Amazon in

Healthcare

How the tech giant is attacking the healthcare space

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ABOUT THE ANALYST

Nikhil Krishnan

Senior Analyst
@nikillinit | [email protected]

Nikhil Krishnan is a senior analyst at CB Insights, where he produces data-

driven analysis and research reports on trends in digital health and
healthcare broadly. He sends the weekly Digital Health Insights newsletter
to 55K+ members. His research has been featured in The Economist, New
York Times, Wall Street Journal, and more.

Most popular analyses by Nikhil:

Oscar Health Insurance Strategy Teardown

Apple In Healthcare
Google In Healthcare

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Contents
- Advantages, Philosophy, and Approach

- Where Amazon Should Enter Healthcare

- Amazon, the Pharmacy

- Claims Administration and Health Benefits Management

- Amazon and Medicare/Medicaid management

- Amazon for Providers

- Amazon in the Lab

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AMAZON IN HEALTHCARE

Advantages,
Philosophy, and
Approach
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Some of the trends Amazon is riding
More employers are self-insuring Generics are a bigger and bigger part of prescription drug share

More people have high-deductible plans Administrative overhead has exploded

Wall Street Journal, Optum, Kaiser Family Foundation, Athenahealth 10

Amazon has a lot
of non-healthcare Amazon’s cash and revenue over time
revenue Amazon income and balance sheet, 2015 - 2017

Amazon clearly has cash

and a growing revenue
stream that it can use to
invest in healthcare.
More importantly, this
means that Amazon
doesn’t need to make
money on their healthcare
ventures, and can instead
use it to make its
ecosystem and Prime
membership more
valuable.
11
Amazon has a large testing ground and
aggregated consumer demand

1.2M employees between 5M estimated 310M

Amazon-JPM-Berkshire sellers on Amazon Active Customers

(100M Prime Members)

2020

TechCrunch, Enterpreneur 12
People like
Amazon Amazon’s NPS is much higher than that
of health incumbents
Amazon is entering the
healthcare with an edge 62
that existing companies in
the space don’t have –
brand. As Amazon aims
to create a consumer-
driven healthcare
initiative, it’ll be hard for
existing incumbents to
shed that brand and
12
internal company ethos.

Amazon Health Insurance (average)

NPS Benchmarks 13
The logistics infrastructure – Amazon can get
things to you quickly

2020

Bloomberg, Business Insider 14

Amazon = platform + back end infrastructure
for business
Fulfillment By Amazon handles delivery, inventory AWS handles datacenter management and
management, and customer returns associated cloud services

15
Amazon’s playbook
1. Invest in large, upfront, fixed cost
aspects of a business (e.g warehouses,
data centers)

2. Bring standardization to messy,

unstructured, and fragmented back-office
functions (e.g. logistics)

3. Add transparency and a platform for

companies to distribute goods and services

Companies can focus on their core

competencies and outsource the rest to
Amazon
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 ATUL GAWANDE: FOCUSES ON STANDARDIZATION AND SCALABILITY

“I have devoted my public health career to building scalable solutions for

better healthcare delivery that are saving lives, reducing suffering, and
eliminating wasteful spending both in the US and across the world. Now I
have the backing of these remarkable organizations to pursue this mission
with even greater impact for more than a million people, and in doing so
incubate better models of care for all. This work will take time but must be
done. The system is broken, and better is possible.”
Atul Gawande,
CEO of Amazon-JPMorgan-Berkshire Health Initiative

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 ATUL GAWANDE’S ROADMAP?

“Reinventing medical care could produce hundreds of innovations. Some may be as simple as giving
patients greater e-mail and online support from their clinicians, which would enable timelier advice
and reduce the need for emergency-room visits. Others might involve smartphone apps for coaching the
chronically ill in the management of their disease, new methods for getting advice from specialists,
sophisticated systems for tracking outcomes and costs, and instant delivery to medical teams of up-
to-date care protocols. Innovations could take a system that requires sixty-three clinicians for a knee
replacement and knock the number down by half or more.”

Atul Gawande,
CEO of Amazon-JPMorgan-Berkshire Health Initiative

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 Who’s at risk?
• Middlemen that are value extractors and have large profit
margins
• Companies that focus on formatting or coordinating information
• Areas where customer experience has been an afterthought
• Companies that have relied on opaque pricing as a business
model

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AMAZON IN HEALTHCARE

Amazon, the Pharmacy

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The pharmaceutical supply chain is convoluted

Drug Channels 21
And the middlemen take a healthy amount

Wall Street Journal 22

Can Amazon shift this model?

Wall Street Journal 23

Amazon goes for
the wholesale
licenses first
Amazon reportedly
received approval for
wholesale pharmacy
licenses in 12 states.
Original speculation was
that this was going to be
used for business-to-
business selling since
Amazon still didn’t have
pharmacy licenses.
However…

St. Louis Post Dispatch 24

Amazon acquires PillPack, with pharmacy
licenses in all 50 states

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PillPack’s PharmacyOS looks similar to the
Fulfilled By Amazon/AWS platform model

26
The pharma supply chain did not react well to
this acquisition…

27
 Potential next steps:
Fill out the rest of the pharma supply
chain and expand offering to self-insured
employers and smaller health plans

28
Cash paying
customers are an Prices for cash paying customers for a basket of drugs

easy first target

While cash paying
customers are a small
percentage of the
population, there is a wide
disparity in how much the
same goods can cost
across pharmacies. In
some cases, these cash
deals can be even
cheaper than thorugh
health insurers, and it
bypasses PBMs.

Consumer Reports 29
Build out retail
pharmacies for
same day
delivery
While PillPack is great for
regular medication users
with predictable
schedules, Amazon needs
to complement that with
quicker delivery. It can do
this by building out
pharmacies/delivery hubs
in Whole Foods as well as
partner with independent
pharmacies.

Fortune 30
Offer negotiated
rates to self-
insured
employers Health Plan
Contracts for medical benefits/
Amazon can offer physician network
employers and small
health plans the Option 2:
pharmacy benefits that Self-Insured Employer Health Plan sub-
PBMs traditionally provide contracts with
PBM to include
(aggregate leverage to pharmacy benefits
provide discounts, access
to pharmacies for Option 1: Contract with PBM
medications, etc.) directly for pharmacy benefits
PBM

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Do employers want to use PBMs?
Survey of 88 large employers suggest that
they’re willing to adopt alternatives and don’t find the incentives
totally aligned

National Pharmaceutical Council 32

The impending Drug Supply Chain Security Act
opens an opportunity for Amazon to create an
FBA for drug manufacturers

Cardinal Health 33
Could Amazon get a manufacturing pharmacy
license? UPS is already moving in this direction

"As a repackager, [UPS is] not just taking the product as it is from
the manufacturer. It's being able to the product and individualize it
and split it up into different units. Becoming an FDA-registered
relabeler means UPS now has the ability to take products from a
manufacturer, relabel them, and sell under their own label or brand.
Because of FDA requirements, we will soon know what UPS will
relabel, as each FDA registrant must list each drug that it
manufactures, repacks, relabels, or salvages for commercial
distribution.“ - Nicodemo Fiorentino, a drug supply chain and
compliance attorney

Supply Chain Dive 34

AMAZON IN HEALTHCARE

Claims Administration
and Health Benefits
Management
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Medical billing is
complicated
The lifecycle of a claim
sees many steps with
various middlemen (e.g.
clearinghouses) and lacks
standardization. The
process is also slow –
laws are in place to
prevent claims from
taking more than 30-45
days.

Tech Tamma 36
Better claims
processor =
better CX
Oscar has spent the last
few years building its own
modern claims
processing system. This
allows it to do things like
pay doctors more for
working peak hours like
evenings and weekends,
or give members a clearer
sense for how much
procedures or tests will
cost them.

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 COLLECTIVE HEALTH ESCHEWS TPAS FOR CUSTOMER EXPERIENCE

“When we started Collective Health, we thought we would partner with a TPA [Third Party Administrator] to handle
the ‘boring’ part around claims adjudication - which is a small - but important - part of what we do. We went around
the country to meet with dozens of TPAs, but we quickly realized the technology at the core of these businesses
wasn’t capable of powering the transformation in the healthcare experience for members and employers we were
creating.

We eliminated common frustrations by rebuilding the healthcare experience with modern technology. This has
allowed us to build a unique and drastically improved member experience and has allowed us to give employers the
tools to intelligently and easily manage their health plans.”

Rajaie Batniji,
Co-founder of Collective Health

Quora

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 IS AMAZON PLANNING TO BUILD
ITS OWN CLAIMS PROCESSOR/CLEARING HOUSE?

Grand Challenge is also working with AWS on a project, internally dubbed Hera, which involves taking
unstructured data from electronic medical records to identify an incorrect code or the misdiagnosis of a
patient. The technology captures patient data that a physician may miss, and can help remove the
inaccuracies for insurers as they assess a population's risk.

Grand Challenge is starting to pitch Hera, which has been in development for at least three years, to
commercial health insurance companies, according to two people familiar with the effort.

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A Benefits
Marketplace
Pharmacies Employer A
Once Amazon sets up a
system that handles the Lab testing centers Employer B
messy back-end for both
employers and healthcare CostPCP/Urgent
of geneticCare
testing Employer C

service providers, it can

Wellness benefits Employer D
set up a benefits
marketplace that removes Etc. Employer E
the payments and
coordination hassle for
both parties. This
platform + back-end-as-a-
service play has worked
for it in e-commerce. Claims Administration,
Payment, Scheduling, etc.

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Amazon could offer stop-loss insurance via
Berkshire Hathaway
Stop-loss insurance helps to protect self-insured employers This playbook looks similar to what Collective Health
from catastrophe scenarios. Berkshire’s specialty insurance has done with Sun Life Financial, which also offers
subsidiary announced its medical stop-loss division in 2016. stop-loss insurance.

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AMAZON IN HEALTHCARE

Amazon and
Medicare/Medicaid
Management
42
Amazon Prime has low penetration/higher
growth prospects in low income and older
populations

Recode, Prosper Insights 43

Medicaid + Medicare + Dual Eligible Patients

• There are 52M+ Medicare beneficiaries,

71M+ Medicaid beneficiaries, and 10M+
dual eligibles
• Medicare and Medicaid spend topped
$1.3T in 2017
• Spend is concentrated in sickest 10% of
patients
• Biggest issues are lifestyle
management, coordination across
diseases, and consistency in access to
care

Macpac, Kaiser Family Foundation 44

Expansion of
coverage
CMS plans to expand its
definition of health- Expanding definition of primary care
related benefits that “As part of today’s announcement and guidance, the agency is reinterpreting the
Medicare Advantage standards for health-related supplemental benefits in the Medicare Advantage program
to include additional services that increase health and improve quality of life, including
plans can cover. This coverage of non-skilled in-home supports and other assistive devices. CMS is expanding
the definition of ‘primarily health related.’ Under the new definition, the agency will
could include healthy allow supplemental benefits if they compensate for physical impairments, diminish the
groceries, air conditioners impact of injuries or health conditions, and/or reduce avoidable emergency room
utilization.”
for people with asthma,
non-emergency medical
transportation, and more. Covering telemedicine visits
"Under this proposal, Medicare will start paying for virtual check-ins, meaning patients
Telemedicine-only visits can connect with their doctor by phone or video chat…Many times this type of check-in
are also slowly making will resolve patient concerns in a convenient manner that gets them the care that they
need and avoids unnecessary cost to the system. This is a big issue for our elderly and
their way into Medicare disabled populations where transportation can be a burden to care as well as to
caregivers. We’re not intending to replace office visits but rather to augment them and
reimbursement. provide new access points for patients.“ – Seema Verma, CMS Administrator

CMS, Healthcare IT News 45

Can Amazon leverage its relationship
with members at home to become a
Medicaid/Medicare manager?

46
 Not a joke

SNL does a skit for the Amazon Echo Silver Amazon in talks with AARP

"Something...we've been building for some

period of time and we deeply care about...
relates to what happens to older
people…We have looked at the older
population in the context of health... and
we know this group has a lot of issues and
unmet needs.”
-Babak Parviz, Amazon’s vice president of
special projects

CNBC 47
Amazon Prime +
Medicaid
Amazon has begun its
outreach to Medicaid
beneficiaries by offering
Amazon Prime for the
discounted rate for
$5.99/month. At the
moment, it doesn’t give
any discounts for Amazon
Fresh or Prime Pantry, but
is a possibility if it works
with Medicaid carriers.
Members do get
discounts for Amazon
Family, though.

48
Amazon can use meal tailoring to boost its
Amazon Fresh and Pantry businesses

Health Affairs 49
Can Amazon
leverage the
Echo?
As the smart home race
heats up, can Amazon
turn the Echo from a nice-
to-have to a necessity for
Medicaid/Medicare
patients? By adding
healthcare functionality, it
can increase the utility for
existing Echo users. It
could potentially also get
subsidies from carriers,
especially since the new
Echo products have
cameras.
50
Amazon potentially looking at HIPAA
compliance for Alexa

Was removed after reporters saw the listing

GeekWire 51
The Echo can help manage home care
Alexa for monitoring and adherence Amazon + telemedicine?
Echo could monitor medication adherence. Amazon could use the Echo as a medium of
The company could also monitor for falls, communication for caregivers, coaches, digital
and already has patents for monitoring blood therapeutics companies, family members, or
flow. potentially even physicians.

“We will be hiring a strong management team to

start working on some of these critical problems
and issues:

• Empowering employees to make better choices

and have the best options available by owning
their own healthcare data with access to
excellent telemedicine options, where more
consumer-driven health initiatives can help.
• Developing better wellness programs,
particularly around obesity and smoking — they
account for approximately 25% of chronic
diseases (e.g., cancer, stroke, heart disease and
depression).”

-Jamie Dimon, JPMorgan Chase CEO

CB Insights, JPMorgan Chase 52

The Echo can help manage home care
Development of Third-Party Alexa Apps

Allows seniors to verbally report

medical data, get exercise and
adherence reminders, call a
caregiver, and coordinate transport

53
Amazon bring in ex-Iora Health executive

54
AMAZON IN HEALTHCARE

Amazon for Providers

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Administrative
overhead has
exploded
The healthcare system is
continuing to throw more
humans into the mix,
increasing administrative
costs and middlemen
layers. There are different
potential reasons for the
explosion of
administrators, but many
point to the onerous
regulatory requirements
that require extensive
tracking and coordination.

Athenahealth 56
 Can Amazon revamp the IT
infrastructure and interface at
hospitals/clinics to reduce the admin
overhead?

57
AMAZON + HEALTH IT

Potential strategy to get into providers

1 2 3

BACKWARDS INTEGRATE AGGREGATE USERS SLOWLY REPLACE ALL

INTO EXISTING WITH A BETTER USER FUNCTIONS OF THE
SYSTEMS INTERFACE SYSTEM AND BECOME
THE PREFERRED BACK-
END + PLATFORM

58
Example 1: Using Alexa to integrate
and become the electronic medical
record (EMR)

59
A case study…
• Premier Health, a medical network of
five hospitals and two major health
centers spent as much as $1.6M to
implement voice recognition software
integrated with an electronic medical
records system from Epic Systems
Corp
• The software reduced “clicking fatigue”
by 90 minutes a day for doctors
• Estimated first year savings on labor
and productivity are $1.3M

Digital Commerce 360 60

 ALEXA IS ENTERING THE HOSPITAL

"We definitely need to make that transition into the HIPAA-

compliant framework before we can build out fully-enabled
skills that have all the patient's health information on demand.

"I'd say there's definitely a future vision of voice being able

to drive a lot of the interface or interactions that clinicians
have with the medical record and other reference data sets
around patient information, just because it's such a deep
amount of information you have to process about a
patient…Pulling those things via voice commands is really
powerful and I think that's probably the future of voice in
healthcare.“

-Matt Murphy, ex-Digital Health Innovation Lead at Boston’s

Children’s Hospital
MDDI Online

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AMAZON + HEALTH IT

Can Alexa help rebuild the EMR?

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COMPANIES WORKING ON VOICE + EMRS

Funding

$20M
Suki is a virtual scribe that can input
data into the EMR via voice. Alexa could
potentially do something similar, and in
the process build the pipes into its own
EMR offering.
Select Investors
Social Capital, Venrock, First Round
Capital

SIMILAR COMPANIES

63
 Example 2: Amazon becoming the
new medical supply ordering system

64
AMAZON + HEALTH IT

Hospital supply chains are expensive and

middleman heavy

Hospital

Manufacturer Distributor Group Purchasing Organization

(GPO)
Hospitals spend
approximately 30% of
operating expense on
supply chain with that
number expected to
increase
Navigant 65
Amazon
Business
Amazon’s B2B division
offers low-risk commodity
products that don’t
require a specific supply
chain (e.g. cold chain).
This includes
stethoscopes, gloves, etc.
Amazon has more
success with smaller
clinics than large
hospitals, which have
stakes in GPOs and can
get all their products from
existing distributors.

66
RELYING ON SIZE/DISCOUNTS WILL NOT WORK FOR AMAZON INITIALLY

"We gave [Amazon] a piece of our supply

chain to see whether they could get us
better pricing and the answer to that was
no."
Steven Corwin,
CEO of New York Presbyterian

Healthcare Dive

67
NEW METRICS: PRODUCTIVITY, INTERFACE, AND BETTER PROCUREMENT

Amazon Business claims a number of their healthcare customers have

seen their labor costs cut by more than half — and it's not just big hospitals
they are going after
.
“When an employee sits down at work, and they see Amazon, they
already know exactly what to do — they don’t even need to be trained…

The procurement tools often feed back into an ERP (enterprise resource
plan) or financial system that has a very standardized general ledger
that does really well when it’s a repeat order, but isn’t very good at
anything new,” Holt said. “We’ve been building technology to integrate
backwards into all of these systems, even to enable EDI (electronic data
interchange) transactions,” allowing Amazon's system to fully interact
with the healthcare system’s.”
Chris Holt, Global Healthcare at Amazon
Healthcare Dive
68
First improve
efficiency, then
introduce the
marketplace
If Amazon can bring on
customers with the
promise of better usability
and improved efficiency,
it can eventually use that
as a lever to get more
systems onto its
marketplace, and increase
the number of suppliers
for customers.

69
Amazon could also go the consumer route for
medical device delivery and monitoring

The physician can order all the

supplies the patient
needs directly for the patient
powered by Amazon

CNBC 70
 AMAZON BECOMES THE PROVIDER: WILL CLINICS ENTER WHOLE FOODS?

[Whole Foods CEO, John Mackey’s] second idea is even more grandiose: a Whole Foods medical clinic.
He says he was inspired by Rosen Care, an employer health-care program run by Rosen Hotels & Resorts
in Orlando, which offers employees an on-site company-owned medical facility. The clinic has a staff of
38 health-care practitioners serving 5,300 employees and places an emphasis on nutrition and preventive
medicine, which company founder Harris Rosen says has reduced his per-employee health-care costs to
about half the national average. Mackey met Rosen at a health-care conference last summer in Las
Vegas, then traveled to Florida to tour the clinic. He’s considering rolling out Whole Foods clinics to
employees—and even, perhaps, to customers.

Bloomberg

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AMAZON IN HEALTHCARE

Amazon in the Lab

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The cloud wars
are heating up
Amazon, Microsoft,
Google, and many other
large tech companies are
competing in their
offering of cloud services.
Several of these
companies see healthcare
as a high growth area due
to the vast amount of
data that’s being
produced and the need for
high performance
computing to make sense
of it.

Forbes 73
With the investment in GRAIL, Amazon is
getting a customer and a case study

74
AWS frameworks are going to expand across
healthcare, with a focus in genomics due to the
growth in datasets and applications

75
 Potential next steps:
Amazon offers a lab-as-a-service
back end and a platform for other
goods and services for researchers

76
Amazon can drop the cost for small labs the
same way AWS did for tech startups
Perlara PBC’s 2014 expense report Perlara PBC’s 2016 expense report

7% Large fixed costs in the 9% Outsourced services to

11% 15% Lab Supplies
Other
Lab Supplies form of capital Other clinical research
9% equipment exist for organizations (CROs)
Screening early stage biotech become a major cost
Compounds 20%
startups 14% CRO component as companies
23% scale.
Wages Overhead

Amazon can Amazon can facilitate

8% outsource those the market place for
42% Service fixed costs, similar 13% these companies to
Capital Providers to what it did with Taxes compare and shop for
Equipment datacenters for 29% services
AWS Wages

Perlara Open Finances 77

THE OUTSOURCED LAB

Funding

$26M
Transcriptic operates an outsourced
robotic lab. You send in your samples,
run your assays, and it sends back raw
and analyzed data. Amazon could build
or acquire something similar to lower
the equipment cost for small labs.
Select Investors
Data Collective, Y Combinator, Google
Ventures

SIMILAR COMPANIES

78
Amazon can facilitate the marketplace for other
services as well
AWS marketplace Marketplace for other CRO services

79
Can Amazon recreate this for the lab?
Amazon can allow small labs to outsource fixed costs to them while also building a marketplace
and finding future AWS clients through the process

Costs to launch an internet tech startup (approximately)

$5,000,000

Open source + horizontal Developers start

scaling Cloud + AWS companies

$500,000
$50,000 $5,000

2000 2005 2009 2011

Both Sides Of The Table 80

Questions?
Twitter: @nikillinit
[email protected]

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underlying data included in this report

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cbinsights.com
@cbinsights

Nikhil Krishnan
[email protected]

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