Payer Organizations Will Propel Online Drug Sales

The US market for pharmaceutical, health, and beauty products will explode from less than $250 million in 1999 to more than $18 billion in 2004, according to a report by International Data Corp. (IDC). More than 80 percent of this revenue, or $14.8 billion, will come from prescription drugs, the report found.

“Consumers are increasingly accepting the Internet as a way to access health-related information and content,” said Jim Williamson, senior research analyst with IDC’s Consumer eCommerce: Consumer Goods program. “In addition, powerful drug industry players, including managed care organizations and prescription benefit managers, are developing e-commerce strategies. As a result, the growth of this market will accelerate substantially over the next five years.”

IDC’s report “US Online Prescription Pharmaceutical, Health, and Beauty Market: Forecast and Analysis,” found that payer organizations, typically prescription benefit managers and managed care organizations, will play a significant role in the online pharmaceutical market. Because payer organizations pay most of the bill for prescriptions, they are highly motivated to reduce costs. IDC estimates that one-third of the cost of prescriptions comes from pharmacy fulfillment. To reduce fulfillment costs today, many payer organizations use mail-order prescriptions. IDC believes they will look to further reduce fulfillment costs by investing in online fulfillment. By 2004, payer organizations will account for $14.2 billion, or 96 percent of the online prescription market.

“Online pharmacies must realistically assess the threat that payer organizations pose to their businesses,” Williamson said. “Consumer acceptance of payer groups will be driven by simple economics: People will get their medications where they’ll get reimbursed.”

Other factors that IDC believes will contribute to the boon in online prescription sales include the overall increase in prescription medicine spending and the aging of the US population. For online pharmacies looking to capitalize on the boon, IDC’s report recommends partnering with payer organizations and selling related products such as beauty and nutraceuticals.

“Online pure-plays anchored to their original determination to remake the prescription drug industry in their own image will succumb to market powers beyond their control,” Williamson said.

Research done by Jupiter Communications last year predicted online prescription drug spending to reach $966 million by 2003. Jupiter also predicted the online consumer healthcare market to grow to $1.7 billion by 2003.