Why Amazon’s winning the healthcare battle

July 17, 2018
By Rob Piazza

When Amazon recently announced it was buying the online pharmacy PillPack for just under $1 billion, it sent the stocks of drugstore companies tumbling, as investors worried that the retail giant would soon overthrow the pharmacy market.

Although investors had a knee-jerk reaction, the partnership is another positive sign that Amazon is truly serious about disrupting the healthcare landscape in America – and that’s good news for all consumers.

The lasting Amazon/J.P. Morgan/Berkshire Hathaway effect
Earlier in the year, Amazon announced a huge partnership with J.P. Morgan and Berkshire Hathaway to fix heath care for their employees and tackle the problem of rising costs. Some industry pundits thought the partnership was just lip service. But Amazon is proving with this newest acquisition that they’re continuing to put their money where their mouth is.

Atul Gawande, the group's recently named CEO, recently spoke about his plans to target waste in the healthcare system, including high prices associated with things like administrative costs and prescription medicines. The PillPack offering will come in handy as the partners look to distribute affordable medicines to their 1.2 million combined workforces – buying a pharmacy is an efficient way to cut out expensive middlemen, and it’s well known that pharmacy costs are an astronomical part of the healthcare value chain.

Challenges ahead?
Walgreen CEO Stefano Pessina went on record saying the company wasn’t “particularly worried” and added, “Walgreens is not complacent, but the pharmacy world is much more complex than just delivering certain pills or packages. I strongly believe that the role of the physical pharmacy will continue to be very, very important in the future.”

It’s not surprising Walgreens would downplay news that could impact their stock price, however, the CEO did make a good point: a big challenge Amazon/PillPack will be up against is patient relationships at physical pharmacy locations, something that can’t be duplicated via mail. For example, professional pharmacists can explain nuances of patients’ drug-to-drug interactions. They understand what it means to dispense things like opioids and other products, and they understand and can explain the regulatory framework and the larger clinical issues affecting the patients that they work with every day.

Amazon’s in it to win it
Challenges aside, PillPack ultimately gives Amazon an immediate nationwide presence in the prescription-drug market and puts tremendous resources behind Pillpack's efforts to create a better experience for people who get drugs through the mail.

These sorts of alternative healthcare innovations are central to lowering costs, with telemedicine being another example, but today most individuals still choose brick and mortar stores because it’s what we’re familiar with. Mail order drug programs can be confusing and many people don’t trust them yet. In fact, only approximately 10% of consumers utilize prescription mail delivery services. But people are likely to become more comfortable with these arrangements as they grow more sophisticated and mature.

Amazon already has the technology expertise and distribution infrastructure. Now, through the acquisition, Amazon’s bolstered by actual pharmacy licenses in all 50 states, plus relationships with the major Pharmacy Benefit Managers (PBMs), like Express Scripts and CVS Health, that serve as gatekeepers to the majority of Americans covered by health insurance.

Pair that with consumers’ familiarity and trust in Amazon as an online shopping platform, and it’s likely people will be more willing to try them for pharmacy utilization. And for individuals who still prefer face-to-face interactions with pharmacists, remember that Amazon also bought Whole Foods. Amazon could easily complement this PillPack acquisition by using the Whole Foods store fronts as centers to open physical pharmacies.

Competition moving the healthcare industry forward
Everything in healthcare is about leverage. Payers originally pulled together groups of companies and members to negotiate drug rates with healthcare providers. But then providers got smart and created "health systems" within communities so that payers couldn’t threaten to throw these large systems out of network during negotiations, thus providers had the leverage.

Now that Amazon poses a real threat to traditional pharmacy benefits management, I’m betting the PBMs will run faster toward purchasing the payers, like the proposed CVS acquisition of Aetna. This would be an attempt to "steer" those members back to their retail chains through the actual benefit plan designs. However, with the Amazon name, employers and consumers will realize they can save money by shopping directly from the mail order drug company, thus cutting out some of the middlemen and expense.

Now that Amazon officially entered the prescription drug distribution business, consumers can finally expect to see real disruption in a market that desperately needs a correction. Payers and PBMs could have worked together years ago to better control rising drug costs but weren’t able to do enough. Just like Apple swooped in to change the music industry with an innovative technical solution, Amazon will now force change on these payers and PBMs, which will benefit us all as healthcare consumers.

About the author: Rob Piazza is the product manager for analytics at Benefitfocus