PillPack Inc., a well-funded New England startup that runs a mail-order pharmacy service, is locked in a contract dispute with the nation's largest manager of prescription drug plans that could cost it access to thousands of customers.
Express Scripts Holding Co. is set to drop PillPack from its network of approved pharmacies later in April. Patients who currently receive their drugs from PillPack will be switched to another pharmacy, Express Scripts said.
PillPack CEO TJ Parker said the decision would cost PillPack about a third of its customer base — "in the mid-thousands" of customers. Parker said the move by Express Scripts, which operates its own mail-order pharmacy, effectively stifles a competitor.
"They've had effectively a monopoly on delivering prescriptions to your home, basically forever," Parker said. "What you're left with is effectively an old-school version of mail order, which is a terrible consumer experience because consumers haven't been given other options."
Express Scripts, however, said PillPack has misrepresented how its business was structured. The startup was signed up with the benefits manager as a retail pharmacy, but uses mail-order to fulfill nearly all of its prescriptions, Express Scripts spokesman Brian Henry said.
"That's in violation of our network pharmacy agreement that we have with every other pharmacy that we work with," Henry said. PillPack also shipped medications to a state where it was not properly licensed, Henry said, and has not completed a required industry accreditation.
PillPack, which operates a licensed pharmacy in Manchester, N.H., sends out medications in presorted packets that prominently show the time and day they should be taken. The system is meant to help people with multiple prescriptions avoid a confusing set of homemade reminders and pill cases that can lead to missed or duplicated doses.
But Express Scripts said its move to drop PillPack is not to curb competition because the startup isn't a large player among the 70,000 pharmacies included in its network. Besides contracting with pharmacies for its clients, the company processes claims and handles a range of other prescription benefit plan services.
"The number of our members out of 85 million people that use PillPack is very small," Henry said.
The public tussle reveals the steep climb that even well-financed startups face as they scramble to grow quickly in established industries. That task is especially difficult in heavily regulated sectors, such as pharmacy, where a small company has to obtain multiple regulatory licenses and other approvals to ensure consumer safety.
The US pharmacy industry is dominated by CVS Health Corp. and Rite Aid Corp., mammoth retail chains that also operate their own pharmacy benefit managers, IBISWorld analyst Sarah Turk said.
Express Scripts also works with brick-and-mortar pharmacies, but mail-order is much more profitable: Benefit managers make about $3.50 for each mail-order prescription, compared with about $1.40 for one filled by a community pharmacy, Turk said.
The big pharmacy benefit managers "have nearly eliminated the small community pharmacies, so they're pretty much out of the picture," Turk said. "If a small mail-order company is able to enter the market, that would be their only form of competition, really. So they need to battle that out."
PillPack has raised about $62.5 million from private investors, including a $50 million round last year from venture firms including CRV and Accel Partners.
Based in St. Louis, Mo., Express Scripts has a market capitalization of more than $44 billion. Its major clients include health insurer Anthem Inc. and the US Defense Department, according to a report from Zacks Equity Research.
PillPack has launched a new website called Fix Pharmacy that urges customers to contact their political representatives and Express Scripts to lobby for keeping PillPack in the company's network.
"This decision will interfere with the way thousands of Americans manage their daily medicines as they are forced to switch pharmacies. This is how large corporations manipulate consumer choice and the healthcare system stays broken," the website says.
Express Scripts published its own blog post in response, saying the startup could re-join the network "if PillPack can show that it is able to meet our standard terms and conditions."