Amazon's decision to lay off employees in its One Medical and pharmacy divisions raises eyebrows about the future of the tech giant's healthcare strategy.
Amazon said Tuesday it is cutting a few hundred healthcare-related jobs but declined to share what types of positions are affected. The move follows more than a year of extensive layoffs at the company as Amazon, like other tech players, seeks to make adjustments after hiring too many people during the COVID-19 pandemic.
The layoffs also are another example of the growing pains experienced by retail disruptors venturing into healthcare services, but they don't necessarily mean Amazon is stepping back from its healthcare ambitions.
Amazon CEO Andy Jassy said on the company's fourth-quarter earnings call last week that he is excited by the opportunities in healthcare, including changing what the customer experience looks like in care delivery. He noted the "momentum" in Amazon Pharmacy and the discounted One Medical subscription recently made available to Prime members.
"It's still early days, but we think we have an opportunity to be a meaningful part of changing that experience," Jassy told financial analysts on the call.
Industry watchers caution not to read too much into the cuts. Amazon started to temper growth expectations months ago for its healthcare division, citing physician shortages, said Kate Festle, director in the healthcare M&A group at consulting firm West Monroe.
"Amazon has done a pretty good job ... of failing fast and failing more effectively, so in my mind, this is just, I think, a line in the sand of, 'OK, we need to right-size relative to the revenue that we're seeing,'" she said.
Neil Saunders, managing director of GlobalData's retail division, noted that Amazon's healthcare strategy is still a piecemeal one.
"I'm not sure it's 100% clear what [Amazon] would like to do in the medical space," he said. "I think it's made some acquisitions and has stated some ambitions, which are relatively easy to do, but bringing this together into a coherent strategy isn't really something that has shown itself in full bloom."
In 2018, the company acquired online pharmacy service PillPack for roughly $750 million and launched Amazon Pharmacy in 2020.
Amazon acquired primary care provider One Medical in a $3.9 billion transaction that closed about a year ago. Also in 2023, Amazon launched RxPass, a generic drug subscription service, and expanded virtual health platform Amazon Clinic to all 50 states.
Amazon faces the same issues as other retailers jumping into healthcare, leading those competitors to adjust their own healthcare strategies.
Walgreens, for example, spent $5.2 billion in 2021 to take a majority stake in primary care provider VillageMD, in addition to other investments in home care and specialty pharmacy.
In October, Walgreens announced plans to close 60 VillageMD primary care clinics and exit five lower-performing markets. The changes are part of a companywide cost-cutting effort and seek to make the VillageMD investment more profitable.
In an interview last month, John Driscoll, Walgreens' U.S. healthcare president, acknowledged VillageMD was "well behind where we expected it to be."
Pharmacy rival CVS Health began a $800 million restructuring in 2023, leading to more than 5,000 layoffs and hundreds of store closures. That was only a few months after CVS closed its $10.6 billion acquisition of Oak Street Health, a primary care provider. CVS said in January it is closing some of its pharmacies in Target stores and plans to shutter 25 Minute Clinics in the Los Angeles area later this month.