Late last year, Amazon predicted that its healthcare business would lose more than $1 billion in 2024, according to internal planning documents obtained by Business Insider.
The $1.08 billion loss forecast marks an improvement from the previous year, when Amazon lost $1.28 billion in its health care division, the documents show.
The December document also contained more positive news: The tech giant expects healthcare revenue to grow nearly 30% to more than $3 billion in 2024, a sign of strong demand for new services such as pharmacy services.
Overall, the 10-page document revealed that Amazon is making steady progress while making tough decisions as it tackles a challenging and complex new field. The company hasn’t released financial figures for its health care business, but investors will likely look for signs of success when it reports earnings on Thursday.
“We are pleased to see Amazon Health Services making strong progress to drive growth, build a sustainable cost structure, and most importantly, make quality care better, easier, more accessible, and more transparent for patients,” a company spokesperson told BI.
December forecast
Amazon began moving into healthcare several years ago, most notably by acquiring online pharmacy PillPack in 2018 and primary care provider One Medical in 2022, spending a combined $4.9 billion on both companies.
Tech companies have long tried to expand into healthcare with mixed results at best, and Amazon’s experience has been similarly rocky.
One Medical is expected to lose $506 million in 2024, up from a loss of $597 million in 2023, according to the December filing. Excluding certain amortization expenses, the 2024 forecast falls to $341.7 million.
Amazon Pharmacy is expected to lose $420.2 million this year, up from a loss of $515.2 million in 2023.
In a December filing, Amazon forecasts its overall healthcare revenue to grow 28% to $3.16 billion in 2024. That’s mostly driven by Amazon Pharmacy, which is expected to see sales grow 45% to $1.81 billion in 2024. One Medical, meanwhile, is expected to see revenue grow 10% to $1.34 billion.
The “other medical services” division, which includes telehealth services, was expected to generate just $6.1 million in revenue in 2024, but the operating loss was a whopping $152.4 million.
The document was created in December and is marked “Amazon Confidential.” It’s the second phase of the company’s business plan for this year. The numbers may have changed as the year progresses, and Amazon has taken some steps to improve its health-care business, including cutting staff and other expenses. Still, the document’s projections are unlikely to have changed in any meaningful way, said a person with direct access to the business plan, who asked not to be identified discussing a private matter.
“These figures are inaccurate and do not accurately reflect Amazon Health Services’ financial performance,” an Amazon spokesperson told BI, calling the December plan an “unfinished draft.”
Specifically about the 2024 forecast, an Amazon spokesperson said: “The Amazon Health Services team has not yet finalized its expectations for the end of 2024, but those numbers are also imprecise.”
Still, the narrowing losses at the health-care unit are a positive sign for Amazon, which has been focused on improving its overall profitability. CEO Andy Jassy has been hard at work trying to cut costs, which has led to record job cuts and a string of canceled projects. One Medical, for example, was told to cut its projected losses in the planning stages last year.
“2024 will be a year focused on economically viable growth, improving productivity, putting mechanisms in place to ensure better execution, and the benefits that will come from integrating with Amazon,” the December document said.
“Accelerating the path to profitability”
Amazon has combined various parts of its health care business, including Pharmacy and One Medical, into a single group led by Neil Lindsay, senior vice president of health and brands.
The new group’s mission is to “dramatically make it easier for customers to find, select, shop and engage with the products, services and experts they need to stay healthy,” the December filing said.
One way it pursues this mission is to make it easier for customers to “access care,” the document states. As part of that, Amazon will launch a new telehealth marketplace called Amazon Clinic in 2022 and recently rebranded it as Amazon One Medical pay-per-visit. One Medical also offers access to in-person appointments at offices across the country.
According to the document, Amazon has recently been focused on “ways to strengthen the financial viability and accelerate the path to profitability” of its healthcare business.
A key area will be reducing One Medical’s fixed costs, such as headcount and administrative layers. The company also aims to improve care costs by reducing the cost of a consultation from $372 to $322 and increasing the average number of consultations per provider from 1,456 to 1,597, according to the document.
Amazon cut hundreds of jobs at Pharmacy and One Medical in February and is restructuring the teams to further cut costs. One Medical was also hit hard this year after losing a major enterprise client, Google.
Improving GLP-1 drug pricing
Additionally, Amazon Pharmacy was able to improve supply terms and pricing for the obesity and diabetes drug GLP-1, the documents said, adding that Amazon Healthcare has slowed investment in smaller initiatives by delaying hiring for certain projects and cutting contractor spending.
According to the document, Amazon continues to invest in its growth in healthcare. One area of investment is in back-end technology to improve the customer experience. It is upgrading the sign-up process, including insurance card capture technology, and simplifying the link between One Medical and Amazon Pharmacy accounts. It is also looking at building better member navigation and employee workflows for One Medical’s virtual care services, as well as strengthening security measures.
“We recognize that accelerating growth requires simplifying our business priorities, reducing fixed costs, and aggressively addressing our cost of services,” Amazon said in the statement.
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