This company will be bigger than Apple

“We think the biggest company in the world will be a consumer health tech company.”   

So says a new post from the Silicon Valley venture capital firm Andreessen Horowitz (a16z). Their rationale is that some of the largest and most profitable corporations in the World currently are consumer-oriented technology companies like Google, Apple, Facebook, and Amazon, while at the same time, the healthcare industry in the U.S. represents 20% of GDP (and growing) amounting to $4 trillion per year. and total global healthcare spending was $8.3 trillion in 2018 (Figure 1). They note that the former figure is five times the total worldwide advertising industry which is the primary income source for Google and Facebook, and a secondary source for Amazon and Apple.

In previous posts, I have described the various forays of these tech behemoths into the healthcare arena. Google has been the most active over a wide range of projects from wearables (Wear OS and purchasing Fitbit) to providing health information in Google search (“Dr. Google”) to cloud computing and health analytics in partnership with medical institutions (e.g. Mayo Clinic) to health research institutions such as Verily. Apple is not far behind with the goal of making the iPhone the central hub for accessing/organizing personal health and medical information while also building out the Apple Watch into a sophisticated health tracker bristling with health sensors. Then there is Amazon which has become the most directly involved in offering healthcare services with an online pharmacy (PillPack) and the budding healthcare provider Amazon Care which offers a slate of primary care services including telehealth appointments to Amazon employees and their families.

Meanwhile on the other side of the fence, there are numerous healthcare giants carefully guarding their respective turfs in the large and fragmented healthcare market. Among the largest is UnitedHealth Group (UHG) which is “the world's seventh largest company by revenue and the largest healthcare company by revenue." UHG’s primary business is health insurance, but it has expanded to be a healthcare provider and pharmacy benefits manager.

Interestingly, the article suggests that none of the existing tech or healthcare incumbents will become the future biggest company. Instead “[i]t will be a consumer-obsessed, healthcare-native tech company that reimagines what care can look like.”

So then what will the future biggest company in the World look like?

“We see two paths to a consumer health startup becoming the biggest company in the world: (1) a vertically integrated path of building a “payvidor” (a combined payor and provider) that eventually owns most care, and (2) a horizontal path of building a consumer marketplace or infrastructure layer that enables all other care delivery companies.”

The authors provide an example of each path in terms of creating a hybrid of companies. Starting with the first path (payvidor) they propose a cross between UnitedHealth Group and Apple:

“Start by imagining that UnitedHealth Group and Apple had a baby, and that baby had the business model of UHG (a vertically integrated insurer and deliverer of healthcare services) but the sleek consumer experience and brand loyalty of Apple.”

What would set this company apart from existing healthcare insurers/providers would be the ability to deliver much of their services through the smartphone. In particular the authors imagine a world in which the patient can access doctors, diagnostics, medication delivery, and even therapeutics through smartphone apps. This would create a less onerous customer experience which would be immensely popular. Of course the challenge in the healthcare sector is to be cost-effective so as not to stick the consumer with exorbitant bills, and so going the virtual route could potentially save money compared to physical visits. Thus, the goal is to create a vertically integrated system from patient/consumer to medical services and health insurance all connected via the smartphone.

The second path would be a horizontal layer acting at one level of the healthcare network but completely dominating that level so that everyone in the healthcare system has to interact with the company. According to the authors, that layer would be an essential infrastructure piece like a universal healthcare consumer marketplace or payer service. In other words, they propose the Healthcare Amazon or Visa.

The Amazon of healthcare would be "the universal place people go to shop for healthcare services, insurance, and drugs—with trusted reviews, quality metrics, and price transparency." In other words, a centralized location for shopping for healthcare products. Of course it is an open question whether people enjoy or want to shop for healthcare services/products in the same way they shop for say a smartphone or car.

The other idea would be to build a healthcare Visa: "Most Americans have received a cryptic medical bill in the mail, requiring a phone call or webportal that looks like it’s out of the 1990s to make a payment. Health system consumer collection rates—which hover around 55%—reflect this dismal experience. We believe there is an opportunity to radically improve consumer payments in healthcare through simplifying bill paying, providing transparency into costs, and offering interest-free financing for consumers." Since you can already pay your medical or insurance bill with a Visa card, one wonders what more a Healthcare Visa could offer. Issues such as cost transparency are in the hands of the medical provider (e.g. doctors and hospitals) who may not be willing to share critical cost information with a patient let alone Visa.

Comparing these two approaches, one would expect a certain amount of tension between a company trying to be vertically integrated versus a company being horizontally integrated. For example, the vertically integrated company wants all layers to be under their control. The horizontally integrated company wants to be the sole proprietor of a single layer. These two objectives are not compatible as each will inevitably compete with the other over shared turf.

However, the primary conundrum facing the future biggest company in the world probably won't be an issue of integration or fighting over turf, but addressing the basic question of why healthcare is so expensive in the first place. The healthcare economist Amitabh Chandra in an interview with Harvard Gazette points out that “most of the spending in health care happens at the end of life or on very sick patients,” and so improving the consumer experience for healthy patients is not a big market from a monetary standpoint. Second, he identifies that fixing this problem is not an issue of improving or streamlining existing care so much as inventing new cures for chronic diseases such as diabetes, cardiovascular disease, Parkinson’s, or Alzheimer’s disease. Thus, it seems more likely that the future biggest company in the world would be a biotechnology or pharmaceutical company that is really good at developing therapies that radically change treatment of chronic disorders.

Figure 1. Global spending on healthcare was $8.3T in 2018 or roughly about 10% of world GDP. 59% was from public sources (e.g. national healthcare) and 41% was from private sources (e.g. out-of-pocket) (from Figure 1.1 WHO publication).