The prescription drug delivery business is known as a lucrative segment of the healthcare industry. Historically, this segment did not see much innovation. Now, a series of technological advances have reshaped this industry dramatically. Drug retailers are trying innovative approaches such as online order placement, next-day delivery, and the use of drones, while digitalization of prescription drugs could be successful given its appeal to millennials who prefer online services. The success of these innovations indicates a shift is occurring from traditional mail order and retail visits to doorstep delivery. DRG has been tracking the retail pharmacy sector closely, and here are our observations:
- Evolving “speed delivery” models: Amazon made news last year with the acquisition of PillPack, an online pharmacy that offers free shipment refills. Amazon hopes to build on Pillpack’s services by implementing a ‘Prime Air’ service option that will deliver prescriptions to customers within 30 minutes via use of drones. The Prime Air service would contract directly with insurers and bypass PBMs.
Other start-ups have emerged in the prescription delivery market. A company like Capsule can deliver drugs within two hours to any address, with no delivery charge. Other companies taking a similar approach include Alto, care/of, and ZipDrug. Another company, NowRx has five facilities equipped with high-tech robots as well as artificial intelligence-enabled distribution centers that offer free same-day delivery options along with access to licensed pharmacists. ScriptDrop partners with couriers nationwide to deliver prescription drugs that can be tracked until delivery to patients.
Well-established pharmacy chains are not far behind Amazon or the start-ups. CVS has contracted with UPS to deliver prescription drugs using drones. Two deliveries were successfully conducted in Cary, N.C., in late 2019. In 2018, Walgreens launched next-day delivery for prescription drugs by connecting Walgreens’ extensive pharmacy network with FedEx’s air-and-ground delivery capabilities. Next-day delivery is available nationwide for a $4.99 fee. Costco also ventured into this space with a pilot program with Instacart to test free delivery of prescription drugs in California and Washington. Costco offers free delivery on orders above $35, while drug delivery requests are satisfied within an hour at a cost less than $10.
- Subscription-based delivery models: Amazon’s pharmacy business model threatens big retail companies like CVS and Walgreens. The e-commerce giant leverages consumer experiences and uses them to engage in direct-to-consumer contracts and gain support from drug manufacturers. Aware of the risks brought upon by Amazon, CVS expanded its CarePass membership program across the nation. The company offers free delivery on prescription drugs and other pharmacy products to members for a monthly payment of $5, or an annual fee of $48. CVS also includes discounted products, a $10 coupon, and access to a pharmacy hotline.
- Cybersecurity concerns give rise to HIPAA compliant services: One of the major obstacles to these services is the Health Insurance Portability and Accountability Act, which protects citizens’ medical records and other personal healthcare information. Amazon managed to gain HIPAA compliance for Amazon Web Services, which makes it possible for members to share protected health information without the fear of misuse. Amazon’s Alexa is made available by Express Scripts, Cigna Health Today, My Children's Enhanced Recovery After Surgery (ERAS) (by Boston Children's Hospital), Swedish Health Connect, Atrium Health, and Livongo to execute tasks such as checking the status of home delivery drugs and managing health improvement goals for members.
Insurers offer narrow and preferred network pharmacies as a method to manage drug costs, and this could be hampered by rapid digitalization in drug delivery. With home delivery of drugs, members cannot avail add-on services offered at retail pharmacies. Moreover, delivery of complex drugs with a shorter shelf life or specific temperature requirements will require advanced levels of handling, raising the cost of delivery. Patients need to become adept at ordering and tracking deliveries online. Millennials are the target population for digital healthcare, however, the annual surge of baby boomers may decelerate growth. Rural areas with poor healthcare accessibility will also benefit with digital health, whereas urban populations can take advantage of a facility that eliminates hassles such as waiting in a queue at the pharmacy.
Overall, the drug delivery system is sure to drain market share from some long-standing retail pharmacies. The rise of digitalization and online services will be worth monitoring in the future for its potential influence on patient healthcare costs.