Amazon may be exploring a move into the $465 billion-a-year U.S. pharmaceutical market. It's a market ripe for disruption but also a difficult one to enter, say analysts.
There have been some clues in recent Amazon moves. In November, the company launched a one-hour delivery service for non-prescription items from Bartell Drugs, a 127-year-old pharmacy chain based in Seattle, as part of its Prime Now offerings. Amazon frequently tests programs around Seattle where it can be hands-on with them.
Two months ago it hired Mark Lyons, a former executive with Washington state health plan Premera Blue Cross, to be a senior manager in its pharmacy benefits, a move first reported by CNBC.
Amazon has been holding an annual meeting on whether it should consider going into the pharmacy business for the last several years, said the CNBC report, citing unnamed sources. And it's currently advertising for a professional health care program manager. It's already made moves to beef up its offerings in medical supplies, according to the company's site.
Amazon declined to comment.
As consumers are moved to the center of the health-care universe and as high deductible insurance places more costs on them, there’s a possible role that Amazon could play, said Vaughn Kauffman, a global health analyst with PwC, a consulting service.
The company, which has upended the brick-and-mortar market for books, electronics and other goods, would pose a major competitive threat to existing heavyweights including Walgreens and CVS. But it wouldn't be cheap or easy to break into the pharmacy market, say analysts.
In a note Wednesday, Mizuho Securities USA suggested that it would be too costly for Amazon to enter the pharmacy market given that it couldn’t offer generic discounts any higher than industry leaders already do. It would be competing with an already built-out mail-order drug environment.
In 2016, about $106 billion of total U.S. prescription sales of $465 billion were through mail order, according to a Morgan Stanley note Thursday. All the major drug store companies, including CVS and Walgreens, already offer mail order delivery, though such programs have declined slightly due to consumer preference for face-to-face interaction with pharmacists, the note said.
Other competition includes major players in the online prescription delivery field such as Express Scripts and United Health/OptumRX.
“Seniors (who are the highest consumers of prescription drugs) want personal care from their local pharmacists,” said Mizuho analyst Ann Hynes.
Pharmacists: We already do same day delivery
Kevin Schweers of the National Community Pharmacists Association, notes that same-day service has long been available for prescriptions.
“Most independent pharmacies have provided same day home delivery at no cost for decades” and still do, he said.
Mohamed Jalloh, a spokesman for the American Pharmacists Association and registered pharmacist, said he could imagine Amazon’s entry into the healthcare field as positive for consumers “because they’re a big presence and they may make things more affordable for people.”
The downside is that getting prescriptions filled online removes the human contact with the pharmacist, which is especially important when it comes to medicine and its correct use. Pharmacists, he noted, are America's second most-trusted professionals after nurses.
Currently, mail-order pharmacy fulfillment typically involves a follow-up phone call by a pharmacist but even the phone isn't ideal, Jalloh said.
“As with any type of relationship, when you’re face-to-face, you’re able to read their emotions, have a closer connection,” Jalloh, who is also a professor of clinical sciences at Touro University in Vallejo, Calif.
Amazon's expertise: logistics, costs
Some see strong possibilities for Amazon, given its track record of finding market niches where it can make use of its size, its computer and logistics expertise and history of streamlining and saving customers money.
It may first test a new service in house. There are multiple examples of Amazon first creating something for itself, getting it working well and then launching it as an offering for its customers. Amazon's extremely profitable cloud service AWS is the best example.
The drug industry is very ripe for disruption, said Angela Mattie, chair of health care management at the Quinnipiac University school of business in Connecticut.
“Drugs are expensive, pharmaceutical companies make a lot of money and there’s a general lack of transparency,” she said.
She imagines that Amazon will either buy a smaller pharmaceutical firm or possibly form partnerships with large U. S. employers to provide pharmacy service, to get a ready-made group of patients to start.
“Companies realize that as employers, they’re the largest purchasers of health care. They really need to find ways to provide lower-cost drugs for their workforce and especially their retirees, who are a huge cost of them,” she said.
The regulatory process would not be difficult for Amazon given its history of building systems to accommodate different state and national legal requirements in other realms.
Drugs must be dispensed by pharmacists in facilities that have relatively strict health and safety rules. Amazon would have to hire pharmacists and then build computer systems to confirm that the person writing the prescription had legal prescriptive authority, which differs on a state by state basis.
Mattie said she couldn't imagine that would be a problem for the company.
“Amazon is unbelievable when it comes to their computer systems and supply chains; healthcare could learn from them,” she said.
