The Amazon approach to healthcare

A closer look at Bezos’ big bets

Nandu Anilal
The Startup
Published in
8 min readNov 12, 2018


It’s no longer a surprise to hear about Amazon entering a new market, but it’s still exciting. I love the graph below because it perfectly captures the degree to which Amazon has struck fear into the healthcare market. It’s astonishing that mere announcements and strategic acquisitions can wipe away billions of dollars from other company valuations.


We are still early on in Amazon’s healthcare story, but I wanted to break down what Amazon has done so far within the broader healthcare market and analyze where things might be headed.

Amazon Healthcare

I. The marketplace model for medical supplies

Today, Amazon sells many basic medical supplies through Amazon Business, which is the business-equivalent of the Amazon platform that we as consumers use. Similar to their core offering, Amazon Business sells directly as well as through third-party sellers so now hospitals are their direct customers.

While Amazon pretty much carries everything that us consumers need, it is difficult to offer a comprehensive offering in healthcare as products have varying levels and processes for regulatory approval. Hospitals need a wide range of supplies, and many competitors have established their competitive advantage by building up a strong portfolio of offerings.

Additionally, hospitals need consistent, timely product supply which Amazon is still working on proving through pilot programs. Amazon has built a remarkable supply chain, but the needs of consumers and hospitals are different.

Time will tell if Amazon can both build up a large portfolio of offerings and deliver consistently, but they don’t seem largely outside of Amazon’s wheelhouse. The bigger bet that Amazon is making is with their marketplace model in contrast to the contracting model that dictates medical supply purchasing today.

Today, large hospital systems consolidate purchasing power by negotiating contracts with distributors on behalf of many hospitals. As such, distributors are willing to give up some margin in order to secure the high volume of sales. The challenge that Amazon hopes to address is focused on the “85–90% of suppliers that constitute only 5–10% of spend” (link). Hospitals work with many suppliers, often making the contracting model cumbersome and hard to manage.

Amazon hopes to disrupt this model by allowing businesses to price-shop from a variety of suppliers at once. The idea being that instead of aggregating demand to negotiate better prices, there are cost-savings from having clear and simple selection, especially for lower volume products.

Nonetheless, the competition is fierce with players like McKesson, Cardinal Health, and Medline all having huge supply chains, an enormous catalog of offerings, and services beyond just distribution. Amazon is clearly playing from behind in medical supplies, but if they are able to prove out the marketplace model as being cost-effective, it would be a large competitive advantage.

II. The healthcare company that shall not be named

The Amazon healthcare hype train peaked at the beginning of the year with the announcement that they would be partnering with Berkshire Hathaway and JPMorgan Chase & Co. to better address their employees’ healthcare needs. The goal seems to be broader improvement in the healthcare experience by leveraging technology and their collective scale.

These three huge Fortune 50 companies have a ton of employees (a combined >1 million) and employee healthcare is expensive and growing. To some degree, large employers like these have already been part of the healthcare ecosystem, but this new venture aims to see if this expense can be reduced.

Not much has materialized since the original announcement outside of a couple of key hires: CEO Atul Gawande — the prominent surgeon and writer as well as COO Jack Stoddard — former digital health manager at Comcast. Together, the two have a mix of experience spanning practicing medicine and successfully integrating technology into healthcare delivery.

The solution for many of the problems in health care — from quality to cost — is a team-oriented, systems approach… Cowboys were fine when medicine was simpler, it’s pit crews that we need, pit crews for patients.” — Atul Gawande

Amazon has always prioritized the customer, specifically delivering value through low costs, speed, and customer service. These are some of the biggest issues with healthcare as well, so I anticipate Amazon will apply the same type of customer-centricity as they did to retail. It’s hard to speculate on what exactly the venture will focus on given their broad goals, but what’s more interesting to me is how this plays into Amazon’s larger business strategy.

Amazon’s foray into healthcare seems similar to the Amazon Web Services play that has proven extremely lucrative. AWS came out of necessity; Amazon’s business was growing and they needed better technical infrastructure that would allow them to run their “real” business. Soon enough, they began AWS (before anyone else had a similar offering) selling their infrastructure-as-a-service to everyone from large Fortune 500 companies to government agencies. Today, AWS is the unsexy moneymaker for Amazon and it happened by addressing their own business need and converting it to an offering that other companies would also need.

Similarly, if Amazon (and BERK, JPM) is able to build out a healthcare solution for its own employees, then there is a huge opportunity to sell that solution to other employers. With more than half of Americans on employer-sponsored plans, this is a problem that spans industry and geography. That being said, the short-term will likely be focused leveraging existing technologies and services as opposed to creating some gamechanging solution from scratch.

All in all, this feels a bit like three big corporations saying that they want to fix a common problem without a big idea or the specifics worked out. This serves as more of a proclamation marking Amazon’s longer-term interest in the broader healthcare market.

III. The digital pharmacy experience of the future

In June, Amazon pulled the trigger on acquiring PillPack, an online pharmacy for just short of $1B. I was originally excited at the prospect of Walmart acquiring the company as an opportunity to grow their online business within their existing customer base. For similar reasons, I think Amazon stands to gain quite a bit with this acquisition.

At the very least, this generated significant panic among some investors with both Walgreens and CVS’ stock falling ~9% with the news.

This acquisition is critical for a few reasons:

  1. Reach— PillPack is set to operate in all 50 states, putting it in direct competition with more traditional pharmacies like CVS. Amazon can just focus on scaling this across the country without having to jump through the regulatory hurdles PillPack already went through.
  2. Pharmacy expertise — With healthcare’s strict regulatory environment, establishing a digital business is no easy task. Acquiring a company that has gone through some of these initial hurdles is certainly advantageous.
  3. Key customer segment — PillPack doesn’t have a ton of customers relative to large pharmacy chains, but they have built a business focused on the chronic disease patient customer segment. As shown below, patients with multiple chronic diseases account for a disproportionate amount of healthcare spend, so it makes sense that Amazon would want to focus in on serving this group’s unique needs.

With this acquisition, Amazon has a digital pharmacy experience that they can improve with their superior distribution network and scale to their existing customer base. It’s possible that this becomes tied to Amazon Prime membership — initially, promoting the PillPack offering to existing Prime users, but ideally attracting new Prime users as well.

Additionally, it enables them to build a relationship and understanding of the chronic disease patient, which could in turn enable them to expand into related healthcare services in the long-term (e.g. selling medical devices to these same patients).

What I love about this acquisition is that it plays so well to Amazon’s strengths and current business model, but also propels them into a large new market.

IV. All in on devices

The latest news is that Amazon has partnered with Arcadia Group to launch a brand of medical devices focused on those very same chronic disease patients, specifically for those with diabetes and cardiovascular disease.

It’s quite clear now that the strategic focus is on building a suite of solutions aimed at meeting the needs of these patients. From managing their complicated pharmacy orders to providing the tools for them to manage and track their health, Amazon is filling out their portfolio of offerings.

It’s interesting that they have chosen not to call this a private-label brand, but acknowledged it is exclusive to Amazon. Of course, selling medical devices is generally more complex than selling commoditized products for which they have private labels. I can’t help but wonder if the decision to launch under a separate brand name, “Choice” was in order to disassociate with the existing Amazon brand in case the connotations of being a technology company are at odds with being a trusted medical device company. As shown below, consumers are wary of handing over too much information.

Amazon is building a very compelling ecosystem here.

In my last article, I mentioned how the Amazon Echo’s low price point and aggressive marketing have been a part of their hyperfocus on gaining market share. I think we’ll likely see a similar strategy here — use devices as an entry point to get customers more engaged with the Amazon healthcare portfolio.

Voice integration through Alexa can make these simple devices more powerful by promoting adherence through reminders, analyzing measurements, and so on. It’s not hard to imagine how this will increasingly feed Amazon with more valuable health data, the same way the Apple Watch captures that information for a more broader consumer base.

If every manufacturer's hardware is at parity in performance, then the value of Alexa becomes Amazon’s differentiation, which other device manufacturers will struggle to replicate.

Closing Thoughts

Amazon’s expansion story never seems to stop. From an online bookstore to now selling everything, providing cloud services, cashierless stores, etc — there’s no limit to what the company is willing to explore.

The company’s greatest strengths in retail are their distribution network and their strong Amazon Prime customer base — both of which are beneficial to pivoting to B2B and B2C healthcare.

With significant investment and strategies in place across the spectrum, it’ll be important to watch how Amazon priorities these different opportunities as well as how the competition adapts. At the very least, I think Amazon entering these often-traditional markets forces an increase in the pace of innovation.

Please clap if you found this article interesting and comment any thoughts you had on the piece!

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