Will Amazon's Internal Pharmacy Benefit Manager Succeed?

Amazon faces an uphill climb should it decide to compete in the pharmacy marketplace.

Amazon has been considering a push into pharmacy that could significantly disrupt the retail pharmacy industry if the biggest online retailer succeeds in filling prescriptions for patients.

However, some analysts believe that Amazon's entry would not disrupt the market and, as a result, large drugstore chains, such as Walgreens and CVS Health, have nothing to worry about.

Amazon is creating an internal pharmacy benefit manager that will serve its 128,000 employees, according to CNBC. The company is also developing a strategy that will pave the way for them to provide prescription drug fulfillment to customers all over the nation.

The business lead the company hired is tasked with figuring out how the online retailer can break into the pharmacy market, which has reached its multimillion-dollar mark. There have been discussions about venturing into the pharmacy business for the last few years, but Amazon is getting more serious about it now, considering the rise in high-deductible plans and more people willing to pay for health care regardless of the cost.

In fact, Americans spend $379 billion annually on prescription medication, making the prescription drug fulfillment market ripe for disruption from new players.

But is it enough just to hire an internal pharmacy benefit manager to succeed breaking into the pharmacy business?

Certain signs showed that the online retail giant may not have it easy.

For one, Amazon lacks ties to medical care providers and health insurers that hold a big piece of the pharmacy market pie. CVS, Walgreens, and other pharmacies have long-standing relationships with doctors and other health care providers in the community, something that Amazon has yet to establish.

For another, their timing is a little off, considering that drugstore chains are forming closer ties with self-insured employers and health insurers in a bid to provide better coordination of medical care delivery. If Amazon wants to keep up with the competition, they have to start now or lose traction.

The online retailer can always get into mail-order pharmacy. However, this service is already provided by many pharmacies and pharmacy benefit managers, creating an already crowded field that Amazon may have a hard time standing out from.

The company would be up against CVS or Express Scripts, which has a pharmacy benefit manager that processed more than 1 billion prescriptions last year alone.

Moreover, prescriptions that consumers get by mail are often cheaper generics.

Amazon also lacks the leverage to negotiate rebates and discounts with manufacturers, something that the 3 largest players in the pharmacy market have.

However, with their purchasing and inventory management knowledge and experience, the company may do better negotiating lower prices and eliminating overlapping costs associated with the delivery of medical care, such as patient management, inventory, and drug distribution.

Moreover, Amazon customers already subscribe to products that show up on schedule, which may only need a few tweaks to establish a new system that will enable healthcare providers to send in patient prescriptions quickly and conveniently.

Apart from selling medical supplies and equipment in the United States, Amazon continues to build its “professional health care program,” hiring a pharmacy benefit manager and other employees needed to meet regulatory requirements.

Joshua Pirestani is the President and founder of the American Pharmacy Purchasing Alliance.