Amazon and Walmart are facing off on a new battleground: healthcare (2024)

Two years later, it's clear that these shopping rivals' healthcare businesses are just getting started.

In December, Insider reported that Amazon Care was gearing up for a national expansion that would serve other companies, not just Amazon's employees. It announced that expansion in March, and on Wednesday, Insider reported that the group had its first client, a fitness company recently acquired by Peloton.

And on Thursday, Walmart Health announced it would acquire a small telehealth company, MeMD, thus adding virtual care to its strictly in-person healthcare business. That came after Walmart slowed its ambitious clinic rollout and after at least nine key health leaders had left since the start of 2020, Insider previously reported.

Amazon's and Walmart's recent moves are signs of how quickly care delivery is changing because of the coronavirus pandemic and how fed up behemoth companies are with soaring healthcare costs in the US. Simultaneously, Walmart and Amazon are trying to own a piece of one of the largest industries in the US and use it to support their core retail businesses.

"The healthcare market is finally shifting to become consumer-centric," Arielle Trzcinski, a principal analyst at Forrester, said. "These retail giants have both hit on the need to bring care to the consumer and are capitalizing on the seismic shift we see happening across the industry."

Why healthcare is the battleground of choice

The industry has become a key battleground for Amazon and Walmart as the business of getting care changes and consumers are playing a bigger role in companies' success.

Two major factors are causing stirs like this in the US healthcare system, Lance Wilkes, a senior healthcare analyst at Bernstein, told Insider. Those are high costs relative to average outcomesand poor satisfaction, he said.

Walmart is up against steep competition with Amazon in e-commerce, a core area it wants to grow. But pushing deeper into healthcare could help plot a new area of growth.

Despite huge investments pouring into e-commerce, Walmart is still far behind Amazon in terms of overall spend, and it's losing market share to other rivals like Target and Kroger.

E-commerce in the US was 42% of retail spending in 2020, and Amazon took up about 40% of that, Dan Romanoff, an equity-research analyst at Morningstar, told Insider.

"So they are really the only e-commerce provider of any size whatsoever in the United States," he said. "And their share has been growing."

Through healthcare, banking, beauty services, and other projects, Walmart is looking to carve out a future that's not just groceries and goods, Stephanie Wissink, a managing director at Jefferies, told Insider.

The pandemic helped establish a kind of "permission" for these things, she said. The retail giant is administering vaccines in 49 states. Maybe shoppers, while they're at it, pick up a prescription.

"It's driving healthcare credibility for Walmart," Wissink said.

Amazon, for its part, isn't hard-pressed to create more sources of revenue.

But the $3.8 trillion healthcare industry is bigger than online shopping, and the shipping giant has been tackling it from all sides, including health technology and devices.

Amazon Care is also following the tried-and-true "AWS model," as it's known internally. That's when the company, similar to how it invented what's now known as the public cloud, solves an internal problem like the cost of servers or the cost of healthcare, then forms a business it later spins out.

Over time, Amazon's healthcare businesses aim to support each other as well as traffic to Prime.

Walmart's bet on affordable health centers

Employers insure roughly half of all Americans and spend $880 billion on healthcare each year. Costs are only rising, reaching $11,582 a person in 2019, according to the American Medical Association.

With more than 2 million employees, Walmart in 2018 said that paying for their care was its second-highest expense behind wages. Before Walmart Health's launch, internal surveys showed that customers wanted affordable options for care, a former employee previously told Insider.

Walmart Health was initiated in large part by former US CEO Greg Foran, who wanted to go big in healthcare at a time when Amazon, CVS, and Walgreens were launching more serious projects.

The clinics that became Walmart Health were designed by a small team of Walmart leaders and outside hires like Sean Slovenski, a former Humana executive, Insider previously reported.

The clinics offer a wide variety of services, including dental care, counseling, X-rays, labs, and physicals. The venture attracted attention for cheap prices that didn't require insurance.

Most of that core team, including Slovenski, has left, but Walmart hired Dr. Cheryl Pegus as an executive vice president in December. She leads Walmart's clinics, pharmacies, vaccine drive, and other health bets.

Amazon wants to sell employers on a medical service centered around an app

Amazon Care grew out of a combination of the company's corporate human-resources department and its secretive lab for big ideas, Grand Challenge.

It's headed up by Kristen Helton Lloyd, who reports to Babak Parviz, a vice president, who reports to Amazon Web Services CEO Andy Jassy, Jeff Bezos' future replacement as chief executive of the whole company.

The service, which for now is directed at other employers, connects employees to a care team through a mobile app. In some locations, people can also get home visits and prescription deliveries.

It started as a vehicle for handling things like fevers and rashes but, in March, expanded to cover primary care, like vaccinations and allergy management.

Bezos was growing frustrated with internal spend, which led to Amazon Care as well as Haven, the joint venture with JPMorgan and Berkshire Hathaway that disbanded in February.

Walmart and Amazon are targeting different shoppers

While Amazon and Walmart are certainly heading toward a healthcare rivalry, they're not in direct competition. Much like their core businesses, for now they're directed at two different kinds of spenders.

Amazon Care is just available for employees, many of them white-collar workers at their companies' headquarters. Walmart's 20 clinics are in just a handful of states, and the telehealth offering is for consumers.

Walmart patients were driving as much as 90 minutes to get to the early clinics, which are in low-income areas, Insider reported.

"Walmart is essentially creating another tier of healthcare," Wissink said.

Retailers and startups alike are increasingly competing for consumers

Despite the enthusiasm Amazon's and Walmart's pushes into healthcare have received from the public and investors, each company is falling behind.

Record funding has flowed into digital health over the past year, with $6.7 billion invested in startups just in the first quarter of 2021. The need caused by the pandemic for telehealth propelled the industry forward by years.

But many startups and established companies were more ready for that wave. In contrast, Amazon Care sped up its launch, seeing telehealth's success, and Walmart Health's digital capabilities are just getting started.

Walmart's acquisition of MeMD in some ways is playing catch-up, according to Trzcinski.

"Walmart needed to make an acquisition to close the gap between consumers and their retail-store fronts," Trzcinski said.

Without a more comprehensive model for both primary and chronic care that met consumers in their homes, Walmart would struggle to gain market share against others like Amazon Care, she added.

Amazon Care enjoys a lot of strategic backing inside Amazon, but at least 20 employees have left in the past two years, according to LinkedIn, and the division missed one of its first deadlines.

It aimed to have contracts in place with behemoth companies in all 50 states by July this year. Instead it's starting with employers in Washington state before offering the service in all states this summer.

Walmart has also slowed its rollout at a time when its peers are speeding ahead. It planned to scale to 4,000 clinics on a 10-year timeline, with 25 by the end of last year and 125 by the end of 2021, according to board documents from 2019 reviewed by Insider.

Walmart has said that the board approving 4,000 locations is inaccurate.

Meanwhile, others are catching up.

CVS Health had 800 "Health Hubs" as of this month. It expects to have 1,000 by the end of 2021, down from an initial target of 1,500 by the end of 2021.

Walgreens is partnering with the primary-care startup VillageMD to build 500 to 700 clinics inside its pharmacies. On March 31, Alex Gourlay, Walgreens' co-chief operating officer, said the company had 14 of the clinics open and was on track to open the next 40 by the end of the summer.

Amazon's approach is also a competitive one. It's going up against older companies like the telehealth giant Teladoc and the chronic-care startup Omada, which already provide healthcare to hundreds of employers and health plans.

Both Amazon Care and Walmart Health are going after episodic or one-off care, which means they're trying to grow ventures that are somewhat tied to a limited number of visits each year.

"There is no inflation in terms of the amount that people get sick," Tom Charland, the president of Merchant Medicine, an urgent-care consulting firm, said. "Strep throat doesn't increase by 10% a year."