Amazon (AMZN) has taken yet another step into the health space, announcing a new $5 monthly subscription for Prime members for generic drugs Tuesday.
The announcement is Amazon's latest foray into health care, after the company acquired PillPack in 2018, followed by its announcement to acquire One Medical (ONEM) last year. It was also part of the failed Haven venture that included JPMorgan (JPM) and Berkshire Hathaway (BRK-A, BRK-B) which attempted to manage health costs for large employers. Amazon also offers six months of certain generics for $6.
Amazon Pharmacy chief medical officer Dr. Vin Gupta told Yahoo Finance that the $5 price point "is the right price point to provide value to our patients."
That includes free shipping. The math works, according to Gupta, as the target population is non-Medicare and non-Medicaid individuals. Medicare-eligible individuals account for the highest spend on drugs, thus are a high-volume population that is not benefitting from this new subscription model.
Gupta noted the target population is those who are under-insured in the age range of 40 and 64 years old.
Evercore ISI analysts said in a note Tuesday that the announcement is an "incremental pharmacy experiment" for Amazon.
Discounts on generic prescriptions is not a new concept, and has become an increasingly competitive space. GoodRx (GDRX) has been on the scene for a while, followed by Walmart (WMT), and most recently billionaire and Shark Tank investor Mark Cuban, who launched Cost Plus Drugs last year. All these programs boast low costs for generics.
Amazon is taking it one step further — it is allowing multiple prescriptions to fall within that $5 per month payment — but only with a Prime membership.
It's why Nephron analyst Eric Percher noted, "While it is possible that the $5 price point could offer savings for uninsured and underinsured patients who take multiple (generic) prescriptions, we do not believe it is significantly lower than that available from community and mail pharmacies, especially after taking into account the cost of a Prime membership."
In a statement Tuesday, Gupta highlighted an oft-cited statistic that inspired the new strategy, saying, "New medications don't get filled, refills don't get picked up."
"Amazon Pharmacy is tackling these challenges by making medications more accessible, affordable, and convenient. RxPass helps patients manage common health conditions—high blood pressure, anxiety, or acid reflux, for example—by providing reliable access to commonly prescribed medications, delivered with the ease and support customers expect from Amazon," Gupta added.
But there are several exceptions. First, it does not apply to Medicare and Medicaid members. Second, it does not include insulin — a top target in the U.S. government's Inflation Reduction Act. Third, it is a small pool of drugs available — roughly 50 different on the available list, which treat 80 conditions, according to Amazon.
"Overall, we continue to see Amazon as a relatively small player in pharmacy over the short-to-medium term as innovation is much harder for branded drugs," the Evercore analysts said.
But, Percher added, "It will be interesting to see if CVS and Walgreens as well as Walmart and Kroger adjust their low cost generic offerings in response to RxPass."
Meghan Fitzgerald, an investor and Columbia University health policy professor, said how Amazon ties in the new program to additional health services will be the key to watch.
"No surprise. Low cost generics are now the price of entry for any pharmacy player entering the space. The breadth of formulary coverage, customer service and additional services (telehealth) will be important to differentiation and ultimately winning market share," Fitzgerald said.
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