Alphabet (NASDAQ:GOOGL,NASDAQ:GOOG), the parent company of Google, has become the latest Cloud Czar to decide there is money to be saved and made in healthcare. GOOG has hired Dr. David Feinberg, the CEO of Geisinger Health, to oversee its various health products and initiatives, and the move could boost Alphabet stock in the future.
In June, Atul Gawande was hired to lead the healthcare venture that was formed by Amazon.com (NASDAQ:AMZN), Berkshire Hathaway (NYSE:BRK.A) and JPMorgan Chase (NYSE:JPM). Apple (NASDAQ:AAPL), however, is still big tech’s leader in the healthcare sector, thanks to its Apple Watch, which is dominating the health-monitoring space.
Get the Data, Use the Data
GOOG first tried to enter the healthcare space a decade ago with Google Health, but the effort quickly failed, and specialty firms, including Cerner (NASDAQ:CERN), McKesson (NYSE:MCK) and AthenaHealth (NASDAQ:ATHN), still control the health-data market.
That’s because the collection, storage and use of health data is heavily regulated, and not just by the government. Insurers, hospitals and trial lawyers all demand that all health data be kept private and secure. It’s hard to keep data completely secure when it’s being stored in the cloud.
Feinberg, Google’s new employee, understands the privacy requirements. His company, Geisinger, is a non-profit health system that sells health plans and serves them through its own hospitals and clinics. More specifically, Geisinger uses test results to issue prescriptions and prescribe medical procedures.
Devices like the Apple Watch can help. The Watch saved the life of a friend of mine, writer Jason Perlow, recently. Perlow learned, from a study sponsored by Apple, that he had an irregular heart rhythm and was able to do something about it.
GOOG has a smartwatch, too.
The Problem of Trust
The problem lies in ensuring that medical professionals trust the data, and in gaining enough data to reach conclusions. This is where Feinberg can help. Google Fit wearables collect health data, Google Nest devices can integrate the data, and Google DeepMind can analyze it. Feinberg’s job will be to properly utilize Google’s devices in the healthcare sector, by, for example, putting Nest monitors into senior centers to catch problems before they become emergencies. If Nest can accomplish that goal, it will save healthcare insurers and providers a great deal of money.
But in order for a tech company to make a great deal of money from healthcare, it needs to obtain the trust of doctors, and eventually insurers, which means it needs the government’s endorsement. Once a wearable becomes an approved medical device, doctors can prescribe it, and insurers will pay for it.
For example, Fitbit’s (NYSE:FIT) activity trackers are not approved as medical devices. They’re not even cleared, as the Apple Watch is. That’s why Fitbit stock, which sold for $45 per share in July 2015, now sells for less than $6.
Health interest groups and some doctors still insist that wearables will neither reduce healthcare costs nor improve outcomes. They still have to be convinced. If Feinstein can get healthcare providers to trust Google’s data, he will boost Google’s financial results and could consequently have a significant, positive impact on GOOG stock.
The Bottom Line on GOOG Stock
Data can improve outcomes. Anecdotes like that of Jason Perlow add up, as the Centers for Medicare and Medicaid Services now admits.
But the difference between collecting data and using it is the difference between looking up something on WebMD and becoming a doctor. Becoming a doctor takes years. It’s a lifetime commitment. Similarly, collecting and analyzing healthcare data is not something that can be done casually, which is what GOOG tried to do years ago.
Feinberg can convince healthcare providers, including doctors, that GOOG’s data is reliable enough to be worth using, making the data very valuable. As the data becomes more valuable, Alphabet stock can benefit.
Healthcare is now a $3.3 trillion market, just in the U.S. If GOOG is able to gain 10% of it, the market cap of GOOG stock would rise by about 45%.
That’s why the Feinberg hire can positively impact Alphabet stock.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at email@example.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AAPL and AMZN.