Amazon is trying to tap into the $300 billion market for online pharmacies - here's how it could change the healthcare industry
- Amazon's PillPack acquisition signals its entrance into the online pharmacy space, which is estimated to be worth nearly $300 billion.
- Bernstein analysts think that Amazon will focus on five areas next following the acquisition in order to consolidate operations and expand its market to attract more consumers.
- The PillPack acquisition might significantly impact other players in the market such as small and independently-owned pharmacies.
Amazon's move to acquire digital pharmacy startup PillPack in July could have huge ripple effects on the $300 billion online pharmacy market.
Analysts at Bernstein in a new report estimate that as much as 70% of prescriptions could shift online, and Walmart, CVS and Walgreens could try to acquire their own digital pharmacy startups.
Amazon, the analysts said, may focus on five areas to increase its appeal and attract more consumers to its service:
- Improving the user interface and experience in order to capture a wider range of patients. Amazon will likely integrate PillPack into its existing system.
- PillPack's distribution is expected by analysts to operate somewhat separately from Amazon's existing infrastructure for now, since the startup is fully-function as a standalone. Over time, Amazon might look into ways to optimize and combine operations between PillPack and its current model.
- Obtain and expand health insurance coverage. PillPack is covered by most health insurance plans, but this might change post-acquisition as pharmacy benefit managers may re-evaluate coverage.
- Similar to its acquisition of Whole Foods, Amazon might try to leverage Prime membership with its pharmacy offering. This could include offering benefits to those with the memberships and may convince pharmacy benefit managers to include them in the coverage network.
- Amazon is expected to explore follow-on acquisitions to grow its online pharmacy. Analysts think these could include automated kiosks, price shopping tools which will offer coupons and more transparency for patients, specialty home delivery and clinical support infrastructure, and potentially a pharmacy benefit manager.
With all these potential changes, there are lots of possible implications for other players in the pharmacy space as a result of Amazon's entrance into the market.
Analysts expect small stores and independent pharmacies to be impacted the most by Amazon pharmacy, as it's likely many will go out of business. In response, larger pharmacies may gain more customers from small pharmacies exiting the market, but may lose some of their own customers in the long-run. It's likely that they will also try to develop online stores in order to stay competitive.
Distributors might be negatively impacted by Amazon pharmacy, though Amazon and PillPack might use a distributor for their operations. Distributors, whose profits come mostly from small and independent pharmacies, will see a change in their partnerships.