Since Amazon Pharmacy launched in November 2020, the prescription drug home-delivery service has led with a primarily online offering. Its value propositions — technology-based customer support, transparent pricing, fast shipping and an app-based interface — are compelling, but without connections to the broader health care ecosystem, organic growth has been challenging.

Todd Huseby

That’s about to change. Amazon recently announced it will acquire the primary care company One Medical, which offers subscription-based health care services through a user-friendly digital interface, along with telehealth offerings and more than 130 physical locations across the United States. One Medical previously acquired Iora Health (which is undergoing rebranding to One Medical Seniors), adding 47 new locations. Iora is a health care provider that focuses on Medicare patients through its clinics nationwide.

With One Medical, Amazon can take an omnichannel, front door approach to care delivery that combines virtual services with physical locations. It can more easily control the upstream of care, directing referrals, prescription volume and health care services volume with strong telehealth offerings and a compelling in-person alternative to VillageMD and MinuteClinics, among others.

For retail pharmacies, this could be a threat to core and ancillary businesses or a motivator to pursue or accelerate new initiatives.

Implications of the Amazon–One Medical marriage

Laura Bowen

While no one can predict the success of such a pairing, a few things stand out about this new power couple. One Medical provides Amazon with physical locations in most major U.S. metropolitan areas, along with strong and consistent brand equity. Likewise, One Medical customers could now be incentivized to fill new and existing prescriptions through Amazon Pharmacy. For retail pharmacy, that could mean a loss of prescription volume as well as the halo effect on front-end purchases that customers pick up while in stores.

Similarly, retail pharmacies’ health care services could take a hit. Many have entered the provider space themselves. Now, Amazon can — and likely will — expand its provider presence with One Medical’s robust health care services, which feature a high-quality operating model, 24/7 availability, telehealth and a compelling value proposition.

Three possible futures for Amazon

Jag Maturi

Amazon announced its purchase of One Medical in July, so it’s too early to know how they plan to maximize the pairing. Based on their capabilities and willingness to innovate, we see several possible futures, each targeting different customer archetypes and impacting retail pharmacies differently.

Future No. 1: Amazon delivers digital and physical integration at scale, appealing to digitally savvy customers who seek premium convenience and experience.

In this scenario, Amazon would market directly to individuals and employers, particularly the company’s 160 million Prime members in the U.S., via a health care subscription for the omnichannel experience. It would target younger, urban and digitally savvy customers who are relatively healthy. They can afford the Prime annual subscription and likely order a lot through Amazon already.

Amazon would use its extensive customer database and vast delivery network, along with the One Medical partnership, to maximum advantage. Customers would have rapid access to primary care via telemedicine or physical clinics in their neighborhood. They would enjoy same- or next-day delivery of prescription and over-the-counter drugs and durable medical equipment. Amazon would provide 360-degree wellness programs for nutrition (via Whole Foods and Fresh), healthy activity (via Halo) and monitoring (via Alexa and Echo). It would also offer premium buy-ups for the needs of the elderly, children and others.

Overall, this future would steer pharmacy, retail and health care services volume away from retailers, especially those not flexible enough to meet customers’ evolving needs.

Future No. 2: Amazon provides affordable health care to Americans on the financial edge through a digital “skinny” HMO.

While not its typical demographic, Amazon would expand its customer base to include uninsured or underinsured people — generally healthy young families and individuals who have minimal coverage from an employer or other source. By advertising directly to them, it would offer a monthly health care subscription in the form of a high-deductible plan, with coverage for virtual services. There would be a narrow network of high-quality, high-volume providers for in-person services. Specialists would address therapeutic conditions through One Medical’s telemedicine, with in-office visits for follow-up care as needed. Amazon Pharmacy would be the only in-network pharmacy for prescriptions. There would be limited digital wellness offerings for such things as behavioral health and nutrition, and subscribers could be rewarded for healthy living via discounts for purchases at Whole Foods and Amazon.

This scenario would deliver ultra-low-cost primary health care, albeit with a wait for in-person appointments and prescription delivery that could take several days. But the care would be there when customers need it, and Amazon would be covering a significant gap in the market, capturing middle-class, self-employed people and those on the financial edge.

Moreover, it would create a closed-loop offering for customers who might otherwise fill prescriptions, receive treatment or make other purchases at retail pharmacies.

Future No. 3: Amazon disrupts coverage and payments with simplified end-to-end health care that is technology user-friendly.

As with the other two scenarios, Amazon would use its marketing power to reach customers directly, augmented by leveraging brokers and employer groups to sell complete health plans. The offering would include integrated coverage, like Future No. 1, plus preventative interventions, enhanced nutrition and incentives with Whole Foods, and at-home consultations to reduce patient risk. Notably, Futures No. 1 and No. 3 address the rationale for shutting down Amazon Care, its in-house primary care offering for Amazon employees that then expanded to other employers, by the end of 2022. Senior vice president of Amazon Health Services Neil Lindsay has said Amazon Care’s offering was not “a complete enough offering for the large enterprise customers we have been targeting.”

This approach would attract high-value, older customers who need health care and are not covered by employers or are retired but are too young for Medicare. While the highest-value pharmacy patients have been the slowest to adopt the technology-based interface that Amazon leads with, Amazon will find ways to make it more user-friendly. We foresee people asking Alexa to refill their prescriptions, for example. While customers would be able to see doctors in person, those who are comfortable with online shopping or telehealth could use the Echo device for virtual consultations. Amazon’s recent interest in acquiring Signify Health, a home health care provider, also signals its intention to capture more of the older patient population.

This comprehensive offering poses the most risk for retail pharmacies. It could shift the prescription, retail and health services volume from these patients almost completely to Amazon and create brand loyalty with “family plan” offerings for other members of the family.

Pharmacies can envision their own future

Amazon is a cost expert and well positioned to leverage its balance sheet to invest in bringing new health care offerings to market. Its pockets are also deep enough to maintain loss leaders long enough to realize customer growth.

For retail pharmacies, we know this will mean certain things. First, there’s the impact on customers. As more health care options arise, customers will shift their expectations faster. Retail will have to fully understand who their priority customers are and what their changing preferences will be for pharmacy and health services. Retailers should go out on a limb, boldly imagining what would satisfy customers most. That will probably mean revisiting the in-store pharmacy health-services experience and identifying unmet needs they can address to create customer stickiness and brand loyalty.

Retail pharmacies should also consider the current and future relevancy of their assets. Will some assets be less important as customer expectations shift — things like walk-in clinics, for example? And where should investments go in the future? Retail pharmacies may find that curtailing investments in ongoing projects or at certain locations could free up funds for new needs elsewhere with a higher anticipated return on investment.

The pressure is building to gather deeper customer data to manage outcomes proactively and more deliberately. That could lead retailers to take more risks to quickly adopt omnichannel capabilities, including the design of a seamless digital and in-person experience that makes it easy for patients to navigate care and find convenient solutions. And, as Amazon has realized, retail pharmacies could find that their investors and customers now expect them to offer primary care services (as Walgreens and CVS have already begun to do), whether that be through acquisitions, partnerships or building capabilities internally.

As Amazon presents a digital front door to further expand into healthcare, there’s no doubt it would benefit retail pharmacies to get ahead of changing customer expectations. Flexibility and convenience are paramount, as omnichannel availability becomes table stakes. Regardless of which future Amazon pursues, it offers a compelling value proposition to a significant share of today’s retail pharmacy customers. The company’s move into the provider space has made it clear that retail pharmacies (and other players across the health value chain) will need to understand unmet customer needs, asset relevance and priority investments.

Todd Huseby is a partner in the Health practice at Kearney, a global strategy and management consulting firm. He can be reached at [email protected]. Laura Bowen is a principal in Kearney’s Health practice. She can be reached at [email protected]. Jag Maturi is a manager in Kear­ney’s Health practice. He can be reached at [email protected].

The authors wish to thank DJ McKerr and Sarah Scolnic for their valuable contributions to this paper.