There are good reasons for healthcare to be an attractive business. The demographics are fantastic, with aging populations practically everywhere, and specially so in higher-income countries. Unlike other fields, technology doesn’t necessarily lowers margins. For reasons that have more to do with market incentives than scientific limitations, most research is focused on profitable high-complexity, high-cost interventions, and for every cost-saving development there’s a new procedure that requires sophisticated equipment and highly trained specialists. A large and growing percentage of GDP is dedicated to healthcare, both by individuals and governments. And to top it all, the market is full of inefficiencies and complex barriers of entry.
Companies in other industries could only dream of such conditions. In fact, they do, and they are working to make those dreams true.
GE is one of them. They already have an UK-based healthcare unit, but they are going make public during the next weeks a company-wide initiative to push products and services from all divisions, adding their wide array of services and capabilities to their already large investments in medical imagining and other healthcare-related business.
Another large company aggressively entering the healthcare market from an apparently unrelated one is Wal-Mart. The retail giant has been opening since last year co-branded in-store clinics that offer drugs and simple treatments for fixed, relatively low costs. The company hopes to leverage their supply chain know-how into what can only be described as a mass retail model for medicine. Ironically, Wal-Mart has been long attacked by unions and the government for the inadequate and expensive healthcare insurance it provides to their own workers.
This year Wal-Mart is entering the market of electronic health records, one we have already been monitoring in Frontier Economy. It will offer clinics a complete electronic health records package including hardware, software, training and support. Although this might seem as a strange move for a retail chain, Wal-Mart has one of the most sophisticated and profitable in-house IT infrastructures in the world, an expertise they hope to apply to the so-far inefficient healthcare industry.
In the same vein, Google is investing heavily in electronic health records, nominally as part of their overall quest to ‘index all the information in the world,’ a very good business if you can make it happen. The company has world-class experience with data storage and management, and a flexible platform that has already been used to support and deploy a number of large-scale services.
Google already offers Google Health, a free service that allows people to store and manage medical information, and to share it as needed with family members and doctors. As a further development, it’s now part of a pilot project in Arizona and Utah that updates Google Health accounts with Medicare records, an small but significant movement toward Google’s vision of a single centralized, comprehensive medical profile for each individual. Such a system, even if free, would offer potentially enormous business opportunities (it was almost impossible to resist the temptation to make the obvious observation about Viagra, electronic health records, and Google’s targeted advertising system).
These companies, and many others, are hoping that their specific know-how and skills will give them advantages in the healthcare market. GE is perhaps the most ‘traditional’ of these companies, having already a strong position in medical devices. Both Wal-Mart and Google see at least part of the healthcare industry as being natural extensions of their core competencies — highly efficient procurement and retailing, and online data management services respectively. Such expansions in the scope of a company aren’t always successful, but if they work they can prove to be hugely profitable and, even more, lead to further developments.
The underlying drive behind these and other initiatives is the fact that healthcare presents a very tempting target right now, with a massive customer base, a strong technological component, and competitors exploiting large margins protected by a mixture of tradition and byzantine regulation.
It’s those traditional and regulatory walls that ‘outsider’ companies are slowly pushing, much to the dismay of the industry. Just as one of the early initiatives of Obama’s government has been to fund a national electronic healthcare record project, the rising costs of healthcare and deepening fiscal deficits will add political pressure to find ways to make medicine both cheaper and more effective.
Whether companies like Wal-Mart and Google are successful in obtaining pivotal roles in the revamped healthcare system, or the industry learns to transform itself (a feat that newspapers, faced by the threat of the internet, utterly failed to accomplish), ten years from now medicine will not only utilize new drugs and devices, but it’s likely to be a very different business altogether.
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