Surescripts sued by FTC for alleged monopolization of e-prescription market
24 April 2019. By Max Fillion and Leah Nylen.
Surescripts, the US's largest e-prescription network, has been sued by the US Federal Trade Commission, which alleged that the company monopolized the market by including loyalty provisions in its contracts with customers since 2009.
The complaint, filed in federal court last week and unsealed today, follows an FTC probe that started in 2015. The agency is seeking an injunction and equitable monetary relief, which could include restitution or disgorgement, from the privately-held Surescripts, which is jointly owned by pharmacy trade groups including the National Association of Chain Drug Stores and pharmacy benefit managers including CVS/Caremark.
The FTC's complaint alleges Surescripts has a 95 percent share by transaction volume in two markets that facilitate electronic prescriptions: “routing” and “eligibility.” Eligibility is the transmission of a patient’s health insurance information from a payer, typically a pharmacy benefit manager, to a prescriber. Routing is the transmission of prescription-related information from a prescriber to a pharmacy.
Surescripts "changed its pricing policies to require long-term exclusivity from nearly all of its routing and eligibility customers,” the complaint alleges. “Surescripts designed its new pricing to ensure that its customers would pay a higher price on all of Surescripts’s transactions unless they were ‘loyal’ to Surescripts, i.e. used Surescripts exclusively.”
In response to the FTC's suit, Surescripts CEO Tom Skelton said today the company is removing loyalty provisions in its contracts with pharmacies. Those loyalty provisions offered pharmacies discounts if they routed 100 percent of their transactions with prescribers through the Surescripts network.
Skelton said the step “addresses one of the FTC’s chief concerns.” The proposal is unlikely to resolve all the FTC’s concerns, as Surescripts still has loyalty provisions in contracts with pharmacy benefit managers and electronic health records systems, which doctors use to issue prescriptions.
Monopolization cases by either the FTC or its sister agency, the Department of Justice, are rare. The FTC has only filed three monopolization cases in the past decade: the 2017 case against Qualcomm over an alleged monopoly, a 2012 case against McWane and a 2009 case against Intel.
The Surescripts complaint describes unique network effects in the industry, which create a “chicken-and-egg problem.” When more doctors use Surescripts’ system, it becomes more valuable to pharmacies because of the potential volume of prescriptions.
These network effects, paired with the high cost of not dealing exclusively with Surescripts, created a high barrier to entry for those wishing to compete in the e-prescription market, the complaint said.
“With its 95%-plus share in both markets, Surescripts knew that no competitor could ever offer customers enough savings to compensate customers for the skyrocketing costs the customers would face by paying Surescripts's higher ‘non-loyal’ price on their remaining Surescripts transactions,” the complaint alleges.
The complaint describes contracts between Surescripts and RelayHealth, a subsidiary of medical supplier McKesson, that barred the company from competing in the routing market. Surescripts worried that RelayHealth — because of relationships developed through McKesson — had the “natural ability to capture 15-20% of transaction volume” of the routing market. "To eliminate this competitive risk, in 2010, Surescripts entered into an agreement that prohibited RelayHealth from competing in the routing market for six years," the complaint said.
Surescripts executives understood that competition from RelayHealth would reduce prices, and "Surescripts executives have repeatedly stated that, from Surescripts's persepective, the sole benefit of that ongoing relationship is that it sidelines RelayHealth as a comptetitor," the complaint said.
Despite the formal non-compete no longer being in the agreement, the complaint said, strict contract provisions continue to prevent RelayHealth from competing with Surescripts, "ensuring that the routing market suffers for the effects of that non-compete today."