'Game on': Competition in telehealth, primary care spaces heats up as Amazon Care expands, analysts say

Amazon logo on the side of a building
Amazon's move to scale up telehealth services will heat up market competition for virtual care giant Teladoc and tech-enabled primary care company One Medical, analysts say. But traditional providers should also carefully watch Amazon's moves into healthcare. (Sundry Photography/Shutterstock)

This week, Amazon announced a move that many had been expecting since the tech giant launched a virtual health pilot 18 months ago.

Amazon plans to expand its virtual health service benefit, called Amazon Care, to all its U.S. employees this summer while also making it available to other companies as an employee benefit. Amazon Care’s in-person service will expand to Washington, D.C., Baltimore and other cities in the coming months, the company said.

It marks Amazon's first foray into direct patient care on a national scale as it makes strategic moves to gain a foothold in the $3 trillion healthcare market.

"Amazon believes healthcare is a space they can improve and likely be profitable in, and that didn’t require deep-pocketed partners to do so," said Nathan Ray, a director in the healthcare and life sciences practice at business and technology consulting firm West Monroe.

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"For the telehealth and virtual care market, this will set a bar for experience and convenience. For others in the healthcare ecosystem, this may complement or challenge their own strategies," Ray said, pointing to payer vertical integration and internal tool development.

Amazon is increasingly focused on the home as a site of care. Amazon Care joined with Intermountain Healthcare and Ascension along with other health systems and home care companies to form the Moving Health Home coalition, which aims to lobby Congress to make permanent changes to home health care reimbursement policies.

The company also aims to address employee healthcare costs through primary care models. Amazon teamed up with trendy tech-enabled primary care group Crossover Health to launch health centers in five major regions.

Downstream impacts 

Amazon's telehealth move will heat up market competition for virtual care Teladoc and tech-enabled primary care company One Medical, according to Canaccord Genuity healthcare IT analyst Richard Close.

"Game on! We knew this day would come in some form or fashion—Amazon in earnest targeting healthcare services as another leg of growth," Close wrote in a note to investors.

Shares of Teladoc and One Medical parent company 1Life Healthcare dipped Wednesday after news of Amazon's telehealth expansion. Teladoc's stock slumped 2.3% in afternoon trading Thursday after shedding 4.4% on Wednesday, while 1Life shares slid 4.1% after losing 0.8% the day before, MarketWatch reported.

"Clearly, competition has increased, and we do not discount Amazon's potential for success," Close wrote. "We have been covering healthcare tech and services since 2004 and historically the entrance of bigger competitors has not been a wildly successful endeavor. Healthcare is hard. It will take time for Amazon to earn the trust of consumers, providers, payers and employers. With that said, Amazon has proven itself as a formidable competitor in all other areas it has entered."

But analysts are still bullish on Teladoc's potential growth. Compared to Amazon's telehealth offering, Teladoc also offers chronic condition management solutions through remote patient monitoring thanks to its blockbuster acquisition of Livongo last year.

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Teladoc officials have said the company has plenty of "running room" with 65 million potential telehealth users at its current clients, weighted toward additional populations with payers.

"Amazon Care only mentioned targeting the employer market, so it is yet to be seen if the payer market is in the ultimate plans," Close wrote. "Teladoc has spent multiple years developing a global network of clinicians totaling more than 50,000 that would take Amazon some time to attempt to replicate."

One Medical, which says it serves 8,000 employers, will feel the heat from Amazon's move into direct patient care. But its partnership model with a local health system in each market may help insulate the company from the competition going forward, Close wrote in the investor note.

Further, One Medical has announced new markets that should provide robust growth over the coming two to three years, he wrote.

Amazon's push into telehealth services could spur more M&A activity among virtual care companies as they look to increase their scale and size, according to Michael Abrams, a managing partner at consulting firm Numerof & Associates. 

There is the potential for more vertical integrations, such as Cigna's planned acquisition of MDLive, he said.

"That's probably the safer bet rather than simply merging with another telehealth or adjacent company. They're going to need a certain market presence to have a shot to survive in this business if Amazon is going to stay in it," he said.

Amazon will likely target large employers with concentrated workforces for its Amazon Care service, Abrams said.

"There isn’t one of them that doesn’t want to find a way to save money on their healthcare benefits. At the end of the day, there is potential for Amazon to have a very compelling product," he said.

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Potential synergies from Amazon's healthcare moves

Amazon has been rapidly expanding its reach in the healthcare space, most notably in 2018 with its acquisition of online pharmacy PillPack. Last fall, the tech giant announced Amazon Pharmacy, a new store on Amazon, that will allow customers to complete an entire pharmacy transaction on their desktop or mobile device through the Amazon app. 

Amazon also made a major move into the health wearables market with the launch of the Amazon Halo fitness tracker last year.

There is the potential for the tech giant to create synergies with its different healthcare plays, Abrams said.

"Amazon can offer things that other players can’t, and that is what makes it such a powerful company in the space. It can offer virtual healthcare visits, prescription medication delivery and also can deliver all the over-the-counter products and even durable medical equipment. In addition, they can offer on-demand, in-person visits with a provider," he said.

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With the advances in at-home testing kits, Amazon could integrate diagnostic labs and other ancillary services to home kits, Ray said.

The company also could leverage its HIPAA-compliant Alexa skills and its Halo wearable for remote monitoring.

"The Halo device can monitor the vitals of someone with a chronic disease, Alexa can then remind them that it's time to make an appointment they can do a virtual visit and also get a test kit in the mail for lab testing. It's all very synergistic," Abrams said.

That raises the stakes for hospitals and medical practices as consumers could opt to get more healthcare services delivered remotely without leaving home.

But the healthcare market is huge and is ripe for disruption, with plenty of room for many companies to be successful and continue to show respectable robust growth, Close wrote in his investor note.

"This is not a 'zero-sum game' and that there can be multiple winners in various sub-segments of the healthcare ecosystem," he wrote.

Amazon's success with Amazon Care is not guaranteed. Its highly publicized partnership with JPMorgan and Berkshire Hathaway to run a healthcare venture called Haven shut down in January 2021 after having been formed in 2018.

But even as Haven floundered, Amazon never missed a beat in terms of its own strategies to move into healthcare, Abrams noted.

Amazon's e-commerce strategy is its biggest strength. "If it can bring that same sophistication to the undertaking of providing virtual and in-person on-demand medical care, it could be a very compelling value story. Amazon has proven itself to be very adaptable and innovative and if anybody out there can master it, they probably can," Abrams said.