By Dabin Im, Healthcare Analyst
Remember when Amazon was just an online bookstore?
When some think of Amazon, they may think of Jeff Bezos, the richest person in the world. Or they may think of it as an online shopping store with free two-day shipping as a Prime member. Kindle, Audible, and Alexa may also come to mind. Others may think Amazon has a vast combination of everything because it seems to own and sell…everything. So… what exactly is Amazon?
According to Google, it is an e-commerce technology company, but it is much more than that. Amazon has made its way into many other industries, from having its own ground and air transportation services to a supermarket chain. Amazon even recently opened up its own salon. The possibilities of Amazon are out of this world (literally, because it also owns an aerospace company).
Amazon in Healthcare
It was no surprise when Amazon eventually made its way into one of the most profitable industries in this country: healthcare. The national healthcare spending reached $3.8 trillion in 2019. That’s 3,800,000,000,000 dollars. Amazon knew there had to be some opportunities for them to get a little piece of this unimaginably enormous cake. Getting one tenth of this cake would almost double its revenue from the current $386 billion to $766 billion. One percent of the cake may seem to be nothing because it’s just like the leftover icing on the cake board that no one bothers to scrape off. But even if Amazon were to just get that leftover icing, that one percent can increase its revenue by 9.8%. If it wanted one big bite, aka 5% of the whole cake, then it would increase its revenue by 49%. Therefore, just a nibble of this cake is worth the chase for Amazon.
Amazon is known for buying and collaborating with the ‘right’ companies. In 2018, Amazon acquired PillPack, which is an online pharmacy that delivers medications to patients’ homes. In 2019, Amazon announced that its virtual assistant technology, Alexa, is HIPAA (Health Insurance Portability and Accountability Act) compliant. This means that Alexa can manage patients’ protected health information. By doing so, it can help take care of their health, such as by tracking blood sugar, giving health tips, booking doctor appointments, and storing information about their prescriptions.
The pandemic made it clear that medical professionals and patients wanted two things: less in-person contact and more access to medical care. Amazon observed and then served. That same year, in 2019, Amazon launched Amazon Care, which collaborates with Care Medical, an independent medical practice. Amazon Care provides primary and urgent care virtually in less than a minute. Imagine this. You have a major migraine. You do not want to go to urgent care because it is expensive and do not want to wait in line. The old you would have just waited for the pain to go away. However, the new you with Amazon Care can go into the app, call a doctor, get your condition diagnosed, and get directions on what to do next. If the doctor does not think you can handle it on your own or wants to get some labs checked, medical professionals will be sent to your home. Amazon Care provides a variety of services, including preventative care, such as vaccinations, nutrition guidance, smoking cessation, and screenings. It also provides sexual health services and treats illnesses. In terms of medications, it can fulfill prescription requests, such as refills and delivery.
Over the past few years, it is clear that Amazon has been making big moves in healthcare. Amazon Care launched in 2019 exclusively for its employees in Seattle. In 2020, it expanded its services to Amazon employees in the rest of Washington. But it is not going to stop here. At least not anytime soon. In fact, Amazon Care’s plan is to provide virtual care to workers in all 50 states. Services will expand to not only its own employees but also to those at other major companies. If that was not enough, it is not only going to be virtual care. After the pandemic subsides, Amazon Care is also planning to open in-person facilities in Baltimore and Washington D.C.
In addition, Amazon collaborated with Crossover Health, a primary care provider, to open clinics at its fulfillment centers. These clinics are exclusive for Amazon employees and their families. It provides various virtual and in-person services regarding their physical and mental health. Services include preventative care, short-term and long-term disease management, chiropractic care, physical therapy, and behavioral health coaching. Amazon plans to further its role in healthcare through health wearables and connected devices.
Amazon’s goal is to allow customers to ‘shop’ for medications as they would for anything else on Amazon. They want to make ordering and refilling prescriptions easy with just a few clicks. It is only a matter of time. One day, consumers may be able to compare drug prices from different manufacturers as easily as they can with any other item, such as clothes, toys or electronics. This tactic will inevitably bring down drug prices due to increased competition between drug companies. Consumers may even be able to rate and write a review for the drug, reporting any side effects or commenting on its efficacy.
Back in the day, people did not really think much about how much their medications cost or where they could get a better deal. They just paid however much their pharmacist told them as if they were paying for another necessity, such as groceries. However, due to the increasing drug costs, more and more people are starting to think insurance is not all that worth it and would rather pay cash price. In fact, cash price is even cheaper without insurance sometimes.
Other online pharmacies, such as Alto and Capsule, offer similar services as Amazon. However, what separates Amazon from all other similar companies is that Amazon already has the infrastructure in place. It can easily pack and ship medications on a massive national scale. Just give them one or two days and your medication will be at your door. Logistically, it is a much easier process for Amazon.
Amazon the PBM?
Out of the $3.8 trillion national healthcare spending, a decent piece of that cake goes to an unexpected sector called PBMs (Pharmacy Benefit Managers). In fact, the market size for PBMs in 2021 is $402.2 billion. PBMs are middle-men that form contracts with drug manufacturers, retail pharmacies, and insurance companies. Their main goals are to manage prescriptions and control drug costs. PBMs have great control over the drug market because of their purchasing power and unbeatable discounts from manufacturers. Currently, Amazon contracts with PBMs to manage their prescriptions and gets its medications from them.
But if Amazon expands within healthcare, does it really need to form contracts with middle-men? Why doesn’t Amazon just make its own PBM? With Amazon’s potential massive scale within healthcare, it could easily contract directly with the drug manufacturers to get bulk discounts. This would be just like how it ended its contract with FedEx to make its own transportation services. If Amazon became a PBM itself, it could bring greater transparency to the industry. If it already has its own primary care clinics, virtual access to healthcare professionals, and online pharmacy, then what is stopping it from becoming its own PBM?
Amazon’s Business Model
You may wonder how Amazon has managed to diversify itself into so many different industries. How could they afford all of this? Well, Amazon has a uniquely brilliant business model. One word to describe it is patience. For Jeff Bezos, it is all about the long-term. Amazon is in no rush to make money. In fact, Amazon is notorious for losing money. But for Mr. Bezos, it is merely a long-term investment.
For the first 20 years, Amazon was not making much profit, which was not a big deal. It built expensive infrastructure that eventually led to gaining massive scale, customers, and business. It spent years losing money with the goal of eventually beating its competitors. And it worked. Its strategy was to put profits in the back burner and focus on taking market share, which is the portion of total sales in an industry by a company. By doing so, Amazon put companies that could not afford to lose money out of business. For example, PBMs and other healthcare companies are impatient because they have to make a certain amount each quarter to keep their lights on. If they do not see profitable results, they can lose their jobs. This is not the case for Amazon, as they have great market share in various industries. Everything, including Amazon’s business model, is meticulously planned. Amazon has entered the healthcare market, and it definitely will not leave anytime soon.