Pharmacy chains Walgreens and CVS Health are beginning to worry less about Amazon shaking up the complex pharmacy business as they launch new ways to improve distribution, prescription delivery and patient health outcomes.
Walgreens Boots Alliance, CVS Health and industry analysts are increasingly expressing doubts that Amazon would become a retail rival filling prescriptions given the relationships pharmacies already have with doctors, hospitals, health systems and the insurance companies that pay them. This comes even after a report that Amazon has obtained wholesale pharmacy licenses in several states.
“This is a bigger risk for the drug distributors, but not the retail pharmacies or Express Scripts at this juncture,” Ann Hynes, analyst for Mizuho Securities USA said in a report Thursday evening. “Amazon needs a different type of pharmacy license in 50 states to dispense medication to consumers.”
Amazon hasn’t said publicly what its plans are in pharmacy, but that hasn’t stopped a constant onslaught of questions from Wall Street analysts to executives at pharmacy benefit managers (PBMs) and pharmacy chains about the potential for the online retailer to get into the prescription business.
Take, for example, analyst questions Wednesday to the senior management of Walgreens Boots Alliance, which took them all in stride, emphasizing its growing U.S. retail pharmacy sales and steps its taken to improve distribution and customer service.
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Walgreens has a partnership with FedEx to provide access to FedEx “drop off and pickup services” at drugstores across the country. The FedEx services, first announced in January, are now available in most Walgreens except in stores impacted by recent hurricanes in Florida, Texas and Puerto Rico.
“We will use this to create a fantastic network to deliver to the customers directly from our pharmacies,” Walgreens CEO Stefano Pessina told analysts Wednesday during the company’s fiscal fourth quarter earnings call.
CVS and Walgreens are also taking additional steps to make it even more difficult for the likes of Amazon to rival their efforts to improve health outcomes in working with medical care providers, health insurers and PBMs.
The business of managing prescription benefits is complicated, requiring established relationships with employers and providers of medical care, particularly as the U.S. healthcare system transitions toward value-based models and population health that require pharmacies and PBMs to have relationships with doctors, hospitals and other providers in the community that have existed for decades. Increasingly, CVS and Walgreens are trying to demonstrate their role in improving health outcomes for patients while at the same time cutting costs.
“We are still not convinced this is a space Amazon will want to enter given we view a major acquisition is likely necessary for Amazon to overcome the inherent regulatory, payer and generational hurdles to compete effectively in this space,” Mizuho’s Hynes said in a report earlier this week.
CVS this week announced a “performance-based pharmacy network” that will be “anchored” by CVS and Walgreens as well as potentially 10,000 independently owned pharmacies. In all, the network will have 30,000 participating stores.
The network is designed to improve clinical outcomes for clients who use the CVS Caremark PBM by helping holding participating pharmacies to performance measures designed in part to improve medication adherence.
“Steadily increasing drug costs, and the current transition in health care from volume to value, require us to continually develop and implement innovative solutions to help our clients manage pharmacy costs while improving health outcomes,” CVS Health chief operating officer Jon Roberts said in a statement announcing the deal. “This partnership with Walgreens, CVS Pharmacy and independent pharmacies enables us to offer a new kind of pharmacy network that provides our clients with opportunities to improve health outcomes and lower overall health care costs, along with comprehensive, nationwide access to medications for their patients.”
Already, CVS and Walgreens are forming accountable care organizations and other value-based models that contract with insurers to manage the care of populations of patients, making sure they get the right care, in the right place and at the right time. The drugstore chains say the performance network builds on its value-based approaches.
“This network recognizes that pharmacists do more than dispense medications. They are key members of the patient care teams and add value by helping and encouraging patients to take their medications as instructed, improving overall health and wellness while lowering costs for patients and payers,” Walgreens Boots Alliance co-chief operating officer Alex Gourlay said. “Tracking performance provides additional accountability and incentive to achieve measurable outcomes.”