Amazon, the slayer of dinosaurs like WalMart and Target, is suddenly finding that the dinosaurs are biting back and it hurts. That was the subject of several articles in the business press at the end of 2019. I believe this revival of the erstwhile retail dinosaurs has some parallels to healthcare.
Until recently, Amazon has been a devastating competitor in the retail space. Online ordering and the absence of costly stores has allowed Amazon to grow very quickly. Free or low cost delivery made purchasing from Amazon even more attractive. WalMart and Target with their many stores found competing against Amazon difficult. A new paradigm was rising.
That is until WalMart and Target took a look at their business and how Amazon was leveraging online ordering to their disadvantage. Amazon, they realized, did its order fulfilment from massive warehouses located around the country. Could that seemingly insurmountable strength be a weakness?
WalMart in particular and Target to a lesser extent began online order fulfilment using the inventory in their thousands of stores. If necessary, orders could be shipped from the store or, even better from a cost viewpoint, customers could pick up their online purchases at local stores. This past holiday season, both WalMart and Target made it very easy to do such pickups. These dinosaurs had in effect mini-warehouses much closer to the customer than did Amazon. The dinosaurs suddenly became more formidable.
Amazon is now beginning to open stores to assert its presence. I frequently visit a bookstore they have in Walnut Creek, CA. I also visit another Amazon store in Berkeley which only stocks the best selling items in a number of categories. Amazon also owns Whole Earth Food stores (better know as “Whole Paycheck” due to their high prices and air of genteel nonsense— they make you feel good as they shamelessly pick your pocket). Amazon is looking more and more like the dinosaurs it thought it had replaced.
So what is the parallel with healthcare? For years the mantra has been that hospitals are dying. The first book on that subject that I can recall dates to the early 1980s. The author of that book is now a senior citizen pundit who no longer necessarily believes in the death of hospitals. The thesis underlying the hospital death notices was that technology would reduce the need for hospitals and services would be provided in less costly outpatient locations. Outpatient locations with their lower cost were to be the Amazons of that healthcare era.
Except, all the hospital doomsayers were wrong. First of all, technological advances also led to increased use of hospitals for some diseases. More to the point, like Walmart and Target, hospitals did not roll over and bow to the pundits’ outpatient gods. Hospitals big and small morphed into healthcare systems. In many locations, hospitals are the central focus of a campus and are surrounded on their sites or nearby by various outpatient centers they own.
Hospitals are like WalMart Super Centers. Easy to find with all that a customer (or patient) may need. That convenience plays a huge role in allowing hospitals to adapt to changing circumstances. Hospitals did not die. They evolved and in the process made care more accessible.
This reality is hard for many to accept. There are entrepreneurs still trying to form urgent care companies and imaging center companies. The economics work fine as long as they can find venture capital companies dumb enough to fund them. The dumb guys do exist. The fact is, though, that none of these companies have amounted to much or moved the needle in terms of healthcare cost.
Hospitals in their new form, like WalMart and Target in retail, have become effective competitors with self-proclaimed disrupters. The lesson here is to never underestimate the ability of dinosaurs to evolve.