Where in Health Might Amazon Fit?

Amazon earned the reputation of being a constructive force for consumers and a disrupter for the industries it chooses to enter. In the last few years, we have been watching Amazon’s tentative forays into selected health care niches. Amazon has avoided the clinical services side of health care, unlike CVS, which is transforming its retail stores into a binary format; products at the front and medical practitioners at the back. For Amazon, with different skills and far fewer retail outlets, it’s not so simple.

Amazon operates as an e-retailer and delivers a wide array of products to consumers and businesses. Notably, Amazon sells medical supplies and equipment to clinics and hospitals. Amazon bought Pillpack, a solution that uses packaging to organize the multiple drugs that some consumers need to take, often on complex schedules.

Amazon partners with Cardinal, one of the largest U.S. medical distributors. Cardinal helps distribute Amazon’s branded, over the counter health products. Amazon has applied for the necessary state-by-state licenses needed by pharmaceutical distributors. When Amazon adds “cold chain” climate control to its already formidable distribution capabilities, that probably signals that Amazon intends a deeper foray into pharmaceuticals distribution.

Amazon Web Services (AWS) is the largest cloud service vendor to firms in many industries, including health care services. Amazon’s cloud and subject matter experience is attractive to hospitals and helps many smaller entities run their information technology functions in the health care supply chain.

Amazon is partnering with Merck and Alexa developers to create “skills” that help diabetes patients manage their condition. Amazon has also helped hospitals experiment with Alexa for things like post-op counseling from surgeons to patients.

A little less concrete, but ultimately expected to deliver deeper results, Amazon has been hiring top talent in several clinical and research areas. Amazon hired thought leaders in the development of innovative primary care. Amazon is working with AARP and with medical experts on the problems of aging. Amazon and Cerner are helping health-care providers better use their data to make health predictions about patient populations.

Amazon’s approach may be slower and appear more costly than writing a check to buy another company, but by understanding the medical space it earns physicians’ respect and produces better collaboration.

The costs of employee health plans for the million employees of Amazon, Berkshire Hathaway and JP Morgan Chase led them to create an independent company aimed at reining in health-care costs for their U.S. employees. In the U.S., annual family premiums average $19,616, and premiums for singles run $6,896. Assuming a two-thirds family, one third singles split, the venture would be managing $15.291 billion annually. It is tempting to speculate on Amazon’s aims in the venture beyond mere cost savings. With initial revenue of $15 billion, many other lines of business could be sensible, perhaps viable extensions.

Gaining consumer trust in the responsible use of their private medical data is no slam dunk. Consumers give their doctor a 70% score for privacy trustworthiness (top rating). Consumers’ insurers earn a 49% score, their pharmacists a 47% score. Several other intermediaries earn lesser scores and tech companies finish last at 11%.

With its 53% trustworthiness score, Amazon shines far above most tech companies. The relatively high score suggests that Amazon might be successful entering the retail market under its own name in some lines of the health care business, but it might be easier to partner with a firm already successful in that line of business.

Alternately, Amazon can remain behind the scenes in a business to business (B2B) role, which may alleviate the regulatory burden it would face in consumer-facing health care roles. That likely precludes its involvement in hands-on clinical services.

The patient’s electronic health record (EHR) function is one place that would harness many of Amazon’s competencies in IT. The leaders in that business are Cerner and EPIC. They use incompatible data formats and have a short run vested interest in preserving that uniqueness.

Amazon could readily fit somewhere in the pharmaceutical distribution channel or perhaps somewhere in the bookkeeping and billing functions. Amazon’s mastery of logistics and information technology gives it the skills that could fit in many B2B relationships with distributors, pharmacy benefit managers, insurers, and drug store chains.

Indeed, Amazon has many apparently viable health-related businesses.

Amazon’s choice of further expansion into health care would be easier if there were fewer rivals eager to broaden their involvement in health care services. For example, the tech companies interested in entering the health care industry include Apple, IBM, Microsoft and Google. Pharmaceutical distributors with a natural interest in expansion are Cardinal, McKesson, and AmeriSourceBergen. Of course, the large health insurers — WellPoint, CIGNA, Aetna, Humana, and United Healthcare — will want to expand vertically into the health care services and pharmaceuticals space. And there are others.

The plentiful list of interested parties increases chances that Amazon can find a willing partner. Conversely, there are hordes of adversaries. Amazon faces a formidable challenge in its quest to widen its role in health care. Amazon has not hidden from such challenges.

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