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Amazon Has a New Partner in Its Health Care Assault

By Jeremy Bowman – Jul 18, 2020 at 10:20AM

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The tech giant may have found its Trojan horse for the health care industry.

Amazon (AMZN 4.93%) just revealed its latest step into the healthcare industry , a multi-trillion-dollar opportunity that the tech giant has been increasingly eyeing in recent years. Amazon has acquired an online pharmacy, PillPack, partnered with JPMorgan Chase (JPM -0.29%) and Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) to found Haven, a healthcare joint venture. Last year it launched its Amazon Care virtual care clinic in Seattle, its home market. The company is even developing COVID-19 tests to use on its workforce.

Now, the company is partnering with Crossover Health, a primary care provider, to open clinics for Amazon employees at fulfillment centers across the country in what it's calling a Neighborhood Health Center Pilot Program.

Amazon has already opened a facility in the Dallas/Fort Worth area, where there are 20,000 Amazon employees, and it plans to add 20 such health facilities in four other cities across the country, including Phoenix, Detroit, Louisville, and the San Bernardino Valley in California. In total, Amazon said the pilot program would provide primary care services for 115,000 Amazon employees and their families. If the pilot is successful, the company plans to roll out similar facilities in other parts of the country. Amazon, including Whole Foods, has about 650,000 employees in the U.S., and is growing. If the company brought all of its primary healthcare in-house, it would likely serve about 2 million Americans, including the families of employees. 

Darcie Henry, Amazon's vice president of Human Resources, explained: "Across the U.S., an increasing number of patients do not have easy access to a primary care physician and instead utilize emergency or urgent care options, which is not only more expensive for patients, but also overlooks important preventative care opportunities. We want to solve that for our employees, and the launch of these new Neighborhood Health Centers will provide a range of quality primary care services for employees across the country."

Like Amazon Care, Crossover Health will also provide virtual care, and its proprietary technology platform allows most visits and care needs to start online before transitioning to in-person as necessary.

Two people in masks speaking in a waiting room

Image source: Amazon.

One step closer to disrupting healthcare

Amazon has never made its long-term ambitions in healthcare clear, but there are a number of reasons why this disruptive company would make a play for a piece of the industry. First, healthcare is a massive market, accounting for nearly $4 trillion in annual spending in the U.S., and making up about one-sixth of the domestic economy. Amazon will soon be the second-biggest company in the U.S. by revenue (behind Walmart) and needs to find new ways to grow in order to satisfy the high expectations of shareholders who have bid its valuation up to near $1.5 trillion.

Second, Amazon has a history of testing out new businesses in-house, as it did with Amazon Web Services, its cloud-computing juggernaut, and seems to be doing with its budding logistics operations. It could follow a similar path in healthcare, opening up to the general public after perfecting it on its own employees.

Finally, as the second-biggest private employer in the country (also behind Walmart), employee health costs represent a significant expense for the company and one that it could better control by bringing its healthcare needs and spending in-house. Amazon's first foray into healthcare was the joint venture with JPMorgan Chase and Berkshire Hathaway, and at the time, CEO Jeff Bezos said: "Hard as it might be, reducing healthcare's burden on the economy while improving outcomes for employees and their families would be worth the effort."  

However, since the launch, Haven, as the venture is now known, has mostly been a disappointment. The project has gotten off to a slow start and is now looking for a new CEO after Atul Gawande said he would step down in May but remain as Chairman. Amazon's own initiatives also seem to have gotten in the way of Haven's, as the two enterprises seem to be in competition in some ways. Amazon's own launch of Amazon Care and now its partnership with Crossover Health may also be a reflection of its frustrations with the joint venture.

Crossover Health offers much of what Amazon seems to be looking for with Haven and the Amazon Care initiative. It's a way to control employee health costs and improve outcomes, leveraging technology and breaking the usual process of the health insurance complex. On its website, Crossover says it "offers an entirely new care delivery model for health activist employers. We integrate disconnected health and wellness benefits with tech-enabled services to increase access to care, decrease spend, and deliver remarkable health for employees near and far."

Other statements on the site sound perfectly aligned with Amazon's goals. Crossover says the "[c]urrent fee-for-service system is extremely expensive and highly inefficient for both patients and employers," and touts its ability to deliver a strong return-on-investment. 

Crossover is still a small company. It has only eight locations, but it's easy to imagine its partnership with Amazon turning into something big. That could include an acquisition or an expanded partnership of some kind. If the initiative is successful, Amazon would likely seek to offer primary care services to the general public, turning its own research and experimentation into a profit center. Primary care is a huge and highly fragmented market, and one that looks ripe for a disruptive innovator like Amazon.

This week's news could be just the beginning.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jeremy Bowman owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon and Berkshire Hathaway (B shares) and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), short January 2022 $1940 calls on Amazon, long January 2022 $1920 calls on Amazon, and short September 2020 $200 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

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