What happens when one healthcare company owns the transaction that is responsible for drug pricing transparency nationwide? Parts 1 and 2 of this series explore questionable prescription drug pricing practices, natural monopolies in healthcare, and how a mixture of policy and government subsidies enabled the growth and domination of one of the nation’s largest health information network.
Sometimes partnerships in healthcare are designed to have a positive impact and benefit the entire system. And sometimes, they appear ignoble and in the sole pursuit of profit and control. The latter may not matter if the partnership is between two companies with limited means and reach. However, if one of the actors already holds a nationwide monopoly on a business that enables the purpose for which the partnership was formed to advance, it does matter. Even more so if companies tout the partnership as facilitating “price transparency” to consumers
Such is the case with Surescripts’ partnership with GoodRx, announced in August 2021; specifically, the many concerns the collaboration raises about how prescription drugs are prescribed and paid for in the country, the realities of pricing transparency and consumer choice, and how Surescripts’ PBM ownership impacts what pricing information doctors and patients are provided at the point of care.
Why does this partnership represent such serious concerns? Prescription drugs are among the most common forms of therapy in the United States. IQVIA reports that Americans filled 5.8 billion prescriptions in 2018, accounting for $344 billion in expenditures. The Centers for Disease Prevention and Control (CDC) reports that 45.7% of Americans used a prescription drug in the past 30 days, an increase from 39% thirty years ago. Meanwhile, an estimated 18 million people in the U.S. are unable to afford prescription medicine, according to a Gallup and West Health 2021 survey.
Given that prescription drugs are one of the primary ways that Americans interact with the healthcare system and there have been few changes in the value chain until recently, there is undoubtedly room for disruption and improvement in the process. However, sometimes what is masquerading as disruption is a power play in disguise.
Part one of this series detailed why it’s so tragic that Surescripts’ partnership with GoodRx isn’t all that it could have been, and why the deal was structured the way that it was. Part two covers Surescripts’ monopoly position in healthcare, and how it is using its position in one business to unfairly advantage the next business, to the benefit of its owners.
Understanding the nature and structure of Surescripts’ different businesses and markets also helps to illustrate why it may be a natural monopoly in one business line, and how the company benefited from federal policies that have helped establish and entrench its monopoly position in another business line. All of which raises a number of policy questions, begs for public scrutiny, and underscores just how difficult achieving real pricing transparency is in today's healthcare system.
Natural Monopolies And Surescripts: One Of The Most Powerful Healthcare Companies That Few People Outside Of The Industry Know About
A natural monopoly (such as one that Surescripts enjoys, described below) arises when a single firm can most efficiently meet the needs of a market. Typically, efficiency in this context refers to the ability to spread a large upfront investment and/or ongoing fixed costs among a large number of customers. Common examples of natural monopolies include railroads and energy utilities.
More recently, network effects have been recognized as contributing to “winner take all” or “winner take most” market outcomes for platform companies like Surescipts. Network effects occur when the value of a company’s product to a user increases as the number of users increases. Direct network effects occur when the presence of one type of user adds value to the same type of user (e.g, friends on Facebook), while indirect network effects occur when the presence of one type of user (e.g., a consumer) adds value to another type of user (e.g., a supplier), for example, with marketplace platforms such as Amazon.
Surescripts’ e-prescribing routing business is such a natural monopoly: it required significant upfront investment to build, the cost structure is virtually entirely fixed (including distribution costs to hundreds of EHRs and tens of thousands of pharmacies), it enjoys significant indirect network effects (between doctors’ EHRs and pharmacies), and the cost of a failed transaction can be very high.
Notably, the assertion here that Surescripts has a monopoly position is not novel. As described below, Federal Trade Commission in 2019 sued Surescripts for engaging in anti-competitive conduct and having a monopoly in two separate businesses.
There is nothing inherently bad or wrong with a natural monopoly. In fact, as argued below, Surescripts’ natural monopoly in e-prescribing routing may be a key reason that e-prescribing is the most widely adopted and successful example of health information exchange. However, when a company with a natural monopoly in one business line also controls the digital transaction that enables prescription drug pricing information being delivered to doctors and patients at the point of care, it should raise many concerns.
A Very Uneven Playing Field: Owning the Eligibility Business
When e-prescribing giant Surescripts and drug discount provider GoodRx initially came together under the guise of providing prescription pricing transparency, the idea was to deliver prescription coupons to prescribers at the point of care through Surescripts’ Real-Time Prescription Benefit (RTPB) service.
While showing drug discount information to doctors when they are in the room with patients sounds like a good idea on the surface, Surescripts’ partnership with GoodRx was in practice pervasive price obfuscation in service of PBMs and to the detriment of doctors, patients and independent pharmacies. A detailed look at the deal also underscores the lengths that PBMs are going to in order to maintain control over the flow of pricing information in a way that benefits the PBM business and those that they own. (See Part One for a more comprehensive analysis and breakdown of the partnership.)
Surescripts is facing something new in its RTPB business that it didn’t experience in its core e-prescribing and pharmacy eligibility businesses: strong competition in the form of CoverMyMeds (a subsidiary of McKesson) and well-funded RxRevu. This competition may help explain Surescripts’ struggles to date with RTPB utilization. However, regardless of the low utilization (see Part One) of its RTPB product, Surescripts still enjoys a number of distinct advantages in the price transparency business.
First, in order to request a Real Time Benefit Check, a prescriber using an EHR must know the PBM with which the patient has insurance; the prescriber and EHR get this information from what’s called a pharmacy eligibility transaction. Today, that eligibility transaction is generally available from one source and one source only: Surescripts. In 2020, Surescripts reported delivering 3.2 billion eligibility transactions to prescribers.
While there is nothing intrinsically bad or wrong about one company having a monopoly in one transaction that a subsequent product relies on, there are numerous concerns that should be raised, including but not limited to:
- All competitors are dependent on the quality of product that Surescripts alone controls, a process that Surescripts itself has recognized as having “been plagued with inaccuracies, inconsistencies and timeliness.”
- Surescripts may have insights into broader market trends as a result of being the sole source of eligibility transaction information that give it an information advantage in the price transparency business.
- Surescripts may use its position in the eligibility business to unfairly advantage its price transparency business through established relationships with EHRs or PBMs versus competitors.
Regarding the eligibility transaction being plagued with inaccuracies and inconsistencies, it is worth noting that the data itself come from PBMs. Given that Surescripts is 50% owned by two of the largest PBMs (see Part One) and Surescripts possesses a monopoly position in the pharmacy eligibility business, one wonders if an injection of competition into this business may produce meaningful pressure to improve the quality of the data.
Secondly, Surescripts has an established business model with PBMs. For instance, in 2020, CVS Health (which has both PBM and retail pharmacy business units) reported paying Surescripts fees of $56 million. If one were to assume the e-prescribing routing and eligibility markets were roughly of equal size, and use CVS’ PBM market share (32%) and retail pharmacy market share (24.8%), one could estimate the eligibility product as being a $98 million revenue business. Surescripts’ overall business also appears to be highly profitable, as indicated by its apparent income of $98 million on reported revenue of $200 million in 2013, suggesting an almost 50% operating margin.
Third, Surescripts pays financial incentives to EHRs for e-prescribing routing and eligibility transactions. The eligibility business is mature at this point, generating potentially meaningful revenue to EHR vendors. Regardless of whether Surescripts is paying EHR vendors to use its RTPB transaction or not, its existing use of financial incentives in a related business may influence EHRs to choose Surescripts as their Real Time Benefit Check vendor of choice.
Fourth, Surescripts’ e-prescribing routing business gives it access to important data and information. Because Surescripts delivers this valuable information via RTPB and also subsequently sees the actual e-prescription routed through its network, it has potentially unique visibility as to whether or not RTPB information results in prescription changes, and what those changes are. RTPB and resulting e-prescribing data, if paired together, could be provided exclusively by Surescripts to PBMs to help determine the effectiveness of their programs and benefit structures.
Finally, Surescripts’ ownership represents a significant competitive advantage. Collectively, Cigna and Caremark (the two PBMs that own a portion of Surescripts) held 56% market share of the PBM industry in 2020. While it appears the two also connect to CoverMyMeds, the ability to have market support and adoption from the two largest PBMs certainly affords Surescripts confidence in making investment decisions with respect to RTPB that competitors cannot claim. And Cigna’s and Caremark’s own operating environment and strategic interests may have other benefits for Surescripts, and help explain why it structured the partnership with GoodRx the way it did.
The Difference Between A Natural Monopoly And… An “Unnatural” One
Is everything about Surescripts’ position in the industry bad? No. In fact, one could argue that for e-prescribing routing, it was Surescripts’ central position as a network that helped bring together disparate entities (and their disparate interests) and build a fabric of trust that enabled the adoption of the first ubiquitous form of health information exchange. From Surescripts’ convening role to the governance framework it established to its certification program to its quality improvement efforts to global technical support for all of its connected partners, the company was able to establish confidence among various stakeholders that had never before existed.
But there are important distinctions between its monopoly position in e-prescribing routing, and its monopoly position in pharmacy eligibility, and even more so how the latter is being used to drive adoption of RTPB. First, an e-prescriptions is a live clinical order: as such, there is the potential for extraordinarily high failure costs of a transaction; even worse, there is significant negative consequences of a system failure. Consider the patient safety implications involved if an EHR updates its software only to discover a glitch that changes drug names or erroneously reduces the strength of a drug; without a central network such as Surescripts monitoring all transactions and providing technical support for all pharmacies, such an error may not be caught or would likely take substantially longer to remediate and coordinate communication among impacted parties and patients. One can imagine a plethora of other issues (e.g., identifying fraud, waste, or abuse) for which having one coordinating entity brings trust and confidence in the system.
Second, given the hundreds of EHR vendors and 65,000+ pharmacies that exist across the country, there has been value in having a single entity certify and connect all of these different constituents in the industry to a common standard, from an efficiency standpoint. From providing regulatory guidance and monitoring compliance to updating standards and managing version updates to advocating for the ecosystem as a whole, there has been enormous value to a single coordinating entity playing a governance and network operations role.
In some respects, Surescripts’ role in e-prescribing routing is akin to the Federal Aviation Administration’s role in air travel. The FAA is the single enforcement agency of air travel in the country, responsible for oversight of the entire industry and ensuring the safety of all travelers. Surescripts, in a sense, has been the FAA of e-prescribing, providing built-in assurances and integrity into how electronic prescriptions are managed. Having a single point of management and resolution has been incredibly important, and is one reason why Surescripts has been successful enough to become a natural monopoly for prescription routing.
However, these arguments do not hold true for Surescipts’ eligibility business. While an eligibility transaction holds valuable information from PBMs, they do not represent live clinical orders with attendant patient safety implications. Accordingly, the cost of a failed transaction is not as high. Additionally, with only 66 PBMs nationwide, with the top 3 holding 89% share, there is not as much need for one network to play a coordinating role. Nor was there ever.
But Surescripts has a habit of being in the right place at the right time, and both its routing and eligibility business have benefited directly from federal policies that not only accelerated its growth, but served to indirectly entrench the company’s monopoly position in both its routing and eligibility businesses.
Surescripts’ Tremendous Growth Is A Direct Result Of Federal Subsidies, Incentives And Programs
With 84% of prescribers utilization across the country, the success of e-prescribing is a testament to Surescripts, the vision that the pharmacy and PBM leaders had back in 2001, and diligence by a cross-section of technologists doing the hard work of standards development with the National Council For Prescription Drug Plans (NCPDP). However, it also is a testament to the awesome power, resources and reach of the federal government and the role it can play in advancing health technology standards, adoption and use.
From its founding to feasibility testing and through its early and later growth phases, Surescripts and its various businesses have directly benefited from federal agencies and federal and state programs in ways that (i) established Surescripts as a credible way for industry stakeholders to comply with federal programs, (ii) drove a majority of its transaction growth and resulting profits, and (iii) helped Surescripts secure its monopoly position in both e-prescribing routing and eligibility. These federal initiatives include:
- AHRQ pilots: In 2006, the Agency for Healthcare Research and Quality sponsored research to test the interoperability of standards developed to allow for electronic transmission of prescriptions. The tested standards were used by Surescripts, and were eventually used to define the standards that the Centers for Medicare and Medicaid Services (CMS) ended up endorsing.
- Medicare Part D requirements: The 2003 Medicare Modernization Act required Medicare Part D plan sponsors (including all PBMs participating in the program) to implement e-prescribing standards supporting the provision of eligibility, formulary and benefit information to doctors. The introduction of Part D also spurred growth for the PBM industry, which all of a sudden had a need to connect to Surescripts to participate in this growth.
- MIPPA e-prescribing incentives: In 2008, Congress enacted the Medicare Improvement for Providers and Patients Act (MIPPA) program, which included a sliding scale of financial incentives to promote physician adoption and use of e-prescribing routing. By the end of the first year of the program, a study from the Office of the National Coordinator and Surescripts found that 40% of all e-prescribers had adopted in direct response to the incentives.
- Drug Enforcement Agency (DEA) and controlled substances: In 2010, DEA issued a rule change that allowed prescribers to e-prescribe controlled substances (EPCS), where some states, like New York, have already required the e-prescription of all prescriptions (both opioids and nonopioids).
- EHR Incentive Program and Meaningful Use: The Health Information Technology for Economic and Clinical Health (HITECH) program, part of the broader stimulus program enacted in 2009, provided up to $35 billion in financial incentives for physicians and hospitals to adopt and “meaningfully use” EHRs. An important component of the Meaningful Use program was e-prescribing routing. One study at the time provided insight into the power of Surescripts data and how Surescripts’ growth was synonymous with broader EHR use, asserting that e-prescribing data could be used as a proxy for policymakers to understand progress of the Meaningful Use program.
And when it comes to RTBC technology utilization, Surescripts can expect that growth to likely continue in the advent of new policy. Beginning last year, the Centers for Medicare and Medicaid Services (CMS) Beneficiary Real Time Benefit Tool (RTBT) mandate went into effect, which requires that all Medicare Part D plans offer real-time comparison tools that integrate into EHRs.
While it would be unfair to characterize Surescripts’ success and growth as driven solely by state and federal policies, it seems prudent to acknowledge the massive role that such policies have had in driving Surescripts 7X transaction volume growth over the past decade. In fact, it wouldn’t be too far a stretch to say that federal programs and taxpayer investments solidified Surescripts’ advantages and accelerated its monopoly position in the market, where the company continues to benefit from various state and federal policies.
Regardless, and perhaps somewhat paradoxically, Surescripts faced federal scrutiny of its market position in 2019 when the Federal Trade Commission charged it with illegally monopolizing the e-prescribing market, alleging that the company employed "illegal vertical and horizontal restraints in order to maintain its monopolies over two e-prescribing markets: routing and [pharmacy] eligibility." According to the FTC’s complaint, the company accused Surescripts of maintaining its dominant position through "anticompetitive tactics" that "thwarted competitors from gaining share in the routing and eligibility markets." The case is still ongoing.
Policy Questions Raised
With all of this in mind, there are many policy questions that the industry should be asking to determine the best way forward for prescription drug pricing transparency.
Is there a reason that PBMs have been excluded from requirements to improve data liquidity? The 21st Century Cures Act, which sets standards for secure and seamless data exchange among payers, providers and consumers, was signed into law December 2016 following bipartisan support in Congress. The Act also includes provisions barring a wide range of providers technology actors from engaging in information blocking; technology actors must publish APIs and quickly process developer requests to connect, while providers must respond to requests for information.
Curiously, PBMs have been largely excluded from federal efforts to date. Why are PBMs not required to respond to every technology actor, as payers are, when patients request their own data, especially when there are only 66 PBMs in existence today?
What is the federal government’s role in advocating for a competitive marketplace as it relates to pricing transparency? And, what should the government’s role be in advancing taxpayer interests in this affair, given its own historical role of contributing to the establishment of the monopoly in question?
Notably, while the existing FTC lawsuit is focused on e-prescribing routing and eligibility, it does not appear to address the role that Surescripts’ monopoly position in either may play in advantaging the company in other business ventures. Especially when those business ventures are promoted under the guise of price transparency and advancing the interests of consumers, but in fact are pushing its powerful PBM owners’ agenda.
Perhaps the agency should consider taking a page from its chairperson Lina Kahn’s article about the Amazon’s Antitrust Paradox, in which she examines the advantages that platforms such as Amazon and Surescripts hold over their competitors. “Companies may exploit their market power in a host of competition-distorting ways that do not directly lead to short-term price and output effects,” she wrote, which is a scenario that maps back fairly well to what we’re seeing with Surescripts today.
Other questions that the industry must ask itself include:
- How can companies better communicate the difference between “price transparency” and “prices from your insurance”?
- What is the appropriate forum to discuss what information should be shared with doctors and patients, and who should be in those discussions?
- Are there concepts (such as ‘fiduciary’) that healthcare should consider to protect and advocate for the rights and interests of patients?
- How can a price transparency business exist that balances corporate interests with patient interests?
These are not easy questions, but they are ones that the industry should consider. Either way, these are the questions we must ask and discussions we should have, in the cold light of day, if we are to make progress in ensuring our healthcare system works for everyone .
As one senior health plan executive said when interviewed about this article, “It’s OK to make money. But we have to make care better. This looks like it’s about making money without making care better.”
Deception masquerading as disruption will only exacerbate healthcare’s greatest challenges, at a cost which neither the industry at large nor patients can afford to bear.
Disclosure: The author was employed by Surescripts from 2010 to 2018
