Donald Trump has promised since his presidential campaign to drive down drug prices.x
His business-world nemesis Jeff Bezos may be about to just do that.
Amazon.com Inc. entered the U.S. drug business with a big splash on Thursday. With the acquisition of online pharmacy PillPack, a Boston startup that has regulatory approval to deliver medicines throughout the country, the retail giant is taking its price-chopping, consumer-friendly approach to prescription drugs.
“Their scale will allow them to negotiate prices in a way that the drug industry has never seen before,” said Lisa Bielamowicz, president of the consultancy Gist Healthcare. “They have a company ethic of returning these kinds of savings to consumers.”
Trump, who once said drugmakers were “getting away with murder,” has little to show so far for his rhetoric, though his administration released a drug-pricing plan last month. On May 30, he said pharmaceutical companies would announce “ massive” pricing cuts in two weeks; none have yet done so.
Trump’s been attacking Bezos on many fronts since he was elected, claiming that Amazon takes advantage of the U.S. Postal Service and doesn’t pay its fair share of taxes. Bezos separately owns the Washington Post, a frequent target of the president’s Twitter fire.
High drug prices in the U.S. have drawn increasing scrutiny, as consumers face climbing out-of-pocket costs and drugmakers announce new treatments with six-figure price tags.
Before the PillPack deal, Bezos had signaled dissatisfaction with the current state of affairs, and Amazon recently formed a venture with JPMorgan Chase & Co. and Berkshire Hathaway Inc. to improve health care for their workers.
Tackling drug pricing won’t be easy. The eventual price a consumer pays for a treatment is influenced by an opaque system of drugmakers, insurers and middlemen called pharmacy-benefit managers. In recent months, the Trump administration has focused its criticism on PBMs, blaming them for their contribution to high prices. The White House didn’t return a request for comment on Amazon’s PillPack deal on Thursday.
PillPack now works within the existing system of insurers and PBMs. With Amazon’s backing, the company could pursue new ways of upending those relationships, with the potential to create savings for consumers.
Shake Up Pharma
“This could shake up the pharma supply chain quite a bit,” said Katherine Hempstead, a senior adviser at the Robert Wood Johnson Foundation, a philanthropy focused on health. “Another question is to what extent Amazon might ascend the supply chain and start playing more of the PBM-like role. It helps that no one is happy with the current distribution system.”
Acquiring PillPack gives Amazon immediate access to much of the U.S.’s roughly $329 billion retail prescription drug market, including state regulatory licenses and industry relationships.
PillPack sells pre-sorted packets of prescriptions drugs, delivering them to customers in their homes. The closely held firm has software that automates many routine pharmacy tasks, such as verifying when a refill is due, determining co-pays, and confirming insurance.
Bezos Track Record
Ira Loss, senior health care analyst at research firm Washington Analysis LLC, said the deal could create a long-term problem for distributors and pharmacies. He said he expects that at some point the costs of drugs will come down, given Bezos’s track record.
“Everything he gets involved in tends to lower the prices of the products being sold,” Loss said.
Amazon is likely to focus on generics and branded pills, said Ashtyn Evans, a health care analyst at Edward Jones & Co. It wouldn’t necessarily affect more complex biological treatments that are expensive and complex to handle, sometimes called specialty drugs.
“While Amazon could simplify drug order/delivery for certain pill-based medications, specialty drug costs are the primary driver of total spend increases,” she said.
—With assistance from Anna Edney, Robert Langreth and Jared S. Hopkins.
— Read Advisors, Amazon Is Not Coming for Your Job, on ThinkAdvisor.