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News about Amazon once again shook up the mass retailing community when stories emerged last month that the e-commerce company is setting its sights on the retail pharmacy sector. As first reported by CNBC, Amazon, after years of gauging its prospects in the prescription drug business, is finally taking the initial steps toward a possible market entry. Citing anonymous sources close to the company, CNBC said Amazon is looking for an individual to spearhead the initiative and beginning the process of recruiting other executives with pharmacy experience.
The move to start assembling a pharmacy team comes three months after the hiring of Mark Lyons, who had been director of integrated health management consulting at Premera Blue Cross, to develop an internal pharmacy benefits management operation, as a way to test the waters while helping contain prescription drug costs. In addition, the company in recent months has started offering medical supplies to consumers in this country, and it set up a program to ensure compliance with the complex maze of federal and state health care regulations.
Taken together, those developments indicate that Amazon is intent on expanding its presence in health care, which up to this point has been limited largely to over-the-counter pharmaceutical products. The opportunity is certainly substantial. Retail sales of prescription drugs in the U.S., including mail order, exceed $300 billion a year, and the need for such products, driven in large part by an aging population, will continue to increase for the foreseeable future. For a company that has maintained a startup mentality since its founding two decades ago — in his annual letter to shareholders Amazon founder and CEO Jeff Bezos says, “Day 2 is stasis. Followed by irrelevance. … And that is why it is always Day 1.” — the attraction of a huge and expanding category that it is now not involved in is obvious.
If Amazon ultimately decides to begin selling prescription medications, the company will encounter much more difficultly in becoming a major player than it has in many other product categories. To begin with, there are big, well-established companies, including mail-service providers, at every stage of the pharmaceutical supply chain. It would be a tall order for anyone to develop the expertise and scale of a CVS Health — to cite just one of several possible examples. Along with a large and sophisticated mail-order pharmacy business, CVS is a dominant force in both the PBM and brick-and-mortar drug store sectors. Amazon would have to take the disruptive innovation that it is known for to new heights to effectively counter the quality and range of health care assets that CVS, like its chief rivals, has assembled.
Health care is an extraordinarily difficult field to navigate, with existing, often Byzantine, relationships between providers, payers, regulators and patients presenting a formidable hurdle for any newcomer. Add to that the uncertainty surrounding the fate of the Affordable Care Act and what might eventually take its place, and the obstacles Amazon would face in securing a substantial market share in pharmacy are formidable indeed.
It would, however, be a mistake to count a company with Amazon’s track record out. In category after category it has brought new options to consumers and altered the balance of power. If it takes the plunge into pharmacy, the company will face long odds, but that has never before deterred Bezos and his associates, and it probably won’t this time.
