Consumer Groups Urge FTC to Split CVS Caremark

| About: CVS Health (CVS)

Four years after the merger between the CVS (NYSE:CVS) drugstore chain and the Caremark pharmacy benefits manager, which has spurred numerous investigations and lawsuits over anticompetitive concerns, a handful of consumer groups have written the U.S. Federal Trade Commission to ask the agency to break up the company.

Why? The groups charge CVS Caremark limits choice through various programs, the merger has given CVS unfair advantage over other retailers, patients are steered toward CVS and confidential patient information is improperly shared. Such concerns have already prompted investigations by the FTC and attorneys general of 24 states. CVS Caremark has previously said it is cooperating with the probes.

"There is strong evidence that the CVS Caremark merger has harmed consumers," says the letter from Consumers Union, Consumer Federation of America, U.S. PIRG, Community Catalyst and the National Legislative Association on Prescription Drug Prices. "By reducing choice, raising prices and violating patient privacy, the combination of CVS Caremark poses profound problems for consumers.

"The need for comprehensive relief is clear – CVS Caremark deals with over 40 percent of all consumers, and its activities have incredible potential for significant competitive and consumer harm. Divestiture offers the greatest likelihood of success in remedying the competitive problems posed by the merger" (you can read the letter here).

They maintain that CVS Caremark switches Medicare beneficiaries to CVS stores with an increased co-pay, thus, bringing these consumers to the Part D 'donut hole' prematurely and criticize the CVS Caremark "Maintenance Choice" program that forces consumers to fill prescriptions at CVS stores/mail-order or else pay an increased co-pay to fill 90-day or maintenance prescriptions at other retailers.

Sharing confidential patient info is a regular concern. The Philadelphia Federation of Teachers Health and Welfare Fund recently filed a lawsuit after CVS allegedly sold private customer info to Eli Lilly (NYSE:LLY), Merck (NYSE:MRK), AstraZeneca (AZ), Bayer (OTCPK:BAYZF), and other drugmakers (read here). Their lawsuit quoted a statement CVS Caremark CEO Thomas Ryan made to investors" "We have more information on the consumer and their behavior than anybody else, and we share it with our over-the-counter suppliers."

Meanwhile, independent pharmacists have also filed lawsuits and have asked for regulatory reviews over distribution of patient info and pricing concerns (see here and here). And the National Community Pharmacists Association has previously asked the FTC to demand CVS Caremark create a firewall (read here).

At the same time, the merger has not played well among some investors. The stock has languished since the companies were combined (see the chart here), prompting questions about whether the combined operations are used to favor the CVS chain - the Maintenace Choice program is one example - and whether the entire company should be separated. As DrugChannels noted last week, Citi analysts recently issued an investor note in which they wrote: "We believe a spin-off is the most likely way CVS would divest its Caremark business, as it provides tax benefits and allows the two companies to continue to partner on certain initiatives."

"They now have roughly one year to make their case," Adam Fein of Pembroke Consulting, who writes the DrugChannels blog, tells The New York Times, who adds that CVS Caremark will be under increasing pressure to make its case for mainitaining the status quo or "the clamor to separate the business will be deafening."

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