Amazon’s Healthcare Gambit May Be Taking Shape

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Pharmacy benefit managers (PBMs) are well-established middlemen in the U.S. drug supply chain. They serve as third-party administrators (TPAs) of prescription drug programs for commercial health plans, self-insured employer plans, Medicare Part D plans, you name it.

As aggregators of significant demand, they negotiate with the major pharmaceutical companies, pharmacies and insurers to put together the best deals they can (that’s their currency) and slowly but not too effectively (based on track records) continue to explore ways to extend their reach into other patient care service categories.

Not surprisingly, as the top industry players are a powerful bunch, they are frequently forced to justify their role to industry watchers, including lawmakers who question whether PBMs haven’t become an unnecessary tax on the system. Of course, the PBMs are well versed in their response to such criticisms, pointing out all the value they provide, including formulary support for health plans, claims processing support for pharmacies and their patients, the logistics problems they solve for that same group (including mail order programs) and the medication management services they provide to patients.

What would we do without them? If you detect a little cynicism in my remark, rest easier knowing that you haven’t lost your nose for it.

Although the role of PBMs is to aggregate drug purchasing power from payers (insurance companies, small businesses and consumers) and to negotiate the lowest prices and dispensing fees from drug manufacturers and pharmacies, you must also know that their their revenue is derived from rebates paid by the drug manufacturers. The situation has created a perverse incentive that pushes the PBMs to dispense more expensive drugs. The higher the drug price, the higher the rebate. Remember the EpiPen debacle? Put another way, what could be more egregious than a $600 dose price — how ‘bout a $300 rebate?

It is being reported that Amazon is ramping up conversations with the PBMs. In fact, it’s being reported that Amazon may be already working with several in an attempt to get into various contract arrangements. And while analysts are pointing out that it will take Amazon a few years to get licensed in all 50 states, the banter surrounding Amazon’s potential move into pharmaceutical distribution is all too familiar. Some are characterizing Amazon as a potential partner, while others see them as a direct threat, while others express their skepticism, saying that they don’t think Amazon would choose to move into such a highly-regulated space.

What a great country we live in. You shouldn’t be able to bet on this, but you can. Disrupting the PBM industry is so far up Amazon’s alley that it has been seen lapping itself.  Managing healthcare’s tail spend is fine I guess, and a good deal, but becoming America’s pharmacy seems like the real big deal here. Especially when you’re already its favorite retailer, may soon become its preferred grocer and are already recognized as its pre-eminent logistics services phenom.

U.S. healthcare actually needs Amazon. I can’t believe I’ve lived long enough to hear myself say it, but it’s true. And it’s not just because Amazon has got the cash or a platform that, well, seems perfectly suited to bridge healthcare’s increasing care fragmentation challenges.

It’s also not just because Amazon is capable. It’s because it’s trusted — by both consumers and government regulators. Amazon can make a meaningful and remarkably profitable difference.

First Voice

  1. Kenneth Castillo:

    Don’t you think Jef Bezos has Costco in his crosshairs with the Whole Foods acquisition? Seems to me that Amazon moving into pharmacy would be a logical part of that strategic market dominance plan.

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