Amazon has finally entered the market by taking a small share of the $560 billion U.S. prescription drug industry. Pillpack, a small online drug supply company, confirmed its acquisition by Amazon. The deal, estimated at $1 billion, shook the entire healthcare industry, and shares of CVS, Walgreens, and Rite Aid toppled when the deal was announced on June 28. Walmart, which was eyeing Pillpack as a target, lost $7 billion alone. Altogether, big healthcare companies lost $23.5 billion of market value within a day because of market uncertainty.

Pillpack gives Amazon immediate access to becoming a player in the drug supply business. Pillpack has ties with most major pharmacy benefit managers, and Amazon has the widest possible reach in the United States in terms of delivery, which can be used by Pillpack to improve and speed its distribution services.

This is a first step, but it affects almost every stakeholder in the healthcare industry.

PBMs and insurers may have to form innovative partnerships with Amazon

Even though other retailers, such as CVS, provide next-day delivery and other mail-order services, many patients have complained about the cumbersome methods and multiple interactions needed before prescriptions are filled. But Amazon’s reach and popularity could increase the number of patients who prefer to use mail order for their prescriptions.

There is speculation that the e-commerce giant might target patients who pay for drugs out of pocket, i.e., the uninsured and underinsured. This could drive more patients who find it hard to meet drug deductibles to Amazon, reducing the clout of PBMs. Also, PBMs could partner with Amazon to supply drugs to their client pools and offer attractive rebates in exchange.

If Amazon is successful, pharma will get a new partner for drug price negotiation

Amazon will be expected to offer discounts on pharmaceuticals and might offer rebates to patients by directly negotiating with pharma. It would be an attractive scenario for pharma by eliminating the middleman. However, Amazon likely can't singlehandedly tackle the sky-high prices of healthcare.

Ease of delivery doesn't prevent worry around misuse of private medical data

The majority of Pillpack's clients are patients with chronic conditions who can order drugs in advance and wait a few days for delivery. However, Amazon's well-established delivery network could decrease the wait time significantly, and this could attract patients who need acute-care drugs. Amazon also can offer accelerated delivery for Prime members to leverage its more than 70 million subscribers.

However, giving Amazon access to patient data raises the possibility of HIPAA violations. Amazon, which collects a lot of data on customer purchasing behavior, will also have access to new customers whose information is protected by stricter laws. The company could share this information with its marketers if the customer consents. Most patients don’t read the fine print on privacy notices and might inadvertently end up sharing their information.

A new type of healthcare venture

Amazon joined hands with Berkshire Hathaway and JPMorgan Chase to change the way employee health benefits are handled, but the merger with Pillpack is a totally different venture. However, it sets Amazon in the right direction. Amazon may even start its own pharmacy benefit manager that could help manage prescriptions and tap into the specialty pharmacy industry, which was 40 percent of the pharmaceutical market in 2016 and has grown since then. It could also start pharmacy retail stores in collaboration with Whole Foods, although Amazon would require a separate license from each state to do that. It’s just too early to tell.


Biotech set for good start to 2021

View Now