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Is Amazon Becoming a Healthcare Company?

By Steve Ditto - Updated Jun 22, 2021 at 8:03PM

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Amazon has set its sights on the $4 trillion U.S. healthcare market.

For several years, Amazon (AMZN 0.83%) has been making deliberate moves into healthcare. Consumers can now buy products on using a flexible spending account (FSA), go to Amazon Pharmacy for online prescription ordering and delivery, use Alexa to get medication reminders, and streamline packaging for multiple prescriptions using PillPack.

In late May, Insider published a story saying that Amazon was considering opening retail pharmacies in Whole Foods grocery stores. Within minutes, investor reaction erased more than $6 billion from the market caps of Amazon's pharmacy competitors; CVS, Rite Aid, and Walgreens stock declined by 3% to 4%. Many analysts consider the drop to have been a market overreaction, but such is the power of Amazon putting whole industries in its sights.

Senior on laptop while reading pill bottle label.

Image source: Getty Images.

What's next on Amazon's healthcare roadmap?

Pharmacy is not Amazon's only healthcare ambition. Amazon has a long history of building capability to serve its own business, then offering the same capability to customers. Amazon has turned to this playbook with its recently announced Amazon Care services.

Amazon offers on-site and virtual healthcare to its 1.3 million employees. Amazon is streamlining the tangle of healthcare processes using its technology and operational expertise, while partnering with healthcare providers such as Crossover Health for the medical services. Amazon recently announced it has extended Amazon Care to its first employer client. Although this initial contract seems to be just a toe in the water, employers could be attracted to the service as they benefit from Amazon's scale. 

As a logical follow-on to virtual care services, Amazon could use its Prime and Marketplace offerings to bring better services, pricing, and transparency to the physical part of the healthcare market as well. For instance, more than 40 million MRI scans are conducted each year, with prices ranging from $600 to $4,000 in some geographies.

One could imagine healthcare providers listing their MRI services on the Amazon Marketplace with transparent pricing, user reviews, convenient scheduling, and one-click payment services. Amazon could also bundle a free video consultation or expert second opinion with Prime membership. That kind of service would be convenient, transparent, and satisfying -- not words typically associated with healthcare, but all attributes we can expect from an Amazon move deeper into consumer healthcare.

Amazon's AI ambitions can help transform healthcare

On the business-to-business side of Amazon, recent Amazon Web Services (AWS) product announcements also position Amazon for success in helping healthcare customers with their artificial intelligence (AI) projects. For example, using AI models for surgery has the potential to reduce the cost and complications of certain surgeries by 40% to 50%. AWS services can dramatically reduce the time and cost of AI data preparation and model development, which comprise 80% of the typical healthcare AI project budget.

The healthcare industry has been slow to adopt cloud services over concerns around privacy, security, and data rights. With the addition of high-value AI services, Amazon is well positioned to become the preferred cloud technology partner for healthcare companies by helping cost-effectively transform both their clinical and business processes.

You may find a lot more Amazon healthcare services in your cart

Amazon's visionary statement from a 2006 corporate overview still rings true -- it is to be "earth's most customer-centric company; to build a place where people can come to find and discover anything they might want to buy online." Increasingly, people and businesses will find more healthcare services to buy online from Amazon.

Newly announced Amazon CEO Andy Jassy, who is set to assume the office in July, led AWS from its inception, and is well positioned to drive Amazon deeper into the healthcare business. That may not make Amazon a healthcare company, but it is becoming a force to be reckoned with in healthcare

For investors wondering how Amazon will continue to grow its already gargantuan $1.6 trillion market cap, the $4 trillion healthcare industry provides one ready answer. Even Amazon can't upend an entrenched industry overnight, but for long-term buy-and-hold investors, Amazon's move into healthcare may be just the prescription for your portfolio.

Steve Ditto owns shares of Amazon. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends CVS Health and recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

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