Amazon Pauses Plan to Distribute Drugs to Hospitals

Amazon Business has hit pause on its plan to sell and distribute pharmaceutical products to hospitals after investigating the possibility last year. The company says it is instead focusing on selling less sensitive medical supplies to hospitals and smaller clinics, though it has found this business to be more challenging than anticipated.

The change in plans comes in part because of the struggle that Amazon has had in trying to convince hospitals to change their traditional purchasing process, which typically involves a sophisticated logistics network that can handle temperature-sensitive pharmaceutical products. Many hospitals also own a stake in group purchasing networks that negotiate on the hospital’s behalf. Amazon’s current logistics network doesn’t offer this type of technology, and a supply chain would be costly for Amazon to build.

“The hospital and healthcare systems have entangling alliances with their existing purchasing and supply chain partners. It’s very difficult to replicate the Amazon buying experience in healthcare,” Tom Cassels, head of strategy and business development at Leidos Health, told CNBC.

Additionally, Amazon is not currently selling products that are classified as high-risk devices, such as pacemakers, that hospitals may need. Instead, for the past several years, Amazon has focused on selling less-risky products, like glucometers, gloves, and stethoscopes for medical clinics.

Amazon, however, remains hopeful about its foray into healthcare. A spokesperson for the online retailer told CNBC, “Amazon Business serves healthcare customers of all sizes, from large [integrated delivery networks], to small-and-medium sized community hospitals. We also serve customers from physician and dental offices to senior living and long-term care facilities.”

For now, it seems that the niche for Amazon Business in the healthcare sphere remains in smaller practices, such as dental offices, free-standing ambulatory surgery centers, and small physician practices where providers appreciate the affordability and convenience of its service.

When Amazon originally announced the potential for entering the medical supply and pharmaceutical space, several healthcare and pharmaceutical distribution companies saw their stocks take a hit in response. However, since the recent shift in plans, shares of pharmacies and drug distributors including Cardinal Health, CVS, and Walgreens have spiked.