Healthcare is no longer just for hospitals. Giant retail and tech companies such as Amazon, CVS and Walmart have steadily increased their clinical presence in recent years.
Despite the billion-dollar deals, some new entrants have been forced to temper their lofty healthcare goals.
"Generally, I don't think you can dabble in healthcare because it's a very complex business, so nontraditional entrants face a greater challenge than many of them realize," Jenni Alvey, CFO and senior vice president of Indiana University Health, told Becker’s. "However, nearly all categories of disruptors are having an impact on healthcare and hospitals are forced to compete against them for the same patients."
In May, a CVS Health spokesperson told Becker's that the company was closing its clinical trials unit. Additionally, Amazon is shuttering its Amazon Care and Halo health and fitness device business units.
Some CFOs pointed toward the distinctive aspects of the healthcare business that would make it difficult for disruptors' healthcare units to remain financially viable.
"Healthcare has some unique qualities that distort capitalistic funding decisions," said Michael Leone, CFO at Liberty (Mo.) Hospital.
"People who aren't in the healthcare business, and who are looking in from the outside, don't realize a few things about providing healthcare services," said Terry Collins, CFO at Rifle, Colo.-based Grand River Health.
"First, it's expensive to provide these services. Most of our employees are highly trained and certified in their jobs. Therefore, they command higher salaries. The cost of medical supplies, equipment and drugs further drive healthcare costs upward. There can also be expensive liability insurance costs, depending on the services. Managing these costs effectively requires a lot of experience and can't be learned in just a few months on the job."
While consumers may love purchasing electronics and retail goods from Amazon, CFOs said healthcare consumption choices are vastly different.
"Healthcare is not a commodity, and therefore, consumers won't always choose the lowest cost," said Mr. Leone.
"Because of the nature of healthcare, it is a very personal interaction when a patient comes to see you," said Mr. Collins. "Finding employees who are technically qualified and who also can treat people well when they are ill or when they otherwise aren't at their best can be very challenging. Receiving healthcare services is not like just another business transaction."
Additionally, like any other enterprise, competition is endemic to healthcare. Mr. Leone points out that hospitals already compete with local niche competitors providing specialized outpatient services.
"I believe a more significant threat to small rural hospitals like ours is that the larger, well-financed healthcare systems will put us out of business, thereby decreasing access to healthcare services to rural residents and also eliminating the major employer in many small towns in America," said Mr. Collins.
Some health systems haven't looked at healthcare disruptors as competitors, but rather as collaborators. Hartford (Conn.) Healthcare recently forged a partnership with Amazon's primary care subsidiary One Medical.
Despite some of the roadblocks disruptors have faced in their forays into healthcare. CFOs still warned that their substantial business experience means they are here to stay.
"Large, capital-efficient companies like Amazon and CVS often are better at making business decisions than healthcare providers, and therefore, I think they will remain financially viable. Many hospitals are consolidating to achieve efficiency, and those that fail to achieve it will struggle," said Mr. Leone.
"The tools Amazon and others use to engage consumers also are often more accessible, convenient, scalable and integrated than health systems are able to offer," said Ms. Alvey.
"Hospitals can compete against disruptors by doing what hospitals do best: providing the best care for patients. New entrants in primary care still need to send their patients for more comprehensive services at some point, which is where the role of health systems is still essential."