CVS just laid out a big reason why health companies are worried about Amazon

CVS just laid out a big reason why health companies are worried about Amazon


When word spread that Amazon would move into health care in 2017, health-care executives had a ready answer: We are not afraid.

“I honestly don’t believe that Amazon will be interested in the near future in the next few years in this market,” Walgreens’ CEO Stefano Pessina told investors in an earnings call in July 2017.

“I think we have a lot of capabilities and a value proposition that can compete effectively in the market,” CVS CEO Larry Merlo said back in August.

But recent legal actions tell a different story.

In April, CVS filed a lawsuit against John Lavin, a former senior vice president in charge of CVS Caremark’s retail pharmacy network, after Lavin told the company he was leaving to take a job at Amazon’s pharmacy arm, PillPack. The judge this week ruled in CVS’ favor, preventing Lavin from taking immediate employment at PillPack.

That follows another case from January of this year, where insurance giant UnitedHealth sued one of its employees for attempting to join a different Amazon initiative. That was Haven, Amazon’s joint employer health venture with Berkshire Hathaway and J.P. Morgan.

These lawsuits suggest incumbents are more concerned than they’re letting on in public.

The underlying concern: Amazon going directly to insurers

Amazon has said almost nothing in public about its health-care strategy.

But Amazon could disrupt the space dramatically by negotiating directly with insurance companies on drug pricing, cutting out the existing pharmacy benefits managers, or PBMs. All of that could potentially lower health-care costs for consumers.

Among other functions, PBMs help insurance companies negotiate lower drug costs. Manufacturers arrange discounts, called rebates, with the benefits managers so they can fix a spot for their products on a PBM’s list of preferred drugs. It’s a huge business — CVS’ PBM business represented approximately 60% of its overall revenues in 2018, or around $116 billion, according to a person familiar with CVS’ business. Read more




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