Amazon has recently taken a series of significant steps to strategically position itself to disrupt the U.S. health sector.
The retail giant has a number of advantages that will accelerate its entry into the complex health market and potentially cause existing members of the sector to re-evaluate their core offerings.
U.S. healthcare is ripe for disruption. Drug prices and other costs remain high despite being a priority in Washington; intermediaries including pharmacy benefit managers, drug wholesalers, and distributors are driving up costs; and the industry is notorious for its waste and inefficiency. Most notably, healthcare has failed to keep pace with changing customer expectations, being neither responsive nor customer-focused.
In a detailed examination of Amazon’s health strategy, authors at CBInsights commented that “customer experience has been an afterthought in almost every part of healthcare, and is reflected in the poor NPS scores [Net Promoter Scores, which relate to customer satisfaction] across the board.”
Disrupting the Challenging Healthcare Market
Amazon CEO Jeff Bezos announced his intention to compete in healthcare while acknowledging the complexity of the challenge.
“[As hard] as it might be, reducing healthcare’s burden on the economy while improving outcomes for employees and their families would be worth the effort," he said. "Success is going to require talented experts, a beginner’s mind, and a long-term orientation.”
Bezos’ “long-term orientation” may refer to the fact that Amazon may enter into healthcare “willing to eschew profit” as its other businesses become more valuable. CBInsights predicts that “existing health giants will find it difficult to compete with a company whose strategy is not dependent on making a profit in healthcare”.
Amazon’s entry into the industry is likely to increase transparency, drive increased price competition, improve access to medicine, lower costs, and force pharmaceuticals to change their business model – removing major barriers to optimal patient care in the process. Writing for ZDNet, IT and Health journalist Jo Best surmised that the “accumulation of real-world data on drug safety and efficacy provided by [Amazon customers] could bring about a more exposed competition between Pharma companies, changing the pharmaceutical value chain”.
Amazon’s 3-Pronged Approach
Amazon appears to be positioning itself to take the industry by storm in at least three ways, most notably through its focus on in-home care, including:
Launching an Employee Health Initiative
Amazon has launched an employee health initiative in partnership with Berkshire Hathaway and J.P. Morgan. The “simplified, high-quality and transparent healthcare at a reasonable cost,” free from “profit-making incentives and constraints” is currently being trialed. The three companies have 1.2 million employees, making this an ideal environment to pilot healthcare spending initiatives before expanding the offering to the wider market. Advisory.com’s Yulan Egan comments that this would be the “quickest and likely least disruptive way Amazon could make its mark on healthcare”.
Acquiring an Online Pharmacy
Additionally, Amazon recently acquired online pharmacy start-up Pillpack for ~$1 billion. Significantly, Pillpack has licenses to sell pharmaceuticals in 49 states, an infrastructure that will speed up Amazon’s entry into the space.
According to Egan, the acquisition of Pillpack will mean Amazon can:
compete for the high-cost, chronically ill patients who comprise Pillpack’s main market
attract self-pay pharmaceutical customers, who are a $450 billion market and account for 6% of the U.S. population (this group is not only comprised of people who lack insurance, but even insured patients may be encouraged to shop around on price and pay out-of-pocket for prescriptions).
Expanding its Remote Diagnosis Capabilities
Finally, Amazon is exploring positioning Alexa for at-home medical diagnosis and care. The virtual assistant can already dispense advice on breastfeeding and first aid but has vast potential to expand its uses to areas such as diabetes management.
CNBC’s Christina Farr predicts Alexa could pick up on symptoms such as a cough, and ask users if they want to book an appointment or get a virtual consultant. A virtual consultant could ask (through Alexa) about symptoms and arrange for a courier to deliver a home-testing kit. If a test proves positive, the virtual doctor could send over a prescription for an antibiotic. This “Amazon Prime service for meds” could deliver medications by post and refill prescriptions when needed, but will not become a reality until Alexa is declared HIPAA compliant.
The Future of Amazon Health Services
Farr writes that virtual healthcare, diagnostic testing, and pharmacy could create a “closed loop” system, particularly for basic ailments, preventative care and people with chronic medical conditions. At-home care will mean fewer patients will need to leave the house to visit a medical office or a pharmacy.
Additionally, Amazon is reportedly looking at the delivery of primary care, piloting health clinics for a select number of employees in Seattle. The company has expanded Amazon Web Services' “natural language comprehension” to include medical records, enabling healthcare providers to extract information from medical notes, and may seek to grow its share of the healthcare supply chain by offering specialized medical supplies and tools to hospitals and doctors’ offices.
It is possible that Amazon’s push into healthcare is one of the factors contributing to the 2018 wave of vertical healthcare mergers.
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