By Dabin Im, Health 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 can think of it as an online store with free two-day delivery as a Prime member. Kindle, Audible, and Alexa may also come to mind. Others may think that Amazon has a vast combination of everything because it seems to own and sell… everything. So… what is Amazon?
According to Google, it is an ecommerce technology company, but it is much more than that. Amazon has found its way into many other industries, from its own ground and air transport services to a supermarket chain. Amazon even recently opened its own salon. Amazon’s possibilities are out of this world (literally, because it also owns an aerospace company).
Amazon in the healthcare sector
It was no surprise that Amazon eventually became one of the most profitable industries in this country: healthcare. National health expenditure reached $ 3.8 trillion in 2019. That’s $ 3,800,000,000,000. Amazon knew there had to be opportunities for them to get a little piece of this insanely huge pie. Getting a tenth of this cake would almost double his income from the current one $ 386 billion to $ 766 billion. One percent of the cake may seem like nothing because it’s like the frosting left on the cake platter that no one bother to scrape off. But even if Amazon would only collect leftover frosting, that percentage could increase its revenue by 9.8%. If he wanted a big bite, or 5% of the whole cake, then he would increase his income by 49%. Therefore, a simple snack on this cake is worth pursuing for Amazon.
Amazon is known for buying and working with the “right” companies. In 2018, Amazon acquired PillPack, an online pharmacy that delivers medicine to patients’ homes. In 2019, Amazon announced that its virtual assistant technology, Alexa, was compliant with the Health Insurance Portability and Accountability Act (HIPAA). This means that Alexa can manage the protected health information of patients. In doing so, it can help take care of their health, for example by tracking blood sugar levels, giving health advice, making doctor appointments, and storing information on their prescriptions.
The pandemic has made it clear that healthcare professionals and patients want 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 works with Care Medical, an independent medical practice. Amazon Care delivers primary and urgent care in virtually under a minute. Imagine that. You have a severe migraine. You don’t want to go to emergency care because it’s expensive and you don’t want to stand in line. The old one you would have just waited for the pain to go away. However, new Amazon Care users can access the app, call a doctor, have your condition diagnosed, and get instructions on what to do next. If the doctor doesn’t think you can handle it yourself or wants to have some labs checked, healthcare professionals will be sent to your home. Amazon Care provides a variety of services, including preventative care, such as vaccinations, nutritional counseling, smoking cessation, and testing. It also provides sexual health services and treats illnesses. In terms of drugs, it can meet prescription demands, such as refills and delivery.
Over the past few years, it’s clear that Amazon has made great strides in the healthcare space. Amazon Care was 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’s not going to end there. At least not anytime soon. In fact, Amazon Care’s plan is to provide virtual care to workers in all 50 states. The services will be extended not only to its own employees, but also to those of other large companies. If that weren’t enough, it won’t just be virtual care. After the pandemic subsides, Amazon Care also plans to open in-person facilities in Baltimore and Washington DC.
Additionally, Amazon has worked with Crossover Health, a primary care provider, to open clinics in its distribution centers. These clinics are for Amazon employees and their families only. He provides various virtual and in-person services regarding their physical and mental health. Services include preventive care, short and long term disease management, chiropractic care, physiotherapy and behavioral health coaching. Amazon plans to strengthen its role in healthcare through wearable and connected healthcare devices.
Amazon’s goal is to allow customers to “ shop ” for drugs like they would for anything else on Amazon. They want to make it easy to order and renew prescriptions with just a few clicks. It’s just a matter of time. One day, consumers may be able to compare the prices of drugs from different manufacturers as easily as possible with any other item, such as clothing, toys, or electronics. This tactic will inevitably lead to lower drug prices due to increased competition among pharmaceutical companies. Consumers may even be able to rate and write a review for the drug, report any side effects, or comment on its effectiveness.
Back then, people weren’t really wondering how much their drugs cost or where they could get a better deal. They just paid for what their pharmacist told them like they were paying for some other need, like groceries. However, due to the rising cost of drugs, more and more people are starting to think that insurance is not worth it and would rather pay the price in cash. In fact, the cash price is even cheaper without insurance sometimes.
Other online pharmacies, such as Alto and Capsule, offer similar services to Amazon. However, what sets Amazon apart from all other similar companies is that Amazon already has the infrastructure in place. It can easily package and ship drugs on a massive national scale. Just give them a day or two and your meds will be right at your doorstep. Logistically, it’s a much simpler process for Amazon.
Amazon the PBM?
Of the $ 3.8 trillion in national health spending, a decent slice of that pie goes to an unexpected sector called PBM (Pharmacy Benefit Managers). In fact, the size of the PBM market in 2021 is $ 402.2 billion. PBMs are intermediaries that enter into contracts with drug manufacturers, retail pharmacies and insurance companies. Their main goals are to manage prescriptions and control drug costs. PBMs have great control in the drug market due to their purchasing power and unbeatable discounts from manufacturers. Currently, Amazon contracts with PBMs to manage their prescriptions and obtains their drugs from them.
But if Amazon is expanding into the healthcare industry, does it really need to contract with intermediaries? Why isn’t Amazon just making its own PBM? With Amazon’s massive potential scale in the healthcare industry, it could easily contract directly with drugmakers for wholesale discounts. It would be like how he ended his contract with FedEx to start his own transportation services. If Amazon were to become a PBM itself, it could bring more transparency to the industry. If he already has his own primary care clinics, virtual access to healthcare professionals, and an online pharmacy, what is stopping him from becoming his own PBM?
Amazon business model
You might be wondering how Amazon has managed to diversify into so many different industries. How could they afford all of this? Well, Amazon has a unique and brilliant business model. One word to describe it is patience. For Jeff Bezos, it’s 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, this is only a long-term investment.
For the first 20 years, Amazon wasn’t making a lot of profit, which wasn’t a big deal. He built a costly infrastructure which ultimately led to massive scale gain, customers and businesses. He spent years losing money in an attempt to beat his competition. And it worked. His strategy was to put profits on the back burner and focus on gaining market share, which is the share of an industry’s total sales by a company. In doing so, Amazon put companies that couldn’t afford to lose money out of business. For example, PBMs and other healthcare companies are impatient because they have to earn a certain amount each quarter to keep their lights on. If they don’t see profitable results, they can lose their jobs. This is not the case for Amazon, as they have a large market share in various industries. Everything, including Amazon’s business model, is meticulously planned. Amazon has entered the healthcare market and certainly won’t be leaving anytime soon.