Why Amazon’s Big Announcement was Not So Big
Amazon took another two steps into the prescription drug business this week but stopped well short of becoming a pharmacy benefit manager, as some industry-watchers had anticipated. The company introduced two new pharmacy offerings, but will work directly with PBMs – not in competition with them -- for each of these solutions. The offerings are directed at consumers, so no immediate response is required of employers. Members can investigate them (or not) based on their own preferences.
Any move by Amazon elicits a strong reaction, and this week’s announcement was followed by an immediate drop in stock prices of various retail players. But a closer look shows that the new offerings – described in detail below -- are more evolutionary than revolutionary. They will operate with the existing supply chain and are not materially disruptive. It’s possible that Amazon could be using these offerings as pilots to determine future strategic options, and that the next pharmacy announcement really could be the big one. But for now, here’s what we know about the new offerings.
Amazon Prime Prescription Savings Program
This is a discount savings card for Amazon Prime members. According to the announcement, Prime members can receive free two-day delivery on a range of brand and generic medications (not including opioids or specialty drugs).
This offering is powered by CIGNA/Evernorth’s Inside Rx program (essentially a different version of GoodRx) and is directed towards people who do not have insurance or elect to go “off the plan” if they have insurance. The discounts cannot be combined with insurance. We see this “off the plan” shopping activity now when health plan members (usually in high-deductible health plans) use GoodRx or similar comparison-shopping tools and coupons in lieu of their benefits. In these cases, the member’s payment doesn’t apply to the deductible, nor can the plan provide any clinical oversight. As it is a direct-to-consumer offering, employers are not required to provide information about it to members.
This new offering will not compete with PBMs, but rather GoodRx, SingleCare and other affinity group discount programs. It allows members to access pre-negotiated discounts instead of paying usual & customary prices out-of-pocket. It is unclear how it compares with GoodRx from a pricing perspective, but there are some differences:
- Amazon’s offering is solely through CIGNA, where GoodRx accesses pricing through multiple PBMs. Because of this “PBM arbitrage,” GoodRx likely has better prices.
- GoodRx is solely available through retail pharmacies, while Amazon Prime Savings offers both home delivery via Amazon Prime as well as retail pharmacy options through CIGNA’s ESI retail pharmacy network.
- Membership in Amazon Prime is an additional cost compared to GoodRx. Further, consumers often seek solutions like GoodRx for their price shopping and comparison tools, and the new Amazon offering does not have a price comparison tool. Other than the appeal of the Amazon brand and the convenience of delivery, it’s not clear what would drive consumers from GoodRx to Amazon.
- Note that post-COVID, some members may be more inclined toward mail order and access to a 90-day supply of medications, BUT today only about 6% of Rxs are dispensed through mail order so the retail channel remains dominant.
Amazon Pharmacy
Amazon Pharmacy is a mail service offering for a wide range of medications. Unlike the Prime Savings program, it does accept third-party insurance, so members’ out-of-pocket costs are based on plan design like any other program. It is important to note that while Amazon Pharmacy delivers medications, it is likely classified as a retail pharmacy, and as such, members are subject to retail day supply limits and charged retail copays/coinsurance. Mail order copays/coinsurance will not apply.
In effect, Amazon Pharmacy acts as any other pharmacy in a PBM retail network. Prime members get the convenience of home delivery, but it is unclear if members with a coinsurance requirement and/or enrolled in a HDHP would see any major savings relative to other retail locations or to mail order services through the member’s PBM provider.
Amazon Pharmacy is a re-branding of the home delivery provider PillPack that Amazon purchased in 2018. Amazon has not broadly marketed the service since then, although it did provide immediate access to pharmacy distribution in 48 states.
Amazon Pharmacy is another retail network pharmacy option that members can access but, like the Prime Savings program, it is not competing with PBMs – but, in this fast-changing business, never say never.