Insurance industry leaders predict the way medications are purchased today could come to an end in the next five years, potentially doing away with pharmacy benefit managers and how benefit brokers work with insurance product sales.
That new healthcare landscape may emerge in the wake of Amazon’s purchase of the online prescription drug company PillPack, which was announced last week. The deal — which gives the online retail giant the infrastructure to deliver prescription medications in the U.S. — could potentially make redundant middlemen such as PBMs and even some benefit advisers from the healthcare industry.
Rob Piazza, product manager, analytics, at Benefitfocus, says payers and PBMs had many chances to work together in the past to better control rising drug costs, but they did not do enough.
“Just like Apple swooping in to change the music industry with an innovative technical tool, Amazon will now force change on those payers and PBMs,” Piazza says. “We have commented before on the potential impact of Amazon, Chase and Berkshire wanting to tackle the problem of rising healthcare costs, and some thought it was just more lip service.”
Bob Gearhart Jr., partner at benefits firm DCW Group in Boardman, Ohio, says the Amazon-PillPack deal will phase out middlemen because their services are no longer required by employers and their employees. The deal could also impact advisers who only work off the commissions from the insurance carriers.
“At the end of the day, it’s the employer or the payer; the patient and the provider; that’s healthcare,” Gearhart says. “The carriers will still be around, but they have never been forced to change their business model by the market, and the same can be said for brokers.”
While it is still very early to know for sure whether brokers will be phased out of the healthcare market, many experts in the industry agree that Amazon’s deal does lend credence to the new movement of activists brokers, like Gearhart, looking to pinch or outright eliminate PBMs from self-insured models.
Shandon Fowler, founder and principal of Four8 Insights, doubts Amazon will position PillPack as a broker-offered product or as any sort of reseller deal.
“Consumer centric brokers will have another potential tool to offer employees and individuals to better and more efficiently manage their prescription needs,” Fowler says. “Ultimately that’s great for everyone.”
With respect to pharmaceutical benefit managers, the general understanding is that Amazon could make a play to enter the PBM space directly, as either a home delivery-only solution that could act as an outsource option for other PBMs similar to Walgreens, or it could decide to directly enter as both a retail network and home delivery option.
“Unique challenges persist for Amazon as a full service PBM, as it would require them to create or purchase a retail network of pharmacies from the very retailers it competes directly with for traditional consumer goods,” says David Pittard, managing principal at OneDigital.
The speed of change
The fact that Amazon has bought PillPack leads Gearhart to believe they are planning to come to market quickly. Rather than creating its own pharmacy market from scratch, buying an online pharmacy already in the market is a warning shot to the rest of the industry that Amazon means business.
Four8 Insights’ Fowler agrees that change is coming. “This purchase, and the fact that there was interest from both Walmart and Amazon at a minimum, shows that the healthcare industry is reshaping itself to be more data-conscious and consumer-centric,” Fowler says. “Amazon wants as few people between them and their customers as possible, and they want to deliver meaningful results.”
For those working in the health insurance industry, Piazza says the market is all about leverage. Payers originally pulled together groups of companies and members to negotiate rates with healthcare providers, he says.
“Then providers got smart and created health systems within communities so that payers couldn’t threaten to throw these large systems out of network during negotiations, thus providers had the leverage,” Piazza says. “Now that Amazon poses a real threat to traditional pharmacy benefit management, I’m betting the PBMs will run faster towards purchasing payers, like the proposed CVS acquisition of Aetna.”
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