Company is Not Just a Retailer, It’s a Digital Disruptor – and Has the “Right Stuff” to Fundamentally Transform the Healthcare Landscape, Says L.E.K Consulting
BOSTON, MA (March 26, 2018) — Amazon is getting into healthcare — and healthcare may never be the same.
The internet giant has the right skills and capabilities to follow through on its big healthcare-industry ambitions and will launch offerings that range from mail-order pharmacy to AI-based diagnostics, says global management consulting firm L.E.K. Consulting.
In a new report, the firm describes five healthcare-industry scenarios that show how Amazon is likely to enter and dominate the field.
“Anyone who thinks of Amazon as just a very big digital retailer needs to think again,” says Rob Haslehurst, Managing Director at L.E.K. and report co-author. “They have continually expanded their business model and today they are a leader in cloud computing, a provider of in-home services and a bricks-and-mortar food purveyor in addition to their ecommerce offerings. They have repeatedly shown that they have the capabilities, the patience, and the deep pockets to disrupt industry after industry. Healthcare is no exception.”
Amazon in late January announced its entry into the healthcare field through an ambitious alliance with JP Morgan Chase and Berkshire Hathaway.
Amazon has the right core competencies to succeed at healthcare
Amazon already has many of the core competencies needed to compete in healthcare: ready access to capital, a massive distribution infrastructure, a strong technology base, a robust data analytics capability, and a deep, talented executive bench that, “like Bezos himself, is relentless, resourceful, fast, inventive and customer-obsessed,” says Haslehurst.
Amazon is already making healthcare inroads
Amazon’s healthcare ambitions aren’t just aspirational. The company is already making inroads. In Japan, Amazon will begin offering Prime Now drug deliveries directly to consumers with pharmacist approval. In the U.S., the company has been recruiting for multiple healthcare-related positions.
Five scenarios show how Amazon could enter and dominate healthcare
What will Amazon’s assault on the healthcare marketplace look like? “There are five scenarios,” says L.E.K. Managing Director and report co-author Joseph Johnson. “They’re not mutually exclusive — in fact, they represent a roadmap that Amazon can follow to move continually deeper into the healthcare industry. All of them illustrate Amazon’s ability to drive down prices and margins while fundamentally transforming customer behavior.”
Amazon’s possible points of entry are:
- Durable medical equipment and medical supplies. “This is a no-brainer, because Amazon is already there,” says Johnson. “It currently sells a broad array of general medical supplies and durable medical equipment (DME) to consumers.” Amazon’s core competencies in logistics and distribution, and its existing B2B ecommerce platform, will allow it to easily expand into hospital and provider supply, disrupting the traditional group purchasing organization (GPO) contract model. Amazon has already obtained licenses to distribute medical supplies to providers in 43 states.
- Mail order and retail pharmacy. Amazon has secured approval as a wholesale distributor from 12 state pharmaceutical boards. Drug storage is a hurdle, and there are regulatory challenges. But Amazon can work through them. It can also build pharmacies into its recently-acquired Whole Foods stores. The company can also take advantage of its predictive analytics and customer data capabilities to build digital health tools that track and influence patient behavior — giving it a leg up over traditional pharmacy in working with the most challenging areas of healthcare delivery.
- Pharmacy benefit manager. Pharmacy Benefit Managers (PBMs) drive prices down by taking advantage of the combined purchasing power of health plan enrollees. That’s something Amazon knows how to do. Amazon’s most likely move into the field will be by partnering with a large PBM such as Express Scripts or by buying a smaller player like Prime Therapeutics. Amazon would gain a pharmacy network and a claims adjudication capability, and its partner would gain access to millions of Amazon Prime members.
- Telemedicine or in-home healthcare. Amazon’s Echo smart speaker (with 20 million units sold to date) and Alexa, its voice-controlled personal assistant service, give it an enormous platform for new voice-activated services. Healthcare could easily be among them. Bezos has talked publicly about the role for Alexa in the future of healthcare delivery. Alexa’s first step would be to help book physician visits. But thanks to Echo Show’s video capabilities, the next move might be in-home virtual house calls.
- AI-powered diagnostics and continuous care. Amazon’s “final frontier” in healthcare could be fully automated, AI-driven, in-home healthcare and diagnostics. “Amazon has deep AI capabilities — machine-learning already drives many of its offerings, from its customer recommendation engine to its service centers,” says Johnson. “It would be only logical to harness that capability to diagnostics. And in fact, this has already started — Alexa now delivers first-aid information and voice driven self-care instructions in an offering introduced by the Mayo Clinic. It wouldn’t be a stretch to add first-line diagnostic information, provide medication reminders, and auto-refill prescriptions.”
“There are three reasons to believe that Amazon is serious about healthcare,” says Johnson. “One, they are one of the largest private employers in the U.S. and would reap huge financial benefits from lowering healthcare costs. Second, the U.S. healthcare system is notoriously inefficient, and Amazon CEO Jeff Bezos loves to attack inefficiencies. And third, healthcare is the kind of big, complex opportunity that Bezos likes to sink his teeth into.”
For more information, please contact Katarina Wenk-Bodenmiller of Sommerfield Communications at +1 (212) 255-8386 or Katarina@sommerfield.com.
About L.E.K. Consulting
L.E.K. Consulting is a global management consulting firm that uses deep industry expertise and rigorous analysis to help business leaders achieve practical results with real impact. We are uncompromising in our approach to helping clients consistently make better decisions, deliver improved business performance, and create greater shareholder returns. The firm advises and supports global companies that are leaders in their industries — including the largest private and public-sector organizations, private equity firms and emerging entrepreneurial businesses. Founded in 1983, L.E.K. employs more than 1,200 professionals across the Americas, Asia-Pacific and Europe. For more information, go to www.lek.com.