Homepage / Technology / Express Scripts boots another online pharmacy — CareZone — from its network
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Express Scripts boots another online pharmacy — CareZone — from its network

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 mail-order pharmacy when it was actually a retail 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.

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 LLP, 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 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.”

Source: Tech CNBC
Express Scripts boots another online pharmacy — CareZone — from its network

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