Disruptor of the Year: Amazon
Amazon purchased online pharmacy PillPack for $753 million in September, pitting it squarely against big pharmacies. Also this year, the company recruited Atul Gawande to lead its healthcare venture with J.P. Morgan Chase and Berkshire Hathaway, an effort to lower worker healthcare costs. More recently, Amazon launched a brand to sell medical devices straight to consumers.
"Amazon's potential foray into healthcare has already caused players in the space to scramble and reevaluate their core competencies." - CB Insights
All eyes are on the next move for the J.P. Morgan-Amazon-Berkshire Hathaway venture and whether it can deliver on its big promise to curb costs as well as the behemoth's next moves in the drug industry after its acquisition of PillPack.
As Amazon tiptoed into the healthcare industry throughout the past year the sector looked on and feared disruption.
The year began with the news that Amazon was teaming up with Berkshire Hathaway and J.P. Morgan Chase to start a venture focused on reducing employee health costs and improving satisfaction. The move sent payer shares tumbling.
This year the companies tapped Atul Gawande to lead the venture, a clinician whose been focused on standardizing care.
The fear of the e-commerce giant's footsteps into the industry played a role, some suggested, in spurring some of the year’s blockbuster mergers, including CVS' $69 billion union with Aetna.
"Amazon's potential foray into healthcare has already caused players in the space to scramble and reevaluate their core competencies," analysts with CB Insights said in a recent report.
Although some observers remain skeptical about Amazon's threat to the highly regulated industry, the landscape looks entirely different than it did just one year ago.
A Reaction Data survey of health industry leaders found Amazon far ahead of rivals in perceived "disruption" potential. Some 75% of CEOs said the e-commerce giant will cause the most waves. Next was Apple (14%), followed by Google, Microsoft and IBM, according to the report
In early October, Express Scripts shares fell 3%, one day after Leerink analysts published their analysis on Amazon’s threat to the industry.
Rumors and speculation continued to swirl until Oct. 26 when it was reported that Amazon had gained licenses in at least 12 states to become a wholesale pharmaceutical distributor and the news sent shares tumbling again.
Just hours after the licenses news, The Wall Street Journal reported CVS was in talks to acquire Aetna in a blockbuster deal viewed as a way to stave off the threat posed by Amazon.
Two months later, the deal was officially announced, which was then followed by the news that Cigna would purchase Express Scripts. The deals represent a major industry shift — vertically — as the nation’s major insurers would all have in-house pharmacy benefit managers, a move they say allows them to better manage the complete health of a member.
If anyone was still left wondering whether Amazon would enter the pharmacy space, that ended in June when the company announced that it signed a deal to acquire PillPack, a move that immediately pitted Amazon up against major pharmacies.
PillPack gave Amazon the ability to ship prescriptions to any state in the country. PillPack is a pharmacy that pre-sorts a members' daily medications and ships to their home. The novelty is that it eliminates the need to remember to take medication from a standard prescription bottle each day.
Aaron Martin, chief digital officer at Providence St. Joseph Health and former Amazon executive, said healthcare is a huge target for disruption given how difficult it is for patients to interact with the system, though he predicted the company would take a strategic role.
"The only two constituencies that really matter are clinicians and caregivers," Martin said during the U.S. News Healthcare of Tomorrow conference last month. "Our job is to race to see how much friction you can take out of the process of making those two people interact."
That's a lesson he learned while at Amazon's publishing division, notorious for upending that sector.
He expects that Amazon and others will play a larger role in reducing that friction, with an aim of steering patients to the best modes of care without actually getting into care delivery.