In the wake of Amazon’s $3.8 billion offer to acquire One Medical, those working within the healthcare industry have adopted a new pastime: guessing the level of disruption the takeover will catalyze. The basic tenets of the opportunity are well-understood, namely that a) healthcare spending consumes more than its fair share of US GDP and consumer discretionary spending, marching steadily along each year at an unsustainable rate of growth b) if incentives are designed appropriately, effective primary care and prevention would be critical to bending the cost curve, and c) Amazon has repeatedly played disruptor in sectors it chooses to enter—so why not this one?
Naysayers, however, will point to Amazon’s history of shutting down business models that do not prove themselves immediately accretive, as it did with its Haven partnership on healthcare financing with JPMorgan Chase and Berkshire Hathaway in 2021. When one considers that One Medical lost $250 million in its last fiscal year on revenues of only around $640 million, one must question whether Amazon will have the patience to see the business reach profitability at scale?
Other questions come to mind: Will this deal lead to other “big plays” in primary healthcare by emerging competitors (e.g., Walmart, et. al.)? What will the competitive response be among major health systems that have invested billions into building out their own primary care networks? While there are no certain prognostications, a lesson from the airline industry might provide a few clues as to how it might play out.
Regulatory Lessons Learned
Both healthcare and air travel are highly regulated industries—understandable, given the life-or-death consequences of error. Another commonality between the two is the correlation between shifts in the regulatory environment and changes in competitive dynamics. For the airline industry, the 1978 Airline Deregulation Act eliminated states’ ability to regulate the prices, routes, or service of air carriers. This deregulation proved transformational, flipping the competitive dynamic between established legacy carriers (United, Delta, Delta, etc.) and disruptive upstarts like Southwest Airlines.
While healthcare regulatory reform is likely to advance at a slower cadence than the shock caused by the Airline Deregulation Act, the business-school staple case study of Southwest Airlines provides a particularly good analogue (or perhaps cautionary tale) for primary care disruptors seeking to leverage and build upon recent state and federal regulatory shifts to gain advantage in areas such as telehealth payment parity, cross-state licensure compacts, price transparency, expanding PA/NP scope of practice, and others.
Deregulation did not create Southwest, but it can be said the airline’s arrival helped drive the policy change from which they then became the greatest beneficiary. Founded in 1967, the airline advocated aggressively for relaxing Texas state and then-Federal regulations while building a business model that has proven surprisingly difficult to replicate, even to this day. Efforts by legacy carriers (United, Delta, American, etc.) to create their own competitive budget airlines have failed repeatedly and miserably (take note, large health system retail clinics).
Amazon, fellow disruptors, as well as legacy health systems seeking to remain viable can all seek to understand why such a seemingly simple business model presents such a formidable challenge for competitors. Southwest’s ability to not only “ride the wave” of deregulation but also execute an operating model that effectively manages costs while driving differentiated consumer value has resulted in its consistent profitability and success (while other up-start budget airlines and legacy carrier imitations have mostly failed).
Models for Health Care Disruptors to Consider
Their winning model comes down to a number of key dimensions:
Designing differently from the outset to build an efficient cost structure:
- Simplicity in infrastructure: From the company’s founding until today, Southwest Airlines has flown only a single model of aircraft, the Boeing 737 (albeit different variants across the years). This streamlined design choice allows for versatility in staffing pilots, ground crews, maintenance, and other personnel. While this simplicity limits the routes the airline can fly, it pays huge operational dividends. Likewise, not every primary care clinic needs to be designed as a unique labyrinth, disorienting and overwhelming patients while driving up construction costs and the cost of maintaining aging infrastructure. Disruptive healthcare models might consider designing for accessibility, consistency, and throughput. This might require phasing out features that address patients’ #11-20 highest needs in order to exceed expectations and drive improved outcomes on their top 10 ones. Such streamlining around priority use cases might also mean jettisoning much of the brick & mortar infrastructure for basic primary and acute care, and adopting a home-first approach (e.g., telehealth paired with at-home visits as needed, as Amazon Care, Dispatch, and others currently provide), reserving in-person visits for more complicated needs. Finding the right balance with this minimal viable infrastructure model would be a critical success point for both patient experience and financial viability.
- A fit-for-purpose workforce: Southwest Airlines was designed with a flat organizational structure where roles tend to be comparatively broader than at legacy carriers. For instance, flight attendants double as cleaning crews and pilots fly more hours per year than they would with legacy carriers. Yet with fair pay practices and a strong culture, Southwest’s union workforce has experienced fewer labor disruptions than other carriers. The reason for this comes down to expectations. The company’s requirements of its people are high, but they are also stable, clear, and avoid the constant reorganizations commonly seen within the airline industry. Primary care disruptors have a similar opportunity to design organizational models and clinical teams from the ground up, based on the patient experience and outcomes they wish to deliver rather than the status quo. One Medical’s Iora Health business unit has been a pioneer in this area with their Health Coaches that manage patient relationships and help connect the dots in coordinating their integrated care model. While Iora has a capitated model where incentives align to their unique model, even fee for service primary care models have the opportunity to compel regulators and policymakers to accommodate cost-effective and patient-centric models of care rather than repeatedly structuring themselves around the status quo regulatory framework.
- The right kind of tech: Stepping onto a Southwest plane does not generally seem like a high-tech experience. There are no seatback infotainment systems, no lie-flat seats, just a very basic economy cabin. But minimal flash does not mean the airline is technologically backwards. Less visible features are critical to Southwest’s success, such as fleetwide wifi, a homegrown website used for nearly all flight bookings, and a sophisticated in-house-developed fuel hedging platform that has saved the company billions of dollars over the years. The airline carrier uses tech as a lever to support the customer experience rather than dazzle them. In evaluating their tech stacks, primary care providers should be asking similar questions: how can technology enable greater connectivity and engagement with patients? How can it improve (rather than hinder) the effectiveness and job satisfaction of employees (particularly front-line clinicians)? How can it improve, or even fundamentally transform, incentive alignment and financial value capture (i.e., what is their “fuel hedging algorithm” related to contracting and reimbursement)?
Operate differently to deliver differentiated value:
- Design point to point instead of hub and spoke: When Southwest began flying, nearly every airline was configured in a “hub and spoke” model, with smaller airports feeding traffic to hubs that then ferried passengers along to domestic or international destinations. Southwest decided to play a fundamentally different game, flying point-to-point routes between “second tier” airports that were cheaper to operate out of, saw less traffic (and therefore, fewer delays), and whose use generally created a less stressful travel experience. The drawback with this model has always been that if travellers wish to continue on to long-haul international routes or certain high-traffic cities they often must transfer airlines. Yet it is a price millions of travellers are willing to pay for the convenience and value in the shorter hops. After all, Southwest’s original goal was to be able to compete with a consumer’s decision to take their car, not another airline. Primary care disruptors could take a similarly unique configuration path, not trying to grow into traditional health systems but instead competing with the drug stores, pharmacies, websites, and other day-to-day sources that patients go to most often when seeking health advice. In much the same design as legacy airlines, large health systems today have primary care clinics designed as hub and spoke feeders into their hospitals, ambulatory care centers, specialists, etc. Primary care disruptors have the flexibility to independently channel referral volume to the best sources of specialty care rather than those to which they are aligned. They also can also locate their clinics without regard to proximity of hospitals or other aligned delivery system assets. Turning this perceived weakness into a strength at scale could enable such primary care networks to exert significant market power as referral gatekeepers (“air traffic controllers,” if you will).
- One class of service: Because Southwest does not have First Class on its planes, it effectively does not have second class, either. While not luxurious, their egalitarian approach is highly equitable and works well on short haul routes by enabling “quick turns” of aircraft between flights. In much the same way, primary care disruptors that define a clear scope for what services they deliver (e.g., do not drift into delivering specialty care or ambulatory surgeries), but are able to deliver and resolve needs within their defined scope better than their peers, will be most well-positioned to deliver a singular and consistent patient experience at scale. They will also avoid “competing with themselves” when it comes to their role as a highly credible referral channel, as mentioned above.
- Real transparency: In an industry marked by dozens of fare classes and opaque pricing algorithms, Southwest has always maintained a simple and transparent pricing approach. The airline does vary pricing for flights, but effectively makes the lowest prices available on a first-come-first-served basis, and makes clear the linkage between available capacity and current price. This greatly limits questions around fairness or price gouging. While such a discount strategy may not work in health care, primary care providers should consider what radical price transparency could look like for them—above and beyond pricing rules, such as proactively and prominently divulging and even advertising their undiscounted billing rates for key services, or adopting bundled or subscription models for most services as many direct primary care practices currently offer. Given that primary care doesn’t tend to have massive differences in price the way hospitals do, this could be a fairly low-risk way for the primary care industry to lead change.
Alone, none of the key differentiators listed above will be sufficient to gain an enormous competitive advantage. Poorly executing a handful of them is even less likely to produce positive results. The secret sauce—at least for Southwest—is in bringing all of these seemingly simple and obvious design elements together at once. Time will tell whether Amazon or one of the other disruptors will be able to assemble and consistently execute on the type of differentiated experience in the health space that Southwest has been able to consistently deliver in the airline industry. But the comparison does demonstrate that a truly disruptive healthcare delivery model needn’t dramatically deviate from the status quo in order to be profoundly transformative to the industry as a whole.