Amazon becomes your local drug pusher. And they deliver

Recently I wrote about Amazon acquiring Whole Foods. I live in New York City. After the pundit applause dies down, the layoffs and economic destruction will begin. Here’s where I started: Beware friends bearing low prices. Amazon. Capital Destroyer, Beserker of Retail and Unemployer of Legions

Amazon has been given approval to be a wholesale distributor of pharmaceuticals in 12 states: Alabama, Arizona, Connecticut, Idaho, Louisiana, Michigan, Nevada, New Hampshire, New Jersey, North Dakota, Oregon and Tennessee.

Are these States the lucky ones?

‘Amazon Prime’ly’ will coerce its healthcare system by making medical data services available for the Amazon Echo.  All we have are the preliminary details of its strategy to embed into the $560-billion-per-year market prescription drug industry.

It’s the only route that Amazon has. The monopsony that will one day flip its script and become a monopoly needs to buy profitability. Their Earnings v Revenue v Everything Else has gone from good to great to bad. I did the forensics on their 2nd second quarter earnings. In another post I backed out AWS from earnings

And now we are here. Operating margins for major drug chains like Walgreens and CVS run about 5.5 percent, twice as high as Amazon pulled out of 2016 after years of barely breaking even.

Amazon is assembling the team to staff its entrance, one of its first hires was Mark Lyons, an executive from Premera Blue Cross. Lyons created an internal pharmacy benefit manager for Amazon’s employees. It was the pilot, Amazon was its own guinea pig.

There is a high barrier to entry, it’s stuffed with government regulations, bureaucratic complexity with drug manufacturers, pharmacy benefits managers and retailers. Most states require pharmacies to be licensed and registered before they are allowed to ship medicines to consumers. It is a convoluted and opaque relationship between the insurers, drugmakers and pharmacy benefit managers who negotiate the prices and discounts, making it difficult for outside distributors to break into the field and make an adequate profit.

Health care is the last mile of e-commerce. A consumer can buy almost anything online, but there are still barriers that compel patients to physically seek out doctors and pharmacists in order to obtain medicine.

…And there will be blood…

CVS Health bidding to buy Aetna is defense. CVS would become a health-care company that not only sells drugs and negotiates prices but also leverages its patient data to manage health-care costs.

Companies like CVS Health are vulnerable, prescription drug sales will cramp sales at CVS retail pharmacies, which already face strong competition. It will also interfere with CVS business of negotiating drug prices with pharmaceutical companies. the weak link is retail staff. That will be extincted.

Amazon won’t immediately replace local pharmacies. But they will, it will be a slow’ish (in tech time) transformation. They will start by serving as an intermediary between health insurers, consumers, and the rest of the healthcare industry by working with a Pharmacy Benefits Manager which will provide access to patient data and the potential to cross-sell related products. Beware friends bearing low prices. Amazon. Capital Destroyer, Beserker of Retail and Unemployer of Legions

“Imagine seeing a virtual doctor on your Amazon app, having it prescribe you a certain medication, and then tapping a ‘buy now’ button — all without leaving your home.” 

Telemedicine will be their front door into the pharmacy market, and to carry the company upmarket. Virtual visits have improved access to professional medical expertise. The Amazon Prime platform can be exploited to seamlessly integrate the process of ordering prescription drugs from its website into the virtual visit experience of major telemedicine vendors. The Amazon checkout process will approve the order sale and delivery of prescription medication directly to the patient. Good for the patient, good for the doctor, horrible for society.

Amazon is building the capabilities to influence personal behavior and consumer habits outside the doctor’s office. That should get you worried and it might also get you unemployed.