Dear Jeff Bezos –
Recent rumors that Amazon is considering entering the prescription drug business have that multi-billion-dollar industry quaking in its collective boots. And for good reason: Amazon has a reputation for exposing and driving down prices for the good of consumers.
Few consumer goods need price pressure more urgently than prescription medications. For decades, American consumers have had neither drug price transparency nor choice. Those with health insurance have purchased drugs with co-pays that obscure the real price of medications. Those without insurance, or with high deductibles, have paid arbitrary and sometimes astronomical prices out of pocket. Many others have simply decided to go without their medicine, putting their health at risk.
Amazon’s entry in the market has the potential to help more patients afford the medications they need to stay healthy and, in some cases, to stay alive. But first your company would have to take on some of the biggest companies in America, all of whom have an interest in maintaining the status quo. These companies, multi-billion-dollar pharmacy benefit managers (PBMs) and retail pharmacy behemoths, are beginning to circle their wagons to keep Amazon out and drug prices high.
Their protectionist tactics run counter to the stated purpose of PBMs, which is to obtain volume drug discounts for insurers. In practice, though, PBMs are gouging both insurers and American consumers. I should know -- I founded and for several years led a successful PBM. I have used their standard price-padding tactics to extract profits on both the “ingredient spread” – the chasm between what the drug costs to manufacture and what we could sell it for—and per-transaction fees.
As a former PBM leader, it’s clear to me that the current prescription drug distribution system in America—an ironclad alliance between insurers, PBMs and retail pharmacies—is deeply threatened by the prospect of Amazon selling medicine directly to consumers, with no middlemen. That fear was arguably behind CVS’s recent bid to buy Aetna, which would marry a top insurer to a top PBM/retail pharmacy chain. The specter of Amazon’s entry into the drug-selling business also almost certainly prompted the latest news that the electronic prescribing company Surescripts will make the price of drugs more transparent for doctors and patients through partnerships with several electronic medical record (EMR) companies.
But while doctors and patients need drug price transparency, transparency without competition is misleading and useless. The Surescripts agreement simply makes bloated drug prices visible to patients at the doctor’s office instead of at the pharmacy. What the patient won’t be able to see is that the lowest-priced drug might be at Safeway, or Costco, or—hopefully soon—Amazon. As a result, the patient saves nothing when they are paying out of pocket, due to uninsured status or high deductibles.
The Surescripts deal also does nothing to bring down drug prices for insurers. When insured patients buy drugs with low copays, rather than paying the entire cost themselves, they are unlikely to ask for a lower-cost equivalent. To save both patients and insurers money, doctors need to be equipped to suggest therapeutically-equivalent lower-cost drugs at the point of prescribing. With this process in place, Amazon could help lower one of the highest costs that insurers bear, taking a bite out of unsustainable growth in insurance premiums.
Can Amazon do it? Some commentators have argued that Amazon’s bid to enter the drug market faces a steep uphill battle. After all, the pharmaceutical industry is complex and highly regulated. The startup costs are prohibitive. Most importantly, how will Amazon break up the cabals of PBMs, retail pharmacy chains and insurers that currently control drug prices and distribution?
My hope is that Amazon will pursue a new path that bypasses the existing distribution chain and offers both transparency and competition to drive down prices. To do that, Amazon will need to deploy tools at the point of care that offer the prices for all nearby pharmacies (as well as Amazon.com) on an even playing field. That would enable Amazon to establish itself as a convenient, trustworthy and low-cost option for patients paying out of pocket, as it has in other e-commerce sectors. The company could also simultaneously save insurers billions of dollars by offering prices on equivalent, lower-priced drugs, when patients are using copays to fill prescriptions.
Technology already exists to cut out the middlemen and offer vendor-neutral drug-price transparency and competition through the EMR. Choosing the right partners will be a key inflection point in Amazon’s journey to attracting patient volume.
Mr. Bezos, the extraordinary success of Amazon is due in large part to the company’s allegiance to doing right by the consumer. There is no group of consumers more deserving of Amazon’s attention right now than American patients who struggle to afford their medicines.
Sincerely,
Tom Borzilleri
Tom Borzilleri is founder and CEO of InteliSys Health, and formerly the founder and CEO of Valore’ Rx, a pharmacy benefit management company.