Packing a big punch
Leave it to Amazon to cast a blanket of anxiety over the US health-care industry. For those who haven’t heard, the disrupter-in-chief has bought Pillpack, an online pharmacy. Most immediately, the deal gives Amazon a go at luring shoppers away from local pharmacies and, by extension, bags all the extra purchases that would potentially come with the trip.
What Pillpack does is distribute tablets in easy-to-use packages for consumers with chronic conditions and multiple prescriptions.
Prescriptions are sorted by dose and include a label with a picture of each tablet and directions on how it should be taken. The packages are then delivered to the homes of patients. It’s a pretty cool system that uses proprietary software to automate many of the traditional or manual tasks that pharmacists are often saddled with, like verifying when a refill is due or confirming health insurance (that’s medical aid to you and me).
Analysts have been speculating for years about Amazon’s plans to get into the pharmacy or drug-distribution business after its failed 1999 deal with Drugstore.com, which presented daunting logistical challenges in terms of licensing and dealing with regulation. With about US$100M in annual revenues, Pillpack is still a niche player but what it does is give Amazon pharmacy licences in all 50 US states, bringing it into direct competition with traditional pharmacy chains including Walgreens Boots Alliance and CVS Health – whose shares, as well as those of US health insurers, all tanked when news of the deal broke.
Worth mentioning, and to Amazon’s benefit, is that Pillpack has relationships with the major pharmacy benefit managers (PBMS) that basically serve as gatekeepers to the majority of Americans who are covered by health insurance.
A PBM is essentially a middleman who offers employers and insurers incentives requiring that long-term prescriptions be filled through the managers’ own pharmacies.
The fear now is that Amazon will do what it does best: scale up and price aggressively. If it is required to buy more businesses in this space it will do that. The company has not yet entered an industry it didn’t upend to some extent: books, groceries, fashion, auto parts, pet supplies.
The unknown, of course, is that the acquisition of Pillpack could be just one piece in Amazon’s broader health ambitions. Remember that founder Jeff Bezos and fellow CEOS Warren Buffett and Jamie Dimon, of Berkshire Hathaway and Jpmorgan Chase respectively, have formed a new venture to reshape how the US companies handle worker health benefits.
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Putting a price on health
In buying Pillpack, Amazon beat out Walmart. It is said to have paid roughly $1bn in cash for the company.
Make no mistake, what it’s also paying for is data: Amazon is a genius for tracking people’s shopping habits and now with Pillpack, health-care information (while more regulated) will be incredibly useful as it takes aim at the $560bn prescription drug industry.
It’s quite interesting that in the US, prescription drugs have remained a largely brick-and-mortar purchase. According to Iqvia, a research group, 90% of all prescriptions are filled at a pharmacy counter and about 85% of prescriptions in the US are for refills.
The opportunity is there and Amazon is, undeniably, a formidable challenger. It already captures more than $4 out of every $10 spent online in the US.