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There are two major issues afflicting the prescription drug market. The first is costs for prescription drugs are skyrocketing at an unchecked rate. The second is the public’s inability to access correct information regarding their prescriptions’ relative efficacy, safety, and any potential side effects. To complicate matters, pharmacy benefit managers (PBMs) are making the cost problem worse and doing nothing to resolve the prescription information issue.
While small PBMs exist, three companies control the prescription drug market: Caremark, Express Scripts, and Optum. Until recently, these three companies did not need to address these problems because there was no threat significant enough to force change. However, their insufficiencies created an opportunity for another organization to step forward.
Amazon is a proven disrupter and innovator—their revolution of online shopping is a testament to that. The ecommerce giant is now turning its focus on prescription coverage and pharmacy benefits management. Amazon obtained wholesale pharmacy licenses for nearly a quarter of the nation’s states. While they have yet to declare their intentions, the prescription industry is bracing for their first move.
If Amazon chooses to enter the PBM business, they have proven methods to address pricing and information availability problems. For starters, Amazon would likely encourage pricing competition. PBMs base the current pricing process on health plans and secret deals with manufacturers including rebates. PBMs refuse to disclose the rebate information for individual drugs. The process is so convoluted that physicians and patients have no idea what the net cost of a drug truly is. When a physician does not know which drugs are the lowest cost, it makes price competition impossible.
Amazon has the potential to change this entire appraisal model by pricing prescriptions out in the open rather than behind closed doors. They could force manufacturers to share their net price for drugs and submit their drug prices based on that number. Failure to do so would result in Amazon labeling these manufacturers as high priced providers. Amazon has this kind of influence because of their prowess in the ecommerce industry. Most people would prefer fast delivery of their prescriptions via Amazon to driving into the pharmacy. Manufacturers who are not on Amazon would lose a significant amount of business.
Not all prescription drugs are as effective as patients and doctors would like them to be. However, much of prescription drug information is buried, leaving patients and physicians unsure as to which treatment is best. With the Amazon model, everyone would be able to access information regarding a prescription’s ability to treat an illness, its overall safety, and its potential side effects. This can have a direct effect on pricing as well. Once patients and doctors realize which drugs are the most beneficial, inferior product prices will drop. As a result, those manufacturers affected by decreased sales may try to develop better drugs.
Amazon has the potential to revolutionize the prescription drug market by fostering competitive pricing and improving information availability.
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