Late last year, Amazon ratcheted up the urgency surrounding the wave of pharmacy-related consolidation that was sweeping through the US market after reports emerged that the company had received licensing to sell medical products in 47 out of 50 US states and Washington DC.
But whatever Amazon had planned for its first foray into the medical products space has been indefinitely delayed, as the company’s Amazon Business segment, which sells bulk items to business customers, has abandoned plans to sell and distribute pharmaceutical products.
Instead, Amazon is focusing on selling less sensitive medical supplies to hospitals and small clinics – a sign that even a company of Amazon’s size can have trouble breaking into the health-care supplies and pharmaceutical space, CNBC pointed out.
An Amazon spokesperson told CNBC, “As we’ve developed Amazon Business, we’ve used our working-backwards methodology for consumers and applied it to the needs of business customers and sellers. One of the ways we do this is convening advisory boards from across the industry to give us feedback so we can continue innovating on behalf of customers.”
The health care supply chain is well-entrenched and will be hard to break into, according to one expert. “The hospital and health care systems have entangling alliances with their existing purchasing and supply chain partners,” said Tom Cassels, head of strategy and business development at Leidos Health. “It’s very difficult to replicate the Amazon buying experience in healthcare,” he said.
For now, the sweet spot for Amazon Business in health care is smaller practices, such as dental offices, freestanding ambulatory surgery centers and small physician practices, where the licensed providers appreciate the convenience and affordability.
While Amazon might consider other health-care related businesses in other branches of the company, its plan to become a major supplier and distributor of medical products was likely sidelined by the difficulty in convincing large hospitals to change their traditional purchasing process, which typically involves a layer of salespeople and other middlemen.
The company would also need to build a more sophisticated distribution network to handle products that are temperature sensitive.
Another major barrier to entry has been Amazon’s warehouse and logistics infrastructure, which is not set up to store and deliver temperature-sensitive pharmaceutical products.
Many biopharma companies require their products to be stored and shipped in a tightly controlled supply chain system. For example, some products have insulation and need to be stored in a warehouse that can provide an ice-cold environment.
Amazon’s current logistics network doesn’t offer this type of sophistication. Today, some Amazon sellers that sell temperature-sensitive products use a customized delivery process, according to several people familiar with the company.
That said, the company’s Alexa unit and its secretive Grand Challenge team, sometimes referred to as “1492,” are still exploring other health-care related offerings.
Amazon has been selling some simple medical products like glucometers and stethoscopes for years. But hospitals with longstanding contracts with distributors like Cardinal Health and McKesson are reluctant to let them go. Some hospitals also own stakes in group purchasing organizations that negotiation collectively on their behalf.
Shares of other pharmacy companies rallied on the news.
Amazon hasn’t yet started selling products considered “high risk” – also known as Class III devices – products like pacemakers that are necessary to sustain life. Its inability to sell these products have also made hospitals reluctant to switch over.
One Amazon spokesperson said Amazon’s meetings with hospital advisory boards were merely “feedback”-seeking exercises.
“As we’ve developed Amazon Business, we’ve used our working-backwards methodology for consumers and applied it to the needs of business customers and sellers. One of the ways we do this is convening advisory boards from across the industry to give us feedback so we can continue innovating on behalf of customers.”