Amazon just bought Whole Foods. Will healthcare ever be the same?

Say what? If you’re a benefits adviser scratching your head over that one, allow me to explain:

In just 20 years as a publicly traded company, Amazon has become a retail juggernaut, decimating traditional brick-and-mortar stores. In 2016, according to Slice Intelligence, the company ran almost half of all on-line commerce. Now it’s seeking new fields to conquer, and it has set its sights on healthcare.

It is widely known that Amazon has been looking for a way to break into the $400 billion pharmacy market, and it’s in that context that we need to view its June 16 announcement that it will acquire Whole Foods, the nation’s leading retailer of natural and organic foods, for $13.7 billion in cash.

Customers enter and exit a Whole Foods Market Inc. location in El Segundo, Calif.
Customers enter and exit a Whole Foods Market Inc. location in El Segundo, Calif. Bloomberg/file photo

A lot of money? Not when you realize that Amazon’s market cap was $460.85 billion just prior to the announcement and $478.60 billion just two weeks later. In other words, Amazon bought Whole Foods and increased its value by $4.15 billion in the process.

But what does it have to do with healthcare? Whole Foods controls a paltry 2% of the grocery market, and Amazon controls another 1%. Yawn. Obviously, the deal has little to do with organic strawberries. But in some important respects it resembles Walgreens’ March 2008 acquisition of Whole Health Management, a purveyor of on-site health clinics. That deal was a head scratcher too, until people realized that the drug store chain would use the purchase to build out a network of on-site and near site clinics attached to Walgreens retail outlets. Now customers visit the doctor and fill their prescriptions while they shop for Kleenex, nail polish and high-margin “impulse buys” at the register.

Pharma’s fear factor
A few months back, MSN reported that Amazon is hiring a business lead to determine how the company can break into the pharmacy market. This was paired with an assumption that Amazon offerings such as free home-delivery and expert wholesale procurement would drive savings and convenience for consumers. As a leading indicator of fear, pharmaceutical company stocks fell $10 billion on the announcement. But Whole Foods doesn’t have any in-store pharmacies, so why does this deal also have pharma stocks in a free fall?

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Because Whole Foods with its 450-plus retail stores finally gives Amazon the necessary outlets to become relevant as a pharmacy. And Amazon is in a position to challenge the pharmacy benefit management industry on the issue of transparency and with a high-volume mail prescription service. It’s true that Whole Foods doesn’t currently sell over-the-counter drugs like aspirin and ibuprofen, because they’re not “natural." Instead, the health-food retailer’s Whole Body department sells a wide range of nutritional supplements. But that’s about to change.

If Amazon CEO Jeff Bezos really wants to disrupt healthcare, he will need to make a couple more acquisitions. With all the consolidation in the for-profit hospital industry, Amazon could purchase a mid-size healthcare provider with a footprint to match their Whole Foods outlets. Add in a PBM company and health clinics in every Whole Foods location—and you have a formidable array of resources that few other pharma distributors can match.

There’s little doubt that Amazon will be the next big disruptor in healthcare. At this point, it’s just a matter of time.

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