If Amazon Invades The Prescription Drug Business, It Will Be Welcomed As A Liberator

A handful of lazy giants have grown fat by ripping off Americans in need of medicine. If we're lucky, Amazon will shake things up.

Wouldn’t it be great if you could just Amazon Prime your asthma inhaler, birth control, or any other of the roughly 4 billion prescriptions that Americans fill every year? If you’ve followed Amazon news over the last couple years, it has certainly seemed like the company has been planning a move into the pharmacy business. But it still hasn’t happened.

It has been a long time in the works though. In 1999, a New York Times headline announced “Amazon.com Moving Into Drug and Cosmetic Retailing” after the company bought a 46% stake in startup Drugstore.com. That particular investment flamed out — the dot-com bubble burst two years later — but Amazon is now a major force in almost every retail category. So why isn’t there an “Rx” tab on Amazon yet?

Given the obscene prices, bad service, and customer-hostile nature of the health care business, Amazon would be a welcome competitor. People may have concerns about a tech giant crushing their local supermarkets or restaurants, but there is no such sympathy for the giant health care companies that have grown fat by ripping off Americans in need of medicines. The invaders, in this case, truly would be welcomed in the streets as liberators. So why hasn’t Amazon done it?

The answer has little to do with government regulation. Amazon has already acquired more than a dozen pharmaceutical distribution licenses, which are not hard to get. The real reason it hasn’t entered the pharmacy market has everything to do with the power of a handful of giant companies who dominate the industry. They collude, and they fight dirty, and they have prevented their industry from moving into the 21st century.

The success of their efforts to kill online competition is borne out in the numbers. While the US is home to more than 22,000 independent retail pharmacies and roughly 200 million people taking prescription medications daily, there were only 57 legal and verified online pharmacies in the United States as of this February, according to data from VIPPS, a national accreditor for the industry.

To be this effective at driving away competition you have to fight dirty — so dirty in fact that even Amazon, a company as ruthlessly competitive as any, has been held back. The worst players in this fight are a handful of companies known as pharmacy benefit managers; these little-known businesses have grown massive, and massively profitable, over the last 15 years.

PBMs are the ultimate intermediaries. Through negotiations with pharmaceutical manufacturers, insurance companies, and pharmacies, they effectively set the prices that prescription drugs are bought and sold for. If you’re a US pharmacy and you want to sell your products to the 90% of Americans who have insurance, you must do business with the PBMs.

That’s already a very powerful position to be in, but it gets worse: The biggest retail pharmacy chain in the country, CVS, owns the second-largest PBM, Caremark. And the country’s biggest PBM, Express Scripts, is in the process of being purchased by Cigna, one of the largest insurance companies. Oh, and Express Scrips also owns the biggest online/mail-order pharmacy in the country. The consolidation of the industry has made these companies even more powerful and made collusion between them even easier.

Because of their market power and the deals they can sign, PBMs can now enforce rules that actually prevent a patient from refilling their prescription anywhere other than their designated pharmacy. The PBMs have also often declined to work with online pharmacies. This effectively kills potential online competition before it can even start and means most Americans don’t have the ability to choose between competing pharmacies.

Few people notice these restrictions, since few people really care which pharmacy they go to. But the unparalleled convenience of Amazon Prime would likely make millions of people consider switching their prescriptions — and once they tried to do that, people would quickly discover the absurd and un-American nature of the current system. That may actually be what scares the likes of CVS the most.

In 2017, CVS took health care collusion and consolidation to a whole new level: It bought the massive health insurance company, Aetna, for $69 billion. This strategy was copied by Cigna, which just bought Express Scripts for $52 billion despite growing concerns from the American Medical Association.

This level of market power should be illegal. Its practical effect is that patient choice is further limited, competition is stifled, and health care costs continue to rise.

Although the situation is truly bleak, there is still hope. Amazon recently formed an alliance with JP Morgan and Berkshire Hathaway. The three companies have announced they will work to break away from the quagmire of the US health care system and create something better for their own employees. It was a tiny step, with no tangible details of what would happen next, but it was a signal that three of the richest companies in the world intend to challenge this broken industry.

It’s difficult to imagine that the unstoppable force that is the startup world won’t eventually crash into the most immovable objects in the health care business. It’s also possible that Amazon will lead that charge — and if we’re lucky, it will succeed.

David Light is a a biotech entrepreneur and scientist. He is the cofounder and CEO of Valisure, a pharmaceutical technology company.

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