Hearing Amazon’s Footsteps, the Health Care Industry Shudders

from NYTs

With little more than a whiff of Amazon’s interest in a new business, the company can crater the stocks of potential competitors, prompting them to consider bold acquisitions and other drastic measures in response. Just ask companies in the home improvement, meal-kit and grocery businesses.

The latest category alarmed by the specter of competition from Amazon is the pharmacy market. With huge amounts of consumer spending and frustrating inefficiencies, it is the type of business that invariably attracts Amazon’s attention. CVS Health is now in talks to acquire Aetna, one of the nation’s largest health insurance providers, a move considered to be partly a reaction to the footsteps of Amazon.

The likelihood of Amazon’s eventually getting into the pharmacy business is high, several analysts and a former employee said. But it is not clear when it will make that move or how aggressive it intends to be.

The near-term threat may be somewhat overstated. Amazon has received wholesale pharmacy licenses in at least a dozen states, as The St. Louis Post-Dispatch reported on Thursday. But the licenses permit the company to sell other kinds of products too. In Connecticut, for example, the license is for “wholesale of drugs, cosmetics and medical devices,” while in Louisiana it was granted to a “drug or device distributor.”

Brian Tanquilut, an analyst for Jefferies, noted that the company acquired many of the wholesale pharmacy licenses between fall of last year and early this year, around when the company started selling medical supplies to businesses. “It’s not evidence of a retail entry into the pharmacy business,” he said.

More here.

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4 Comments

  1. Amazon seems to be the great opportunist of this day and age. Their company has their hands in a lot of businesses. Lately there has been talk about Amazon having some place in the health care industry. The health care industry is very big and profitable so I could see why some people would think this. Amazon is expanding its horizons so that it can make more profit. They became associated with whole foods because they are a brand that has a bright future and because they have potential for expanding.

  2. The pharmaceutical world is one that is plagued with inefficiencies and high costs. Drug research and development, patents, and clinical trials contribute significantly to these high costs; these high costs are difficult to avoid without skimping out on safety of drug testing. Where there is an opportunity to cut costs would be in the supply chain aspect of the industry. Typically, once a drug company makes it through the 4 stages of clinical trials and is allowed by the FDA to go to market, there are multiple steps taken before the drug makes it to the consumer. Once it is manufactured, the drugs are typically in large and not useful containers for distribution to pharmacy stores like CVS. The large packages of drugs can then go through a number of middlemen with wholesaling and packaging down until finally they arrive at a retail store for the customer of interest. This process is fraught with inefficiencies and excessive costs.
    Recognizing that there is an opportunity to reduce costs is where Amazon can really make a difference. The specific area to reduce costs would be in elimination of inefficiencies in the supply chain as well as elimination of the need for fixed cost overhead retail spaces. Amazon has probably one of the best supply chains and distribution strategies in the world, rivaled well by Walmart. As a company, Amazon could eliminate multiple middlemen effectively lower the costs of distribution. Amazon would also not operate in this case with brick and mortar stores which would reduce fixed expenses like utilities, retail employees, and rent. (however Amazon is trying out retail stores in which case the drugs could go into without having to build a store to accommodate this idea). I agree with the article that Amazons movement into the market will disrupt the industry and make existing companies nervous. However, I think this move will be for the better and provide less expensive drugs in an industry with ever growing costs.

  3. Amazon is a growing company that has taken over many industries, pharmaceuticals and healthcare are next on their list. With the power of Amazon’s fast service and that fact that thousands of people use it everyday, they are well known and trusted brand. It can not be certain that enough people willingly switch their pharmaceutical company to Amazon without focus groups and studies, but I believe that they decide to enter into this market, they will give other pharmacies a run for their money. Because Amazon already has a few brick and mortar stores, with the intentions of expanding and storefront at all WholeFoods locations, they have a great foundation for starting up. The only problem Amazon faces is getting all of the details right because they are new to this market and because it is such an important and touchy market.
    Fellow blogger Matt R states that although Amazon is the biggest company right now, acquiring pharmacies like Walgreens and CVS and entering the pharmaceutical industry would be too complicated for them, I disagree. Amazon is such a big company, so they have the ability to hire a whole staff of people with knowledge of the pharmaceutical industry and healthcare industry. Professionals will run to Amazon to get a job from them especially since they have the opportunity to start something new and revolutionary in these markets. Not only will Amazon be simplifying this market for people and reducing prices, they will be creating new jobs. Amazon is doing great things with the job market from raising minimum wage to fifteen dollars and having the potential for future job openings.
    According to an article in the New York Times, Amazon, JPMorgan, and Berkshire are creating a health care company that is free from profit making incentives. This article states that these three business giants understand that healthcare is expensive and confusing for the average person and they want to help with that. The idea of this company is to provide everyone with lists of all healthcare providers and their prices to help customers determine the best option for them. I believe that this will cut prices because companies will be in direct competition with each other. If this idea can be executed, then Americans will struggle less with healthcare and pharmaceuticals which will bring them peace of mind. I think Amazon entering this market is a good thing for everyone.

    https://www.nytimes.com/2018/01/30/technology/amazon-berkshire-hathaway-jpmorgan-health-care.html

  4. Amazon is a company that has changed the way we shop. At the drop of a hat, the online retail giant can take on new business, which puts the companies in any given industry on alert at all times. In this article, the author describes how Amazon has set sights on expanding into pharmaceuticals and what impact it could have on that industry. For example, CVS Pharmacy is considering an acquisition of Aetna, who is one of the largest health insurance providers in the United States. This potential move is considered to be a partial reaction of Amazon’s footsteps.
    Amazon’s potential entrance into the pharmaceutical industry would not only be for monetary gain, but also for the convenience of customers. The pharmaceutical industry is one portrayed by tons of consumer spending, inefficiencies, and inconveniences, so Amazon would look to improve the overall customer experience as well.
    Moving into pharmaceuticals should be a no-brainer for Amazon. Over time, we have seen consumers’ move to online shopping, so saving them a trip to the pharmacy only makes sense. As technology becomes increasingly advanced and people continue to shop more and more online, companies must adjust the way they do business to cater to consumer preferences. Otherwise, they will start to lose business to powerhouses like Amazon.

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