May 1, 2018
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Why Amazon shelved its plan to enter the pharmaceutical distribution chain.

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Last year, I had a heated discussion on LinkedIn on whether Amazon would enter the pharmaceutical distribution chain in 2018. Being a compliance attorney, I expressed some concern that selling drugs is not as easy as selling books and requires tremendous resources to keep up with federal and state compliance. And Amazon would be an easy and a lucrative target. One of the commenters called me naïve (I actually am!) in thinking that something can stop Amazon. Well, after exploring pharmaceutical business models for quite some time, Amazon publicly announced that it was shelving its plan to enter the pharmaceutical arena.
CNBC reports that the primary reason in the change of plan is due to the inability to convince bigger hospitals to change their traditional purchasing model. Relationships in drug distribution are built over years. Many healthcare providers are part of group purchasing arrangements, which are not easy to disrupt.
As a healthcare compliance attorney, I again think that compliance and potential liability are to blame. Simply put: the risk outweighs the benefit! I believe that if Amazon wants to contract with someone, it will find the means to do so, but the amount of money and resources that Amazon would have to spend on compliance, licensing, logistics and potential liabilities/defense is huge. And speaking of logistics, it would have to be very different from the prior model of delivering “non-sensitive” products, such as books, clothing, etc. Throwing so much resources into pharmaceutical distribution might not be worth for Amazon.
Instead, Amazon decided to proceed with selling medical devices of Class I (such as elastic bandages) and Class II (e.g. wheelchairs and pregnancy kits), which are less problem-prone and involve less compliance and potential liabilities.
Amazon’s announcement does not mean that it will never enter pharmaceutical distribution but for now it will continue with its present model plus adding Class I & II medical devices to its Amazon Business. So I still may be proved naïve.



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