By now, everyone knows that Amazon is buying the pharmacy start-up PillPack for around $1 Billion, in cash. And, it’s been gaining attention in the last 48 hours that Walmart was one of the competitors in talks with PillPack before the announcement. These moves clearly signal both the power of the private sector and the recognition by the largest players that creating an end-to-end model is vital for future success in the health – and lucrative pharma – space.
We’ve also all heard about the joint venture of Buffet, Bezos and Dimon (Berkshire – Amazon – JPMorgan Chase) that will be headed by Dr. Atul Gawande, despite not actually knowing what the organization will do exactly. But the context is the same. Big players, coming together in unique ways in the health arena to change the landscape.
What I found particularly interesting was that the Amazon move(s) had been predicted for a while (it had already secured pharmacy licenses in more than one state), but some competitors appeared blindsided by the recent announcements. And it reminded me of a discussion from almost two years ago at the Forbes Health Summit in which a panelist in this space said, “Coordination is not fully alive.” The panel for “On Demand Healthcare Economy” went on to describe that it used to be that patients would come to you and then wait. Not anymore. It was all about new ideas for how doctors, caregivers and providers can go to patients. And when we saw the almost $14 Billion acquisition of Whole Foods by Amazon last year, we should have known it was ultimately an end-to-end health care move.
One of the members of that panel, John Sculley, former CEO of Apple and President of Pepsi, chimed in about the ways the private sector could fill those gaps because he had recently brought his decades of business experience to the health space. In fact, he contends that in the health care world, he’s found his calling because so many of the problems are fixable. Thus, in 2016 he became the Chairman and Chief Marketing Officer of RxAdvance, a pharmacy benefit manager (PBM) – a field in the health sector that has been contentious, but certainly productive in recent years.
NEW YORK, NY – APRIL 21: John Sculley speaks onstage at the Kairos Society Global Summit At One World Observatory on April 21, 2017 in New York City. (Photo by Brad Barket/Getty Images for Kairos Society)
His expertise in big business and interest in the health field appear to be an ideal combination for RxAdvance, as it sees itself perfectly positioned to address an estimated $900 billion market. According to the company, in addition to the $370+ billion PBM market, RxAdvance’s solutions attend to the $120+ billion specialty drug market and $350+ billion avoidable drug-impacted medical costs.
So John was the perfect person to ask about the big announcements of the last few days, as well as prognosticate a little about where he sees this going for allies, competitors, and his company.
Nicole Fisher: I’ve read that Walmart, which supposedly bid $700 Million for PillPack, lost $3 Billion in market capitalization on Thursday. That had to hurt. Simple: Why do you think Walmart was unsuccessful in getting PillPack?
John Sculley: Amazon understands disruptive innovation, and Jeff Bezos is one of the best CEOs out there.
Nicole: Is this move by Amazon going to lead to an MA war? Clearly companies like Walgreens, CVS, Rite Aid, Target and Walmart must feel like they’re in a defensive position.
John: While this deal will have major long-term implications, the short-term implications are limited. Health care mergers and acquisitions make a lot of sense, and I believe we are still in the early days and there are many more to come. McKinsey Global Institute estimates there is $900 Billion of waste, fraud, misuse, abuse and avoidable expense within the $3.2 Trillion U.S. health system. So it’s clear that major sectors of the health care industry are unprepared for the future.
Nicole: We know Amazon has been taking from retail front-end sales (shampoo, deodorant, toiletries), but this is going after an entire pharma sector that kept the Amazons of the world at bay. What will be the driver of pharma MA?
John: The MA uptick is an important trend, not just a few one-off big deals. This is because there is a huge customer problem needing solutions: Chronic care patients represent about 86% of total U.S. health spend. More specifically 5% of the U.S. population – the most seriously ill – account for about half of the total $3.2 Trillion annual U.S. health spend.
It’s just not possible to solve the unsustainable cost of the health system without significantly lowering the cost of care for the chronically ill. Key to a solution is reducing costs related to prescription drugs and related therapies for this population.
Nicole: It seems to me, as a health policy person in D.C., the driver of MA has been about reducing costs through consolidation. Earlier on we saw health plans try horizontal MA, and they were promptly rejected by the government. But now, we’re seeing more of the vertical play for potential/confirmed mega-mergers. CVS’s $87.8 Billion bid for Aetna, Cigna’s $67.9 Billion bid for Express Scripts, Walmart – Humana, and now the Walgreens – Humana partnership in aging. Is that fair?
John: Now we are seeing some really big vertical MA deals. CVS + Aetna; Cigna + Express Scripts. Vertical acquisitions should achieve government approval. If there are deals, it’s likely to be a vertical combination (not a horizontal combination like the previously rejected Aetna Humana proposed MA deal).
Walmart has about 7,200 pharmacies. Acquiring a large health plan could give Walmart an opportunity to connect a health plan’s member data for prescription drugs with Walmart’s consumer facing services. For example, about 50% of patients with prescription drugs fail to take their medications. Improve that metric and health plan profitability will improve. CMS has been shifting reimbursements from fee-for-service to incentives and penalties for better outcomes. If Walmart is successful acquiring a large health plan, it positions them well to compete against Amazon. Humana’s strength is Medicare Advantage members and one can imagine that it matches up well with Walmart’s customer profile.
Nicole: I’ve heard you say the next wave of MA will be shaped by disruptive innovation. Smart actionable data. Much lower cost-of-care workflows. Advanced technology replacing call centers. Platforms replacing siloed functional organizations. Tell me more about that.
John: Healthcare is at least a decade behind other industries (such as, business productivity, financial services, telecommunications, media entertainment) when it comes to adapting cloud platforms and actionable analytics to solve big customer problems.
Meanwhile, Amazon brought smart process automation to the consumer goods supply chain. Smart process automation is exactly what we do at RxAdvance. No other PBM can come even close to our claims processing costs as RxAdvance is the only cloud platform PBM. We are built to scale and we a forecasting about $10 Billion contracted lives in 2018.
Nicole: Alright. So, speaking of your company and PBMs, what does this acquisition mean for you?
John: At this point, many PBMs are generally still pretty antiquated, and this acquisition – along with other recent health mergers and acquisitions – will lead to major savings. Ultimately, though, Amazon will have to integrate with a cloud-based PBM. Existing PBMs will be OK for a while, but cloud-based platforms are taking over industry after industry, and health care is no exception.
Article source: https://www.forbes.com/sites/nicolefisher/2018/06/30/john-sculley-weighs-in-on-amazon-health-ma-and-the-future-of-pbms/