Battle of the Titans – Amazon vs. Mark Cuban in Discount Pharmacy Services

“Prime members already get fast, free delivery on prescription medications, and RxPass is one more way to save with Amazon Pharmacy. Any customer who pays more than $10 a month for their eligible medications will see their prescription costs drop by 50% or more, plus they save time by skipping a trip to the pharmacy. We are excited to offer our customers surprisingly simple, low pricing on the eligible medications they need each month.”

John Love, Vice President, Amazon Pharmacy
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More than two years after announcing Amazon Pharmacy to take some of the prescription drugs business away from big (and smaller) drug stores, Amazon is launching a new product to expand its reach in the space. Recently Amazon announced RxPass, a service where Prime users in the U.S. can pay a monthly flat fee of $5 to get as many generic versions of medications as they need. Amazon said that initially, the service would cover generic drugs for 80 common ailments — they include, for example, Losartan (the generic for the hypertension drug Cozaar) and Sertraline (the generic for antidepressant Zoloft) and hair-growth pills — and it would not comment on its plans to expand the list.

The 80 conditions were selected, so to speak, to make it an offer attractive to a broad base of potential customers. RxPass is not open to people on government medical plans like Medicare or Medicaid (Amazon Pharmacy is a provider for these and thus cannot offer it directly). One pays the $5 out of pocket, not on insurance. You sign up for it in your app as a Prime user under Pharmacy. Amazon works with Inside Rx, a prescription drug pricing comparison service owned by Express Scripts, to administer RxPass and PrimeRx.

“We think this is going to be super valuable for Americans who have a chronic condition or those who might be taking two to three medications. With this specific offering, any eligible medications would all be for the single low flat fee of $5, and it’ll be delivered to their door.”

John Love, Vice President, Amazon Pharmacy

The service is available to customers in 42 states, though those in California, Louisiana, Maryland, Minnesota, New Hampshire, Pennsylvania, Texas, and Washington are not currently eligible.

YouTube Video Credit: CNBC Squawk Box

This is a big and pretty bold move for Amazon; $5/month is the fee regardless of the amount a customer orders, meaning the service is aimed at those who are currently already paying more than this per month for their meds for these 80 conditions, or think that they might over time need to pay more, or are looking for one-stop services with a predictable cost each month. It also competes with a few other things also brewing in the market: namely, Mark Cuban’s Cost Plus Drugs effort.

“This approach really leverages the core capabilities in which they excel—merchandising, order processing, logistics infrastructure, the back end order management and they have an estimated 150 million Amazon Prime members who have already bought into the company’s value as a merchandiser.”

Michael Abrams, Managing Partner, Numerof and Associates

Amazon would not disclose how it arrived at $5 and whether that’s a subsidized figure to attract more users. Still, data published last year by health policy researchers Kaiser Family Foundation, citing figures from the OECD, noted that in the U.S. in 2019, annual per-capita out-of-pocket payments for prescribed medicines averaged $164. This is not a direct comparison, as this is not a figure that covers 80 conditions, but it is the average, giving an idea of what is spent around the most common conditions that Amazon is also targeting.

It’s unclear whether RxPass is intended to drive profits for Amazon or if its goal is more strategic. In a blog post, The Advisory Board’s Gina Lohr, a managing director on the company’s research team, ran the numbers on one generic medication to see how much revenue Amazon would receive from a typical Amazon Pharmacy purchase versus the RxPass program. For Bupropion XL, a common antidepressant and smoking cessation support drug, the copay is typically around $15 or less. For Prime members, Amazon sells the drug for a cash price of $14.90 for a 30-day supply, with free shipping. RxPass members would get their 30-day supply for a $5 subscription fee. The Mark Cuban Cost Plus Drug Company price for Bupropion XL is $5.70 before adding the $5 shipping cost.

“This means that Amazon just cut the prescription cost by two-thirds, cutting their profits on the fill by $10—likely bringing it close to $0. They would have to add a whole lot of scale to make up for these discounts.”

Gina Lohr, Managing Director, The Advisory Board

Mark Cuban, owner of the Dallas Mavericks basketball team and host of the TV show Shark Tank, formed the Mark Cuban Cost Plus Drug Company roughly a year ago. The online pharmacy cuts out the drug middleman and sells the medication at cost, plus a 15% markup and pharmacist fee. Cuban’s pharmacy says it will negotiate drug prices directly with manufacturers to lower consumer costs. The pharmacy doesn’t accept health insurance but says prices will still be lower than what people would typically pay at a pharmacy. The website currently offers 100 generic drugs to treat various illnesses, including diabetes, asthma, and heart conditions.

YouTube Video Credit: Recode, 2022

For someone without health insurance (which the company does not accept in the first place) or whose plan has high deductibles or copays, the savings can be dramatic. For example, the average wholesale price for a month’s worth of the cancer treatment imatinib (generic Gleevec) is $9,657, which you could cut to $120 with a coupon from the drug-tracking company GoodRx. Meanwhile, Cuban’s company offers a one-month supply for just $47.

It partnered with EmansaRx, the pharmacy benefit manager spun out of the Purchaser Business Group on Health, in December to provide discounted prescription drugs to self-insured employers

These two behemoths aren’t the only ones looking to lower patient prescription costs. A number of health systems banded together in 2018 to form the nonprofit drug company CivicaRx, which began supplying member hospitals with generics one year after its launch. A subsidiary called CivicaScript has partnered with payers like Elevance to develop and manufacture common but pricey generics that don’t have enough market competition to drive down cost and launched its first product in August 2022. Like the Mark Cuban Cost Plus Drug Company, Civica Rx creates a direct route from the manufacturing facility to the customer. The company keeps the supply chain short, sourcing drugs from the U.S. where possible, and negotiates directly with suppliers. (Both companies are also building their drug manufacturing plants in the U.S.) Kaiser hospitals have benefited from a cheaper, more consistent supply of generic insulin, blood pressure drugs, and other vital medications after contracting with Civica Rx.

YouTube Video Credit: A Second Opinion Podcast, Senator Bill Frist, MD

ScriptCo pharmacy, a membership-based pharmacy company, offers a similar service to RxPass for an annual fee of $140.

YouTube Video Credit: ScriptCo, Inc.

GoodRx helps more than 20 million Americans save money on prescription drugs and healthcare each month, and has saved its users more than $30 billion since its inception.

YouTube Video Credit: Click on Detroit, Local 4, WDIV

There’s a growing list of startups targeting the $500 billion retail pharmacy sector as a massive opportunity to disrupt the status quo. Companies in the space include Alto Pharmacy, Capsule, Truepill, and NowRx.

So, which of the two titans comes out on top in the battle to disrupt the discount prescription drug market? Both companies take a long view of their journey to profitability. Amazon would appear to have a leg up in the competition. According to a recent JD Power survey, nearly two-thirds (66%) of brick-and-mortar pharmacy customers currently have an Amazon Prime account, and roughly half (48%) of pharmacy customers are aware of pharmacy services offered by Amazon. Fourteen percent of customers know about Amazon’s PillPack online pharmacy service. “Of that group, 38% say they ‘definitely will’ switch pharmacies in the next 12 months,” the J.D. Power study stated.

Image Credit: CB Insights, Big Tech in Pharma Report, 2022, page 25

Cuban has deep pockets. But in the interview with Kara Swisher at Recode, he was unwilling to say exactly how much he has poured into Cost Plus Drugs at this point (other than “a lot”). Amazon’s introduction of RxPass changes the pricing dynamic and will likely force Cuban to reevaluate his “cost plus fifteen percent” strategy to remain competitive. Whether or not Cuban can attract the same visibility and customer loyalty as cited in the Amazon numbers above remains unclear.

“What Mark is showing people is that so much of the costs have nothing to do with the manufacturer. They happen after the drug leaves the manufacturer before it ultimately gets to patients.”

Brent Vaughan, CEO, Cognito

The biggest challenge for Cost Plus Drugs moving forward is continuing to get manufacturers to realize that simplifying patients’ medication access is ultimately a good thing. And that’s a tall order.

At this point, I think it’s “advantage Amazon.” They’ve got the deep pockets, name recognition, infrastructure, and staying power to experiment with and refine the RxPass program into another “added value” Prime service for their vast customer base. Time will tell how much Amazon disrupts the pharmacy market, but the tech giant’s moves are worth tracking as it pushes deeper into healthcare.

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