Once again, a move by Amazon has cut billions of the health insurance industry stock market value. When Amazon, Berkshire Hathaway and JPMorgan announced a partnership to control healthcare costs, health insurers were devalued. This time, with the announced purchase of PillPack, the pharmacy benefit managers (PBMs) shed a fast approximately $11 billion. PillPack is a drug reseller that serves a mere 50,000 patients, delivering pre-packed, pre-dosed prescriptions to consumers. But, with this purchase Amazon gets pharmaceutical licenses in 50 states and an entry to lower cost drug distribution, a process that had been controlled by the PBMs.
I have always liked PillPack. Non-compliance with a doctor’s prescription is a big reason for medical complications. PillPack simplifies compliance especially for people taking multiple medications at irregular intervals. These individuals are generally the sickest and most vulnerable. However, the bigger reason for non-compliance is cost – and clearly Amazon’s focus on cost transparency, and its superior ability at vendor management and customer service, is what has the PBMs and the markets concerned.
Undoubtedly Amazon is going to force change, but I think that this train has already been moving down the track. The largest PBMs are already, or are in the process of, aligning with health insurers: UnitedHealthcare owns Optum, Cigna is buying Express Scripts and CVS, who owns Caremark, is in the approval process of buying Aetna. Anthem may well be playing catch up since they recently terminated their Express Scripts relationship and are trying to build their own PBM.
But pharmacy costs continue to be one of the most visible and seemingly controllable pain points. Bloomberg recently reported that 39% of large employers offer only high deductible plans (up from 7% in 2009) and without copays masking pharmacy costs, consumers are increasingly outraged by drug prices. Pfizer, one of the largest pharmaceutical manufacturers, announced a second round of price increases for 2018 despite all the pressures from Washington and insurers. Something has to give.
One problem that Amazon will face is the lack of brick-and-mortar stores (there are just not enough Whole Foods stores to make an impact) since consumers will look to get their medications immediately following their doctor office visit. The pressure will continue to ramp up from Washington and the states and I believe the Amazon-PillPack deal will make smoother the path to regulatory approval. The rock is moving slowly uphill.