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Can Amazon Drive Down Drug Prices?

 6 min read / 

As online retail giant Amazon continues in its latest attempt to enter the pharmaceutical retail market, many are worried about the disruption this could cause – disrupt seems to be the single most oft-used word – but some are hopeful about the positive change it might bring.

Although many consumers love Amazon for its convenience, customer service, and sometimes deep discounts, others worry that the more clout online merchants wield, the fewer brick and mortar stores will exist. That also means fewer jobs and sometimes great inconvenience.

If you need an item right away – today, this hour if possible – even an express next-day order from Amazon is only a cold comfort. With a book, such an inconvenience can be endured with some stoicism. You can buy an electronic copy and start reading immediately. If it is a gift, a rain check can be issued until the item arrives.

Prescription medicines often need to be filled more quickly, especially new ones. Presumably, pharmacies of some sort will remain in business, at hospitals at least, but at what cost? Already prices at local shops are often higher than on Amazon. Prescription drug prices may go up even more if these shops have to be maintained for emergency purchases.

Amazon Takes on High Cost of Health

In addition to the inroads Amazon began last year, in January it announced a new healthcare venture with JPMorgan Chase & Co. and Berkshire Hathaway Inc. – which will strive to offer better and more cost-effective healthcare to the three companies’ 1.2m employees “free from profit-making incentives and constraints” – and the purchase of PillPack, an online pharmaceutical delivery service for around $1bn.

(That is not really very many, however. Prescription benefit manager Express Scripts negotiates prices for 85m insured, and not all of its clients are happy with its cost-lowering efforts.)

The United States government is taking Amazon seriously. It was invited to the Food and Drug Administration’s June opioid summit webcast.

One way Amazon may help improve Americans’ prescription pharmaceutical problems is lowering cost. Americans alone spend in excess of $300bn on prescription medicines. The size of Amazon’s market share – in 2017 Amazon accounted for 44% of all online retail sales (4% of all retail sales), up one percentage point from 2016 (when it also grabbed 93% of all online book sales) – could give it negotiating clout with Big Pharma.

Already the cost for some over-the-counter medicines is less on Amazon than at chemists. In the United States, prescription drugs cost as much as two-thirds more than in Canada, the United Kingdom and most of Europe.

Negotiating Lower Drug Prices

Part of the reason for the higher US prices is because there is no government-provided healthcare, so Americans have less collective clout when buying medicines. Instead of one agency negotiating, there are separate negotiations for every insurer, every pharmacy – in some cases individual employers – negotiating for the best price they can get.

Another factor may be that the individual or entity who does the negotiating, the aforementioned PBM, Pharmacy benefit management, is a middleman who receives a fee based on the list price and how much money is saved. Some have suggested this system is a breeding ground for kickbacks or for collusion with the pharmaceutical manufacturers, artificially increasing the cost of their drugs so as to raise both the final price and their fee.

(PBMs do not seem to be needed or wanted in the European Union. When US company Medco attempted a PBM-type joint venture with Berlin-based Celesio, the resulting entity Medco Celesio BV imploded within a year.)

Amazon, if it becomes as huge a player in pharmaceuticals as it is in literature, would seem to be ideally suited to negotiate large discounts for its customers, but others doubt it. Not everything on Amazon is less expensive. Sometimes people are willing to pay for the convenience of one-stop ordering, especially when they are in the habit of using Amazon.

Amazon May Offer Other Benefits

There may be other benefits than saving money for patients due to Amazon’s entry into the pharmaceutical field, including saving lives.

Like Facebook and other social media, Amazon also tracks behaviour and patterns. Just like the platform can make recommendations based on someone’s past purchases or what other customers who bought that item also bought, so it could potentially make similar recommendations for prescription drugs to the patient or prescribing physician: What drugs someone used, how large a dose, what is a typical dose for other patients, if there are alternative or generics, and if there are dangerous drug interactions with other medications for the same individual.

Eventually, perhaps Amazon could act as a more-friendly, less-oppressive Police Department Monitoring program (PDMP), an electronic database that can identify patients who are “doctor shopping” for oxycodone or patronising a “pill mill”, maybe suggest they consider an opiate or even heroin rehab for addiction treatment.

Then, too, about 125,000 Americans die each year – at a cost to the healthcare system of at least $100bn, maybe three times that – because they do not take their medications. Roughly one-fourth of those unused prescriptions were never even filled. Automatic mail delivery by Amazon could improve those numbers. If the reason they were not used or filled was due to economics, lower prices due to Amazon could save money and lives.

Partnership with Pharmacies?

Like bookstores and record stores, pharmacists worry that Amazon’s move into pharmaceuticals may put pharmacies out of business, and them out of a job. There is another possibility: that rather than put pharmacies out of business, Amazon could partner with an existing pharmacy chain or create one to ensure same-day availability of at least some medicines.

Some observers suspected that was what Amazon had in mind when it bought the Whole Foods Market chain last year for $13.7bn. Although the organic supermarket chain does not have a pharmacy, it sells some OTC drugs and supplements. Even registering a trademark for its Amazon Go checkout-free grocery store format in the UK looked like a preparatory or predatory step.

That Amazon’s brick-and-mortar store count has surpassed 500 (counting Whole Foods) which makes this seem more likely, but it is by no means assured. Amazon’s revenues of about $25bn last quarter are almost entirely from online sales.

Conclusion

Whether or how well Amazon will succeed is not yet clear. Just the announcement of one aspect of its plan – the purchase of PillPack – reduced the value of several drugstores and drug distributors by $14.5bn. Walgreens, which made a failed bid for PillPack – lost more than $3bn alone.

US drug prices are too high. President Donald J. Trump has failed to or decided not to pressure Big Pharma. Congress is impotent or beholden to Big Pharma lobbyists. Universal healthcare is still a long shot. Amazon may be America’s best bet.

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