Author(s): Raghu Gopal
Last Tuesday, Microsoft announced a seven-year, extensive partnership with US pharmacy chain Walgreens to work on solutions to lower healthcare costs. The two companies will research and develop new ways to deliver healthcare services virtually through digital devices and create new in-store healthcare services.
The deal will see 380,000 Walgreens employees switch to Microsoft 365 cloud app services including Office 365, Windows 10 and mobility and security tools. The pharmacy giant will also move most of its IT infrastructure to Microsoft's Azure cloud services.
Walgreens will first roll out 12 pilot "digital health corners" in 2019, "aimed at the merchandising and sale of select health care-related hardware and devices". At this stage it's unclear what hardware Walgreens will offer and whether this will be equipment approved by the US Food and Drug Administration or consumer electronics. Walgreens has about 13,000 locations in the US where consumers can fill prescriptions, buy groceries and receive basic medical services like flu shots.
The deal comes at a time of turmoil in the US healthcare market, an industry worth $3 trillion dollars per year and which has long needed change. Insurance companies, drug makers and politicians have been pushing for major overhauls to cut costs and widen coverage.
Changing well-entrenched systems often takes a major outside player who can come in with a fresh perspective. The shake-up artist in the US healthcare market is clearly Amazon, which has been encroaching on the existing system through acquisitions and new IT-related services, creating concern among existing competitors. Walgreens itself pointed to Amazon's acquisition of PillPack as a major threat to its business model (see US Healthcare Gets a Dose of Amazon). Also, the recent merger of Walgreens' rival CVS with provider Aetna, the third-largest health insurance company in the country, was at least partly motivated by the possibility of disruptions from Amazon.
Amazon has also previously teamed up with JPMorgan Chase and Warren Buffett's Berkshire Hathaway to tackle growing costs in the healthcare market. Amazon reportedly launched new software tools for medical centres that can mine for medical records to help cut costs.
As people turn to online services for fulfilment of prescriptions, dampening footfall in stores, Amazon has a chance to make an impact, in the same way it has affected so many retailers in the US. It could also use its Whole Foods Market shops to deliver pharmaceutical and basic healthcare services. It's certainly a legitimate concern for Walgreens, CVS and other big providers of pharmacy services including Walmart and Kroger, the largest grocery chain in the country. Amazon's PillPack acquisition has already led Walmart and Kroger to turn to Microsoft's cloud services and its growing expertise in medical-related IT services. However, Walgreens highlighted its other partnerships, such as the deal it has with Alphabet subsidiary Verily Life Sciences, as examples of how it's reshaping the ecosystem within which it operates to adapt to modern healthcare trends.
The US healthcare industry will continue to go through an accelerated shift, leaning on new technologies and those that develop them. But Amazon and Microsoft aren't alone in wanting a slice of this market. Thanks to their wide reach and big data abilities, Apple and Google are pushing into the sector, working with insurance companies and healthcare providers to deliver services more efficiently. Healthy competition is creating a new set of partnerships in the US.