Drugs at Your Doorstep: Amazon’s Threat to CVS Health and the Future of Drug Delivery

Student comments on Drugs at Your Doorstep: Amazon’s Threat to CVS Health and the Future of Drug Delivery

1. November 17, 2017 Faraz Ka says:

   Great read. Traditional PBMs, which were originally put in place as middlemen to make the distribution of medication easier and cheaper, have completely failed in their main objective, and have in fact introduced more inefficiencies and price hikes by dominating the distribution “black box” and maintaining a monopoly on information. Don’t you think given the existing broken system, the success of the business model you’ve described above, whether executed by Amazon or another retailer is inevitable?
2. November 21, 2017 Katharine says:

   Very interesting read! Few initial thoughts in reaction to your piece. I wonder if we should accept that PBM and prescription pharmacy is CVS core business moving forward? My understanding is that they are focused now on “health” more broadly and I could see a strategy in which they try to leverage their store locations (within ~3 miles of every American) to decentralize healthcare delivery and become more of a one stop shop for primary care and preventative medicine (my understanding is they already have clinics and staff physicians at some pharmacy locations). By playing a larger role in the primary care and the prescribing, they’ll get more data on patient conditions and needs and be better able to manage supply chain (both in terms of predicting demand and finding efficiencies). Additionally CVS now has a digital innovation lab in Boston which to me signifies their commitment to deploying digital innovation to both improve customer experience and their supply chain operations – but we’ll see! While I see Amazon being influential in this space I still see a big role for brick and mortal. Specifically I see Amazon as potentially playing to the more wealthy prime member who orders everything off credit cards to their doorsteps. I see CVS serving an important need in reaching those Americans without credit cards, those living paycheck to paycheck, and those without internet at home (27% of Americans do not have high speed internet at home according to Pew). Would love to get your thoughts and discuss further!
3. November 26, 2017 Graham Thomas says:

   I agree with the suggestions that you’ve laid out at the end of your piece around leveraging its existing customer network to increase their value-add both in customer care and adherence support and in demand forecasting. However, I think that Katharine’s point above on doubling down on managing health more broadly and leveraging their massive network of physical locations is critical. While Amazon and other D2C companies may play a growing role in drug delivery going forward, healthcare will make the transition to full digitization much more slowly than other industries because of the important role of trust between healthcare providers and patients (which is bolstered by face-to-face contact in the care delivery chain), the high need for personalization of care (which often requires physically seeing a patient to read between the lines of what they are telling a provider), and the high cost of getting something wrong in diagnosing a problem and assigning a treatment plan.

   As such, CVS should think of how they can use their physical infrastructure to expand access to more people for basic care needs, travel vaccinations, or ongoing treatment check-ups for those dealing with chronic disease (CVS’s minute clinic program is a great platform to leverage for this). Then they can use digital platforms to bring value-added services, higher levels of effectiveness, and better results to those customers who they are establishing these face-to-face trusting relationships with. These digital services could include things like auto-reminders for Rx refills, easy ordering and delivery of those refills, direct messaging access to pharmacists or care managers through CVS, platforms for tracking medication usage and/or symptoms and side-effects of their medication and diseases, and automated suggestions for supportive or preventative measures the patient could be taking alongside prescription medications (e.g. daily vitamins and supplements). By establishing trust with patients and providing them a suite of supportive services that includes both online and offline interactions CVS can protect themselves from players like Amazon who can’t match the offline service piece that CVS would be capable of offering.
4. November 29, 2017 Sarah Scalia says:

   Super interesting read, especially given how quickly the FANG companies are beginning to encroach on the healthcare space. While a blueprint of an analogous example doesn’t immediately come to mind, I do think that CVS could garner some value from looking to other industries that Amazon has disrupted. This could be something akin to bookstores leveraging their physical space / experience by implementing cafes and reading rooms, as well as leveraging author signings and speaker events, to shield against the threat of Amazon, and, for CVS, would look similar to what Graham mentioned above (leveraging their physical spaces).

   To Faraz’s point above, I wonder if there is any other organization as large / powerful as Amazon that could “break” the current system. I don’t think that there is, and, given that, will Amazon’s success end up taking over the market, or just pave the way and lay the groundwork for a new system.
5. November 29, 2017 kmahan says:

   I am glad you brought up the recent approval of Abilify MyCite, as I am torn about the use of this data. Should we allow pharmaceutical companies, and perhaps PBMs and even pharmacies directly, to use this information to their advantage? And if we do allow it, is it because it is in the best interest of the patient?

   Personally, I fall on the side of this information being useful for everyone in the pharmaceutical supply chain. I believe that this information is comparable to a wearable or a bluetooth/wifi enabled glucose monitor, giving a healthcare provider valuable information about a patient’s adherence to a medication. With a medication like Abilify, for example, adherence is key to treatment and therefore a device like Ability MyCite has definite value to a patient’s well-being. In addition, this information can be valuable to the pharmacy and the pharmaceutical company. Companies can predict demand, know when refills will be due, and produce pills in a “just-in-time” manner. In a similar vein, pharmacies can order pills exactly as needed (or perhaps engage with pharmaceutical companies to have them delivered as needed without ordering) and can save inventory costs and more efficiently ensure that patient’s refills are available before they even come in. Unfortunately, this would not just benefit CVS, but if they were able to access this kind of information, it could give them a temporary leg-up on opponents such as Amazon, especially if they had access to health records through Aetna. The ethics of this is still a very gray area, but I see benefits for everyone from the patient to the physician to the pharmacy and pharmaceutical company.
6. November 30, 2017 John Smith says:

   Very interesting read. One question that I have is what Amazon’s entrance into this market will mean for drug prices. If Amazon thinks the potential prize for “winning” at prescription drug distribution is big enough, what’s to keep them from effectively subsidizing prescriptions and bleeding traditional pharmacies out of the market, or at least out of the online market? I agree with other commentators that CVS would be wise to focus on a more holistic approach to healthcare and wellness, and that by owning patient care more generally, they can potentially fend off the challenge. My personal, broader view is that this transition to online drug delivery will be slow to materialize, as it may require a generational shift in buying habits; older people who make up the majority of prescription demand may be slow to trust Amazon to deliver their drugs, whereas younger patients may find that proposition less frightening.
7. November 30, 2017 justinquall says:

   Vijay, I found this article very informative. On your question regarding wearables, you astutely mention everything that CVS is already doing on adherence (such an important factor in a system where ~40% or so of chronic disease doses go un-taken). So maybe the answer there is more on incremental customer relevance, for example expanding adherence activities from beyond only automated telephone calls to also iWatch reminders & dosing information flows. Clearly, the landscape is evolving very quickly and I’m eager to see how this one would play out.

   In assessing the true risk from Amazon, I would wonder whether the key success factors in pharma distribution match Amazon’s core competencies. From Katie G’s article, perhaps we could think of the cold-chain requirements, particularly as the proportion of drugs administered continues to shift more towards biologics (which usually require stringent temperature control). Amazon is a volume-focused, low-cost player with limited ownership of the final legs of delivery. With the purchase of Whole Foods, I feel more strongly about Amazon’s ability to think through refrigeration, etc, but I presume pharma’s requirements are more exacting and am unsure how well Amazon could influence logistics companies throughout a mass-rollout of the D2C model mentioned. Perhaps Amazon buying a specialty pharmacy is next?
8. November 30, 2017 E.C. Scott says:

   So I will be frank, I have wished with my birth control medication that it could be delivered in the mail. It is something women have to take everyday and once you find a brand that works, you stay on it. When I first started on birth control, insurers allowed me to buy three months worth at a time. Then the quota declined to two months. And now to one month. Making a special trip to CVS to pick up my prescription once per month is a hassle for me. However, when I only had to make the trip once every three months, it fit into my normal errands routine. From my personal experience, I wonder if instead of building out an online delivery model, could CVS negotiate with insurers to extend the duration between pick-ups? e.g. allow customers to pick-up three months’ worth of supply vs. one months’. This might diminish the incremental convenience of online delivery vs. picking up a prescription at a brick and mortar store.
9. November 30, 2017 Gabrielle says:

   Fascinating article, VK. I agree with you and others that I’m surprised CVS hasn’t taken a more offensive position on this, given what a risk it presents to their business – in addition to their pharmacy business, I also imagine that there must be substantial incremental revenue in their drugstores that is driven by the foot traffic from in-store pharmacies. I wonder if a future combined CVS/Aetna entity could take more aggressive defensive action – for example, could they refuse to pay claims filed by Amazon or other pharmacies that ship the product to the consumer, thereby forcing consumers to brick-and-mortar pharmacies? This may seem far-fetched, but some health plans already have preferred and non-preferred pharmacies, and CVS Caremark is one of the biggest PBMs in the country, while Aetna is one of the biggest payers.

   I also think about the role of other intermediaries in the supply chain. What would Amazon’s potential future success with direct-to-consumer prescription delivery mean for pharmaceutical wholesalers / drug distributors? Would they still exist, or if Amazon succeeds in dominating this market, could they deal directly with the pharmaceutical manufacturers? What is the pharmacist’s role in all of this? And there is also a question of legal liability. When I go pick up a drug at a brick-and-mortar pharmacy, I have to sign a waiver that I’ve been offered the opportunity to speak with a pharmacist about how to use my treatment correctly. How would this work with direct-to-consumer delivery, and if a patient does misuse a drug that was shipped from Amazon to their house, who is legally liable for this miscommunication?
10. December 1, 2017 Nick Simmons says:

    Vijay – great analysis! I had never considered the threat that healthcare companies like CVS Health could face from competitors who are better equipped to handle a more digitized supply-chain. Your assessment very much brought these threats to life, and I feel like I have a better sense of the risks. In particular I liked how you referenced specific healthcare services that firms like Amazon are better able to capitalize on. Telemedicine, remote monitoring devices and digital diagnostics just to name a few. It was shocking to me to hear that only 1% of annual revenue earned by the retail pharmacy industry is from online activity.

    I appreciate also the logic behind recommending CVS acquire Aetna to defend against Amazon’s encroachment. Since you have written this assessment, it looks like the CVS purchase of Aetna has proceeded even further. I wonder if you think companies like CVS, United, and Anthem will be allowed to continue to vertically integrate without interference from the FTC? At what point in the Healthcare/Pharmaceutical industry do companies begin tipping over into monopoly territory?
11. December 1, 2017 TSP says:

    You picked a compelling topic, Vijay. I agree with you that CVS is taking steps to react to challenges to its business, and that thus far, they’re insufficient to respond to changing technologies and conditions. This scenario raises a number of additional challenges that could further hinder CVS’s adaptation to competitive pressures. First, I’m curious how CVS could encounter and overcome regulatory challenges that could hinder your recommended vertical integration. I agree that solidifying their value proposition to customers by becoming a “one-stop-shop” ecosystem will help insulate them from competitors; however, Amazon could challenge this effort through their own upcoming insurance initiative or via partnerships to integrate with health care competitors to CVS. As more consumers shift to ecommerce, I think Amazon will probably succeed in executing a tech-enabled version of the 1990’s revolution in mail-order generic drugs- eating CVS’s lunch and taking over a sizable portion of the business.
12. December 1, 2017 at2019 says:

    This was a really great read, Vijay. The increasing trend in the customization of health care is really fascinating as I think about preventative care using data analytics and a better management of self medication. I think CVS has the potential to provide significant value to consumers and supplies. For it’s consumers, I think CVS can help with managing their prescription schedule. With the data CVS has on when prescriptions should be taken, how much, and with what, it could create a system that keeps consumers on track. If CVS were to partner with remote monitoring devices that use sensors to determine whether or not customers have taken their medication, they could launch an app that uses this data to streamline the whole process. In this way, they can signal when re-fills need to be put into the system to match the upcoming demand, ship these through electronic consent, sell this data to insurance providers, and lock in customers to their ecosystem.

    Additionally, CVS can use data from wearables and other monitoring devices to determine upcoming demand based on various health metrics. For example, it can signal to providers an increase in cholesterol levels for patients in a certain demographic and predict an upcoming demand for cholesterol medication.

    There is significant potential for CVS to remain competitive and increase foothold in the market.
13. December 1, 2017 Raffaele says:

    Vijay – I enjoyed reading this article. I see Amazon as an existential threat to the current business model of CVS and other established players in the retail pharmacy industry. It seems to me that key hurdle that Amazon has to overcome is gaining traction with pharmaceutical companies and insurance providers, and if Amazon is able to do this, I can see it dominating this industry. One piece that stood out for me was the general trend towards vertical integration. If the CVS-Aetna deal goes through, I would be curios to know how this massive organization would look like from an operational standpoint.