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Amazon Health: A long play and a search for partners

Amazon (AMZN) notoriously makes industries nervous every time it enters a new space — and healthcare is no different. There's been a mix of anxiety and relief over the half-dozen years the e-commerce and tech giant has been wading into the industry.

Its first foray — Haven, a joint effort with JPMorgan and Berkshire Hathaway to control healthcare spend for employee benefits, began in 2018 and folded by 2021. But the failure didn't stop the company from future endeavors. In 2019, it launched Amazon Care, a telehealth and in-person visit platform for its employees, though it ultimately folded in 2022— the same year it launched Amazon Clinic, a telehealth platform to care for 20 common illnesses. In 2018, it acquired mail-order pharmacy PillPack, and earlier this year, the company acquired membership-based primary care network One Medical for $3.9 billion.

It now has two puzzle pieces that fit together — doctor's visits that can link to a pharmacy to fill prescriptions, all under one roof. But Amazon health leaders insist the company isn't out to disrupt anything — nor can it, on its own.

That's the message Amazon Pharmacy director Tanvi Patel emphasized at the Oliver Wyman Health Innovation Summit in Chicago last week.

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"Healthcare is complicated. This is not something that we're going to do alone," Patel said.

Amazon Pharmacy Director Tanvi Patel (left) told Yahoo Finance's Anjalee Khemlani that Amazon is helping patients get their prescriptions easier. Credit: Oliver Wyman
Amazon Pharmacy director Tanvi Patel (left) told Yahoo Finance's Anjalee Khemlani that Amazon is helping patients get their prescriptions easier. (Oliver Wyman)

And the company doesn't see One Medical and the pharmacy as restricting options for consumers.

"We don't want [patients] to feel like they must be in this arena," Patel said.

The idea, instead, is to give patients choice and empower them with price transparency, she said.

But there are limitations to what Amazon can do, for now, in the health space. Its pharmacy focuses on generics and branded drugs, and One Medical isn't a high-cost specialty service provider.

Pharmacy growth

Still, Amazon CEO Andy Jassy highlighted the pharmacy segment on an earnings call in August.

"We're pleased with Amazon Pharmacy doubling its active customers in the past year, and we're pleased with the response to RxPass, which enables Prime members to receive all of their eligible generic medications for just $5 a month and have them delivered free to their door," Jassy said.

The pharmacy has also found other ways to appeal to patients. Automatic manufacturer coupons at checkout, announced earlier this year, are another example.

"We didn't invent pharmacy, we didn't invent some of these programs," Patel acknowledged, adding that coupons have been around a long time.

"All we did was look at it and say, 'How can we simplify this? Why is it that only 15% of the [manufacturer's] coupons in pharmacy are actually applied when a patient needs to check out?' There's unnecessary friction in that process," Patel said.

The coupons mostly apply to insulin products, from Novo Nordisk (NVO), Eli Lilly (LLY), and Sanofi (SNY), as well as others from GSK (GSK). Amazon also shows a coupon for Novo's popular weight loss drug, Wegovy, on the site — but the injectable is still facing a nationwide shortage, so the coupon is currently unavailable.

Even if Amazon Pharmacy's current offerings are limited to generics and branded drugs, it still impacts customers' wallets, according to Amazon principal economist Greg Lewis.

"Generics are not the most interesting part of pharmacy in many ways, because they are not a large part of spend, but they are a large part of expenses. Many customers are only on generics. You could change a lot of people's lives if you could affect the generic market segment," Lewis told Yahoo Finance in an interview.

And even though specialty care — injectables or other non-pill treatments —often accounts for a higher percentage of overall drug spend, it's an area that — as evidenced by Blue Shield of California's recent decision to keep CVS (CVS) for its specialty pharmacy benefits — is still dominated by major players.

"It is early days, but we are a full-service pharmacy," Patel said.

"We are not a specialty pharmacy. We do not do Schedule II medications [painkillers, stimulants], because we just don't think the infrastructure is right yet to put Schedule II medications in the mail," Patel said.

"I wouldn't necessarily say that there's a space that we will never be [in]. It's really about the time, and making sure the vision is sound and the customer remains the focus," Patel added.

The Amazon way

Experts have speculated on the many ways Amazon can disrupt healthcare, especially if it finds a way to tie together services.

That includes, for example, helping patients eat healthier, since Amazon owns Whole Foods. Patel declined to comment on any future plans, or to comment on if it was in the works, for now.

"It's, frankly, only been a short amount of time that we've decided to invest significantly in the healthcare market segment," Jassy said in the August earnings call.

"A lot of what we tried before were smaller experiments. But One Medical has been part of Amazon for just a few months now and we're encouraged by what we're seeing there, too," he said.

But Jassy failed to emphasize how bumpy the road has been.

"It's extremely Amazonian to just unveil something and think it's going to solve a bunch of people's problems, and discover sad paths (bad customer experiences), and then go and chase them down one by one," Lewis said.

"That's exactly why we think Amazon's well positioned to actually change people's lives and health together," he added.

But its market force gives it a chance to partner with or acquire any number of companies that could give it leverage it needs in the industry.

"A lot of the most expensive medications, specialty medications, you need some sort of negotiation between the insurer, or the PBM [pharmacy benefits manager] representing them, and the manufacturer to keep prices reasonable. And, unfortunately, the pharmacies are not really in the position to run those negotiations," Lewis said.

"It's really not going to be Amazon Pharmacy, specifically, that's going to be able to change those relationships meaningfully," he added.

In part, it's because while the healthcare system is often referred to as broken for customers, it isn't broken for insiders.

"The industry is not as badly organized as one might think, looking from the outside," Lewis said.

Which is why Amazon's strategy is to focus more on ways to help the outsiders, the patients and customers.

"It’s not about disrupting. It is about impact," Patel said.

Follow Anjalee on Twitter @AnjKhem.

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