Lessons Learned: Big Tech Stumbles in Healthcare Again, Google Health Closing-The HSB Blog 8/30/21

Our Take:

Put quite simply, the recent dismantling of Google’s Google Health unit brings into question whether tech companies such as Google, Amazon, Apple, etc. will meaningfully be able to penetrate the healthcare industry in the ways they have disrupted other industries such as retail and media. In part this is due to the failure to acknowledge and adapt to the fact that healthcare is dramatically different from technology in structure, degree of regulatory oversight, policies, and financial resources. Designing, building and implementing solutions in the tech industry is dramatically different than selling products and services into the healthcare industry. As we noted in our piece back in March (please see “Big Tech & Retail Disruptors Continue to Run Into Same Challenges in Healthcare”, 3/22/21), “the varied nature of healthcare data, the intricate nature of data privacy and security rules such as HIPAA and CCPA, and the often complicated relationships between patients, providers, and payers can make navigating the space difficult at best.” Tech companies should expect and be prepared to adapt their solutions to a continual learning process thorough from the inception through iterative rounds of implementation and execution to the necessary follow-up changes post-mortem.

Key Takeaways:

According to CB Insights, Big tech has invested in deals worth a cumulative $6.8B since the start of 2020.
Tech companies have promised to transform, disrupt, and revolutionize the current system, yet still struggle.
On average the healthcare industry spent 5% of revenues on IT in 2020 compared to an overall industry average of 8.2% and 24.7% for the software industry.
The U.S. healthcare industry is an $8.3T industry growing approximately 4% per year.

The Problem:

Big Tech (exemplified by Google, Amazon, IBM, Apple, etc.) in one way or another have all expressed the goal to “change the face of healthcare as we know it.” However, not only is that goal incredibly broad and far reaching, as anyone who has ever worked in healthcare can tell you, it is much easier said than done. Virtually all of these organizations have experienced setbacks of varying degrees and have not had the degree of success many would expect given their level of investment. In addition, while Google stated that shutting Google Health would move “teams closer to the work or some of our core areas” and “will be good for execution”, departing CEO, David Feinberg was hired less than three years ago with the goal of “figuring out how to organize Google’s fragmented health initiatives, which overlap among many different business groups.”, according to a CNBC report at the time. Had Google’s investment actually been paying off or at least showing signs of paying off, one doubts this would have happened.

While each case is different, we believe there are some common issues behind big tech (and many retailer’s) struggles in gaining traction in the healthcare industry. These include, too ambitious and unfocused, goals which lack a centralized long-term vision, inability to understand the nuances of how the sub-sectors of the healthcare market differ from each other, and how the tech industry differs from healthcare as well as the need to take different approaches to make progress in the healthcare market. As we noted in our March blog, achieving change in healthcare can be methodical, require broad consensus, and involve cross-collaboration support from broad swaths of an organization or parts of the industry.

The Backdrop:

Big Tech companies like Amazon, Google, and Apple as well as retail giants like Walmart, have been attempting to gain a solid foothold in portions of the healthcare industry since the early 2000’s. As noted by CB Insights, drivers of big tech’s investment in the healthcare industry include: 1) enterprise interest in smart devices, 2) the so-called consumerization-where consumers take greater control of their own care, 3) The explosion of health data, 4) Demand and application of AI and automation to streamline care and improve accuracy, and 5) Healthcare’s disproportionate cost burden in this country. With this in mind, Amazon, J.P. Morgan and Berkshire Hathaway partnered to form Haven in 2018, with a stated goal of finding ways to reduce healthcare costs for employees and improve patient satisfaction. In addition, while Amazon has been directly involved in healthcare since its acquisition of Pill Pack in 2018, in the last several years Amazon has added Amazon Pharmacy, Amazon PrimeRx and earlier this year Amazon Care. While Amazon is among the first of big tech companies to become directly engaged in care delivery and appear to be having some success, it remains too early to tell.

Similarly, Apple has been involved in Health primarily through the iWatch and the Apple Fitness program but has also been developing services for its iOS ecosystem via the Apple HealthKit/CareKit. However, press reports recently noted that Apple would be scaling back a key health initiative, the Apple HealthHabit which many viewed as an attempt to eventually commercialize learnings from Apple’s internal health clinics. Along those same lines, while Google will be dismantling Google Health, Google’s investments in nine separate health initiatives will continue including Care Studio, Cloud healthcare Products, YouTube Health Initiatives, as well as AI research centering on chest X-rays and mammography. As noted by CB Insights, big tech invested over $3.7B in 2020 and has invested over $3.1B in healthcare year-to-date in 2021. While big-tech is attempting to capture a portion of the almost $4.0 billion in healthcare spending, the question remains whether they will figure the best way to penetrate the complex and intricate healthcare market.

Implications:

While healthtechs growth and underlying industry drivers have been propelled by the COVID pandemic, healthcare remains stubbornly difficult for big tech to penetrate. While over the years big tech has promised to transform, disrupt, and revolutionize the current system, gains have been far more modest. Compared to technology (and many other industries), healthcare is a risk-averse, lethargic, bureaucratic colossus. While the tech industry’s mantra has often been celebrated as “move fast and break things”, healthcare proudly points to Hippocrates and his oath to “do no harm.” While tech companies have often had the luxury of resources and the ability to “throw bodies” at problems, healthcare has consistently been underresourced and has historically underinvested in its information technology infrastructure. For example, according to Flexera, on average the healthcare industry spent 5% of revenues on IT compared to an overall industry average of 8.2% and an average of 24.7% for the software industry. In addition, as noted earlier, tech companies differ from healthcare in terms of information security and data privacy rules as well as in the amount, integrity and availability of data.

Consequently, tech companies looking to make greater inroads in healthcare need to learn to take a more nuanced and less blunt approach to change. In particular, tech companies need to understand the capabilities and limits of each unique organization they are dealing with in terms of quantity and quality of data as well as the ability to produce it in a timely fashion. In addition, they need to realize any system change in healthcare requires broad consensus from both clinical and technological stakeholders. Those looking to transform the system need to know how to implement cross-platform collaboration, as well as the ability to create and grow a base of support for a project from within the organization in order to create or overcome resistance to change. The healthcare industry’s approval process is time-consuming and not only slows down the pace but consistently brings opportunities for greater complexities and inertia to enter into the process. While tech companies have often reflected the personality of a dominant founder or founders (ex: Jeff Bezos, Steve Jobs, Bill Gates, Larry Page and Sergei Brin) most hospital systems are the products of years of development, rarely a single individual (perhaps with the exception of HCA and the Frist family). This difference in culture also drives a much greater need for consensus and garnering the support of numerous stakeholders. As STAT news pointed out in reporting on the break up of Google Health, “rather than using a single business unit to overhaul healthcare, tech companies including Apple, Amazon, and Google might be better equipped to aim a series of decentralized health efforts on one or two problem areas of the industry.” Lastly, one of the considerations tech companies should remember is, tech companies see themselves as the solutions rather than contributors to the solution. This attitude of the industry works well within the competitive fast-paced tech industry but in healthcare, it would only cause setbacks.

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