At the Helm

What 'Amazon health care' could look like in 5 years

by Yulan Egan, Practice Manager, Research and Jackie Kimmell, Senior Analyst

Editor's note: This story was updated on January 17, 2019.

While Amazon has grabbed headlines by announcing the location of its new headquarters (to be split between New York and Northern Virginia), the health care industry has been keeping a close eye on the retail, technology, and logistics giant for several months now.

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Over the past year, the company has hired a slew of former health care leaders, acquired the direct-to-consumer pharmacy business PillPack, and moved forward with a high-profile venture to jointly manage the health of its employee population alongside JPMorgan Chase and Berkshire Hathaway. These moves have led many to speculate as to how Amazon could disrupt the health care industry. And while these musings often come alongside a healthy dose of well-warranted skepticism, there's little doubt that Amazon is unique among the growing list of outside players eyeing the health care space.

Amazon's commitment to innovation and self-disruption have enabled it to gain a massive foothold in the economy. It's set to account for 49% of all online sales in the United States in 2018 and counts 100 million people as Prime members. And Jeff Bezos, Amazon's CEO, has signaled he is willing to put in the work and investment to go after the health care industry, despite its immense complexity. He commented that, "[h]ard as it might be, reducing health care's burden on the economy while improving outcomes for employees and their families would be worth the effort. Success is going to require talented experts, a beginner's mind, and a long-term orientation."

5 visions for 'Amazon health care'

So what would "Amazon Health Care" look like? We see at least five potential paths forward—and they're not mutually exclusive.

  1. Employer aggregator

    The quickest (and likely least disruptive) way Amazon could make its mark on health care is through its own employee population. The company has already started down this path through its partnership with JPMorgan Chase and Berkshire Hathaway; the three companies manage health care spending for a combined 1.2 million employees. In the grand scheme of things, this venture involves a relatively limited number of lives spread over a number of markets, but it does give Amazon an innovation function of sorts—the company could potentially experiment with running its own health clinics for employees in the Seattle area, according to CNBC.

    Moreover, the CEO of the venture—Atul Gawande, who began leading the effort on July 9—is known as a disruptive thinker in the industry. To have national-level implications, however, the venture will need to secure more companies' involvement or find other ways to export successful models beyond the three founding members.  

  2. Next-generation retail pharmacy

    Amazon's acquisition of PillPack, combined with its "Basic Care" line of over-the-counter products, could make it a formidable player in the retail pharmacy space. Amazon already has an established track record of competing on cost and convenience, and the organization's timely shipping processes could rival the convenience of a community pharmacy.

    By acquiring PillPack, Amazon is positioned not only to compete for the high-cost, chronically-ill patients that PillPack currently caters to, but to make a major play for the growing number of self-pay pharmaceutical customers. While Amazon's growth in pharmaceuticals may have historically been limited by the company's inability to earn in-network status from major PBMs, insured patients are increasingly discovering that they can cut Rx prices by paying out-of-pocket. By making prescription prices readily available through its online marketplace, Amazon-PillPack could use its existing platforms to encourage patients to shop around based on price, potentially prompting more insured patients to pay out-of-pocket for their prescriptions.

  3. Global health care logistics specialist

    Without question, Amazon's shipping network is one of the most robust in the country—and that positions Amazon to have a massive impact on the health care supply chain. A number of the Advisory Board's own members have told us they've proactively reached out to Amazon for help in revamping their supply chain. Some hospitals have even begun to independently use Amazon Business to streamline their supply chains—such as Summit Pacific Medical Center in Washington, which uses Amazon's "dash" buttons to address 90% of its supply chain needs.

    Currently, Amazon is not equipped to offer more highly-specialized medical tools. But if the organization was to expand into these offerings, it could have a major impact in addressing the fragmentation issues that currently plague the health care supply chain and undercutting some of the cost inflation that distributors currently levy.

  4. Consumer-focused technologies

    Perhaps no aspect of Amazon's business model causes both more concern and more excitement than the potential health care applications of its consumer-facing technology platform.

    In the health care industry, where the customer experience is often confusing and fragmented, the ability to make interactions frictionless and seamless would go a long way. There are a multitude of ways Amazon could bring its brand of simplicity to health care—as a patient engagement platform, an EHR, a transparency tool, or even as an insurance broker.

    It should be noted that tech giants, such as Microsoft and Google, have made previous attempts to break into this space with limited success: Microsoft's HealthVault shut down in 2018 and Google Health shut down in 2012. But the growing popularity of wearables technology and Alexa's health-related capabilities suggest consumers today may be more willing than ever to engage with new technological models—a factor that could give Amazon the edge where others have failed.

  5. Primary care operator

    Finally, there's the potential that Amazon could move into the care delivery space as a primary care operator. According to CNBC, Amazon has begun to open a pilot primary care clinic for a "select group of employees" and plans to expand access to more workers next year. The company has also been hiring primary care experts since last year, including Christine Henninsgaard, the former VP of operations at One Medical, and Martin Levine from Iora Health. According to Michael Yang, a health investor at Comcast Ventures, Amazon may be using these as a pilot before expanding the strategy beyond their employees.

    Amazon already has several advantages that could give it a head start in the care delivery space, particularly the requisite online presence to get into telemedicine and, with the recent acquisition of Whole Foods, a potential entrée into the brick-and-mortar clinic space.

Even the potential of Amazon's disruption is catalyzing change 

While none of these five visions are a reality today, the fact that Amazon is exploring so many aspects of the industry is reflective that the market is truly ripe for disruption, whether by Amazon or other outside players. Indeed, the mere prospect of Amazon moving into health care has already begun to catalyze action within the industry—Amazon is, without a doubt, one of the driving factors behind the current wave of mega-mergers pursuing vertical integration sweeping across the industry.

For hospital and health system leaders, Amazon could be an attractive partner in some areas (like supply chain) and a formidable partner in others (like care delivery). Strategies to control cost, improve access, and drive reliability in quality and service will position providers to withstand the threat of outside disruption.

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