Life Science Compliance Update

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July 25, 2011

CVS Caremark Under Pressure to Dissolve from Their “Friends”

CVS Caremark is coming under increasing pressure from consumer groups and shareholders to split up, at the same time that federal and state regulators are looking into accusations of anticompetitive behavior by the merged company, according to a recent article from the New York Times.

The four-year-old merger of the drugstore chain and the pharmacy benefit manager is the subject of an investigation by the Federal Trade Commission (FTC) and a multistate inquiry by the attorneys general of 24 states, according to earlier disclosures by CVS Caremark.

Carolyn Castel, a company spokeswoman, asserted that the company is “cooperating fully” with the inquiries and “remains confident that their business practices and service offerings are being conducted in compliance with antitrust laws.”

Interestingly, the leadership team of CVS Caremark team includes an unexpected individual, Troyen A. Brennan, M.D., M.P.H., who serves as the Executive Vice President and Chief Medical Officer. What is somewhat surprising about his membership on this team is that Brennan is the author of the community catalyst paper, which called for the end of academic relationships with industry.  It is somewhat paradoxical that Brennan could be calling for an end of physician-academic relationships with industry, while at the same time sitting in an extremely influential position within the very industry he seeks to place severe restrictions on.

In fact, Brennan recently emphasized CVS Caremark’s emphasis on working with health care practitioners to improve non-adherence to prescription medication.  This kind of industry-physician collaboration seems at odd with the 2006 paper Brennan pen that called for the end of such relationships.

Consequently, last week, five consumer groups wrote a letter to Jon Leibowitz, FTC chairman, claiming “there is strong evidence that the CVS Caremark merger has harmed consumers.” The groups, which called for breaking up the $27 billion merger, also accused the company of using confidential patient information from Caremark, which manages prescription benefits for health plans, to steer consumers to CVS pharmacies.

“The company’s practices effectively gave CVS an unfair advantage over other pharmacies, reducing competition and limiting consumer choice, according to the letter, which was signed by Community Catalyst, Consumer Federation of America, Consumers Union, the National Legislative Association on Prescription Drug Prices and U.S. Pirg.”

Additionally, the consumer groups charged the merged company had engaged in unfair practices that favored company-owned pharmacies, including sharing information Caremark obtained in processing prescriptions to help solicit non-CVS customers to fill their prescriptions at CVS drugstores.

Sharon Anglin Treat, a Democratic legislator in the Maine House of Representatives, explained that the situation is one in which a pharmacy benefit manager, which manages prescription benefits, is “using the information to steer people to their own pharmacies.”  Tate, who is also the executive director of the National Legislative Association on Prescription Drug Prices, a consumer group that signed the letter, notted that, “it really does appear that CVS has been unable to avoid a very significant conflict of interest.”

Mark N. Cooper, the director for research at the Consumer Federation of America, one of the groups that signed the letter, said that the “merger was a mistake” and that FTC should review the original grounds — including efficiencies, cost savings and consumer benefit — for the merger and determine whether the union had been justified.

The Times noted that, “CVS Caremark denied accusations that it had engaged in improper business practices, saying the charges were “false, unfounded and misleading.” It defended its privacy protections, saying it maintained a firewall to ensure that Caremark and CVS did not share “certain competitively sensitive information,” Ms. Castel also told the Times that the company did not improperly steer patients to CVS pharmacies, and “there are no plans to split up the company.”

CVS Caremark says the merger is helping its customers by reducing costs and improving health outcomes. “The innovative products we have introduced into the marketplace since the merger are gaining traction,” Ms. Castel said, and will “enhance shareholder value.”

The company also said it “places a high priority on protecting the privacy of its customers and plan members.” Ms. Castel said CVS Caremark used patient data internally for “appropriate purposes,” like identifying potentially adverse drug reactions.

In addition, some investors say the sharing of patient information is central to any claims by CVS Caremark that the combination of the drugstore chain and pharmacy benefit manager can better serve patients by coordinating information and reducing costs

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