Amazon wants to displace CVS Caremark's mail-based drug services, court documents show

A court case over a CVS Pharmacy conflict of interest employment contract has revealed that CVS believes Amazon's PillPack wants to contract directly with  health plans and employers, bypassing the pharmacy benefit manager middleman.

In a ruling issued Tuesday, Judge John J. McConnell Jr. said CVS expected Amazon to enter the mail order pharmacy space, displacing CVS Caremark.

"CVS Caremark expected that a MIR (mail-in retailer) with Amazon-like resources would want to dispace CVS Caremark's mail-based services and become the exclusive mail-based provider for payers," according to court documents.

PillPack and Amazon have no immediate plans to build a PBM but have "explored a number of things," court documents said.

CVS said Amazon-PillPack has "already begun aggressively approaching CVS Caremark's clients," including Blue Cross Blue Shield, "to provide its members with prescription home delivery," according to STAT.

IMPACT

The court records show that competitors fear an Amazon dominance of the market.

The judge referred to Amazon's "long-term disruptive strategy" and the importance of the mail order specialty pharmacy business in which both Amazon and CVS Caremark are engaged.

"This is the fastest growing part of the pharmacy benefits industry and one of CVS's leading revenue streams," the judge said.

TREND

Competition to gain market share in the pharmacy business can be seen in recent acquisitions and partnerships between CVS and Aetna, Cigna and Express Scripts and Anthem initiating its own PBM, IngenioRx.

ANTI-COMPETE CLAUSE

The court case was between CVS Pharmacy and former senior executive John Lavin, who went to work for Amazon and PillPack two years after leaving his job at CVS. He had worked at CVS for 27 years.

Lavin in 2017 signed a non-compete agreement mandating he would not engage in competition with a competitor for at least 18 months after leaving. In exchange, Lavin received stock valued at $157,500.

A year after signing the agreement, Lavin began discussions with PillPack and Amazon executives, court documents said. He received an offer as director of third party networks and contracting for the retail pharmacy segment. CVS sued.

Lavin argued he would negotiate only with PBMs other than Caremark and that PillPack is an innovative retail pharmacy, not a PBM.

Judge McConnell ruled Tuesday in favor of CVS Pharmacy, granting the preliminary injunction against Lavin from working for PillPack.

ON THE RECORD

"As to mail-in retailers (MIRs), Mr Lavin has negotiated at CVS with mail-in retail pharmacies and knows about the confidential pricing," the judge said. "In his last three years at CVS, Caremark's Executive Committee tasked him with taking a closer look at its terms with MIRs for two critical reasons. First, some MIRs were misclassified as physical retail pharmacies and were collecting higher reimbursement rates; and second, CVS Caremark expected Amazon entering the mail-based pharmacy space and it wanted Mr. Lavin to lead the strategy to thwart this new competitive threat. CVS Caremark expected that a MIR with Amazon-like resources would want to dispace CVS Caremark's mail-based services and become the exclusive mail-based provider for payers. Mr. Lavin led the charge in formulating CVS Caremark's response. Usually payers agree to make the PBM the exclusive mail provider for its members. Mr. Laving had detailed knowledge about these rates and terms," the judge said.