·
Express Scripts is
terminating its relationship with CareZone over what it calls a contract
dispute.
·
The company says
CareZone is misrepresenting itself as a retail pharmacy, even though it
actually delivers by mail.
·
CareZone disagrees and
has encouraged customers to submit emails voicing their complaints.
Published 11:57 AM ET
Tue, 19 June 2018 Updated 2:34 PM ET Tue, 19 June 2018CNBC.com
Two years after Express Scripts, the giant
pharmacy manager, threatened to remove PillPack from
its nationwide network, the company is doing the same thing to CareZone,
a venture-backed start-up that delivers medications to customers' doors.
It's a troubling trend for emerging companies
that rely on large pharmacy benefit managers (PBMs), which sit between
insurance providers and pharmacies and help determine the drugs that insurers
will cover and at what price.
The PillPack controversy in
2016 was over a contract dispute, with Express Scripts claiming the company
misrepresented itself as a retail pharmacy when it was actually a mail-order
pharmacy. Express Scripts, which health insurer Cigna has agreed to
buy for $67 billion,
is now making the same claim against CareZone, as well as accusing the start-up
of shipping medicines to states where it isn't licensed to operate.
Without a PBM, pharmacies like CareZone generally
can't accept insurance to cover customers' drug purchases.
CareZone, led by ex-Sun Microsystems CEO
Jonathan Schwartz and backed by investors including Salesforce CEO Marc Benioff, disputes
Express Scripts' assertions and says it has licenses in all 50 states. Schwartz
told CNBC that CareZone would lose about 900 customers if Express Scripts goes
through with its plans, hurting many low-income patients in rural areas who are
battling multiple chronic illnesses.
Schwartz informed patients of the coming
change by email last week and included a link they could use to contact Express
Scripts and lodge a complaint. In the frequently asked questions section of
its website, CareZone said the effective date of the change is July 13, and
that it's "working to resolve this issue with Express Scripts."
The PillPack disagreement was resolved within
weeks, though the companies declined to disclose terms of the agreement.
Express Scripts generates about 45 percent of its revenue from the home
delivery of prescription drugs and is the largest PBM.
"It takes PBMs a while, but once they see
something that is gaining traction and poses a threat to their mail-order
pharmacy business, they often move swiftly to clamp down," said Stephen
Buck, a drug supply chain expert who previously co-founded drug comparison site
GoodRx.
As of the July termination date, CareZone
customers will be unable to access medicines at a lower rate using their
insurance and will have to transfer to another pharmacy that partners with
Express Scripts and can deliver to the home.
Brian Henry, a spokesman for Express Scripts,
said the company conducted a thorough review before making the decision and added
that patients have plenty of options for affordable drugs.
'Straddle both sides'
Using a template provided by CareZone,
numerous customers have written formal complaints against Express Scripts to
the Department of
Justice, arguing that the company will be depriving them of choice.
"I, and others who live in more rural
locations, rely on CareZone Pharmacy to organize and dispense medicines that
are delivered to me at my home," reads a complaint that was obtained by
CNBC. "I rely on both the pharmacy's pill packaging and CareZone's
smartphone application to make sure I follow my physician's orders, take my
medicines as prescribed, and stay out of the hospital."
CareZone has hired Boies Schiller Flexner, the
law firm led by David Boies, to
represent its interest in the matter.
While CareZone customers may feel the impact,
George Hill, an analyst at RBC, disagrees with the argument that Express
Scripts is instituting the change to squelch competition. He estimates that
mail order accounts for 40 percent of Express Scripts' earnings, but that
CareZone makes up a very small fraction of its home delivery business. He said
Express Scripts actually wants more partners reaching a broader set of
customers and helping them take their medications.
"They straddle both sides of this,"
said Hill, who has a buy rating on the stock. "CareZone is not significant
from a competitive perspective."
Schwartz, who started CareZone in 2012 with a
medication management app, later moved into drug delivery through a separate
legal entity — CareZone Pharmacy Services — as customers began to ask for it.
The pharmacy business owns two brick-and-mortar retail locations, one in Tennessee and
one in California.
CareZone, the digital service, partners with
CareZone Pharmacy as well as other large pharmacy chains. About 20,000 people
use the pharmacy service, Schwartz said.
He also said that the CareZone Pharmacy isn't
a mail-delivery business. Patients designate CareZone as their
"agent" by signing an electronic consent form to pick up medicines on
their behalf and drop them off just as any other caregiver would. That could be
by courier, car delivery or through the mail.
CareZone has raised $150 million in total
venture financing. Schwartz likens the pharmacy business to Uber, which isn't a
taxi company but connects drivers with riders.
Henry takes issue with the analogy. He said
that Express Scripts has mail-order contracts with other pharmacies and isn't
ending its relationship with CareZone because of its business model. The
problem, he said, is that CareZone has been violating their agreement and
acting primarily as a mail-order business.
"If they're going to compare themselves
to Uber, we'd agree," Henry said. "They're like an Uber self-driving
car that has no idea where it¹s going."
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