Amazon hasn’t said publicly what its plans are in pharmacy, but that hasn’t stopped a constant onslaught of questions from industry analysts, PBM executives and pharmacy chains about the potential for Amazon to get into the prescription business. While we don’t have all the answers, here is what we do know.
Amazon has received approval for wholesale pharmacy licenses in at least 12 states. As of October 27, 2017 these states include Nevada, Arizona, North Dakota, Louisiana, Alabama, New Jersey, Michigan, Connecticut, Idaho, New Hampshire, Oregon and Tennessee. An application is currently pending in the state of Maine. The North Dakota license suggests that Amazon could also distribute medical devices or medical gas. In Nevada, Amazon was approved for an out-of-state wholesale license. In the license application, it list types of products that will be handled by the wholesale firm. The list included “legend pharmaceuticals, supplies, or devices and hypodermic devices.” Amazon’s application to the Nevada pharmacy board said it did not plan to handle controlled substances. Is this a sign that Amazon will not use the licenses to sell prescription drugs? Analysts think it’s more likely that Amazon is using the licenses to distribute medical equipment rather than prescription drugs because within the last year, Amazon began selling medical and dental devices to licensed professionals in certain states. Bottom line, Amazon needs a pharmacy license in all 50 states to distribute prescriptions directly to the consumers, and estimates are that will take from 18 to 24 months.
Does Amazon want to enter the PBM world? Many industry analysts believe this a distinct possibility. Goldman Sachs created a 30-page report detailing Amazon’s likelihood of entering the health care market. According to the report, Amazon might start by partnering with a PBM rather than replacing pharmacies right away. It could become an online pharmacy, retail and online pharmacy, integrated PBM and online pharmacy, or simply a drug distributor to pharmacies.
Express Scripts Holding Co., one of the nation’s largest pharmacy benefit managers, has already broadcast its willingness to partner with the e-commerce giant. Since the announcement of Amazon’s interest in pharmacy, Express Scripts stocks tumbled nearly 3 percent on Oct. 6 and another 2 percent on Oct. 9, after their stock was downgraded to “underperform,” citing the company’s vulnerability to “escalating competitive pressures.” That would explain why Express Scripts CEO Tim Wentworth said in a recent earnings call that he’s open to talks with Amazon. “We’d be interested in working with them.”
Many analysts are not convinced that Amazon will excel in the PBM or drug retailing business. The three largest PBMs are Express Scripts, CVS’ Caremark and UnitedHealth’s Optum. According to some analysts, these three PBMs process over 1 billion claims annually and have established pharmacy networks and rebates/discounts with manufacturers. So Amazon may have the monetary resources to enter this market but given the regulatory and payer hurdles, they don’t believe Amazon would be able to get the types of return on investment they expect.
Some analysts, however, are saying that this action by Amazon could be a “massive threat” to CVS’ retail pharmacy business, which has 9,700 locations across the country and also operates its own PBM. In another post we will take a look at how the PBM CVS’ Caremark and retail pharmacies are responding to this new development.