We have speculated over the last two or three years about when we would see Prime Health emerge from Amazon. The company’s recent announcement of Amazon Pharmacy and PrimeRx only partially fulfills our prediction. On the surface, it doesn’t seem to be a particularly disruptive business model, as many analysts have noted. But – this is Amazon, which merits a closer look.
First let’s look at the piece parts of the announcement:
- Amazon Pharmacy is partnering with Inside Rx, a pharmacy benefit manager (PBM) owned by Cigna subsidiary Express Scripts. This puts Amazon Pharmacy in-network for Express Scripts, and consumers may use their benefits from Express Scripts and other insurers to pay for their mail-order prescriptions. While mail-order pharmacy has decreased over the last few years, Amazon may be counting on its digital first, user-centric platform to rejuvenate that market.
- The PrimeRx program, meanwhile, is directed at self-pay and uninsured consumers. It offers a discount card through InsideRx, very much like GoodRx’s More than 50,000 pharmacies are participating in the discount card program, as well as Amazon’s mail-order pharmacy. The program will help Amazon Prime members find the lowest priced prescription, including those available at Amazon Pharmacy. It seems Amazon is jumping into the discount-card play that GoodRx started and that all major pharmacies and retailers that carry prescription drugs also now offer.
In the background, Amazon has assembled powerful pieces for disrupting healthcare as usual. These include its own technology platforms and Amazon Web Services; its Haven healthcare startup, with financial powerhouse partners JPMorgan Chase and Berkshire Hathaway; compliant healthcare skills for Alexa; the Amazon Care program in Washington State; and Halo, its first wearable. When you put these all together and combine them with Amazon Pharmacy and PrimeRx, it could be the opening gambit in a strategy to reshape the industry much more broadly.
Playing to Shifting Industry Economics
One signal that Amazon has a long-term strategy in mind is the prominence of Amazon PrimeRx in the announcement. The company claims Amazon Prime Rx prescription savings will be up to 80% off generic and 40% off brand-name medications when Prime members pay without insurance. This feature should be attractive to health consumers who pay cash for services, which is becoming more common as enrollment increases in high deductible healthcare plans. In cases where consumers may never reach their plan’s deductible, it is often less expensive to pay out-of-pocket for drugs and services than to use benefits. Add in the approximately 29 million uninsured Americans, and the potential cash-pay numbers are significant.
We envisioned this shift too. Digital innovation and lower cost care settings will compress the healthcare value chain, squeezing out costs and making it increasingly affordable for consumers to pay out-of-pocket for routine and minor care. Consumers don’t expect their auto insurance to pay for oil changes or tire rotations, or homeowners’ coverage to pay for paint or lawn care. But the pharma and PBM industry have created a model that encourages insurance benefits to apply to a wide range of common medications, from statins to anti-depressants – very likely inflating the costs of those medications.
Amazon Pharmacy could change that model, capturing or demanding volume discounts and making these non-specialty medications affordable on a cash basis. That move, along with the continued digitization of healthcare and care delivered in lower cost settings, would shift more health insurance to catastrophic coverage as prices drop for routine care and procedures.
Amazon is a formidable opponent, whether it plans to sweep the board or be content with a draw. The company may have as many as 126 million Prime members in the U.S., and is now positioned to make prescription drug order and delivery as simple as any Prime shipment. Amazon Pharmacy could prove disruptive simply by siphoning away in-store traffic and reshaping customer expectations of how prescriptions should be filled, delivered and renewed.
As one major news outlet said, pharmacies can’t ignore the Amazon drug threat. Payers need to be wary of it as well. Here are some key steps for preparing for Amazon’s endgame:
- Improve pharmacy consultations. Several pharmacy executives have rebuffed Amazon’s move by pointing out that good pharmacies do more than deliver drugs. Yet, anecdotally, the average “pharmacy consult” happens at a counter with several other people in line and generally is a quick review of any unusual instructions and contraindications. By contrast, Amazon is promising pharmacist availability 24×7. Specialty pharmacies already do this with nurse support and on-call pharmacists; PBMs and pharmacies may need to expand that level of service to non-specialty drugs. AI agents and self-service portals could be useful tools.
- Build a retail-like mail order experience. In our experience, most pharmacies focus on the operations efficiency of their programs instead of the customer experience. The result: clunky interactive voice mail menus and an experience that is generally not intuitive or user friendly. Amazon will likely blend its pharmacy orders into its familiar interface, whether through its app or online, capture order histories and, generally, turn ordering a prescription into a retail experience. Incumbents need to reimagine their order-entry processes from the consumers’ point of view, with multichannel support and intuitive workflows.
- Bundle. Amazon has built out its medical supply offerings and conceivably could bundle those with relevant prescriptions, such as glucose monitoring kits and sharps containers for customers ordering insulin. Such a strategy would make ordering from Amazon even more convenient. Incumbents can adopt similar merchandising strategies.
- Assume Amazon has something bigger in mind. Given its Berkshire and Chase affiliations and the healthcare activities the company has under way, expect Amazon to have a plan for capturing, say, the 21% of 30- to 44-year-olds who buy high-deductible health plans while also setting healthcare delivery expectations among younger, price-sensitive Gen Z consumers it appears to be targeting as Prime members. One way to respond is to play where the company isn’t right now, such as in the growing specialty drug market. Another is to create new business models, such as offering individualized and flexible catastrophic coverage. A 30-year-old who loves downhill skiing likely needs different coverage parameters and costs than a 30-year-old gamer.
Amazon Pharmacy may be analogous to Amazon’s venture into groceries, which has yet to upend the supermarket model. Yet the purchase of Whole Foods gave Amazon a physical network it has integrated into its delivery logistics. Amazon has the capitalization and the customers to roam the board and, like the best chess masters, pounce from seemingly harmless positions to win the game.
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