Pod Insights The Prof G Pod with Scott Galloway No Mercy / No Malice: Prime Health About this episode As read by George Hahn.
Follow George on Twitter, @georgehahn.
Prime Health by Scott Galloway
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Transcript Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
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1:19 Scott Galloway? I'm Scott Galloway, and this is No Mercy, No Malice. Amazon, the megalodon that for the last few years has been bumping and circling the most disruptible industry of this millennium: U.S. healthcare. With the acquisition of One Medical, Amazon is not just attacking, but breaching. Prime Health, as read by George Hahn.
1:47 George Hahn? The U.S. healthcare industry is a wounded seven-ton seal, drifting aimlessly, bleeding into the sea. Predators are circling. The blood in the water is unearned margin. Price increases relative to inflation without a concomitant improvement in quality. Amazon is the lurking megalodon. Its 11-foot jaws and 7-inch teeth, the largest in history. With the acquisition of One Medical, Amazon is no longer circling, but attacking.
2:18 George Hahn? Per capita US healthcare spending went from $2,968 in 1980 to $12,531 in 2020, both in $2020, more than a threefold increase. The result is a massive industry with 13% of the nation's workers and total spending accounting for a fifth of US GDP. Healthcare can boast tangible achievements over the past 40 years. Life expectancy was up from 73.7 in 1980 to 78.8 in 2019, before COVID knocked it back down a bit. There's been a revolution in pharmacological treatments and genetic research is starting
3:02 George Hahn? to pay dividends. But the financial return, improvement divided by cost increases, has been abysmal. No nation has registered cost increases similar to those of the US, and no one spends as much as we do per capita in absolute terms. Yet nearly every developed country has better outcomes with longer life expectancies, healthier populations, and far less economic stress. Two-thirds of personal bankruptcies in the US result from healthcare issues: medical expenses and/or time off work. For many middle-class American families, if mom or dad gets cancer, there's a good chance the family will go bankrupt.
3:46 George Hahn? 40% of American adults have delayed or gone without needed care because its cost prohibitive. For every improvement in healthcare, it seems our system finds a way to extract a dark lining. That same pharmacological revolution that improved outcomes for millions brought the opioid epidemic. In many areas, our results are lousy at any price. The US has one of the highest infant mortality rates among developed nations. Beyond spotty efficacy, healthcare offers the second-worst retail experience in the country. Gas stations retain the number-one spot. Imagine walking into a Best Buy to purchase a TV and a blue shirt associate requests
4:31 George Hahn? you fill out the same 14 pages of paperwork you filled out yesterday. Then you wait in a crowded room until they call you 20 minutes after the scheduled appointment you were asked to arrive early for, to be seen by the one person in the store who can talk to you about televisions who only has 10 minutes for you. New York is the wealthiest city in America, yet the average waiting time in an emergency room is six hours and 10 minutes. A good rule of thumb in business is that if it's bad for the consumer, it's worse on the other side of the counter. Physicians spend just 27% of their time helping patients.
5:14 George Hahn? 49% is spent dealing with electronic health records. That includes documentation, order entry, billing, and inbox management. In other words, you spend a decade going to school to get an M.D. only to become a bureaucrat. No industry has better demonstrated the diseconomies of scale. If we received the same return on our healthcare spending as other countries, we'd all live to 100 without getting sick. Or more likely, we'd spend far less, still live longer and healthier lives, and save enough to pay off the national debt in 15 years. U.S. healthcare is the worst value in modern history.
5:57 George Hahn? Okay, so what to do? At the center of the worst system of its kind, except for all the rest, i.e. capitalism, lies the answer: competition. Last week, Amazon announced its plans to acquire primary healthcare company One Medical for $3.9 billion. I believe this deal represents the catalyst for a significant societal unlock. I've been a member of One Medical for two years and think it's outstanding. When I contracted COVID, I tapped the One Medical icon on my phone. Within a few minutes, I was speaking to a nurse practitioner who prescribed Paxlovid and even told me which nearby pharmacies had the antiviral in stock.
6:43 George Hahn? With Amazon, the company can recognize its vision. To date, One Medical's stock has performed poorly, down to $10 per share from $40 at the beginning of 2021. It lost a quarter of a billion dollars last year and needs capital, which Amazon has: 60 billion in cash. Next, One M needs scale. At present, the service boasts 736,000 members. Impressive. More impressive? More than half of U.S. households are Prime members. The final piece is delivery. One Medical operates a digital-health, physical-office hybrid business, but you still have to pick
7:27 George Hahn? up medication from the pharmacy. The obvious upgrade is to have your PaxLivid delivered within hours of a remote consultation. This is Amazon's core competence. It will happen. Speed and convenience will be so differentiated in healthcare, it will feel alien. As with most paths to disruption, it's been long and winding. Four years ago, Amazon teamed up with J.P. Morgan and Berkshire Hathaway to form Haven, hoping to provide better and more economical healthcare for their combined 1.5 million employees. Despite rocking the stocks of healthcare markets the morning of the press release, it was a head fake and folded in 2021.
8:11 George Hahn? Next, Amazon built an in-house service for its employees: Amazon Care. Virtual health services plus nurses delivered to your home. It's doing much better, expanding across the country and now provides healthcare for other companies. Hilton is Amazon Care's largest disclosed customer. The acquisition of One Medical will couple capital, domain expertise, and installed tech with billing infrastructure and bring it to 66 million Prime households. Imagine: Alexa, I feel feverish and my lower back is aching.
8:52 George Hahn? Connecting you to an Amazon Prime medical professional now. I predicted Amazon would get into healthcare several years ago. Why? For the same reason Apple is getting into auto. Not because it wants to, but because it has to. Amazon stock's price-to-earnings ratio is 56, more than double Walmart's. For the company to maintain its share price, it needs to add a quarter of a trillion dollars in top-line revenue over the next five years. It won't find this kind of revenue in white-label fashion or smart home sales. It has to enter a gargantuan market that lacks scale, operational expertise, and facility with data.
9:35 George Hahn? A reshaping of healthcare won't just benefit consumers, but investors. In 2015, healthcare services commanded equivalent multiples to the S&P 500 average. But the market is losing faith in public healthcare companies' ability to grow in a meaningful way. Enterprise value slash EBITDA multiples among healthcare services are 33% lower than the S&P 500 average. Amazon isn't the only predator sniffing prey. Walmart and Alibaba are both working on their own pharmacy businesses. Uber is working on healthcare transit. And in private markets, Telehealth received $29 billion in venture funding last year, up 95% from 2020.
10:21 George Hahn? The obvious and immediate unlock is Telehealth, which was accelerated by the pandemic. In a matter of weeks after the first positive COVID case in the US, services the industry insisted had to be delivered in person shifted to Zoom. And we survived. In fact, we thrived.
10:43 George Hahn? Even once in-person visits were permitted, video house calls remained a thing. McKinsey estimates that the number of telehealth visits has stabilized at 38 times pre-pandemic levels. Doctors adopted the technology, regulators relaxed limitations, and patients saved time as barriers fell. We're a long way from remote surgery, but huge numbers of patient visits don't need to be visits at all. A study of 40 million patients during lockdown showed that for certain groups, like people with chronic conditions, outcomes didn't suffer when visits shifted online. And we'll only get better at delivering care this way.
11:27 George Hahn? The disruption achieved by Amazon will be significant, and the flood of capital, startups, and consumer brands that will follow it into the space will inspire profound change. Mark Cuban launched a pharmacy in January that eliminates middlemen: from the insurer to the pharmaceutical benefit manager. The result? A 90-day supply of acid reflux treatment that cost $160 is now $17. Its estimated Medicare would have saved $3.6 billion in one year if it had purchased generic drugs through Cuban's pharmacy. As other apex predators look for new sources of growth, many will turn their gaze on different
12:12 George Hahn? limbs of the carcass. Nike could enter healthcare through a wellness positioning: orthopedics, acupuncture, and chiropractic. LVMH, L'Oréal, and Estee Lauder could build the first global plastic surgery brands. The Four Seasons and Hilton might open hospitals. Lennar and Polte could build active living communities that Nana will leave feet-first, bypassing the expense and tragedy of dying under bright lights surrounded by strangers. Privacy is a concern. Your credit card and billing address is one thing, your HIV status is another. However, I believe these concerns are overblown.
12:53 George Hahn? Most consumers, 60%, feel fine sharing their personal health data over virtual technology. In addition, this is inevitable. 85% of physicians believe radical interoperability and data sharing will become standard practice.
13:10 George Hahn? Finally, when it comes to handling your personal data, Amazon is the most trusted big tech firm. Reminder: Amazon is not Meta. Amazon should be broken up, forced to spin off AWS and/or Amazon fulfillment, and prohibited from advantaging its own products on the platform. It should also be permitted to enter healthcare via acquisition. The acquisition of one medical is miniscule compared to the larger healthcare market. A $3.9 billion deal, while the largest healthcare company in America, UnitedHealth, has a market capitalization of $498 billion.
13:54 George Hahn? Elegant antitrust enforcement should not fall into the trap of believing that some people or firms are good or bad. It should recognize that competition is good, and in each deal, the DOJ and FTC should stay focused on the prize. How do we make markets more competitive? E-commerce, digital marketing, and social media are too concentrated, and the FTC should force a divestiture of assets. At the same time, those same companies can foment much-needed competition in what has become a social ill. We are overweight, depressed, and increasingly broke at the hands of US healthcare.
14:38 George Hahn? The treatment that offers the best outcomes is the same therapeutic that's resulted in massive value and prosperity across most of our economy. Competition. Dear Amazon, Bring it.
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