How Amazon Could Disrupt Health Care

I could totally see a time in which
you could be sitting at home with your Amazon Alexa speaker device and you
could say, “Alexa, refill my prescription.” And three hours later,
someone arrives to your door, there’s your medication, you don’t even
have to leave the home. It may sound too good to be true,
but some analysts think that within the next few years, it
could be a reality. Just recently, the company announced that
its voice assistant, Alexa, now has HIPAA-compliant skills, meaning it
can work with health developers that manage protected health information to
help people do things like store prescription information, track blood
sugar or book doctor’s appointments on their device. Alexa, ask Livongo my
last BG reading. Your last blood sugar reading, taken 55
minutes ago, was 78 milligrams per deciliter. It’s another example of Amazon’s push
into healthcare, coming on the heels of the retail giant’s acquisition of
PillPack, an online pharmacy that makes home deliveries to customers
who take multiple medications daily. The acquisition spurred lots of speculation
that Amazon is aiming to disrupt the $934.8 billion dollar global pharmaceutical industry,
with the goal of allowing consumers to order and refill their
prescriptions just as easily as they would buy electronics or clothing
off of Amazon Prime. I get my cat food, I get my
Band-Aids there, but the one thing that consumers cannot buy on
Amazon is prescription medicines. We’ve been waiting with bated breath
since PillPack was acquired by Amazon in the summer of 2018 for the
company to make a formal announcement about its pharmacy ambitions. While PillPack is geared towards older
customers and caregivers who need help keeping track of various
prescriptions, analysts see Amazon’s acquisition as an indicator that the
e-commerce giant plans to expand on this digital pharmacy model, eventually
catering to all pharmacy-goers. I don’t think it would be very
difficult to kind of take the success they’ve had with PillPack and extend
it into acute medications for instance, or for patients that may be
on one or two medications a month. Customers would certainly be excited to
bid farewell to the long pharmacy lines. Eighty five percent of Amazon Prime
members indicated they’d be interested in using an Amazon pharmacy service. The opportunity in prescription drugs for
Amazon is huge, but they’ve stayed away from the space
for a few reasons. It’s heavily regulated. There’s some entrenched competition. Lots of companies have tried to
get into this space and failed. Healthcare in the U.S. is complex. Prescription drugs are usually administered
by pharmacy benefit managers or PBMs, middlemen like CVS Caremark
and Express Scripts, that work with the government and employers
to manage consumer’s medications. However, these PBMs aren’t always incentivized
to give consumers the best deal, and so they keep information
about comparative prices and drug effectiveness secret. These types of competitive barriers
and logistical complexities have historically dissuaded players like Amazon
from entering the market. The real problem isn’t the ability
to apply an e-commerce model to pharmacy, but the ability to find ways
to do this coordination in an efficient way. And you have doctors over here
completely siloed away from everyone and insurance companies over here, PBMs over
here, siloed away from everyone as well. And the pharmacy is forced to try
and coordinate between the three without the capabilities to do so. Gamache-Asselin says the silos are at least
partly the fault of the archaic software that doctors, PBMs
and pharmacies rely upon. Alto and other online pharmacies like PillPack
are doing what they can to simplify these systems on
the pharmacy side. But in the meantime, analysts say Amazon
could get its foot in the door with an initial focus on consumers
who are paying for their prescriptions out of pocket. There’s the trend that people refer
to in the industry as the consumerization of health, which basically
means that consumers used to rely on their insurance, so they didn’t
think so much of, how much does healthcare cost? When can I get a
better deal and where? But now they do, because increasingly
with the rise of high deductible plans and the number of people
who are forgoing insurance altogether, there is a huge chunk out there
that is financially incentivized to start thinking about their healthcare
and take charge. The good thing for Amazon is that
the quote unquote cash marketplace is actually a lot bigger
than most people suspect. The numbers say that cash prescriptions
are 8 percent, but in actuality, when you add in the high deductible
portion of the marketplace, 20 to 30 percent of prescriptions are likely being
paid for outside of the consumer’s pocket. Focusing on these consumers first would
give Amazon the chance to prove itself and its capacity for
superior customer service without the complexity of dealing
with PBMs directly. And down the road, analysts speculate
that if Amazon acquired, partnered with, or became a PBM itself, it
could bring greater transparency to the industry. Eventually, the hope is
that consumers could compare pharmaceuticals on Amazon as easily as
they could compare tennis shoes, finally forcing the drug companies to
compete on price and quality. Whether it’s books, music or toys, Amazon
can take out a similar amount of cost out of prescription drugs as
they can in those categories. And largely speaking, that money goes
right back into the payer’s pocket, meaning lower prices for consumers out of
pocket and lower prices for a health care plan. While Amazon definitely isn’t the first
to try and simplify the pharmacy experience, it’s by far the largest. Beyond PillPack and Alto, a
number of other prescription delivery start-ups like NimbleRX and Capsule have popped
up in the last few years, but it will take time for them
to successfully operate in all 50 states. Amazon however, already has the infrastructure
in place to pack and ship goods on a massive scale. So for Amazon, I think this is all
going to be an easier process because they’re a huge company, they have
this massive logistical engine already in place. So I think they could come in and
essentially do a version of what many start-ups have tried to do before and do
it more quickly and do it better. Buck says it wouldn’t take long for
Amazon to get the logistics in place. From a technical perspective, from an
operational perspective, I think they could accomplish this in a
very short period of time. There’s no doubt that they could be
in the marketplace here within the next five years, operating a
standalone pharmacy that is offering competitive cash prices, starting to
build third party networks. And beyond delivery capacity, Gamache-Asselin
says Amazon could use their broad reach to solve fundamental
problems with transparency and coordination in the industry. We don’t expect Alto to be
the only pharmacy anytime soon. Our biggest problem is going to
be, helping drive systematic change. Amazon is a formidable company and given
their scale and their size, I think they’ll be an extremely helpful
disruptor and catalyst to bring some of those changes to life. Undoubtedly, taking on the complex pharmaceutical
industry will be a huge challenge. But Amazon has
lots to gain. By entering into the pharmacy market,
Amazon could be tapping into an opportunity that is worth
tens of billions. This is a massive market for them and
I think could propel them into the next phase of growth.

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