How Amazon Could Disrupt Health Care
Amazon has been described has the “everything store, ” but it’s missing one major category - prescription medicines. That might soon change, in the wake of Amazon’s roughly $1 billion acquisition of PillPack, an internet pharmacy. Health experts told CNBC that it’s only a mater of time before Amazon starts selling prescription drugs on its online marketplace, and that it’s assembling a team to do just that. For Amazon, pharmacy represents a multibillion market opportunity, but it’s also highly complicated and will involve battling with some entrenched competition that has a vested interest in keeping drug prices high. But Amazon, with its scale, leverage, and supply chain expertise, could be the company to do it, the experts said.
People buying medical supplies on Amazon, such as glucometers and cold medicine, can now use their flexible savings accounts or health savings accounts to get discounts. These programs, often referred to as an HSA or FSA, allow people with health insurance to set aside a portion of their salary before taxes to cover medical expenses that would have been paid for out-of-pocket, such as prescription medicines and medical supplies. In a statement to CNBC, Amazon said it’s “excited to announce” the feature, which allows buyers to use their HSA or FSA debit cards towards eligible purchases. “Customers now have the flexibility to use FSA/HSA cards on a wide range of eligible over-the-counter purchases, eliminating the need to pay out-of-pocket or submit receipts for reimbursement,” the Amazon spokesperson said. Amazon started rolling out the offering to customers earlier this month, which was spotted by a few outlets and blogs. In recent years, Amazon has started adding more health and wellness products, including medical devices and over-the-counter medicines. Amazon’s rival Walmart, which currently offers pharmacy services, also has a storefront for HSA and FSA products.
The company also acquired an internet pharmacy company, PillPack, in the summer of 2018, signaling an interest in adding prescription medicines to its marketplace. It now has a leader for that pharmacy business, a veteran who helped build Amazon’s Kindle self-publishing platform. But PillPack, which primarily serves older customers who take multiple medications, hasn’t been fully integrated into Amazon and still operates independently. Prescription drugs is a notoriously challenging product to offer, given the complex web of intermediaries that sit between the drug manufacturer and the pharmacy. To sell prescription medicines, Amazon will need to work with middlemen, known as pharmacy benefits managers, in order to take a customer’s insurance. Some health experts suggest that the move into adding HSA and FSA cards is a smart method for Amazon to learn more about people’s spending on health. “It’s a back end way for Amazon to learn about consumer purchasing behavior of health care products and services, as it moves more deeply into the space,” said Michael Yang, a health-tech investor with Omers Ventures.
Others believe that Amazon’s new storefront could be a starting point for the company to extend into pharmacy and employer benefits. If Amazon had a pharmacy offering, “consumers with high deductible plans and health savings accounts may be more than willing to pay cash for prescriptions using these accounts,” said Stephen Buck, a health entrepreneur who previously worked at McKesson, a major drug distributor. Some in the pharmacy world have speculated that Amazon will get into the space by initially focusing this segment of consumers that typically pays cash for their prescription medicine. That’s about 6 percent of the U.S. population, which is a chunk of the $450 billion pharmacy market. If it did that, those people might choose to use their health and flexible savings accounts.
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