Amazon launches generic drug service for Prime members

By Geoffrey Smith -- Amazon (NASDAQ:AMZN) said it will launch a new service offering a selected range of 80 generic drugs for a $5 monthly fee, its latest push into the world of healthcare.

The new service, called RxPass, promises a new income stream for Amazon as well as an opportunity to pump up its Prime membership, which is a requirement for RxPass.

It's the latest in a slow penetration of the healthcare sector that Amazon started five years ago with the acquisition of PillPack. After rebranding that as Amazon Pharmacy in 2020, its efforts stepped up a gear last year with the $3.9 billion acquisition of primary healthcare provider One Medical.

Subscribers to RxPass are being offered the same free 2-day delivery service along with other discounts. However, one particularly strong selling point may be its promise of simplicity: the company is hoping its flat fee will be attractive to those who have to wrestle regularly with price comparisons at multiple pharmacies, or working out copays from insurance providers.

It's unclear what degree of internal subsidy Amazon is implementing to offer subscriptions at an annual rate of $60, a rate that appears to leave little room for profit. Figures from the Organization for Economic Cooperation and Development suggest that average, out-of-pocket expenses for prescription drugs for Americans totaled around $164 a year in 2019, out of total per capita spending of $1,126.

Amazon has typically tolerated losses on many of its new products for extended periods, making good any shortfalls at group level with the fat profits made by its Cloud hosting business Amazon Web Services. Its North American e-commerce business had an operating loss of $400 million in the fourth quarter, while its overseas business lost $2.5B.

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