The first big clue about how Amazon plans to upend the US healthcare system with PillPack just dropped

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Jeff Bezos

• Amazon acquired online pharmacy PillPack a year ago, signaling an entry by the powerful online retail giant into healthcare.
• We just got a peek at Amazon's disruptive new approach through a recent lawsuit, which claims that PillPack is competing with big companies like CVS and UnitedHealth for a billion-dollar business.
• Though it's hard to know what will happen, the development could be negative for CVS, United Health and other healthcare companies, says Jefferies analyst Brian Tanquilut and team.
• Click here for more BI Prime stories.

When Amazon acquired online pharmacy PillPack for $750 million one year ago, it sent shudders through the healthcare industry.

A new lawsuit gives a first, inside look at Amazon's plan to disrupt incumbents.

See: Online pharmacy PillPack was reportedly on track to make $299 million in revenue when Amazon acquired the company in a $750 million deal

PillPack packages medications by dosage for customers and mails them to their homes. That offering directly competes with CVS pharmacies.

But CVS also runs a lucrative business negotiating drug prices for US health plans through its business unit Caremark. The company claims Amazon's PillPack is trying to go past this entirely by contracting directly with health plans.

PillPack has been "aggressively" approaching CVS Caremark clients, the company wrote in the court filing. It cited "direct discussions" with health plan federation Blue Cross Blue Shield to deliver prescriptions to the homes of its 100+ million members.

See: CVS and Amazon's showdown is intensifying

"The inescapable conclusion is that Amazon-PillPack and CVS Caremark directly compete with comparable offerings to fill prescriptions for patients," CVS said in court filings. "And, given its robust infrastructure, operational capacity, and distribution reach, Amazon-PillPack is uniquely positioned to negotiate directly with Payers and displace CVS Caremark's mail based services."

"In fact, CVS Caremark has already received feedback that clients are considering AmazonPillPack as an alternative to CVS Caremark's mail-based services," the pharmacy chain added.

The lawsuit is being brought against a former CVS executive, John Lavin, who had worked at Caremark for 27 years before giving notice to join PillPack in April. CVS is suing in hopes of enforcing a non-compete that would prevent Lavin from disclosing confidential information.

PillPack says on its website that it offers services for health insurers to help high-risk patient populations take their medications as prescribed, though it doesn't go into further details.

The company has also worked with health insurer Aetna since early 2017, before the Amazon acquisition. The partnership allows members of the government program Medicare to fill prescriptions through PillPack at no extra cost.

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