Wednesday, November 18, 2020

Disruption Delayed: Making Sense of Amazon’s Latest Pharmacy Moves

Amazon is getting more serious about pharmacy. ICYMI: Introducing Amazon Pharmacy: Prescription Medications Delivered.

This announcement is much less disruptive than it appears to be. Amazon is copying the GoodRx discount card model—including GoodRx’s partnership with Express Scripts. At the same time, Amazon is launching a mail pharmacy that will accept insurance and be in PBM pharmacy networks.

Amazon’s actions are another negative headwind for retail pharmacies, but not a fatal blow to the system. Perhaps Amazon will one day become a true disrupter. For now, Amazon is choosing to join the drug channel, not fundamentally change it.


Amazon Pharmacy operates as a home delivery pharmacy. It is built on the backbone of PillPack, which Amazon acquired for $700 million in 2018.

Just like any other pharmacy, Amazon relies on your pharmacy benefit plan to determine your out-of-pocket expenses. Nothing magical here.

Given its strong brand, many U.S. consumers may be willing to consider using Amazon Pharmacy. However, Amazon still faces significant challenges in the pharmacy industry:
  • For third-party-paid prescriptions, Amazon does not necessarily have a significant cost advantage over other pharmacies. It would likely offer discounts for PBM network participation that are comparable or only slightly lower than the discounts offered by the current pharmacy market participants.
  • For specialty drugs, Amazon will struggle to compete profitably with payer-owned specialty pharmacies. In addition, a specialty pharmacy’s personalized and complex patient services contrast with Amazon’s highly scalable yet impersonal infrastructure. Amazon would also need to gain access to manufacturers’ limited dispensing networks.
  • Amazon is supplied by AmerisourceBergen, so its cost of goods is comparable to—or even slightly higher—than other pharmacies. As I see it, Amazon will continue to source via drug wholesalers as its business grows.
For more, see Section 12.5.1. of our 2020 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers.


The Amazon Prime prescription savings benefit is the more intriguing announcement, because it illustrates how Amazon’s healthcare ambitions have shrunk. Amazon’s move also validates GoodRx’s business model.

The Amazon Prime program works exactly like GoodRx or any other discount card program. Amazon Prime members can access lower prescription prices only when paying without their insurance. What’s more, you can even use the Amazon Prime discount card at a retail pharmacy.

To understand the warped economics of discount cards, I highly recommend you review my August article: How GoodRx Profits from Our Broken Pharmacy Pricing System.

Amazon is partnering with Cigna’s Express Scripts business via its Inside Rx business. For generic drugs, consumers save money by accessing Express Scripts’ network pharmacy rates, rather than a bogus cash prescription price offered by Amazon Pharmacy. For brand-name drugs, Inside Rx passes an unspecified portion of manufacturer’s rebates directly to uninsured patients. Thus, the prescriptions available via Amazon Prime are not considered cash-pay, because the claims are adjudicated by a PBM. 

Amazon can compare your insurance-determined out-of-pocket payment with the Inside Rx price. However, Amazon Prime can’t offer a cash price that would undercut the usual & customary (U&C) cash prices offered via Amazon Pharmacy. And like other discount cards, prescriptions purchased outside your pharmacy benefit do not typically count toward any deductibles.

Notably, Inside Rx is already working with GoodRx, as I explained three years ago: Five Fun Facts About the New Express Scripts-GoodRx Drug Discount Partnership. One important difference compared with 2017: Inside Rx is now a wholly-owned subsidiary of Express Scripts.

GoodRx retains some competitive advantages versus Amazon Prime:
  • Its prescription prices may be lower than Amazon's prices. That's because GoodRx partners with multiple PBMs, including Express Scripts, OptumRx, MedImpact, and Navitus. Amazon is relying only on Express Scripts.
  • GoodRx doesn't operate a dispensing pharmacy, so it isn't trying to compete with the pharmacies that accept its discount card.
  • Amazon's website is clunky and requires substantial personal information. I couldn't easily check prices.
Amazon can catch up by bringing in more PBMs partners and improving the consumer experience.

GoodRx’s insane profitability likely triggered Amazon’s move. Amazon is the only company with enough consumer mindshare to challenge GoodRx. At the same time, Express Scripts gains some leverage against GoodRx, because Amazon is a credible competitor that is surely willing to undercut GoodRx’s fees. 


For better or worse, Amazon is playing the game just like every other discount card purveyor and pharmacy.

Retail pharmacies are experiencing a period of intense competition that continues to reduce prescription profits. Amazon’s actions add to these pressures in at least two ways:
  • Amazon’s involvement will expand the discount card business, which requires pharmacies to pay a fee for the privilege of dispensing to a patient who may have used their pharmacy anyway. Greater use of discount cards also reduces revenue from cash-paying customers, who might have paid more than what the pharmacy received from a PBM.
  • Amazon could expand the use of mail dispensing, which would come at the expense of retail pharmacies. Amazon could also take share from PBM-owned mail pharmacies. However, it will not have an economic advantage for consumers if PBMs consider Amazon Pharmacy to be part of a retail (not mail) network.
In reviewing GoodRx in August, I noted:
“If Amazon were a true disrupter, it would focus on selling low-cost generics at cost-plus pricing. If other pharmacies followed, then GoodRx would cease to exist. But we’ve seen that Amazon can’t or won’t commit to changing the pharmacy channel.”
Amazon of course reserves the right to be a disrupter. But today, it has been stymied yet again by the complexity of the U.S. drug channel.

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