Amazon’s march toward what we’ve called “Prime Health” continues with the company’s announcement that it will acquire PillPack, the online full-service pharmacy that sorts its customers’ medications by dose; packages them by date, day and time; and mails them to the consumer’s home.
With this acquisition, Amazon gains another tool for making healthcare easier, faster, smarter and cheaper for consumers. PillPack’s innovative packaging reduces the complexity of taking multiple medications and improves patient compliance. The company consolidates customers’ prescriptions, which its pharmacists review and coordinate to eliminate potential drug interactions. That’s a great benefit for individuals with many prescriptions from multiple physicians. The Centers for Disease Control estimates about half of the U.S. population takes at least one prescription medicine; about 35% take three or more prescriptions.
With PillPack, Amazon opens an avenue to these consumers, some of whom are likely among the cash-pay population who either lack pharmacy coverage or choose not to use it – and are adversely affected by a lack of price transparency at the pharmacy counter. Because pharmacies price medications according to the usual and customary logic they’ve developed as part of PBM contracts, cash-pay customers often pay higher prices for common generic drugs than insured customers, and the cash prices vary widely across pharmacies. That said, complex prescription co-pay and deductible rules can also leave insured pharmacy consumers scratching their heads as they empty their wallets. High costs and confusion don’t add up to great consumer experiences or build trust – two key areas in which Amazon already excels.
Shopping at the large chain stores isn’t always the answer for price-sensitive consumers: A Consumer Reports review of five common generic medications showed large chains had the highest prices. As pointed out in an assessment by Drug Channels, this delivers drug margins between $8 to $265 on a month’s supply, according to the Medicaid National Average Drug Acquisition Cost (NADAC) database. Driving down costs like these and simplifying healthcare by eliminating middlemen is a key objective for the Amazon-Berkshire Hathaway-Chase venture, according to new CEO Atul Gawande. Combine PillPack’s innovation, JPMorgan Chase and Berkshire Hathaway as finance and insurance partners, and Amazon’s scale, efficient processes and consumer-focus, and the disruption and disintermediation of the U.S. pharmacy business seems inevitable.
Moving to Market-Driven
Some industry incumbents have already made smart moves that could generate disruption of their own. We’ve recently pointed out that developments like Cigna’s acquisition of Express Scripts, the talks between Humana and Walmart, and CVS Health’s planned acquisition of Aetna would create the scale and integration necessary to fund process and technology innovation and standardization to simplify and streamline the consumer experience and achieve higher quality care at lower costs. CVS Health operates 1,100 Minute Clinics across the country, as well as 83 infusion and enteral sites; Aetna counts more than 39 million members. It’s conceivable the companies could create a health platform, with Aetna developing low-cost insurance plans for members who visit expanded CVS retail health clinics for all their primary care needs.
While that’s speculation, it’s also the type of radical innovation needed for industry incumbents to successfully respond to Amazon’s moves. It also exemplifies actions that all healthcare organizations must take, including:
- Develop a consumer-focused business model. Mindsets must shift from managing transactions with large employer and PBM customers to delivering great experiences to individual consumers. Transparent pricing must be central to any model.
- Build operational strength and excellence. Delivering great, personalized experiences – like those Amazon and other digital natives have trained customers to expect – requires efficient, data-driven processes that also reduce costs. Investments in intelligent automation, cognitive systems, data analytics and AI help deliver these.
- Find an ecosystem. Even Amazon has partners. No single organization has all the necessary expertise or volume to fund investments in next-generation healthcare technology or to standardize operating processes across locations to drive down costs, what we’ve called “McHealth.” The key is to find partners that complement new visions for business models and operations vs. merely aiming for size.
While the markets gyrate within minutes of every new Amazon healthcare play, the reality is that it won’t be easy to disintermediate established healthcare players. Incumbents can make it more difficult for Amazon to do so by making some market-driven moves of their own. Healthcare consumers should be the ultimate benefactors, enjoying a simplified, streamlined experience, lower costs and better care.
Patricia (Trish) Birch, Senior Vice-President & Global Practice Leader, Healthcare Consulting, Cognizant, contributed to this blog.