CVS Caremark is coming under increasing pressure from consumer groups and shareholders to split up, at the same time that federal and state regulators are looking into accusations of anti-competitive behavior by the merged company.
The 4-year-old merger of the drugstore chain and the pharmacy benefit manager is the subject of an investigation by the Federal Trade Commission and a multistate inquiry by the attorneys general of 24 states, according to earlier disclosures by CVS Caremark.
The company says it is “cooperating fully” with the inquiries. “We remain confident that our business practices and service offerings are being conducted in compliance with antitrust laws,” said Carolyn Castel, a company spokeswoman.
But on Thursday, five consumer groups wrote a letter to Jon Leibowitz, the commission’s chairman, claiming “there is strong evidence that the CVS Caremark merger has harmed consumers.”
The groups, which called for breaking up the $27 billion merger, also accused the company of using confidential patient information from Caremark, which manages prescription benefits for health plans, to steer consumers to CVS pharmacies.
The company’s practices effectively gave CVS an unfair advantage over other pharmacies, reducing competition and limiting consumer choice, according to the letter, which was signed by Community Catalyst, Consumer Federation of America, Consumers Union, the National Legislative Association on Prescription Drug Prices, and U.S. PIRG.
CVS Caremark denied accusations it had engaged in improper business practices, saying the charges were “false, unfounded and misleading.” It defended its privacy protections, saying it maintained a firewall to ensure that Caremark and CVS did not share “certain competitively sensitive information,” Castel said in an email. The company did not improperly steer patients to CVS pharmacies, she said. She also said “there are no plans to split up the company.”
A spokeswoman for the FTC, Cecelia Prewett, confirmed the commission had received the letter, but said it could not comment on an open investigation.
For the last several years, some consumer groups as well as independent pharmacists, who have argued they are now at a competitive disadvantage, have been calling for regulators to review the merger. Some investors have also been frustrated by the lack of financial results from the merger, and some industry analysts are saying the company would be valued more by investors as two distinct businesses. CVS Caremark had revenue of $96.41 billion in 2010, down from $98.73 billion in 2009.
At the time of the merger, executives emphasized that the combined firm would prove itself to be more attractive to investors as well as health plans and consumers.
“The real synergy here is the top line synergy, the revenue synergy,” said Thomas Ryan, then chief executive of CVS, when the merger was announced. “That’s how we’re going to win this game.”