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How the Amazon-PillPack deal will change retail pharmacy

July 17, 2018

    Editor's note: This story was updated on July 17, 2018.

    Rising drug spending is drawing attention to the pharmacy business and attracting new players to the market. Most recently, Amazon made a splash with its acquisition of PillPack, an online pharmacy that offers nationwide home delivery.

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    Read on to learn how stakeholders seek to use their pharmacy business to improve health care and manage total costs—and how Amazon's latest deal changes the game.

    The provider-owned pharmacy strategy: Improve quality and reduce costs through better care continuity

    Providers have been investing in retail and specialty pharmacy with the goal of improving patient outcomes, improving customer experience, and ultimately reducing costs through better coordination of medical and pharmacy services.

    The idea makes sense, especially for patients taking specialty medications, which are typically available only through mail order. Provider-owned pharmacies can often deliver drugs to patients more quickly, or, in some cases, even before patients leave their doctor's office.

    In addition, because of these pharmacies are affiliated with prescribers, they are often able to react more quickly in the event the patient's medication or dose needs to be changed—all while providing the same or better financial counseling and clinical pharmacy services. Perhaps most importantly for population health managers, this approach also provides data on patient medication utilization, which can inform strategies for managing risk.

    Health plan-owned pharmacy: Manage pharmacy and medical benefits holistically

    Health plans also see potential to improve patient outcomes and reduce costs through integrated pharmacy services. Several health plans have purchased PBMs, many of which own mail order pharmacies, with the idea that more coordinated management of the medical and pharmacy benefits will improve patient outcomes and reduce total coats.

    For example, if the health plan has access to both medical and pharmacy claims, then it can better evaluate whether drug therapy is warranted or if an alternative prescription would be less costly—information that enables the plan to streamline prior authorizations or make coverage changes. Claims data are also a valuable source of information about medication adherence and patient outcomes, which can inform improved care management.

    Amazon-PillPack: Compete on cost and convenience

    At first blush, the Amazon deal appears to be a throwback to the old way of doing things: It would encourage patients to take their prescriptions to a pharmacy unaffiliated with either their provider or insurer.

    However, PillPack is not a typical community pharmacy. It is an online pharmacy that specializes in serving the needs of chronic disease and polypharmacy patients, a critically important audience for population health managers. PillPack also has prioritized patient experience and product usability, working with the design firm IDEO to create packaging that helps patients on complex medication regimens increase adherence.

    Amazon, of course, has an established track record of competing on cost and convenience. Their timely and low cost shipping options rival—and in some cases exceed—the convenience of a neighborhood pharmacy. And according to one analysis, there is significant opportunity to undercut community pharmacies on price. Both characteristics position Amazon to win business from the self-pay population.

    A better partner for med-to-beds?

    Given its unique strengths, PillPack could potentially become a strong partner for provider organizations. For example, many hospitals have developed programs that deliver discharge medications to the patients' bedside before they leave the hospital with the goal of reducing readmissions and improving patient experience.

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    While these programs have been shown to reduce readmissions, they are logistically complex, and not all hospitals have the pharmacy capacity to dispense discharge medications. PillPack combined with Amazon's same-day and next-day delivery capabilities could present an interesting alternative, shipping medications directly to patients' homes. In fact, Amazon just announced a partnerships with Xealth to deliver medical products to complex discharge patients at home. Adding medications would seem to be a natural extension of this service. Of course, success would hinge in part on the ability to communicate and a respond to physician orders in a timely way.

    A new era of consumer-directed pharmacy?

    In the past, Amazon-PillPack's growth would have been limited by its ability to earn in-network status with major PBMs. The largest PBMs all own mail order pharmacies, so they are understandably reluctant to give access to competitors.

    However, a growing number of insured patients are realizing that they can, in some cases, lower their out-of-pocket expenses by paying cash for their prescriptions, as opposed to using their insurance. That's because patients' prescription co-pays and co-insurance are typically based on the list price of the drug, which may be significantly higher than the price paid by their pharmacy or PBM.

    By making prescription prices readily available through its online marketplace, Amazon-PillPack could encourage patient to shop around based on price, and ultimately may prompt more insured patients to pay cash for prescriptions.

    Over the long term, that kind of consumer-directed pharmacy could significantly increase patients' influence on the prescription drug market. (Admittedly, consumers' influence on prescription prices today is quite low.) In particular, it's likely to increase price competition among pharmacies, disrupt providers' and health plans' efforts to integrate pharmacy services, and ultimately increase patients' influence over the choice of drug.


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