Amazon the Great Takes on the World of PBMs

Is there nothing they can’t do? In just over 10 years, Amazon has marked their territory across a series of landscapes. From the latest in fashion, to grocery deliveries, Alexa-based requests and even on-demand TV programming, it appears that the e-commerce giant has become the gold standard in a myriad of industries. They have now set their sights on prescription drugs in ways that are sure to shake up the healthcare industry.

Over the last few years, Amazon has been ruminating about becoming the newest entrant in the prescription drug industry. With recent developments, however, it is clear greater strides are being made to transition this plan into a reality. With the latest hiring of Mark Lyons as Senior Manager of their Pharmacy Benefits division, Amazon is expecting the former manager from Premera Blue Cross to lead the company into new, yet foreign territory. The path to get there—although filled with roadblocks—can prove to be a bright and valuable road to travel.

The PBM market has proven to be a golden goose opportunity. With a market size of more than $200 billion in revenue, Amazon has the potential to cut a large swath into the present industry’s profit margins. Currently, the most difficult challenge for the mail-order pharmacy component of PBMs is converting customers from their habit of picking up prescriptions at brick-and-mortar establishments to refilling them through the mail. For example, CVS’ mail-order division brought in over $10 billion dollars in their first quarter this year, yet this industry leader still only has 14.5% of their customers utilizing this service. Although the process to switch prescriptions to the mail-order option comes with few complications and lower copays, most customers continue to opt for in-store pickups.

While this element has proven to be a mountain for existing PBMs, it is likely to be more of a molehill for Amazon. Amazon’s megawatt branding strategy maintains a vast reach, bolstered mostly by their uncanny ability to ship thousands of products nationwide within 2 days to its Prime members. We believe this system would bode well when introducing their new prescription mail-order service to an already tuned-in and trusting customer base; making the transition an easier fill while potentially placing them at the forefront of the race.

Most importantly, another factor working in Amazon’s favor: lower prescription costs. As PBMs continue to design their own drug benefit plans, Amazon’s ability to lower pricing for its customers is quite attainable if they are willing to perform on lower margins than existing PBMs. In other words, lower prescription costs can be paid forward to their customers who already number in the millions and have confidence the online retail giant can deliver. This reduction in costs would result in a positive halo effect that could also include improvements in the reputation of participating pharma companies, resulting in win-wins in the media across this sector of the industry.

Assuming these circumstances come to pass, there is another side of the coin that could prove detrimental for Amazon’s aspirations – regulations. PBMs are accountable to a heavy load of governance, and the question of whether Amazon can adapt to these requirements without major consequences remains to be seen. Delving deeper, the issue of patient privacy could be the straw to break the backs of their potential success. As Amazon will have to ensure the safety of their patients’ personal information, they will likely need to be prepared to tote a larger target on their backs than their competitors in this area—a major hurdle that will derail their endeavors.

What does this all mean for pharma companies? If Amazon infiltrates the PBM market, it would be a game-changer for how PBMs structure prescription drug access, pricing and delivery to their customers. Competing PBMs will be prepared to rearrange their business models in ways that are sure to result in how drug makers come to the negotiation table. In general, if their efforts come to fruition, we all need to keep an eye on Amazon’s developments and a finger on the trigger in responding in the most appropriate way.

Author: Tanya Swift

Source: https://www.bloomberg.com/gadfly/articles/2017-05-17/amazon-prescription-drugs-the-idea-should-scare-pharmacies

 

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