Medical Economics: The Amazon Disaster

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Medical Economics: The Amazon Disaster

 

In late July 2022 it was announced that Amazon would be acquiring primary health-care provider One Medical in an all-cash buyout for $18 a share, amounting to roughly $3.9 billion1. This marked their largest excursion into the healthcare sector to date. NBC quotes Neil Lindsay, a higher-up in Amazon Health Services as saying healthcare was “high on the list of experiences that need reinvention1.” And at face-value he’s right. Even beyond the veracity of his assertion, a fresh incursion of competition into a narrowing field of mega-conglomerates seems like a good thing.

Competition tends to drive down prices according to basic economic principles. But basic economic principles don’t always translate into practice. ILSR, the Institute for Local Self-Reliance, a non-profit focused on economically strengthening communities, and self-described as “a national research and advocacy organization that partners with allies across the country to build an American economy driven by local priorities and accountable to people and the planet2,” has tracked Amazons practices as they diversify their industry holdings:

“Amazon has consistently engaged in predatory pricing — selling products and services below cost to kill off competitors and expand its market share.[33] During its first six years, Amazon lost billions of dollars selling books below cost, a strategy that drove many bookstores out of business.[34] Amazon has also used predatory pricing to eliminate e-commerce rivals. It reportedly lost $150 million selling shoes below cost in a successful bid to compel Zappos to agree to a merger.[35] Similarly, it clocked hundreds of millions of dollars in losses selling diapers below cost to destabilize Diapers.com and force it into a merger.[36] Amazon has also incurred strategic losses to keep customers locked into Prime and thus wed to its shopping platform. It has lost as much as $700 million a year on Prime Video, for example.[37] Amazon initially financed its predatory pricing schemes through a tacit agreement with investors, who accepted little or no profit in exchange for rapid market share growth.[38] More recently, it’s been able to cross-subsidize losses by tapping into the high profits of its cloud division, Amazon Web Services. In 2020, 59 percent of Amazon’s operating income came from AWS.[39]3

If anything this most-recent foray into the healthcare field, follows previous Amazon patterns: take up as much of the crappier marker share while expanding to build infrastructure and industry capital and basic network, all while balancing catastrophic losses in this new sector with inflated profits from price gauging in other sectors. This has time and time again driven out competitors in the field Amazon is expanding to. If you’re connecting the dots you’re beginning to see that the barely-functioning American healthcare system is heading to a crash, and the vultures (namely Bezos) have started picking at its body before its even dead.

However, not everyone shares my alarm. A couple prominent papers have made a point to figure-in voices that bridge on heralding this news. Unsurprisingly enough, some of them being The Wall Street Journal4, and The Washington Post5. Notably, the Post is owned by Rupert Murdoch, another billionaire. In fact Amazon’s strategy is awfully reminiscent of Murdoch’s pilfering of news media, both broadcast and print. I find it hard to take these outlets seriously in economic projections, they will always come down on the side of money, and they’re doing it again. If we want to save healthcare we’re going to have to come up with a way to push Bezos out instead of the other way around.

 

Written by Jeremiah Ockunzzi, courtesy of Dr. Bart Rademaker, MD.

 

1)     https://www.cnbc.com/2022/07/21/amazon-to-buy-primary-health-care-provider-one-medical-for-roughly-3point9-billion.html

2)     https://ilsr.org/about-the-institute-for-local-self-reliance/

3)     https://ilsr.org/fact-sheet-how-breaking-up-amazon-can-empower-small-business/

4)     https://www.wsj.com/articles/amazon-break-up-monopoly-predatory-pricing-economics-big-tech-11644615815

5)     https://www.washingtonpost.com/business/2022/07/22/amazon-one-medical-faq/

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