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May 19, 2017

Amazon is making moves to enter pharmacy market, report says

Daily Briefing

    Amazon is hiring a business lead and recruiting more broadly to begin developing a strategy to enter the multibillion-dollar pharmacy market, according to sources familiar with the company's plans. 

    What providers can learn from the drug pricing debate

    Speaking with CNBC, the sources said the company for the past several years has held annual meetings to discuss whether Amazon should break into the pharmacy market. However, recent trends in health care that have shifted more costs to patients, such as the rise of high-deductible health plans, have made Amazon consider the move more seriously, CNBC reports.

    While Amazon has not officially commented on the potential new business venture, the sources said the company has started to build a team to lead the effort. In addition to hiring a new general manager, the company is recruiting people from the pharmacy market and engaging in discussions with industry experts, CNBC reports.

    Stephen Buck, co-founder of the prescription drug pricing comparison company GoodRx, estimates that the pharmaceutical industry represents a $25 billion to $50 billion market opportunity for Amazon. Buck said his company has seen consumer interest in cash-pay setups instead of going through their insurer, and that Amazon could benefit from this direct-to-consumer business.

    Amazon could be a boon for Rx drug transparency

    Several industry experts said Amazon's entry into the market could help improve prescription drug price transparency—an issue that both the pharmaceutical and the greater health care industries have been grappling with for years, the Washington Post's "Wonkblog" reports.

    Kevin Schulman, a professor at Duke University's School of Medicine, said competition would increase and transparency in the industry potentially would improve if Amazon decides to sell prescription drugs..

    Schulman added that Amazon could disrupt the market by partnering with employer-sponsored health plans, but capturing that market would require deals with insurers and employers, "Wonkblog"  reports. He said, "In principle, [Amazon] could set up a marketplace where they behave differently, with different rules and different privacy practices."

    Potential hurdles

    Still, Schulman said Amazon could face hurdles related to government regulations and patient privacy requirements, which differ from typical retail pharmacies, because Amazon could use information on its online shoppers to try to sell other items to the consumer. "If Amazon would know that you have diabetes or hypertension they could do a lot with that data," he said.

    Dough Hirsch, co-founder of GoodRx, also cautioned that Amazon might face a few challenges when trying to enter the market. "There's been at least a dozen companies popped up trying to be the Amazon of prescriptions," he said, adding, "It's a complicated sell. It's not like the traditional consumer buying experience because of the lack of price transparency and the many steps that have to go into the flow of purchasing a prescription" (Farr, CNBC, 5/16; Johnson, "Wonkblog," Washington Post, 5/17; Greenwood, The Hill, 5/17).

    What providers can learn from the drug pricing debate

    We already knew that patients are becoming more sensitive to health care costs. But public uproar over one drug's 5,000 percent "overnight" price hike proves that patients are more discerning—and vocal—than ever. With more of their money on the line, patients are actively deciding when and where to access care based on cost.

    We saw it coming—and we laid out concrete tactics for dealing with price sensitivity in your market. The first chapter in our study, The Consumer-Oriented Ambulatory Network, focuses on how you can retain market share by making services more affordable. Download the study to learn more.

    Get the Study

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