Health Care Goes to Silicon Valley: The Future of Managed Care Part 1
How much longer will it be before Amazon inserts itself into the drug distribution supply chain? When will apps from Apple and its competitors do more than simply track how many steps we take in a day—and actually change health outcomes? Will Verily Life Sciences (a sister company to Google) and businesses like it ever be able to find the sweet spot that produces real interventions borne from vast stores of data?
As Silicon Valley sets its sight on health care, First Report Managed Care asked a panel of experts to tell us which initiatives they think have the most traction, which will help payers the most (and which ones could hurt), and what health insurers can do now to stay on top of the rapidly-accelerating tech curve.
Our roundtable of managed care experts included Catherine Cooke, PharmD, research associate professor at the University of Maryland School of Pharmacy; Charles Karnack, PharmD, BCNSP, assistant professor of clinical pharmacy, Duquesne University; David Marcus, director of employee benefits, National Railway Labor Conference; Arthur Shinn, PharmD, president, Managed Pharmacy Consultants; Norm Smith, president, Viewpoint Consulting, Inc; and F Randy Vogenberg, PhD, RPh, principal, Institute for Integrated Healthcare.
Amazon and Drug Dispensing
Can Amazon realistically get into the drug dispensing business?
Mr Marcus: Yes. Amazon has dominated the online retail marketplace, and pharmacy is a logical path of expansion. The major pharmacy benefits managers (PBMs) already have mail order facilities that allow individuals to get larger fills at lower cost. Payers would likely be open to Amazon’s entry into the market. And even though the mail order pharmacy market is not yet heavily utilized, Amazon’s entry could be a game changer.
Dr Vogenberg: Absolutely, especially through joint ventures. Amazon could start as a supply chain solution or logistics alternative to FedEx and UPS. It is especially possible in major cities sooner than later.
Dr Shinn: Amazon has the resources, and I agree that a logical starting point is in distribution. However, it could take them a year-and-a-half to two years before they can get licensed in all 50 states with the state boards of pharmacy.
Dr Karnack: Amazon’s potential should be noted. They have had a major impact in other areas, so there’s no reason to think they would not try in this space. As a pharmacist, I'm concerned that dispensing and distributing drugs is not like selling and delivering widgets. Accountability, storage conditions, timeliness, and other issues need to be considered.
Where is Amazon likely to begin if it gets into the drug business?
Dr Shinn: They'll probably pursue mail order pharmacy, initially targeting the uninsured and people that have high-deductible plans. Such plans are usually [held by] younger people in their 20s, 30s, and early 40s. [When] they need drugs, they are looking for the most cost-effective way to get them. It’s a good fit because Amazon’s customer base is [primarily] the younger set.
Mr Smith: If Amazon gets in the drug store business, it is because they view the marketplace as if was retail. They will bundle the drug service with other classes of products they currently sell.
What types of partnerships will Amazon look to form?
Dr Shinn: I think they are probably already talking to some of the middle market PBMs in an effort to get arranged contracts.
Mr Smith: There is not enough margin in the mail order business to be very attractive for Amazon as a stand-alone. It will partner with either Caremark or Express Scripts. This will help overcome the state licensure barrier to entry.
Mr Marcus: I agree that the clearest path is to partner with an existing PBM to operate its mail order facilities. We know how well Amazon manages the online retail market. This would enable Amazon to quickly reach existing payers of the PBM it chooses to partner with.
Some have surmised that a good starting point for Amazon is cash pay. Do you agree?
Dr Vogenberg: Maybe, but it’s unlikely.
Mr Marcus: I do not think it will limit itself to cash payers. In fact, Amazon could establish itself as its own PBM with enhanced mail order capabilities, subject to potential legislative challenges. This would certainly be a tougher path, but it would be doable as mail order pharmacy becomes more commonplace.
Is there anything payers should be doing now to prepare?
Dr. Shinn: First of all, I think it's a positive for the payers because it's going to offer a more competitive distribution system. I don't think there's anything they can do until they see how viable and how fast Amazon is going to roll this out.
Mr Marcus: I agree. It will likely be a few years before Amazon can enter the market, and once it does, PBMs will have time to adjust to protect their business model. I think it is too early for payers to do anything. However, recognizing the cost-savings and improved adherence that accompanies mail order pharmacy benefits, I think this is something payers should keep an eye on.
Dr Vogenberg: This could be very disruptive to PBMs and plans who make money via central distribution pharmacies. Amazon does not spread its risk in a single business silo like Express Scripts or Caremark does.
Article continues on page 2