What Amazon’s big pharmacy news means for US health care

Amazonian and American health look, at first glance, as a mismatch. Yet the most ruthlessly successful retailer of the 21st century has been trying for several years now to gain a foothold in the bloated and bordering on nonsense healthcare system of the world’s richest nation.

That’s why every time Amazon does a new healthcare maneuver, like recent company announcement that prescription drugs would be sold through its flagship website at a discounted price for Prime members, the same question inevitably arises: Is Amazon disrupting healthcare?

The short answer is no. At least not yet.

Amazon purchased PillPack, an online pharmacy, two years ago in order to do something like this: integrate the pharmacy activity into its monolithic online store. PillPack gave Amazon the licenses to operate a drugstore in almost every state, and the vision was always that you would eventually be able to fill a prescription for your blood pressure medication at the same time you shop … all the time. remains on which you buy Amazon.

At first glance, the recent news is a gradual step. Amazon Pharmacy is no longer just a pharmacy to choose from alongside Walgreens, CVS, etc. Some people may get cheaper drugs with discounts offered by Prime, but most will still use their health insurance plan and pay the same amount as elsewhere. This is bad news for some specialty companies, namely GoodRx, but the big drugstore chains aren’t going anywhere anytime soon.

But Amazon is certainly not done expanding its healthcare portfolio. The latest pharmacy game is a chance for the business to get a better idea of ​​what it takes to run a pharmacy business – to handle the logistical and administrative challenges – before taking another step forward. The rest of the sector has been put on formal notice.

“They buy information. They’re making an investment to get information to determine if it’s worth making a much larger investment, ”Craig Garthwaite, who studies health care economics at the Kellogg School of Management, told me. Northwestern University. “It might not work, but they would never know if they can be a major player without being a minor first.”

What Amazon Pharmacy Can Offer Patients

Amazon Prime members, including nearly 120 million in the United States, will enjoy two major benefits from Amazon Pharmacy. They can get drugs delivered for free within two days and they are entitled to discounts, up to 80% off generics and up to 40% off branded drugs, which could allow them to buy drugs on their own at a cheaper price than they could. use their insurance benefits.

(As for people who don’t have a Bounty or can’t afford it, it looks like they’re being excluded from these deals, another example of fundamental inequalities in the American healthcare system that Amazon is not going to fix.)

The company has already built a nifty interface that allows people to enter the last four digits of their social security number and view their insurance benefits. When people go to check with their prescription, the website will show insured customers two prices: one with their insurance benefits, the other with the Prime discount. For some generic drugs in particular, the Amazon price will be cheaper, even for insured persons. For the uninsured, they will now have easy access to discounts on their prescriptions.

“Amazon offers simplicity, which is what they’re really good at,” Garthwaite said.

From a business strategy perspective, this is a pincer movement that allows Amazon to absorb more of the retail pharmacy business, where patients typically use their insurance, and more of the industry. artisanal discounted drugs that developed to offer uninsured patients discounts similar to, though generally less than what insured patients enjoy PillPack was also primarily aimed at chronically ill patients, who need the same medications each month. Amazon Pharmacy could expand the company’s reach to capture the one-time prescriptions people receive when they catch the flu or get injured.

The company already has the Prime infrastructure, with warehouses and a team of (overworked) workers who could fill orders and deliver them in days, on which to build this new business. There are some obvious pitfalls that Amazon will want to prepare for. For example, some insured patients who choose not to use their benefits and instead receive the company discount might be annoyed to find that their purchase does not count towards their health insurance plan deductible. Who is to blame in this scenario, the insurer or Amazon? They will also want to expand their counseling services so people can get their questions about their prescriptions answered, although this is the type of service PillPack is already experienced in providing.

So basically the current version of Amazon Pharmacy looks like a natural extension of buying PillPack 2018. So the bigger question is what comes next.

“For now, I think they’re just going to replace the existing market share,” says Stacie Dusetzina, professor of health policy at Vanderbilt University School of Medicine. “But they may decide at some point to be more disruptive once they settle into this new space.”

What the future of Amazon’s healthcare business might look like

The news from Amazon is very immediately a threat to GoodRx, which offers discounts on prescription drugs to uninsured and underinsured patients. Amazon now offers the same service, with all the brand loyalty and retail convenience that come with its name. In a note to investors, analysts at UBS Research called Amazon a “significant competitive threat” to GoodRx. The company’s share price dropped by 20 percent after Amazon broke the news.

Big drug stores, like CVS and Walgreens, have been anticipating a move like this for some time. Both already offer discount cards and free shipping, essentially the same service Amazon now offers. But they run a risk if Amazon becomes particularly proficient in the online pharmacy business.

Garthwaite identified two ways the company could build on the current service and potentially absorb an even larger share of prescription drug sales. First, a cold room should be found. The Prime warehouse infrastructure likely works for more conventional drugs, but biologics that treat rheumatoid arthritis or cancer and need to be handled with sensitivity require special storage and transport that Amazon should develop.

The other related question is whether they could reduce delivery times from two days to one day or even two hours. Imagine going to a doctor, who writes a prescription for you and sends it to Amazon, and the drug is delivered to your door the same day, all without you having to walk into a physical pharmacy.

“It actually looks like a compelling product at this point,” Garthwaite said.

And Amazon could use this exceptional convenience coupled with its newly established relationship with health insurance plans to start competing more directly with large drugstore chains. It could compete to be called the “preferred” pharmacy by health plans, reducing the obligation to pay patients.

In the long run, Amazon might even become sufficiently experienced with pharmacy benefits to start administering them on its own, creating a new competitor for pharmacy benefit managers (PBMs). Recent mergers health plans and PBMs can limit the company’s ability to make these inroads. Health insurers will not be eager to cooperate with a new competitor for one of their other lines of business. But that doesn’t mean Amazon isn’t going to try.

Can Amazon Unlock Lower Drug Prices? It seems less likely. Existing companies like GoodRx are already offering the same kind of drug discounts that Amazon is now offering. Major PBMs already hold huge market shares – Caremark, Express Scripts and Optum alone make up 75 percent of the entire market – which gives them considerable influence in their negotiations with drug manufacturers. Amazon may take some of its business, but it is already operating on such a scale that the online retailer won’t have much of an advantage if it tries to negotiate lower prices.

At least not yet. This should be treated as a trial period for Amazon. Company CEO Jeff Bezos isn’t afraid of failure. A different adventure in employee medical clinics fight to gain traction, but that didn’t stop Bezos from making the investment to test the concept.

Amazon may have the same issues growing its pharmacy business. But the company also clearly sees an opportunity for growth. The potential for future disruption is built into this business proposition.

“While this move might not really be the drug price disruption people were hoping for,” Dusetzina told me, “it could give Amazon the experience they need in this space to make a bigger movement in the future. “