Amazon Business, which sells bulk items to business customers, has shelved its plan to sell and distribute pharmaceutical products after considering it last year, according to people familiar with the matter.
Instead, CNBC reports that the company has found that business to be more challenging than expected. The setback illustrates the challenges of getting into the medical supply and pharmaceutical space, even for a company as big as Amazon. .
The change in plan comes partly because Amazon has not been able to convince big hospitals to change their traditional purchasing process, which typically involves a number of middlemen and loyal relationships, and perhaps illegal incentives as have been demonstrated in national civil and criminal litigation.
Moreover, Amazon would also need to build a more sophisticated logistics network that can handle temperature-sensitive pharmaceutical products, according to these people.
Still, Amazon hasn’t completely ruled out getting into the pharma distribution space eventually. Multiple reports have speculated that the company will someday add a direct-to-consumer prescription drug business. Amazon Business could also reconsider getting into the pharma space once it gains more scale, multiple people said.
Meanwhile, the company continues to explore other health-care projects through different teams across the company, including Alexa and the secretive Grand Challenge team, sometimes referred to as “1492.”
Amazon has started a secret skunkworks lab dedicated to opportunities in health care, including new areas such as electronic medical records and telemedicine. Amazon has dubbed this stealth team 1492, which appears to be a reference to the year Columbus first landed in the Americas.The stealth team, which is headquartered in Seattle, is focused on both hardware and software projects.
Amazon has been selling medical products like glucometers, gloves and stethoscopes to medical clinics for several years. It now has the necessary licensing in 47 out of 50 states and the District of Columbia, according to its website.
But Amazon has struggled to land contracts with large hospital networks, despite convening an advisory board that includes major hospital executives, according to two people familiar. These groups of hospitals have long-standing contracts with distributors, like Cardinal Health and McKesson. Many hospitals also own a stake in entities called group purchasing organizations that negotiate on their behalf, leveraging their collective negotiating power.
The CNBC report points out that that 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 health care,” he said.
But, in an industry that is now well known for marketing, by some, by way of illegal kickbacks and perks, one must be left to wonder if that is yet another discovered or undiscovered impediment for the Amazon platform.