. Percent of respondents answering “Very likely” and “Somewhat likely.”
Check vital signs at
home with a device
attached to your phone
58.6% Ah 49.1%
48.3%
Use an at-home Have a wound or pressure
strep test purchased sore treated at a clinic in
at a store a retail store or pharmacy Have stitches or
staples removed
$150 million* $796 million at a clinic in a
for debridement retail store or
pharmacy
54.8% 46.9%
41.7%
Send a digital photo Check for an ear
of a rash or skin Do urinalysis test at infection at home using
problem to a dermatologist for an opinion home with a device a device attached to
attached to your phone your phone
$358 million
for evaluation of contact
$694 million for urinalysis
by dipstick or tablet reagent 38.6%
dermatitis and other minor rashes
Have a live visit
with a physician via
43.6% an application on your
smartphone
Have an electrocardiogram at home using
a device attached to your phone, with
results wirelessly sent to your physician $42.1 billion
for office and outpatient
$2.9 billion for routine ECG clinic visits
42.6% 36.7%
Have a pacemaker or defibrillator checked Have chemotherapy at home
at home wirelessly by your physician
$3.3 billion
$110 million chemotherapy administration
for pacemaker evaluation
26.2% 34.4%
Have dialysis at a medical clinic in a retail store Get an MRI at a clinic in a retail
store or pharmacy
$1.9 billion
for hemodialysis $11.6 billion
for MRI without contrast
*Strep revenues also included in office and outpatient visits.
Source: HRI consumer survey, 2013 and 2011 Truven Health MarketScan® Research Databases. See “About this research” on page 18 for more information.
PwC Health Research Institute | Healthcare’s new entrants: Who will be the industry’s Amazon.com 5Respondents between the ages of 35 and 54 were most also were open to receiving lengthy treatments for
likely to choose the new possibilities, as were those serious illness or chronic conditions in new settings,
who indicated that healthcare expenses had put a such as having chemotherapy infused at home.
strain on family finances in 2013 (see Figure 3). These
groups—the middle-aged and consumers feeling a How much did US providers receive for delivering
financial pinch from medical bills—will be among the services highlighted in the survey in traditional
the first to adopt newer, cheaper, easier options, settings? HRI calculates that US hospitals, physicians
as will those in rural and emerging markets. and other caregivers received at least $64 billion in
2011 for providing these services and treatments.4
In general, consumers were most comfortable with new
ways of diagnosing common ailments and receiving Companies developing convenient, affordable care
primary care services in new settings. Many consumers alternatives also will become stiff competition for
the US diagnostic and medical laboratory industry,
which had revenues of about $50 billion in 2013.5
Figure 3: Middle-aged consumers are most likely to
choose new options Many of these alternatives are available now, or
are on the verge of being commercialized. The
Percent answering they would be “very likely” or “somewhat smartphone device that captures digital images of the
likely” to choose new healthcare-style options ear canal goes on sale this year for $199. The Scanadu
Scout, a Star Trek-inspired vital sign “tricorder,”
is aimed for a place next to the thermometer in
the family medicine cabinet and is in trials.6
Online services already offer to evaluate digital photos
of rashes, moles and skin conditions or connect a
consumer with a physician within an hour for a flat fee.
With individuals footing more of the bill through high-
deductible health plans and insurance exchanges, the
popularity of these low-cost alternatives will rise.
45%
38% The emergence of these services and technologies
pose critical choices for traditional providers: Compete
or partner? “Is it going to be some random startup
or is it going to be your doctors?” asked Dr. Joshua
50% Riff, chief medical officer of Target. “You have the
infrastructure. You have the knowledge. You have the
18-34 years old 55+ years old experts. You need to be leveraging these technologies.”
While the survey results signal a threat for today’s
healthcare companies, they also highlight an opportunity
to reduce costs. A hospital with a value-based care
contract could find it cost-effective to send patients
35-54 years old to local retail clinic partners rather than surgeons to
Source: HRI consumer survey, December 2013 have post-operative stitches removed, for example.
PwC Health Research Institute | Healthcare’s new entrants: Who will be the industry’s Amazon.com 6Figure 4: Of Fortune 50 companies, 24 are new entrants
• AT&T opened its mHealth
platform to developers in 2012,
The top companies also include 14 traditional healthcare organizations. aiming to become the essential
ingredient in healthcare’s
Fortune 50 companies future game-changing apps.11
7 Retailers • Time Warner Cable Business
Class announced a “virtual visit”
experiment with Cleveland
Clinic caregivers can interact
with patients through televisions
using secure video technology.12
14
Traditional • In 2013, Google announced
healthcare 5 Technology the birth of Calico, a company
companies 24 focused on aging and associated
New illnesses. Its chief has experience
entrants in both healthcare and consumer-
oriented technology.13
4 Finance These players arrive on the health
scene with strong consumer
$$$$ credentials. Many have deep
relationships with millions of
customers and rich databases of
3 Telecommunications information on them. Walgreen’s
Balance Rewards program has data
on 74 million active members.14 The
2 Automotive 3 Consumer products program provides Walgreen Co.
with “incredible insights into
what our customers and patients
want,” Wasson told investors.
Source: Fortune 50, 2013
And at a time when venture
capital investment in life sciences
is down, money is pouring into
Bring on the new Moving the swiftest, in general, are
startups targeting digital health,
retailers, telecom and tech companies
entrants armed with consumer prowess, brand price transparency, workflow and
recognition and digital savvy. Many of electronic medical records systems
Of the 38 Fortune 50 companies with a and population health management.15
major stake in healthcare, 24 are new these companies combine expertise:
entrants, from retailers to technology In some cases, these companies are
• Earlier this year, Samsung
companies to telecommunications looking for a piece of the $2.8 trillion
unveiled its new Galaxy S5
businesses to consumer products pie. In others, they hope to entice
smartphone, complete with a
companies. (See Figure 4). These customers to other parts of their
built-in heart rate monitor.8 In
are the players muscling into—and business with quality healthcare.
2013, Apple also was issued
expanding—the health market. Or they view health as a cost-
a US patent for a “seamlessly
In their eyes, today’s system may cutting tool to be sold to traditional
embedded heart rate monitor”
represent $2.8 trillion in the US healthcare purchasers or a hook
for devices such as its iPhone.9
alone, but the New Health Economy to gather valuable data that can be
of tomorrow will include trillions • CVS Caremark announced monetized into insights or ad sales.
more globally as consumers shop it would stop selling tobacco
for products and services online.7 products in its 7,600 stores as These new entrants also are creating
part of a strategy to expand its new markets, such as services to
role as a healthcare company.10 help customers make wise, cost-
PwC Health Research Institute | Healthcare’s new entrants: Who will be the industry’s Amazon.com 7effective health choices. And with
the array of mobile apps, online
e-docs, neighborhood retail clinics, Case study: CellScope
urgent care clinics, primary care
doctors and hospital emergency Based in San Francisco, CellScope was born in 2010 with
departments, the appetite for smart the goal of building a home medical kit of sophisticated
customer guidance will grow. devices taking advantage of the smartphone’s capabilities.
The company’s debut product is the Oto, a smartphone
As care moves closer to home, otoscope that takes digital images of the ear canal.
services supporting large
healthcare institutions, from “Oto is intended to turn the mobile phone into a smart
food service to laundry, may find medical device, meeting a really meaningful need,” CEO
their business evolving and even Erik Douglas told HRI. Ear infections are responsible for
shrinking. Survival will depend 15 to 30 million U.S. office visits annually, Douglas said.
upon developing new ways to
service a decentralized market. Registered with the FDA and on target to sell for about
$199 later this year, Oto is one of many consumer-
oriented diagnostic tools threatening to disrupt the health
Democratization of care: sector. Taking advantage of technology that has become
Cheap, easy and cheaper, more powerful and smaller, companies such
close to home as CellScope are banking on families adding these next-
generation diagnostic tools to their medicine cabinets.
Not long ago, Americans depended
upon local newspapers, radio and CellScope is betting parents will pay for the Oto out-
television programs for news. of-pocket or place the device on a baby shower gift
Digitalization democratized registry. “We have been avoiding making a big bet
news, allowing virtually anyone on reimbursement because it is out of our control,”
with Internet access to obtain Douglas said. “We don’t have years to wait for a code.”
and share information from
anywhere at any time. Physicians have been early champions of the Oto,
Douglas said, but the company is still working out
Spotting opportunity, new entrants how to compensate them for time spent reading
streamed in, claiming billions digital images sent by patients. “All companies of
in advertising revenue.16 Other this ilk need ways for doctors to be compensated,” he
industries—music, entertainment, said. “We cannot expect doctors to work for free.”
travel—have undergone similar
revolutions, learning the same But, in a value-oriented environment, a tool that can
lesson: innovate, partner or fade. replace in-person, follow-up visits for ear infections
could be financially worthwhile to a physician with
A similar shakeup is underway a busy practice. A quick look at a digital image of a
in healthcare. Customers are no healing ear could free up a slot for a higher-value visit,
longer entirely dependent on family and save time and money for mom and dad, too.
doctors or local hospitals for medical
expertise, or even, increasingly,
treatments. For example, technology
companies and academic medical
centers are learning to digitize and
democratize medical expertise
so healthcare systems can deliver
top care virtually anywhere.17
“We’re our own construction workers and we can do our own
Do-It-Yourself, or Nearly-Do-It- contracting jobs. We’re our own travel agents. We’re our own
Yourself, healthcare is growing movie producers. We’re accepting all of these technologies to do
as once-complex conditions and things for ourselves and I think healthcare is the next frontier.”
diagnoses become simpler and —Dr. Josh Riff, Target
PwC Health Research Institute | Healthcare’s new entrants: Who will be the industry’s Amazon.com 8Figure 5: Consumers are ready to receive care in new ways, in new places
Are you open to trying new, non-traditional ways of seeking medical
Case study:
attention or treatment? Hospital at Home
Whiz-bang ideas and consumers’
Yes, if the love is not enough.
price is right
The healthcare industry’s payment
system remains so complex that
only those armed with real-world
strategies for payment will survive,
as some muscular, sophisticated
technology and financial services
companies have already learned.
Yes, regardless
No, regardless
Take Hospital at Home, a care model
of price that is consumer-centered, home-
of price
based and technology-equipped.
64% The Hospital at Home model enables
patients with diagnoses such as
congestive heart failure to avoid
inpatient admission by supporting
them at home with technology
and clinician visits. Studies found
it is popular with patients and
produces equal or better outcomes
to similar inpatients. Costs were
lower than inpatient care, too.20
18% 17%
Yet Hospital at Home has failed to
spread widely since it was developed
by Johns Hopkins geriatrician Dr.
Source: HRI consumer survey, December 2013 Bruce Leff and his team, starting in
1994. The problem? The industry’s
bias toward facility-based care and
cheaper to manage at home. Witness Every player in this democratized a lack of financial incentives for
retail shelves of over-the-counter health system will be connected adoption in a fee-for-service world,
pregnancy tests, HIV tests and proton wirelessly by telecommunications said Leff, director of the Center on
pump inhibitors. Or the evolution companies, which have developed Aging and Health-East at Johns
of the threat of Streptococcus cloud storage, big data analytics Hopkins Medical Institutions.
infections, from health menace in and security services, often with
the pre-antibiotic era to curable embedded telemedicine and other The rise of value-based models may
disease on the brink of being able care services. Niche players will change that as systems seek ways
to be diagnosed at home by mom. proliferate, using technology to to provide cheaper, good quality
cater to specific needs of small care, he said. But today, Medicare
Patients always will be limited in “orphan” patient populations. fee-for-service still dominates,
what they can do in their own homes, and just a handful of systems
but many will jump at the chance These DIY tests and treatments could offer Hospital at Home, including
to “co-produce” their care. Even divert millions of patients away from Presbyterian Healthcare Services in
parents with smartphone otoscopes physicians’ offices, urgent care clinics Albuquerque and several Veterans
won’t be diagnosing ear infections and emergency rooms (see Figure 5). Affairs hospitals. “I have been at
or prescribing antibiotics, said Dr. Researchers developing a simple this almost 20 years,” Leff told
Roni Zeiger, CEO of Smart Patients, test for adult sore throats caused by HRI. “I am hoping this happens
an online patient community. group A strep calculated their tool in a big way before I need it.”
could prevent 780,000 doctor visits
“Instead, it makes the mom more of a annually.18 That’s about $94 million
partner or a collaborator in a process,” in physician revenue a year.19
Zeiger said in an interview. “The big
opportunity is working together,
playing to all of our strengths.”
PwC Health Research Institute | Healthcare’s new entrants: Who will be the industry’s Amazon.com 9Clear opportunity Competition is stiff. In its initial
public offering filing with the US
The market for services offering Securities and Exchange Commission,
transparency in healthcare pricing Castlight lists new entrant
and quality is embryonic, yet growing. competitors such as Truven Health
New entrants and traditional Analytics, Healthcare Bluebook
businesses, particularly insurers, are and HealthSparq, plus traditional
grappling for share in this new area. In insurers such as Aetna, Cigna,
three years, venture capital firms have UnitedHealth Group and WellPoint.23
invested $400 million in start-ups
targeting price transparency, while The hunger for transparent
companies such as Aetna, Cigna and pricing may partially explain the
UnitedHealth Group have launched popularity of retail clinics, which
their own tools for members.21 prominently display price lists. In
2007, just 9.7% of respondents to an
Most of these services allow HRI consumer survey had visited
consumers to compare prices a retail clinic.23 By 2013, 35% of
and various quality measures for survey respondents reported they
healthcare services, physicians, drugs had visited one in the past year.
and procedures. Some offer Yelp-style
user reviews. Still to come: a national Open vistas remain. Respondents to
comprehensive shopping option. HRI’s consumer survey who wished
to shop for medical care preferred
One early mover is Castlight Health, “an online healthcare shopping
with its personalized out-of-pocket website that offers different options
cost estimates, clinical quality data, at different prices” over other choices,
real-time deductible information such as calling providers or using
and more. In 2013, the company insurance companies’ websites.
had revenues of $13 million, Yet the American public awaits
listing clients such as Microsoft an Amazon.com-style healthcare
and Mondelez International.22 shopping website (see Figure 6).
Figure 6: More than half of consumers want to shop for healthcare...
but their preferred method of doing so doesn’t exist yet
Which way would you prefer to shop for health and medical services, such as
doctors, procedures and hospitals?
43%
of people prefer to use an online
healthcare shopping website
Source: HRI consumer survey, December 2013
PwC Health Research Institute | Healthcare’s new entrants: Who will be the industry’s Amazon.com 10Growth curve
Case study: Wal-Mart Americans spent $2.8 trillion on healthcare in
2012, an oft-cited figure that ignores another
When Wal-Mart debuted its $4-generic drug program lucrative health market—fitness and wellness.25
in 2006, the pharmacy world looked a lot like the
rest of the health sector, with opaque pricing, said HRI estimates the nation spent another $267
Marcus Osborne, Vice President of Health and billion in 2012 on health-related goods and
Wellness Payer Relations at Wal-Mart Stores. services such as fitness classes, Fitbits, sports
apparel, organic foods, nutritional supplements
“We just wanted to make price matter in and massage therapy (see Figure 7).
pharmacy,” Osborne said. “The consumer
reaction was they voted with their feet, and we Free of heavy regulatory constraints and
picked up a significant share of pharmacy.” reimbursement complexities, this growing
market occupies a unique space. Barrier
Now Wal-Mart is exploring whether it can do the same to entry is lower than, for example, in the
thing for basic medical care, a perennial concern of insurance industry, where the founders of the
its cost-conscious customers, Osborne said. “How do startup Oscar had to raise $55 million just to
we introduce service and access at fundamentally obtain an insurance license in New York.26
transformative price points so there is no one in
America who can’t have access to care?” he said. The path to market is direct, with fewer
regulatory constraints, allowing companies
Last year, partnering with Kaiser Permanente, to quickly place products into consumers’
the retail giant opened micro-clinics called hands for feedback. Consumers already expect
Kaiser Permanente Care Corners in two stores in to pay out-of-pocket for these products and
California. Each has basic diagnostic equipment services, simplifying business models.
such as blood pressure cuffs and offers telemedicine
connections to Permanente clinicians. New entrants such as Nike and Jawbone sell
wearable devices to monitor basic fitness markers,
Each mini-clinic is about 300 square feet, with offering useful, shareable information while
nurses and physicians available for telehealth gathering valuable consumer health data. Yet
video appointments. Appointments are open to few in the healthcare industry have used this
shoppers who are Kaiser Permanente members tsunami of data to deliver more personalized care
and Wal-Mart employees and their dependents. and experiences. But the opportunity is there.
Osborne said the company also is exploring other This path to market also can serve as a launching
primary care clinic models, with plans to run more pad for forays into more complex regions of
tests, learning what works before expanding on healthcare. This is the strategy of the startup
a large scale. “There is a new world order coming Jiff, which developed a digital exchange
and it does require investment in base delivery for employee wellness programs and has its
of services that don’t exist,” he said. “I think it sights set on building a digital health assistant
will be a new healthcare service offering, heavily to help individuals evaluate symptoms.
technology-enabled, dead simple to engage with.”
“If Jiff goes out and builds a virtual digital health
assistant first, there are all kinds of technical
problems to solve to get from point A to point
B,” said Jiff founding CEO Derek Newell.
PwC Health Research Institute | Healthcare’s new entrants: Who will be the industry’s Amazon.com 11Figure 7: Growing the $267 billion wellness and fitness market
In 2012, Americans spent more than $2.8 trillion on healthcare, and another
$267 billion on other health-related products and services, such as dietary
supplements, weight loss programs, sporting equipment and gym memberships.
$59.20B $45.40B
Sporting goods Natural & organic food
and apparel
$30.40B
Vitamins & nutritional
supplements
$93.62B
$3T US total Nutrition
health sector $16.80B
Functional beverages
$11.25B $1.02B
US Health- Alternative Nutrition and energy bars
Health and wellness and fitness
care system medicine
$2.8T
Ancillary
services $61.6B $25.27B
$267B Weight loss Gym membership
$7.31B
Personal trainers
$40.33B $6.85B
Fitness Pilates and yoga studios
$0.64B
Boxing gyms and clubs
$1.30B $0.26B
Mobile health apps Fitness DVD production
Source: HRI analysis, please see “About this research” on page 18 for more information.
$3 trillion
Americans spent nearly $3 trillion, or almost
$10,000 a person, maintaining health and
wellness in 2012.
PwC Health Research Institute | Healthcare’s new entrants: Who will be the industry’s Amazon.com 12What this means for your business
In coming years, consumers will move billions of dollars • Engage risk management counsel early. Innovation
to businesses offering more affordable, simpler, more requires striking the right balance of involvement
convenient care. Health organizations will compete with by regulatory and legal counsel. Too much risk
industries such as travel, entertainment and retail for aversion can hamper experimentation. Airbnb
discretionary dollars. Here’s how to help your business take launched its travel rental business in 2008 before
advantage of these New Health Economy opportunities. many communities had decided whether it fit
local ordinances.28 Today Airbnb has served more
• Start with the consumer and work backwards. than 11 million guests in 192 countries.29 30
Consumers will abandon companies unable to
deliver care on their terms. Health organizations Yet regulatory risks are real. 23andMe, a genetic
should understand consumers’ needs and desires, testing service, learned this last year when it received
creating new options for access, information a warning letter from the U.S. Food and Drug
and products and services. Consider rethinking Administration (FDA). The agency cited an alleged
operating hours, availability of clinicians via digital lack of communication from the company over how
devices and transparency of pricing and quality. it marketed its saliva collection kit and personal
genome service.31 The company stopped offering its
For example, Walgreen Co. draws a third of its health-related genetic tests to new customers.32
vaccination traffic in off-hours.27 Other companies
offer near-instant evaluations, via phone or online, • Don’t go it alone. Success will require inside knowledge
round-the-clock. As these services proliferate, of the complexities of the fragmented healthcare
customers will come to expect the convenience and system, technological prowess and strong ties to
transparency they take for granted as they shop, bank consumers. Few organizations possess all of these.
or book vacations. Health companies should compete
Traditional health players should consider
on experiences provided, not just services delivered.
strategic partnerships with new entrants, which
As Nasrin Dayani, Executive Director for AT&T also may possess broad distribution networks.
ForHealth Solutions, told HRI, “We believe the Aligning with new entrants may transform a
ultimate jury of that game-changing app and that potential competitor into a future collaborator.
game-changing device are the consumers themselves.
Newer players can also benefit from smart alliances.
It will not be decided by the providers or payers.”
As partners, traditional healthcare companies can
• Be flexible. All organizations should develop strategies serve as guides to the regulatory and payment maze.
for both fee-for-service medicine and value-based
• Compete in cyberspace. Eighty percent of Americans
models. Traditional healthcare companies must
aged 18 to 34 own a smartphone; half of American
prepare to move from B-to-B to B-to-C-to-B, utilizing
adults do.33 Developing efficient, affordable ways to
customer data to personalize experiences and care.
deliver care to consumers’ devices is critical, as is
finding solutions to regulatory, privacy and security
PwC Health Research Institute | Healthcare’s new entrants: Who will be the industry’s Amazon.com 13concerns. Consumers will reward those who make • Rethink the value proposition. The growth of new
healthcare as easy and affordable as online shopping price and quality transparency services will place
for travel, consumer goods and entertainment. pressure on drug manufacturers as stakeholders gain
the power to compare different products’ values.
Mobile will be crucial in the New Health Pharmaceutical and life sciences companies must
Economy. All players should understand how re-evaluate pricing models and develop new ways to
to create new value propositions based on add value, perhaps by partnering with new entrants
social, mobile, analytic and cloud technology, targeting patients with relevant diseases or conditions.
generating positive customer experiences.34
For new entrants:
• Integrate. Skeptics point out that an a la carte medical
system will undermine efforts to integrate care • Get paid. New entrants must know how to adapt
if data are not readily available to all caregivers. to current and prospective payment systems. The
Retail clinics have been criticized by some physician business model is as important as the technology
groups, citing lack of access to information or service. As Zeiger of Smart Patients put it,
about patients. Customers have not embraced “We don’t need more technology. We mostly
universally-accessible personal health records. need faster evolutions of the business.”
Integration and accessibility of data will be key to
building a seamless, coordinated health system. The digital world has trained consumers to
believe they don’t need to pay much for many
For traditional healthcare online services, such as content and social media.
organizations: Companies must be creative in designing business
models that hook others into paying for value.
• Triage sources of revenue. As cheaper options emerge,
especially for commodity services, traditional Business model innovation is a complex process
healthcare companies should evaluate which services with no single recipe for success. Companies
are worth defending. The loss of less-lucrative should create a defined business innovation
services could free space and time for higher-value process first, using business model simulation as
offerings. Consider partnering with new entrants. a tool. Simulations can help fine-tune projects
Experiment before revenue starts to disappear. before they are tested in the real world, allowing
for rapid, low-cost, low-risk improvement.
• Rethink marketing. As consumers shift to DIY
medicine and new providers, drug makers must • Know the stakeholders. New entrants need to
adjust marketing to reach consumers where they understand the interactions and roles among
live—online and at home.35 Patients are becoming insurers, pharmaceutical and life sciences companies,
influential opinion leaders. Companies will need providers, manufacturers and patients and how to
to determine how to address the growing diversity tap new channels to enter the market, especially
of influencers in their marketing campaigns. as it becomes increasingly consumer-oriented.
PwC Health Research Institute | Healthcare’s new entrants: Who will be the industry’s Amazon.com 14Conclusion
Dramatic change has been predicted for the organizations providing the best value, whether it’s an
health industry many times over. This time, the academic medical center, a tech company with a great
environment is finally ripe for that transformation. app or a healthcare shopping website (see Table 1).
Revenue will circulate differently, to many new players. Within a decade, healthcare will feel very different
Consumers, spending more of their own money, are than it does today. The players may be different, with
exerting greater influence and going beyond the traditional partnerships between new entrants and traditional
industry to find what they want and need. In the New organizations. And this New Health Economy will
Health Economy, purchasers increasingly will reward have its Uber, its Netflix, its Amazon.com.
Table 1: The health ecosystem is changing swiftly
Where are you on the journey? 10 years
Consumer engagement Digital presence is through organization Two-way communication with consumers,
website; maybe Twitter accounts seamless integration, business is
organized around consumer, digital
engagement is part of corporate DNA,
care reaches consumers where they are
Data New data sources, but fragmented and Analytics integrated into core of
lacking in standardization; fledgling business, standardization, data driving
analytic capabilities and usage of data behavior modification of consumers
Innovation Pilots and experiments testing ideas; business Successful pilots knitted into core business;
model simulations; incubators supporting strategic partnerships driving innovation
fast-frequent-frugal-failure cycles
Regulation/compliance Experimentation Mature programs, approvals by
regulators, fully compliant
Business model/ Working within dominant fee-for- Scales have tipped toward value
payment service /B to B and nascent value- and direct-to-consumer
based model/direct-to-consumer
Care delivery Centered around the hospital Centered around consumer, close to
complex and physicians’ offices home, through digital devices
PwC Health Research Institute | Healthcare’s new entrants: Who will be the industry’s Amazon.com 15Endnotes
1 Gregory Wasson speech, JP Morgan Healthcare Conference, Jan. 15, 2014.
Transcript courtesy of Thomson Reuters.
2 http://money.cnn.com/magazines/fortune/fortune500/
3. http://www.reuters.com/article/2014/03/13/castlight-ipo-
idUSL3N0MA58F20140313
4 Includes payments from commercial insurers and Medicare. For more detail on the
analysis, see “About this research” at the end of this report.
5 https://www.ibisworld.com/industry/default.aspx?indid=1575
6 Scanadu is among 30 teams competing for the $10 million Qualcomm Tricorder
XPRIZE, a global competition to create “spur radical innovation in personal health
care technology.” Winners will be announced in 2015.
7 http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-
Reports/NationalHealthExpendData/NationalHealthAccountsHistorical.html
8 www.samsung.com/us/aboutsamsung/news/newsIrRead.do?news_
ctgry=irnewsrelease&page=1&news_seq=22549&rdoPeriod=ALL&from_dt=&to_
dt=&search_keyword=
9 U.S. Patent and Trademark Office, Patent No. 8,615,290.
10 In a statement on its website, CVS/Caremark elaborated on its decision: “By
removing tobacco products from our retail shelves, we will better serve our patients,
clients and health care providers while positioning CVS Caremark for future growth
as a health care company.” http://info.cvscaremark.com/cvs-insights/cvs-quits
11 Interview, Nasrin Dayani, executive director of AT&T ForHealth Solutions, AT&T.
12 http://www.timewarnercable.com/en/about-us/press/twc_businessclass_
announces_virtual_visit_telemedicine_trial.html
13 http://googlepress.blogspot.com/2013/09/calico-announcement.html
14 Walgreen Co. President and CEO Gregory Wasson speech, JP Morgan Healthcare
Conference, Jan. 15, 2014. Transcript courtesy of Thomson Reuters.
15 According to the February 2014 PwC and National Venture Capital Association
MoneyTree Report, “Medtech Slowdown,” life sciences captured 23% of total
venture dollars in 2013, down from 2009 when life sciences took 32% of venture
dollars.
16 Since 2006, newspapers have suffered advertising losses for 25 quarters in a row,
according to the Newspaper Association of America. http://www.poynter.org/latest-
news/business-news/the-biz-blog/196031/newspapers-report-ad-revenue-loss-for-
25th-quarter-in-a-row/
17 http://www.mdanderson.org/newsroom/news-releases/2013/ibm-watson-to-
power-moon-shots-.html
PwC Health Research Institute | Healthcare’s new entrants: Who will be the industry’s Amazon.com 1618 Andrew M. Fine, Victor Nizet, Kenneth D. Mandl; Participatory Medicine: A Home
Score for Streptococcal Pharyngitis Enabled by Real-Time Biosurveillance: A Cohort
Study. Annals of Internal Medicine. 2013 Nov;159(9):577-583.
19 Calculated assuming $120 for an average physician office visit. PwC Health
Research Institute, “Medical Cost Trend: Behind the Numbers 2014.”
20 Leff, Bruce et al. “Hospital at home: feasibility and outcomes of a program to provide
hospital-level care at home for acutely ill older patients.” Ann Intern Med. 2005 Dec
6;143(11):798-808 and Lesley Cryer, Scott B. Shannon, Melanie Van Amsterdam,
and Bruce Leff Health Aff June 2012 31:61237-1243; doi:10.1377/hlthaff.2011.1132
21 PwC Health Research Institute, “Top Health Industry Issues of 2014.”
22 http://www.sec.gov/Archives/edgar/data/1433714/000119312514041287/
d636610ds1.htm
23 http://www.sec.gov/Archives/edgar/data/1433714/000119312514041287/
d636610ds1.htm
24 PwC Health Research Institute, “Medical Cost Trend: Behind the Numbers 2014.”
25 U.S. Centers for Medicare & Medicaid, National Health Expenditure, 2012. http://
www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-
Reports/NationalHealthExpendData/Downloads/highlights.pdf
26 Interview, Mario Schlosser, co-founder, Oscar.
27 Walgreen Co. President and CEO Gregory Wasson speech, JP Morgan Healthcare
Conference, Jan. 15, 2014. Transcript courtesy of Thomson Reuters.
28 “Airbnb’s swank digs reflect growth, but controversy grows.” San Francisco
Chronicle, Jan. 27. 2014. http://www.sfgate.com/bayarea/article/Airbnb-s-swank-
digs-reflect-growth-but-5175734.php
29 www.airbnb.com
30 Lessin, Jessica. “Thiel in talks to invest in Airbnb at $2.5 billion valuation.” The Wall
Street Journal, Oct. 12, 2012.
31 FDA Warning letter to 23andMe CEO Ann Wojcicki, Nov. 22, 2013. http://www.fda.
gov/iceci/enforcementactions/warningletters/2013/ucm376296.htm
32 23andMe blog post, Dec. 5, 2013. http://blog.23andme.com/news/23andme-
provides-an-update-regarding-fdas-review/
33 Pew Internet and American Life Project, Smartphone Ownership 2013.
34 PwC Health Research Institute, “Top health industry issues of 2014.”
35 PwC Health Research Institute, “Customer experience in the pharmaceutical sector:
Getting closer to the patient,” November 2013
PwC Health Research Institute | Healthcare’s new entrants: Who will be the industry’s Amazon.com 17Kent Bradley, MD Lawrence Leisure
Acknowledgments SVP, Chief Medical Officer Operating Partner
Safeway Inc. Kleiner Perkins Caufield & Byers
Nasrin Dayani Derek Newell
Executive Director, Founding CEO
AT&T ForHealth Solutions Jiff, Inc.
AT&T Inc. Marcus Osborne
Dave deBronkart Vice President of Health &
Principal Wellness Payer Relations
e-Patient Dave LLC Wal-Mart Stores, Inc.
Walter De Brouwer Joshua Riff, MD
CEO Chief Medical Officer
Scanadu Target Corporation
Erik Douglas Mario Schlosser
CEO and Co-Founder Co-Founder
CellScope, Inc. Oscar Health Insurance
Malay Gandhi Halle Tecco
Chief Strategy Officer Co-Founder and CEO
Rock Health Rock Health
Bob Kocher, MD Roni Zeiger, MD
Partner CEO
Venrock Smart Patients
Bruce Leff, MD
Director, Center on Aging and Health-East;
Director, Program in Geriatric Health
Services Research; Professor of Medicine
Johns Hopkins Medical Institutions
In December 2013, PwC’s Health Research Institute commissioned a survey of 1,000 US
About this research adults representing a cross-section of the population in terms of age, gender, income and
geography. Through its survey, HRI sought to measure consumer preferences related
to delivery of care. One portion of the survey presented respondents with more than a
dozen common medical procedures, treatments and services in new care settings, such as
retail-based medical clinics and home, and asked respondents how likely they would be to
choose each option.
HRI matched each common procedure, treatment or service to diagnostic or Current
Procedural Terminology codes, and then, using the most recently-available data in the
Truven Health MarketScan® Databases (2011), calculated annual revenues received by
US providers for commercial claims and Medicare in the databases. Approximate national
revenue numbers were calculated by applying a national multiplier to these revenue
numbers.
HRI also estimated the size of the US health and wellness market to be $267 billion. To
accomplish this, HRI established categories for this market, and then analyzed relevant
reports from PwC, trade associations, IBISWorld, research2guidance, Baird and Market-
data Enterprises.
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www.pwc.com/structure for further details.
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About the PwC Health ysis on trends affecting all health related industries. The Health Research Institute helps
executive decision makers navigate change through primary research and collaborative
Research Institute exchange. Our views are shaped by a network of professionals with executive and day-to-
day experience in the health industry. HRI research is independent and not sponsored by
businesses, government or other institutions.
PwC Health Research Institute | Healthcare’s new entrants: Who will be the industry’s Amazon.com 18Kelly Barnes HRI Advisory Team
PwC Health Research Partner
Vaughn Kauffman
Health Industries Leader
Institute 214 754 5172
Principal
kelly.a.barnes@us.pwc.com Paul D’Alessandro
Principal
Ceci Connolly
HRI Managing Director Mitch Beaumont
202 312 7910 Principal
ceci.connolly@us.pwc.com David Chin, MD
Trine Tsouderos Jim Prutow
Director Principal
312 298 3038
trine.k.tsouderos@us.pwc.com Ed Yu
Principal
Sarah Haflett
Senior Manager Chris Wasden
267 330 1654 Managing Director
sarah.e.haflett@us.pwc.com Paul Loub
Bob Kim Director
Research Analyst Brian Williams
973 236 4469 Director
bob.b.kim@us.pwc.com
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Research Analyst
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609 240 7204
Director
neha.gavai@us.pwc.com
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Erin McInerney
Director
Research Analyst
213 435 0501 Hindy Shaman
erin.f.x.mcinerney@us.pwc.com Director
HRI Regulatory Center Other Contributors
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Director Margaret Fresenburg
214 754 5091
benjamin.isgur@us.pwc.com Jason Heider
Bobby Clark Sylvia Morales
Senior Manager Toan Nguyen
202 312 7947
robert.j.clark@us.pwc.com Gavin Penny
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Senior Manager
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caitlin.sweany@us.pwc.com
PwC Health Research Institute | Healthcare’s new entrants: Who will be the industry’s Amazon.com 19www.pwc.com www.pwc.com/us/healthindustries www.pwc.com/hri twitter.com/PwCHealth To have a deeper conversation about how this subject may affect your business, please contact: Kelly Barnes Partner, Health Industries Leader 214 754 5172 kelly.a.barnes@us.pwc.com Vaughn Kauffman Principal, US Health Industries 216 363 5817 vaughn.a.kauffman@us.pwc.com Ceci Connolly Managing Director, Health Research Institute 202 312 7910 ceci.connolly@us.pwc.com ©2014 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved. PwC refers to the US member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. ST-14-0029
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