Like a James Bond villain, for Amazon.com, the world is not quite enough.
Yes, the Seattle-based online superstore has a market capitalization of almost $470 billion, making it one of the world’s top five biggest companies. Yes, Amazon founder Jeff Bezos went out and bought a retail giant (Whole Foods) and one of the most storied names in American media (the Washington Post) as easily as if they were 99-cent books.
And yes, the company currently has the power to make more than 200 American communities collectively lose their scruples and their minds in their desperation to convince Amazon to build a second headquarters within their city limits—despite the well-documented deleterious impact online retail has on small business (they call it the “Amazon effect”).
Surely we can all agree on this: Amazon just doesn’t have enough power yet. Which is why Amazon appears to be quietly preparing to enter the pharmacy business.
Amazon: The Everything Superstore
As per a review of public records, Amazon is now the proud holder of a wholesale pharmacy license in 12 states: Nevada, Arizona, North Dakota, Louisiana, Alabama, New Jersey, Michigan, Connecticut, Idaho, New Hampshire, Oregon and Tennessee, the newspaper reported. Another license is pending in Maine.
Not that the company can start shipping pills immediately.
For Amazon to start mailing drugs directly to patients would require the company obtaining a pharmacy license—or, perhaps, purchasing another already-licensed company outright. Neither seems like much of a hurdle for a company that has already caused serious ripples through the pharmaceutical industry based on this mere rumor.
Pharmacy giant CVS—which is in every neighborhood in America that doesn’t already have a Walgreen’s—wants to merge with Aetna, a health insurance provider. Doing so would give CVS great new awesome power to negotiate drug prices directly with pharmaceutical companies. Sounds aggressive and highly ambitious. Maybe, but this is also a defensive move.
If Amazon also jumps into the retail pharmacy business, there are fears that Walgreen’s and CVS could go the way of retail bookstores—an arena in which large corporate chains, along with tiny mom-and-pop outfits, have fallen victim to Amazon’s low prices and consumers’ demonstrated preference to get something online instead of schlepping down to a store. (Amazing what no brick-and-mortar costs, combined with $15-an-hour “fulfillment center” wages, will get you!)
“The likely Amazon entry into retail pharmacy is a major threat to CVS, on top of already dwindling storefront sales,” according to analyst Ana Gupte, as reported by the Washington Post.
Thus, buying an insurer would allow for CVS to insulate itself from some direct competition from Amazon… unless Amazon also bought an insurer. Or started issuing insurance. Or bought out every hospital in America and started its own version of Britain’s NHS—but floated by investor capital rather than taxpayer money.
Amazon’s great drug-selling plan already has at least one influential stan in Mehmet Oz.
Dr. Oz, the heart surgeon, TV host and shameless promoter of quack remedies has a nice euphemism for Amazon’s scorched-earth effect on retail: “forced efficiency.”
“Amazon has gone into a lot of sectors that aren’t as efficient as they could be and forced efficiency,” Oz told The Street.
Examples of forced efficiency include a non-unionized workforce that can’t afford a one-bedroom apartment and, when that’s not efficient enough, replacing human workers with robots.
Forget that for a second.
In Oz’s world, doctors would be able to use an Amazon pharmaceutical app to access a drug marketplace with transparent pricing.
“The big part is there needs to be transparency—everyone needs to know what the drugs cost,” he said. “I’m a heart surgeon, and when I prescribe something, I have no idea what the drug prices would be.”
Sure, that sounds nice—except for the fact that this is not how drug pricing works.
No Changes To The System
Most Americans already buy their prescription drugs from a massive pharmacy chain—like Walmart, if not CVS or Walgreen’s—and simply adding yet another mega-retailer into the equation won’t change any of the fundamental factors that leave consumers turning out their pockets for their life-saving tonics.
Americans spend $300 billion a year on prescription drugs—and have resorted to buying and trading drugs online because of the colossal cost associated with the very drugs that keep them alive—for a few very basic reasons. There are no price controls here like there are in other countries. Americans don’t enjoy the benefits of competition from generic drug-makers.
For these reasons, and due to the simple fact that developing new drugs is vastly expensive, and these costs are passed on to consumers rather than absorbed by pharmaceutical companies’ shareholders, drug companies can cheerfully raise the price of, say, EpiPens by 600 percent.
How would Amazon’s entry change any of this in the consumer’s favor?
The short answer is that it wouldn’t—not unless Amazon also played hardball with drug companies while lobbying Congress to make changes to the aforementioned situation to make drug prices more affordable in America.
To believe that Amazon will suddenly choose to sacrifice profits in order to intervene on the consumer’s behalf requires a turnip-truck level of credulity. More than likely, Amazon sees pharmacies as the next step towards fulfilling a Twitter prophecy.