By midday on June 28, 2018, Rite Aid, CVS and Walgreens had lost approximately $13 billion in value in reaction to Amazon’s announced plans to purchase PillPack, an online pharmacy licensed in all 50 states. Stock prices of the big three recovered, with representatives from each company claiming that they were not afraid of Amazon. Their stance: Amazon was competing in just a couple of sectors of their model — the front and back of store. Other areas within the big three’s business models generate far greater profits. If they could just hold their own in the competing sectors against Amazon, everything would be fine.
Experts supported that notion. Sam Richardson, a health economist at Boston College, told NBC News, “I think unless Amazon moves much more into the health care space, unless Amazon starts offering health insurance plans, I don’t see this having much of an effect on consumers besides convenience.”1
The big three could compete on convenience by sheer number of locations, but what they failed to see was that Amazon does not compete in a sector here or a sector there. Amazon competes everywhere in the business model, from conception to consumption.
A Haven From Rising Health Care Costs?
On March 6, Amazon, J.P. Morgan and Berkshire Hathaway announced a name for their joint venture to address rising health care costs: Haven. Its mission: to partner with care providers and focus on the health care needs of the 1.2 million employees of the three companies, quite a sample size!
Haven provides the perfect mechanism to enter the health insurance space by partnering with providers (for the time being) and directly competing against pharmacy benefit managers (PBMs). With its cash cow PBM threatened, CVS reacted with a lawsuit. CVS is not alone; insurance giant UnitedHealth sued one of its employees for attempting to join Haven. Again, Amazon competes from conception to consumption.
Regardless of the outcome of those actions, Haven, Amazon and PillPack (referred to as H-A-P in this article) will move forward with their plans. They will use lawsuits to their advantage and wait out noncompete agreements. They have the cash and the infrastructure, and their diversification makes them a threat to all in the space. H-A-P looms in the distance, almost finished, ready to redefine the U.S. health care model. Haven could very well act like the Federal Reserve System of U.S. health care.
The Threat to Community Pharmacy
Should community pharmacy be worried about H-A-P? The short answer: absolutely.
Since then, the breakdown has changed somewhat, but there is no way Amazon/PillPack will leave approximately 35% of the market alone. H-A-P threatens the entire model with its 1.2 million sample and ability to partner with entities that need them for survival.
How Does Community Pharmacy Compete?
Unfortunately, community pharmacy has already been fighting a similar type of threat via the incestuous relationship between big pharma, wholesalers, PBMs, the big three and the government. To defend against these threats, community pharmacy developed a convenience model – think same-day home delivery – but now that model is under attack by Amazon/PillPack.
Perhaps the best solution is to use the H-A-P model against itself in the intimate way that only community pharmacy can. Don’t be a single-service care area; instead, develop partnerships with local direct care entities. Place your community pharmacy in between the client and a care area. Create an inner circle in which your community pharmacy is the link (figure).
Amazon is the master of speed and convenience, and PillPack fits right into that model. Community pharmacy can match it and has been for quite some time. But with Haven, now more than ever, it is critical for community pharmacy to ensure that each individual is treated as a client, not just a patient.
This signifies the ongoing multicare area approach that delivers a true value-added intimate experience. Adjust your approach now: Use the model of these health care giants against them, and turn your patients into long-term clients based on your pharmacy’s expertise and ability to influence all areas of local health care. If you think this all seems farfetched, just imagine one of your patients sitting at home and saying: “Alexa, contact my doctor to refill my prescription,” which is covered by Haven.
Conception to consumption.
Dan Sullivan is former vice president of sales and marketing at Datarithm.