Amazon this week unveiled a new $5 monthly subscription plan for U.S. Prime members that covers a range of generic drugs and includes delivery to consumers' doorsteps.
While the offering is not breaking new ground or particularly disruptive to the pharmacy market in the near term, industry experts say the move is worth watching for how it lays the groundwork for the e-commerce giant's long-term healthcare and pharmacy strategy.
Paying a discounted cash rate for generic drugs is not a novel approach. Walmart has been offering a subscription-based prescription program for generic drugs for as low as $4 a month for nearly two decades, according to Michael Abrams, managing partner at Numerof and Associates.
Mark Cuban Cost Plus Drugs Company also offers consumers higher-cost generic drugs at cost with a 15% markup.
"But Amazon chose this particular battleground carefully," Abrams said. "This approach really leverages the core capabilities in which they excel—merchandising, order processing, logistics infrastructure, the back end order management and they have an estimated 150 million Amazon Prime members who have already bought into the company's value as a merchandiser."
Through RxPass, Prime members can use the prescription drug program to fill as many prescriptions as they need for a flat monthly fee. The program is available in 42 stats and the list so far includes 50 generic medications that treat over 80 common conditions, including high blood pressure, anxiety, and diabetes along with antibiotic amoxicillin, anti-inflammatory drug naproxen, estrogen steroid hormone estradiol and an erectile dysfunction drug. A Prime membership costs $14.99 per month, or $139 a year. Annually, RxPass will cost Prime members an additional $60 a year.
The launch makes good on the move that Amazon made with its PillPack acquisition back in 2018 and leverages the online retailer's operational advantages, noted Nathan Ray, a senior partner with West Monroe Partners' healthcare practice. The new offering also could tie into Amazon's recent launch of its new virtual clinic to treat common conditions and puts it in direct competition with virtual care players like Hims & Hers and Ro, he noted.
"It also continues Amazon's quarterly drumbeat to doing something interesting in the healthcare space," Ray said.
Abrams applauds Amazon for bringing transparency and convenience to the pharmacy experience for consumers and says the move puts more traditional brick-and-mortar retail drugstores on notice.
"I think the stakeholders that are most at risk are independent and chain drugstores. These retail organizations have, quite frankly, been very complacent about the historic lack of transparency. They haven't done anything to improve on that. They've left it to the initiative of the consumer on how to get the best price," he said.
He added, "I think that insurers will need to pay attention if they want their pharmacy business to be competitive, then they'll have to add home delivery."
A potential barrier for Amazon and other online pharmacies to scale and grow market share is the lack of in-person interaction with a pharmacist, Ray noted.
"As we've all gotten more virtual, I think we've all gotten more human with our pharmacist. They may be the most frequent human healthcare professional we're interacting with. There's always going to be a challenge there, particularly as Amazon is not likely going to be able to fulfill all the drugs that someone might take. I'm interested to see what the uptake of the services from Prime members," he said.
But industry experts are skeptical about the impact of the RxPass program on disrupting the pharmacy space in the near term.
Consumers with government-funded insurance such as Medicare or Medicaid are not eligible to sign up for RxPass right now. Additionally, RxPass is not currently available to send medications to eight states—California, Louisiana, Maryland, Minnesota, New Hampshire, Pennsylvania, Texas and Washington.
In a tweet, Marissa Moore, health tech investor at Omers Ventures, points out that those who stand to reap the most value from RxPass are those with complex chronic conditions—and those tend to be older adults. And it's this age demographic where Prime penetration is presently the lowest, she noted.
It's unclear how selling generic medications at a low-cost model of $5 a month would drive substantial profits, industry experts noted.
"I'm most interested to understand, particularly under that $5 price, how they've really effectively thought through the wholesale contracting on all of these drugs and the payer side of this to make the finances work. This wouldn't be the first time they've decided to take a loss for more traffic," Ray noted.
In a blog post, The Advisory Board's Gina Lohr, a managing director on the company's research team, ran the numbers on one generic medication to see how much revenue Amazon would receive from a typical Amazon Pharmacy purchase versus the RxPass program. For Bupropion XL, a common antidepressant and smoking cessation support drug, the copay is typically around $15 or less. For Prime members, Amazon sells the drug for a cash price of $14.90 for a 30-day supply, with free shipping. RxPass members would get their 30-day supply for a $5 subscription fee. The Mark Cuban Cost Plus Drug Company price for Bupropion XL is $5.70, before adding the $5 shipping cost, Lohr wrote.
"This means that Amazon just cut the prescription cost by two-thirds, cutting their profits on the fill by $10—likely bringing it close to $0. They would have to add a whole lot of scale to make up for these discounts," Lohr noted.
Even if the RxPass business doesn't generate big profits, the move speaks to Amazon's larger healthcare strategy, experts say.
In a tweet thread, Moore noted that excluding Medicare patients is a barrier to the RxPass strategy paying off in the short-term. "But given how massive the unlock could be (if/when exclusions no longer apply), I have to imagine this simply lays the groundwork for a longer-term play," she wrote.
"But AMZN [Amazon] knows how to play the long-game. The marketing blitzkrieg around this & *headline* value prop can draw non-Prime seniors to the site to explore what Prime is all about and entertain membership in ways they never had before," Moore wrote.
In the short-term, totally. But AMZN knows how to play the long-game. The marketing blitzkrieg around this & *headline* value prop can draw non-Prime seniors to the site to explore what Prime is all about and entertain membership in ways they never had before (1/2) https://t.co/3jGPpkksHf— Marissa Moore (@MSchlueterMoore) January 25, 2023
The addition of RxPass could serve to boost its Prime membership base and it also lays the groundwork for Amazon to expand further in the pharmacy space.
Generic drugs make up 85% of all prescription drugs in the U.S. and as Amazon expands its list of eligible drugs, it is poised to take a bigger market share of this business.
"I could see Amazon targeting the same class of drugs that Mark Cuban Cost Plus Drugs does, which is to say higher-cost generics and because they are higher cost, there's more margin potential there," Abrams said.
Making prescription medications more affordable and accessible also helps to tackle medication adherence. It's estimated that some 50% of Americans don’t take their medications as directed by their doctor, for any of a host of reasons. This non-adherence leads to preventable hospitalizations and preventable deaths, and costs 16% or $500 billion of the entire U.S. healthcare spend every year.
"If companies like Amazon can make it convenient enough for people to really take the meds that they need to be taking on a maintenance basis, it could have a huge impact on health outcomes," Abrams noted.
Vin Gupta, M.D., chief medical officer at Amazon Pharmacy told Fierce Healthcare the RxPass program helps to lower barriers to affordable medications. "Two in 5 Americans are underinsured. We know that 1 in 4 find it difficult to afford their medications. I've seen this with my own eyes in the pulmonary clinic that often even if somebody does have insurance, there isn't price transparency," Gupta said. "The pharmacy experience has not changed. After a patient leaves the pulmonary clinic, they have to navigate a maze of dealing with insurance and getting to the pharmacy."
From a business strategy perspective, the RxPass program also provides Amazon with a treasure trove of health data on their Prime members, The Advisory Board's Lohr wrote in her blog post, especially given the company's recent deal to buy One Medical for $3.9 billion.
"Interestingly, Amazon Prime is most popular among millennials compared to other generations. Considering Amazon's recent purchase of One Medical, they may be looking for new ways to identify relatively healthy patients covered by commercial insurance as they assess opportunities to integrate One Medical into Prime's offerings as well," Lohr wrote.
Time will tell how much Amazon disrupts the pharmacy market but the tech giant's moves are worth tracking as it pushes deeper into healthcare.