When Amazon announced its acquisition of PillPack for just under $1 billion, it signaled once again how the company plans on having a more direct and commercially relevant role in the world of healthcare.
In the healthcare industry, it’s a positive sign anytime an innovative and well-capitalized entity enters the space with the hope of improving care delivery and providing cost efficiencies. The same can be said for this acquisition.
Initially the impact may be slow; however, in time it will be a catalyst for competitive pharmaceutical market repositioning. But, what future impact will Amazon’s push into the pharmacy world have on the five major healthcare stakeholders involved?
Pharmacy Benefit Managers
Through the acquisition, Amazon could make a play to enter the Pharmacy Benefit Managers (PBMs) space directly as a home delivery only solution that could be an outsource partner option for other PBMs, like Walgreens. Or, the company could decide to directly enter the space as both a retail network and home delivery option, like the current three largest PBMs (Express Scripts, CVS Health and United Health/OptumRx/Catamaran).
However, if it decides to go the latter route, Amazon would be faced with unique challenges. As a full service PBM, it would require the company to create or purchase a retail network of pharmacies from the very retailers it competes with directly for traditional consumer goods.
Brokers and Consultants
For benefits brokers and consultants, they now have a new “power player” entering the space that has a track record of disrupting distribution/the supply chain and changing the way consumers shop. Brokers will need to be vigilant in helping their clients determine if this change is something that is in their best interest to leverage, or just another vendor that requires significant management and oversight.
Traditional insurance company payers may view this acquisition as a threat because Amazon could try to negotiate directly with pharmaceutical companies, giving them the ability to offer cheap generic drugs, even to customers without health insurance. However, self-insured payers (employer groups) should view this as an opportunity to re-explore how they offer prescription drug benefits to their employees and evaluate their options to offer increasingly valuable coverage.
Ultimately, Amazon will have to determine – strategically – how to co-exist with core competitors in its space since its long-term success is remaining connected to traditional distribution channels of group benefit programs with insurers like Aetna/CVS Caremark and CIGNA/Express Scripts.
Initially, Amazon/PillPack becomes another vendor that employers must evaluate to determine if this combined solution will increase cost, is cost neutral or a potential cost reducer. But, if Amazon elects to focus its consumer product’s artificial intelligence (historically for consumption trends) to help quicken the cycle of a drug’s clinical compliance— it could be the dynamic change that makes employers re-evaluate Amazon in comparison to the traditional three PBM providers.
Amazon claims to be the “most customer-centric company on Earth” and through the PillPack acquisition, it now has the infrastructure to make pharmacy transactions more convenient and more transparent. Also, Amazon is typically not in the business of looking for ways to increase prices and they’ll find ways to squeeze efficiency out of the pharmacy transaction process—meaning lower costs for consumers.
The company may even adopt a strategy of making prescription drugs a loss-leader to make inroads into a deeply entrenched prescription drug market and drive further enrollment in their Amazon Prime products.
Disruption: A Good Thing for the Industry
The Amazon/PillPack acquisition goes beyond discussions of Amazon owning a pharmacy or even delving into prescription drugs. This is just the beginning of Amazon’s foray (along with the Berkshire, Hathaway, JPMorgan partnership) into the broader healthcare landscape because it sees tremendous opportunity to not only improve the system for their customers, but for their own employees as well. And, when a disruption happens that forces positive industry innovation from all stakeholders in order to compete and thrive—we all win.
David Pittard is a managing principal at OneDigital, a national team of experienced, local employee benefits advisors who create greater value for employers and inspire individuals to become more engaged health care consumers.
David has 20 years of experience in the insurance industry. Prior to joining OneDigital in 2017, he served as executive vice president and partner of a regional insurance brokerage, in addition to a wealth of expertise and experience in sales and account management.
David received a bachelor’s degree in business administration from the University of Georgia. David also serves as Chairman of the Board for Provectus Health Strategies, Inc. He is licensed to sell life, accident and health insurance in Alabama, Georgia, Indiana, Kentucky, Michigan, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Utah and Virginia.