Amazon on Drugs
In Today's Issue:
Focus: Amazon on Drugs
In The Market: Evergrande Evergone; Walmart and Target; German Supermarket Invasion (Aldi and Lidl)
MoneyFitt Explains: Fed Minutes in Minute Detail
Shares in CVS Health fell more than 8% on Thursday on a decision by Blue Shield of California, a huge insurer with 4.8mn customers, to drop CVS’s Caremark unit as its main pharmacy benefit manager (PBM) in favour of other companies, including Amazon and the Mark Cuban Cost Plus Drug Company. It expects to save $500mn in annual drug costs from the change. Terrified traders then sold Cigna, which also has a PBM unit, down by 6.4%. In the US, a pharmacy benefit manager (PBM) is a third-party administrator of prescription drug programmes for private and government health plans and is responsible for securing lower drug costs by negotiating with pharmacies and drug manufacturers. According to a report by the non-profit RAND Corporation, prescription drug prices in the US are significantly higher than elsewhere. Prices average 2.6 times those seen across the OECD, with the gap even larger for brand-named drugs at 3.4 times.
..... ▷ It's one of those industries that seem ripe for disruption, and that's exactly what Jeff Bezos (and Mark Cuban) are doing. Amazon only launched its own online pharmacy business, Amazon Pharmacy, in November 2020, two years after acquiring PillPack. It offers free, two-day home delivery of prescriptions to Amazon Prime subscribers as long as they have a secure pharmacy profile to manage insurance and medical information, with plans for a discount program for uninsured customers. The day it launched, the retail pharmacy sector tanked, with GoodRx down 20%; Rite Aid losing 16%, and Walgreens and CVS off 9% each. Thursday's move by Blue Shield of California to stop using CVS’s Caremark as its PBM can be seen as an escalation of the disruption of the pharmacy and entire healthcare industry, and at a minimum points to the massive potential for other cost-cutting health insurers to abandon the traditional PBM system.
..... ▷ In a 2020 interview with CNN, NYU marketing professor Scott Galloway said that the US pharmacy business is "a $400 billion market that is completely broken." He pointed to the fact that drug prices in the US are much higher than in other developed countries and that this is largely due to the market power of the middlemen that negotiate drug prices on behalf of insurers and employers, i.e. pharmacy benefit managers. Galloway argued that PBMs are "essentially rent-seekers" who take a cut of every prescription drug dispensed but do little to lower prices.
..... ▷ Even before the 2018 PillPack acquisition, Amazon had been in talks with PBMs as part of its long-term move to dominate healthcare, which Galloway says is essential for Amazon to attack to maintain growth given the enormous base effect of its existing business. Just earlier this month, Amazon rolled out Amazon Clinic, a virtual platform for users to connect with healthcare providers to treat common conditions. (Past efforts have had mixed success, such as its own telehealth service and OneMedical, the healthcare provider it bought for $3.9bn, both of which were shut down.) Just a matter of time.
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MoneyFitt Ka-ming OP : The US healthcare system is known for being one of the most expensive in the world. There are several reasons for this, including a complex system with multiple payers, rising drug costs, high salaries for medical professionals, and profit-driven healthcare centres. Additionally, the US healthcare system is based on a for-profit insurance system, which is one of the only ones in the world. Administrative expenses, corporate greed and price gouging, and higher utilization of costly medical technology are also driving forces behind high healthcare costs. Get to work, Jeff Bezos, rich pickings for Amazon!