If you talk to many people in the retail “brick and mortar” industry (and maybe publishing), they will probably tell you that Amazon is the new “evil empire” – ousting Walmart. The reason why retail is losing money, closing stores, malls becoming inhabited and general despair. In the mid-1990s of Amazon’s founding, could anyone believe their current size, status and reach?
At that time, people predicted that Amazon would be relegated to selling CDs, DVDs and books. Definitely not clothes, shoes, household goods, electronics, personal services and groceries. Nah! Stupid! Impossible! Retail will always survive.
Now what is next on Jeff Bezos’ list of things to conquer? Reportedly, prescription drugs. Ouch! Amazon is clearly a leader in technology, business strategy and models … with talented, visionary and skilled leaders.
According to Statista, prescription drug sales will total $811B in 2018. Between 2017 and 2022, the CAGR will reach 6.5%. Can they succeed? Let’s look at the challenges.
Education, Licensing and Regulation
According to Chron, specific licensing and educational requirements are necessary for pharmacists. A doctor of pharmacy degree (Pharm. D.) is required. Additionally, post-degree licensing requires two examinations before being licensed by the state in which they practice. Like most professions, continuing education is also required. Also, in most states, pharmacy technicians are also required to be licensed.
It is not clear which market Amazon will attempt to target. Mail order fulfillment of prescriptions is a viable industry. Morgan Stanley estimated $106 billion of the $465 billion U.S. pharmacy business was completed through mail orders. This type of service is generally used for prescriptions fulfilled for health maintenance issues (high blood pressure, diabetes, gastric issues). Usually, these are filled with specific doctor’s script for 90-days.
Many times, people need a prescription to be filled in a timely manner. For a specific short-term medical issue such as the flu, cough or bacterial infection. Patients often need the prescription to be filled in the same day as the doctor prescribed the medication. Even with Amazon Prime two-day shipping service, this will not suffice.
Additionally, certain controlled substances require a hard copy prescription in order to be filled by a pharmacy. If an insurance plan allows you to send a prescription for a controlled substance to an express scripts pharmacy, it must sent by mail.
Like alcohol purchases delivered by common carrier, how does the insurance company or pharmacy know whether a) the actual person is receiving the prescription and/or b) the person is “real“.
PBMs and Health Insurance
OK, here is the large walnut to crack. Communicating with the hundreds of insurance providers in the US will be tedious at best. However, that’s the easy part.
Having worked for a health insurance company, the sheer complexity and nuances of each contract is enormous (no, not exaggerating!). Each employer providing insurance can set various co-payments, deductibles, maximums and restrictions.
Imagine what happens when you use a credit card for a purchase. An insurance card is similar, but so much easier. When swiping your card, the “system” just validates two things: 1) the card is valid and active and 2) there is enough credit available to authorize the purchase.
Not so with insurance. All of the information above must be validated before the script is filled.
Add one more complexity; many employers opt for self-insurance (although it’s not clear how ACA effects this). Which means that state regulations (mandated coverage, etc.) are meaningless. Meaning, every option and nuance of coverage is open. If an employer did not want to pay for antibiotics, it cannot be filled using insurance.
Now let me introduce you to the pharmacy benefit manager (PBM) concept. It is an entity. It could be managed by a health insurance company or other third-party. PBMs provide “services” to assist patients. How? By “affecting” the behaviors and actions of pharmacists and doctors when prescribing drugs appropriately to maximize their effectiveness. The effectiveness for who? OK, that’s a philosophical debate for another blog … but another role in the pharmacy services business model puzzle.
Healing vs. Delivery of Groceries
In the movie “Gross Anatomy”, Dr. Rachel Woodruff tells medical student Joe Slovak (played by Matt Modine) that people need healers. When patients visit a doctor, they provide (or should) those healing and words of reassurance when a patient is managing a medical issue. However, pharmacists are healers too. Maybe more so due to their availability in a local store. Besides their doctor, what other person would a patient talk to if their prescription were filled using an online model? The mailman?
Obviously, a mail order provider, like Amazon, could have customer service for that purpose. However, if this service was off-shored (like a lot of these services) and/or not staffed with licensed and skilled professionals, then what is the value of the advice? Or the possible liability for poor or inaccurate advice?
The banter and “leaks” of Amazon’s new initiative are increasing at a “fever pitch” over the last few months.
In an expected (and intelligent) Amazon approach, they hired an experienced Blue Cross veteran to provide strategic advice to this initiative. An excellent decision. Probably to create a pharmacy benefits team.
What else? In an article from the Providence Journal (September 3, 2017), Larry Merlo, CEO of CVS/Health stated, “There are many barriers to entry when you are looking at pharmacy.”
As the article continued, proximity is a major barrier to entry as it relates to pharmacy services. Buying a TV and needing a prescription for your daughter are two very different things. I hope we do not commodit-ize this service.
Last question … Is the CVS acquisition of Aetna aimed at Amazon’s new disruption model? Are they really worried? Maybe that’s the next blog article.
My sense is that Amazon will enter this market. It seems inevitable.
But then again …. who predicted that Amazon would be relegated to selling CDs, DVDs and books? Wonder who?