The online retailer Amazon’s willingness to buy brick-and-mortar grocery chain Whole Foods Market Inc. for $13.7 billion has revitalized the debate over its willingness to enter into pharmacy business by buying Rite Aid.
Amazon’s eagerness to enter into the pharmaceutical industry has raised many doubts if Amazon is really ready in the highly regulated pharmaceutical and drug benefit business to compete with CVS Health or Walgreens Boots Alliance.
But its deal with Whole Foods shows its openness to penetrate into a new industry.
Ann Hynes at Mizuho Securities USA wrote in a note on Monday,
“Based on Amazon’s acquisition of Whole Foods, we are more convinced Amazon would need an acquisition in order to overcome regulatory and payer hurdles, gain access to the customer … and sourcing.”
Walgreens on another hand is still not sure if the federal government will approve its purchase of Rite Aid or the deal is headed to potential litigation. The decision is expected within the next month on a complicated deal that involved divesting up to 1,200 Rite Aids to Fred’s Inc., a discount retailer operating stores in 15 southeastern states.
The business of filling, dispensing and managing patient prescriptions would be tough for Amazon without acquiring Rite Aid.
Its competitors for the acquisition, Walgreens, CVS and Wal-Mart Stores have ties with health insurers and medical care providers that have footholds in their markets.
Moreover, CVS owns nation’s largest pharmacy benefit management (PBM) companies, which competes with Express Scripts and UnitedHealth Group’s OptumRx.
J.P.Morgan analyst Lisa Gill wrote,
“On the PBM Side, the three largest players each process over 1 billion claims annually. Importantly, the scale they have aggregated allows them to negotiate attractive rebates/discounts with manufacturers and attractive reimbursement terms with retail pharmacies.”
But Rite Aid itself operates its own PBM, EnvisionRx, and has relationships with government and private health insurers as well as employers.
It may take years for Amazon to get into PBM business on its own and form close ties with health insurers and employers.
Walgreens, CVS and other pharmacies should have relations with doctors and providers that have existed for decades to follow the trend in healthcare of value-based models and population health. Reforms like Payment under ACA and related efforts pushed by Medicare, Medicaid and private insurers are also moving towards population health.
Date: June 22, 2017