AMAZON AND PILLPACK HAVE OPTIONS
How may a Federal Trade Commission antitrust lawsuit filed in April 2019 against Surescripts be a factor?
Amazon (NASDAQ: AMZN ) and its online pharmacy unit, PillPack, have a significant challenge. On the surface, it appears to involve only a small, Iowa-based healthcare and prescription data technology company, ReMyHealth, but drastically scales up and potentially involves some of the largest retail and mail order pharmacy, MCO / PBMs and pharmacy associations in the nation — and a somewhat ambiguous organization known as Surescripts.
Amazon / PillPack and ReMyHealth…
PillPack had a contract with ReMyHealth to access patient medication history and other data which PillPack uses to better manage prescriptions for its patients. Founded in 2013 and based in Des Moines, Iowa, ReMyHealth develops data solutions and services that automate a series of processes involving prescription drug claims, patient insurance eligibility verification, prior authorization and other exchanges of healthcare data.
ReMyHealth and Surescripts…
ReMyHealth sourced prescription data from Surescripts. Founded in 2001 and based in Arlington, Virginia, SureScripts is a healthcare information technology organization that works with e-prescribing, pharmacy claims processing data between healthcare organizations (providers, payers) and pharmacies plus other medical record data transactions. ReMyHealth depended on SureScripts to provide it with access to patient medication history so it could provide services to Amazon’s PillPack. Surescripts terminated their contract with ReMyHealth as they assert ReMyHealth improperly shared data outside of the terms of their contract.
ReMyHealth has denied this but Surescripts cut them off from accessing its data, claimed fraud and reported the issue to the FBI. Surescripts asserts ReMyHealth claimed to be using the patient prescription data to support patient care being conducted in the hospital sector ( not PillPack / Amazon )and was using National Provider Identifiers ( referred to as “NPIs”) improperly.
Pharmacy Services And Patient Care Issues…
Being a small company, ReMyHealth is at a significant disadvantage. They are not able to support Amazon / PillPack or other clients aligned with data they sourced from Surescripts. Although Amazon is a sizable enterprise, its PillPack venture is just getting off the ground; Amazon acquired PillPack for about $753 million dollars in 2018. Amazon has numerous healthcare initiatives underway and PillPack is an important component in their strategic plans to widen their presence in the healthcare sector. Without the data Surescripts provides, PillPack and ReMyHealth are burdened with manually verifying patient medication history and other details through phone calls or other means of communication with patients, medical professionals and healthcare provider organizations.
Who and what is Surescripts?
The healthcare industry and prescription drug marketplace are a competitive, complex environment with a myriad of clinical, financial and technical processes facilitated by an array of different organizations. Surescripts is privately-held and although it was formed in 2001, its ownership, for the most part, has an older pedigree:
- CVS Health ( who owns Aetna ); CVS was founded in 1963, Aetna dates to 1857
- Express Scripts ( owned by Cigna ) started up in 1986, Cigna began in 1792
- National Association of Chain Drug Stores ( NACDS ) was founded in 1933
- National Community Pharmacists Association ( NCPA ) began in 1898
Prior to being acquired by Amazon, PillPack had contracts in place with many managed care organizations, PBMs and other entities to be a providing pharmacy in their networks. PillPack’s success in building market access early as an integral part of their business model was just one of the reasons Amazon was impressed enough to acquire them. PillPack had lined up these and other entities in their contracting:
- Cigna ( Cigna owns Express Scripts )
- CVS Caremark ( a Surescripts stakeholder)
- Express Scripts ( a Surescripts stakeholder )
- Humana Pharmacy Solutions ( a Surescripts stakeholder )
- Prime Therapeutics
Find out more about PillPack and Amazon in the healthcare sector:
A New Competitive Threat Emerges…
Now that PillPack is owned by Amazon, a new and more substantial competitive threat has emerged. PillPack is no longer just one of many lesser-scale pharmacies eligible to fill prescriptions for the programs of the customers they have contracted with. As a unit of Amazon, they bring a whole new dimension in scope and scale to this picture as Amazon has been very successful in disrupting long-established market sectors, scaling up service, capturing market share and generating income.
As an online mail order pharmacy, PillPack is a competitor to the retail pharmacies represented by the NACDS and NCPA that have part ownership in Surescripts. These same retailers compete with PillPack’s parent company, Amazon, for other consumer product sales. CVS Health / Aetna and Cigna / Express Scripts, the two other ownership stakeholders in Surescripts, operate substantial mail order pharmacies PillPack would compete against.
The Controversy Unfolds…
Was the alleged breach of contract by ReMyHealth a bonafide violation of the agreement between ReMyHealth and Surescripts or was it potentially overblown by Surescripts (and their ownership) as a way to slow down Amazon’s advance into healthcare and PillPack’s growth?
The Federal Trade Commission And Surescripts…
Prior to the present issue between Amazon / PillPack, ReMyHealth and Surescripts, the Federal Trade Commission filed suit against Surescripts on April 17, 2019. The Federal Trade Commission ( FTC ) sued Surescripts by alleging the company employed illegal vertical and horizontal restraints in order to maintain monopolies over two electronic prescribing, or “e-prescribing,” markets: routing and eligibility.
In the complaint filed on April 17, 2019, against Surescripts, the Federal Trade Commission is seeking to take decisive action to undo and prevent Surescripts’s unfair methods of competition, restore competition and provide monetary redress to consumers.
Bureau of Competition Director Bruce Hoffman weighed in with these comments…
“For the past decade, Surescripts has used a series of anticompetitive contracts throughout the e-prescribing industry to eliminate competition and keep out competitors. Surescripts’s illegal contracts denied customers and, ultimately, patients, the benefits of competition — including lower prices, increased output, thriving innovation, higher quality and more customer choice. Through this litigation, we hope to eliminate the anticompetitive conduct, open the relevant markets to competition, and redress the harm that Surescripts’s conduct has caused.”
According to the complaint, Surescripts monopolized two separate markets for e-prescription services:
- The market for routing e-prescriptions, which uses technology that enables health care providers to send electronic prescriptions directly to pharmacies
- The market for determining eligibility, a separate service that enables health care providers to electronically determine patients’ eligibility for prescription coverage through access to insurance coverage and benefits information, usually through a pharmacy benefit manager
The FTC alleges Surescripts intentionally set out to keep e-prescription routing and eligibility customers on both sides of each market from using additional platforms (a practice known as multihoming) using anti-competitive exclusivity agreements, threats, and other exclusionary tactics. Among other things, the FTC alleges that Surescripts took steps to increase the costs of routing and eligibility multihoming through loyalty and exclusivity contracts.
According to the FTC’s complaint, Surescripts successfully used these tactics to stop multiple attempts by other companies to enhance competition in the routing and eligibility markets. According to the FTC’s complaint, Surescripts’s anticompetitive tactics thwarted competitors from gaining share in the routing and eligibility markets, enabling the company to maintain at least a 95 percent share in each market over many years.
The complaint alleges Surescripts succeeded in maintaining its monopolies in routing and eligibility, despite the explosive growth of routing and eligibility transactions — from nearly 70 million routing transactions in 2008 to more than 1.7 billion in 2017.
The Commission vote to file the complaint was 5–0. The complaint was filed under seal in the U.S. District Court for the District of Columbia on April 17, 2019. A redacted version of the complaint was also filed. The complaint alleges that Surescripts’s anticompetitive acts violate Section 2 of the Sherman Act, and thus constitute an unfair method of competition, in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a).
Complete Details Are Contained In This FTC Press Release…
Surescripts’ Market Dominance…
It is not surprising the FTC has taken notice of Surescripts’ overwhelmingly controlling position. The rate of growth and volume they have accumulated is impressive but also concerning. Based on these and other touchpoints, how can one entity lockdown so much business considering:
- Explosive intellectual and financial investment in the growth of digital technology and data security advancements in healthcare
- Multiple tech heavy hitters in the healthcare, data technology and claims processing space: Accurence, Agero, Amazon, Apache, Apple, Arista, athenahealth, Cisco, Conifer, Convergent, Dell / EMC, Equifax, Experian, Google, HP, HRG, JDI, Merriman, Microsoft, Napersoft, Octo, Oracle, Origami, Plexis, SAP, SAS, Teradata, The Shams Group, TransUnion, Virtual Benefits Administrator, VMWare and many more…
- The growing demand for interoperability and accelerated data sharing between patients, providers, payers and other stakeholders to lower costs and improve access to healthcare data not only for patient services but medical research and other purposes as well
Individually and combined, the scope of Surescripts’ dominance in light of these elements is an anomaly that warrants scrutiny as a monopoly. Another issue is one of improvement and economics. Given Surescripts’ commanding position, what incentive is there for them to earnestly pursue innovation?
Yes, they do have to make changes to stay aligned with technology as it advances but the drive to go above and beyond may not necessarily be a priority as long as they can fortify their present comfortable position. How does this impact better patient care, data sharing and cost reduction?
Reportedly Surescripts has made some changes to their contracting requirements and policies concerning loyalty and exclusivity terms but by changing them as of late does not undo what has already taken place. The alleged monopoly may reduce information and interoperability outside of the confines of its contracted customers.
With the exception of Express Scripts founded in 1986 (acquired by Cigna in 2018), the Surescripts ownership could be considered “the old guard” arguably protecting its turf against an unexpected and formidable foe in the form of PillPack and Amazon. Given the scope and scale of SureScripts, as long as its technology and support services show progress, an argument on their behalf could be made that they bring reliability, standardization and security to a wide selection of diverse stakeholders but at the expense of competition within their services sector.
Amazon And PillPack Have Options…
Clearly Amazon and PillPack have a serious situation on their hands but Amazon is not a company to be trifled with. They have extraordinary financial, technical and operational resources to rally with and PillPack is a compact business unit that can be given ample additional support while being nimbly steered through these circumstances.
Undoubtedly these are just five among many options Amazon and PillPack are potentially considering:
- They can contract with a company similar to or a direct competitor of ReMyHealth to get access to prescription data and support; this could include partnering with a PBM and / or managed care organization
- Mirror the solutions and services ReMyHealth provides by building their own capabilities and contracting directly with Surescripts
- Lean on ReMyHealth and Surescripts to reinstate the contract at least until they ( Amazon ) can devise a plan to move forward without ReMyHealth
- Take full-on legal action on their own behalf against ReMyHealth and more productively speaking, Surescripts
- Choose innovation to circumvent conventional arrangements in place between Surescripts / Surescript ownership to develop a new data-sharing arrangement or an entirely new business model of prescription information sharing, patient support and new business generation
The last option may be the most dangerous one for Amazon / PillPack competitors. Amazon’s entrepreneurial staff and data technology prowess are serious adversaries to contend with. Amazon has been entering into healthcare-focused partnerships and collaborations with such notable organizations as Accenture, Berkshire Hathaway, Carnegie Mellon, Cedars-Sinai, Cerner, Change Healthcare, JPMorganChase, Merck, National Institute of Health, University of Pittsburgh, University of Pittsburgh Medical Center and others. Amazon has steeply ramped up its understanding of the healthcare sector and identifying opportunities to develop and deploy commercial actions to succeed within it.
Considering these relationships, PillPack’s attributes and Amazon’s resources, no one would be surprised if they developed a novel strategy and technology solution to this issue but competitors would certainly be disappointed.
Looking ahead, a lot of new developments will manifest themselves based on the outcome of these and other questions:
- As consumer and healthcare watchdog groups, as well as politicians, learn more about Surescripts, how may they feel about the enormous amount of data being processed by one entity and who has final say as to how and with whom individual patient data is shared; the patient or Surescripts?
- How will Surescripts fare in litigation proceedings filed against them by the FTC?
- How legitimate, egregious were ReMyHealth’s alleged contract violations with Surescripts; how may the FBI proceed with them and what recourse do they have if they can’t successfully defend their position?
- How closely does Surescripts enforce the standards they applied towards ReMyHealth to the rest of their clients?
- How will Amazon / PillPack resolve this issue and outdistance it moving forward?
- What firms will seize the opportunity to work with Amazon / PillPack in their hour of need?
- How may Amazon’s new employee health program, Amazon Care, be a catalyst for change in these circumstances?
An election year is approaching; healthcare costs and commercial practices are a hot political topic. Many stakeholders, including political, consumer, patient, employer, MCO, PBM, pharmacy, the investor community and others will be scrutinizing the litigation proceedings between the FTC and Surescripts. Compared to other entities like pharmaceutical manufacturers, GPOs, PBMs and MCOs; as an organization, Surescripts has been able to operate in relative obscurity for years. This will rapidly change once things are underway in the courtroom.
Surescripts has built an impressive organization serving the interests of many stakeholders. If it does not successfully defend itself, how may its ability to service its enormous customer base be impacted if the FTC orders significant changes to its operations and business model? What competitors will surge forward in their space?
Amazon and PillPack are pressing ahead. It is safe to assume Amazon seeks to resolve this issue as quickly as possible and redouble its efforts to build out its online pharmacy business and launch other healthcare initiatives soon. By contracting directly with Surescripts, an easy solution could be reached. If such an agreement is not possible, could Amazon’s solution be innovative enough to be a competitive and disruptive force in the pharmacy and the healthcare industry?
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