Rethink Merger of CVS and Caremark

May 27, 2009

(As appeared in the Providence Journal)

TENSIONS in the long-heated Yankees-Red Sox rivalry boiled over anew recently amid accusations that Boston was "stealing signs." For the uninitiated, sign-stealing is a long-running and controversial part of baseball's history, for obvious reasons. When one team deciphers the opponent's sign language and knows what's coming with every play or pitch, their players gain a decisive advantage. Any semblance of fair play is ruined.

As you might expect, stealing signs isn't tolerated for long when it does happen. Perpetrators run the risk of official sanction or taking a fastball to the head. Unfortunately, another version of sign-stealing is happening every day in the prescription-drug retail market. As a result, consumers pay higher prices and have fewer choices.

In March 2007, the merger of Woonsocket-based retailer CVS and pharmacy-benefit manager Caremark produced a prescription-services giant. The resulting company operates more than 6,800 pharmacies, affects 134 million consumers and fills or manages 1.2 billion prescriptions annually—controlling or influencing the prescription benefit of an estimated 1 in 3 Americans. Before the merger's approval, company officials promised the Federal Trade Commission (FTC) and other regulators that they would be "agnostic as to where the consumer fills their prescription." In practice, they've been anything but.

With the acquisition of the nation's largest pharmacy-benefit manager in Caremark, CVS and its mail-order arm now have access to the business model of every rival, including community pharmacies. They know who our customers are, what medications they take, what prices we charge and what the patient's co-payment is. In baseball terms, they know every play we're running and pitch we're throwing—before it happens.

Recently, hundreds of patients in 43 states complained to us about how CVS Caremark is using this information to charge higher prices and deploy questionable marketing practices. These patients are receiving unsolicited advertisements from CVS Caremark and being threatened with higher co-payments if they continue using community pharmacies. Adding injury to insult, those who do make the switch to CVS have seen prices rise.

One New England patient saw her co-pay increased from about $5 to $50 for a monthly refill. CVS Caremark also required her to get a three-month supply of a liquid drug that was much too heavy for the 94-year-old patient to lift. Instead, her community pharmacist offered her the drug at cash price—less than half the price CVS Caremark wanted her to pay.

A Louisiana woman's monthly refill was denied when the system told her longtime pharmacist that the drugs had already been processed—at a CVS pharmacy two towns over. When the community pharmacist called to ask why the drugs had been filled there without the patient's request, the CVS pharmacy refused to comment and quietly reversed the transaction.

Two months ago, a North Carolina man on CVS Caremark's Medicare drug plan switched his and his wife's prescriptions to CVS, expecting lower costs, as advertised. Instead, the prices were higher. The local pharmacy billed Medicare $11.08 for seven of their drugs; CVS charged $313.17 for the same order and his co-pay went up $12. Over 12 months, these actions would have cost the couple hundreds of dollars more by pushing them into their drug plan's "doughnut hole" coverage gap sooner.

These are symptoms of a broken and anti-competitive system. The CVS Caremark merger was approved, over our objections, with little or no restrictions to prevent this kind of activity. The other week, 80 community pharmacists and patients took these and other stories to the FTC. The agency's new leadership, under Chairman Jon Leibowitz, listened intently and expressed genuine concern. We're hopeful they will soon re-examine the merger in light of these abuses.

In the interests of patients and fair competition, the FTC should take some steps. First, investigate these allegations of anticompetitive and deceptive conduct. Second, require a firewall between the company's retail and drug-plan-management functions so that competitively sensitive information cannot be used to market its retail operations. Third, block the company's drug-benefit managers, who reimburse all pharmacies, from stacking the deck against CVS Caremark's retail competition.

Without these preventive measures, consumers will continue to endure fewer choices, higher prices and less privacy as a result of the CVS Caremark merger. And community pharmacists—often the sole health-care professional in many rural and urban areas—will struggle with an increasingly uneven playing field. After all, even Jonathan Papelbon will give up a home run when the batter knows what's coming.

Bruce Roberts is chief executive of the National Community Pharmacists Association.

To see the article, click here.

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