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January 25, 2023

Amazon says RxPass is 'fundamentally different.' Not so fast.

Daily Briefing

    Amazon on Tuesday debuted its latest healthcare offering—a prescription drug program that gives subscribers the ability to fill as many prescriptions as they need for a flat monthly fee, delivering an experience the company says is "fundamentally different" from other pharmacies.

    What you need to know about Amazon's new prescription drug program

    On Tuesday, Amazon announced RxPass, a new prescription drug program that will allow members to fill as many prescriptions as they need from a list of 50 generic medications that treat over 80 common conditions, including high blood pressure, anxiety, and diabetes. Amazon estimated that 150 million Americans take at least one of the medications available on RxPass.

    Currently, the service is available to U.S.-based Amazon Prime members for an additional monthly fee of $5. Under the program, subscribers will be able to order any medication from Amazon's offerings and have them delivered at no additional cost.

    The program will operate within Amazon's existing pharmacy infrastructure and distribution channels, according to John Love, VP at Amazon Pharmacy.

    While the service started immediately in most states, it is not currently available in California, Louisiana, Maryland, Minnesota, New Hampshire, Pennsylvania, Texas, and Washington due to state-specific requirements. In addition, RxPass is not available to individuals enrolled in Medicare, Medicaid, or any other government healthcare program that has a $0 copay.

    According to Love, RxPass is designed for individuals with chronic conditions who pay for multiple prescription medications out-of-pocket. Love noted that the lack of pricing transparency surrounding prescription medications spurred the company's decision to launch the service. 

    "The bulk of scripts Americans get are administered the same way they have been for decades," Love said. "The patient drives [to the pharmacy], they stand in a communal environment...and they find out the price at the point of care." 

    Amazon CMO Vin Gupta said the company's latest healthcare venture aims to deliver a pharmacy experience that is "fundamentally different" from its competitors.

    "This is still day one for us where we're at our beginning stages here, but we recognize that change is needed," Gupta said. "That's what patients across the country are telling us, and that's what Amazon is responding to." (Palmer, CNBC, 1/24; Hart, Forbes, 1/24; Turner, Modern Healthcare, 1/24)


    Advisory Board's take

    Don't be fooled. Amazon RxPass isn't a pharmacy disruptor.

    By Gina Lohr and Chloe Bakst

    Paying a discounted cash rate for generic medications is not a new concept. While Amazon RxPass is utilizing a subscription-based, all-you-can-eat buffet approach, it's similar enough to Walmart's $4 prescription program or other cash pharmacies (we've written more about these dynamics here). Accordingly, we're keeping an eye on Amazon RxPass—not because of its potential for disruption in the pharmacy market, but rather as a glimpse of how Amazon is approaching its overall healthcare strategy.

    Prime opportunity for patients, or for Amazon?

    It's unclear whether RxPass is intended to drive profits for the organization, or if its goal is more strategic. Even at scale, it's hard to picture how this incredibly low-cost model would drive substantial profits.

    We ran the numbers for one generic medication to see how much revenue Amazon would receive from a typical Amazon Pharmacy purchase versus the RxPass program. We chose Bupropion XL, a common antidepressant and smoking cessation support drug. For commercially insured patients, the copay is typically around $15 or less. For Prime members, Amazon sells this drug for a cash price of $14.90 for a 30-day supply, with free shipping. RxPass members would get their 30-day supply for a $5 subscription fee (assuming the patient doesn't have any additional prescriptions). For what it's worth, the Mark Cuban Cost Plus Drug Company price for Bupropion XL is $5.70, before adding the $5 shipping cost.

    This means that Amazon just cut the prescription cost by two-thirds, cutting their profits on the fill by $10—likely bringing it close to $0. They would have to add a whole lot of scale to make up for these discounts.

    3 reasons Amazon may be using RxPass as a loss leader

    But even if Amazon loses money on Rx Pass, they may not care. We have a few hypotheses for what this move may tell us about Amazon's overall healthcare strategy.

    Hypothesis #1: RxPass may provide the boost Prime needs to grow its consumer base. Amazon is no longer the only organization offering free, fast shipping. Many "perks" previously included with Prime now require an additional fee. The allure of Prime membership just isn't what it used to be. With their increasing focus on necessities like groceries and household goods across the pandemic, and now doubling down on medications, Amazon may be better able to keep their Prime members engaged and happy enough to fork over their loyalty along with a $139 annual membership fee.

    Hypothesis #2: RxPass may provide a trove of health-related consumer data. If Amazon can structure the system right, customers participating in the program may also be handing over data for them to better understand the health of their Prime population. Interestingly, Amazon Prime is most popular among millennials compared to other generations. Considering Amazon's recent purchase of One Medical, they may be looking for new ways to identify relatively healthy patients covered by commercial insurance as they assess opportunities to integrate One Medical into Prime's offerings as well.

    Hypothesis #3: RxPass may provide an avenue to normalize Amazon's role in the prescription drug space, laying the groundwork for future expansion. We've seen this pattern before with Amazon offering prices that may lose money but ultimately earn them big market share that they capitalize on moving forward. We saw this strategy with their first foray into books. More recently, we saw this with their music subscription services.  

    What to watch

    We'll certainly be watching to see how this plays into Amazon's next steps in the healthcare space. We'll also be reading the privacy statements very closely before using any Amazon health care services.

    In the broader pharmacy marketplace, we expect cash pay innovations to continue to emerge and evolve, increasing access to generic medications and lowering the total out of pocket costs for patients. But these innovations only impact the 16% of US drug spending attributable to generic drugs. We also need disruptive innovations addressing the other 84% of spending on brand name and specialty drugs.  We'll be watching to see who is up to the challenge.

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