FTC Closes Antitrust and Unfair Competition Investigation of CVS Caremark Post-merger Marketing Practices

The 2007 merger of CVS and Caremark passed muster without a substantial antitrust investigation. Several years later, advocacy groups were calling for the combination to be broken up in the midst of an ongoing Federal Trade Commission (FTC) investigation.1For the last two years, the FTC has undertaken essentially a retrospective look at the merger and at complaints that it has harmed consumers, focusing on a litany of allegedly anticompetitive and unfair business practices. The type of business steering and incentives alleged, if found unlawful, would have had broad applicability in principle to other businesses both within, and outside, the pharmaceutical industry.  On January 3, 2012, essentially under cover of a Medicare misrepresentation settlement with CVS Caremark,2the FTC closed its investigation without action “[a]fter a thorough and comprehensive review of the other consumer protection and competition issues in this matter. . . .”3For those concerned that the FTC might mechanically and overly aggressively apply its authority and, thus, chill common business practices, the FTC lack of action is a comforting signal.

The FTC had been investigating a number of complaints of alleged anticompetitive practices by CVS Caremark, many, but not all, of which focus on dealings between CVS Caremark’s Pharmacy Benefit Management (PBM) business and its retail pharmacy business. These complaints include allegations that the PBM steers business to the pharmacy, that the businesses share competitively sensitive information and that the company engages in predatory pricing. While some of the allegations are unique to CVS Caremark, others challenge practices common in the PBM industry. More broadly, these complaints attack business practices common in vertically integrated businesses.

In a press release regarding the FTC settlement, CVS Caremark announced “[t]here were no allegations of antitrust law violations or anti-competitive behavior related to CVS Caremark’s business practices or its products or service offerings. In addition, the Company has received a formal letter from the FTC closing all other aspects of the investigation.”4In other words, after investigating CVS Caremark for over two years, the FTC’s sole charge relates to practices of a subsidiary that occurred prior to CVS Caremark’s acquisition of the subsidiary, and the agency did not take enforcement action with respect to any of a number of antitrust allegations that were made against the company.


In 2007, CVS, a leading retail pharmacy chain and clinic provider, acquired Caremark, the leading pharmacy benefits manager, without any objection by the federal antitrust authorities or the issuance of a Second Request.5In November 2009, the FTC announced an investigation into CVS Caremark amid complaints from the industry, consumer groups and members of Congress regarding activities since the acquisition.   

Allegations Against CVS Caremark

A number of entities have asserted allegations against CVS Caremark and urged an inquiry into the company’s practices. The National Community Pharmacists Association has been publicly pushing for an FTC review of CVS Caremark’s conduct since at least December 2008.6The Coalition Group “Change to Win,” a six-million member partnership of five affiliated unions that claims to represent workers in CVS Caremark plans  covering more than 10 million people, has also been advocating for an investigation into CVS Caremark’s conduct.7Other pro-consumer and privacy groups such as the National Legislative Association on Prescription Drug Prices, Consumer Action, U.S. Public Interest Research Group (PIRG), Patient Privacy Rights, Private Citizen and Privacy Journal have asked the FTC, along with the U.S. Department of Health and Human Services’ Office for Civil Rights (OCR), to investigate potentially illegal activity by CVS Caremark.  Members of Congress have also called for an investigation into the company’s practices.8

The complaints against CVS Caremark include, but are not limited to, allegations that the company improperly uses its PBM business to advance its retail business. Specific allegations include—

Steering Customers


Charges have been made that CVS Caremark uses its PBM business to steer customers to CVS retail pharmacies.

Complainants have alleged that, when Caremark members refill a prescription at a CVS pharmacy, the Caremark electronic system will notify the pharmacist if the member also uses non-CVS pharmacies. Complainants argue that CVS uses this information to steer customers toward CVS pharmacies by informing the consumer of the dangers of using multiple pharmacies and by urging members to consolidate all prescriptions at CVS.

Complainants have also alleged that CVS Caremark steers the most profitable prescriptions to CVS pharmacies by including exclusive provider language for specialty medications in PBM contracts and reclassifying costly drugs as “specialty.”

In addition, under some PBM contracts, members are automatically enrolled in CVS Caremark’s ExtraCare loyalty discount program, which complainants have alleged is for the purpose of driving members to CVS stores.

Raising Consumer Costs


The CVS Maintenance Choice program is alleged to provide eligible participants the option of filling 90-day maintenance medications at CVS pharmacies or through the company’s mail-order pharmacy at the same cost for the participant and payer.  The program is alleged to raise costs for members using non-CVS pharmacies, where the copay will typically be higher to refill the same prescription.

Spread Pricing


Complainants allege that CVS Caremark charges its PBM plan sponsors more for prescription drugs than the PBM ultimately pays to the refilling pharmacy and that this “spread” is increased by rebates from drug manufacturers that CVS Caremark receives based on the volume of product used by consumers. CVS Caremark allegedly uses the spread to subsidize predatory pricing by lowering the price of prescriptions sold by CVS pharmacies. Complainants argue that CVS Caremark should report—and pass through—the spread to plan sponsors, thereby eliminating CVS Caremark’s ability to use the spread to engage in predatory pricing.

Drug Switching


Complainants allege that the CVS Caremark Rx Review Program enables and incentivizes the company to switch members to higher-priced drugs. Through the program, CVS Caremark is said to send physicians materials providing patient names and prescription histories with a suggestion that the physicians switch these patients to alternate drugs—without disclosing that the drug might be more expensive to the patient or payer, that CVS Caremark may receive a rebate from the drug manufacturer or that the drug manufacturer has financed the outreach effort. Additionally, CVS Caremark allegedly provides financial incentives to pharmacists for discussing alternative therapy with patients, as well as for successful switches. CVS Caremark has settled several False Claims Act lawsuits over allegations of improper drug favoring and drug switching.9

CVS Caremark’s Response


In response to the allegations, CVS Caremark has argued that its practices areprocompetitive and that it has introduced “innovative products” since the merger.10CVS Caremark has also asserted that the challenged business practices help “manage” costs and “improve medication adherence,”11and denied that its practices inappropriately deprive patients of choices concerning where they fill prescriptions or that it switches customers to more-expensive drugs.12In addition, CVS Caremark has asserted that a firewall between the pharmacy service business and its retail operations protects competitively sensitive information.13


In a January 3, 2012, letter from the FTC to CVS Caremark’s counsel, the FTC addressed its long-running investigation into these antitrust and unfair competition complaints and stated that the Commission has determined “not to take any additional action at this time.”14While the FTC noted, as it typically does, that this was “not to be construed as a determination that a violation” had not occurred and reserved the right to take further action if necessary,15the FTC declared that the investigation had been “closed.” This decision cannot be read as anything less than an indication that the agency believes that these practices have not run afoul of the antitrust laws.16

The FTC’s decision not only indicates that the agency believes that these practices do not violate the antitrust laws, but reaffirms the agency’s prior conclusion that there areprocompetitive benefits to the challenged practices. The FTC conducted a congressionally mandated review in 2005 regarding alleged competition issues arising from PBM ownership of mail-order pharmacies. That inquiry similarly examined whether that ownership created a conflict of interest between the PBMs (which would have the incentive to encourage members to use the PBM’s mail-order pharmacy rather than other network pharmacies) and the insurers with which the PBMs contracted.17The FTC determined that the data did not support finding competitive concerns and that insurers were sufficiently able to guard their interests. The report focused on the pricing effect of various practices within PBM-owned mail-order pharmacies versus those at non-owned mail-order pharmacies. The FTC found that average total prices at large PBM-owned mail-order pharmacies were typically lower than non-owned mail-order pharmacies, and retailer-owned PBM prices at their affiliate mail-order pharmacies were lower for all but those drugs without a generic alternative.18The Commission also found that PBM-owned pharmacies generally dispensed the same amount of generic drugs within particular therapeutic classes as non-PBM mail-order pharmacies.19In other words, PBM-owned mail-order pharmacies were not “steering” customers to more expensive drugs or charging higher prices in general.

Furthermore, the decision is sure to impact private antitrust actions challenging similar practices by other PBMs. For example, in in re Pharmacy Benefit Managers Antitrust Litigation,20plaintiffs allege that various PBMs have used the combined buying power of clients—the plan sponsors for which the PBMs administer drug benefits—to reduce payment to retail pharmacies and steer consumers to the mail-order pharmacies of the PBMs.  Several motions are currently pending and scheduled for oral argument regarding class certification and other issues. The FTC’s failure to take enforcement action with respect to the challenged CVS Caremark practices may bolster defendants’ position that these PBM practices do not violate the antitrust laws. It certainly deprives the plaintiffs of the ability to cite the pending FTC investigation for whatever support they might have claimed from that fact.

1Reed Abelson & Natasha Singer, “Pressure Grows to Unwind CVS Merger,” The New York Times, Apr. 14, 2011 (available at http://www.nytimes.com/2011/04/15/business/15cvs.html?_r=1).

2The settlement requires CVS Caremark Corp. to pay $5 million to settle charges that it misrepresented certain Medicare Part D prescription drug prices in violation of Section 5 of the FTC Act.  Press Release, Federal Trade Commission, CVS Caremark Corporation Settles FTC Deceptive Pricing Charges (Jan. 12, 2012) (available at http://ftc.gov/opa/2012/01/cvs.shtm).

3FTC Closing Letter from Secretary Donald S. Clark, Federal Trade Commission, to Bruce Sokler, Mintz Levin, Jan. 3, 2012, available at http://www.ftc.gov/os/closings/120112cvsclosingletter.pdf.

4Press Release, CVS Caremark, FTC Ends Investigation of CVS Caremark (Jan. 12, 2012) (available at https://cvshealth.com/newsroom/press-releases/ftc-ends-investigation-cvs-caremark).

5The CVS Caremark merger was announced on November 1, 2006, and consummated the following March without any objection by the federal antitrust authorities or the issuance of a Second Request.

6See Letter from Bruce T. Roberts, executive vice president and chief executive officer, National Community Pharmacists Association to FTC Chairman William Kovacic, December 23, 2008, available at http://www.ncpanet.org/pdf/leg/cvscaremarkncpaltr.pdf (outlining competition and privacy concerns); letter from Holly Henry, president, National Community Pharmacists Association to FTC Chairman Jon Leibowitz; May 12, 2009, available at http://www.ncpanet.org/pdf/needftcinvestigation.pdf. (citing potential violations of the Clayton and the FTC Act).  In May 2009, more than 80 community pharmacists met with the FTC to explain the problems caused by the merger and to urge the agency to re-examine it.

7See CVS Caremark: An Alarming Prescription, Nov. 2008 (detailing questionable and allegedly illegal practices by CVS Caremark and its predecessor companies and outlining new risks presented by the merged retail drugstore and PBM company in areas vital to health plans and consumers, such as patient privacy, patient health versus PBM profits, value to plans, conflicts of interest and quality of service). CVS Caremark: An Alarming Merger, Two Years Later (collecting evidence regarding negative consequences of CVS Caremark merger for health care payers and consumers).

8Letter from Sens. Pryor and Wicker to FTC Chairman Jon Leibowitz, July 23, 2009, available at http://www.ncpanet.org/pdf/leg/pryorwicker.pdf; Letter from Sens. Dorgan, Klobuchar and Feingold to FTC Chairman Jon Leibowitz , July 28, 2009, available at http://www.ncpanet.org/pdf/leg/dorganklobucharfeingold.pdf; Letter from eight members of Congress to FTC Chairman Jon Leibowitz, Sept. 14, 2009, available at http://www.ncpanet.org/pdf/leg/cvscaremarkftcsept09.pdf.

9See State of Washington v. Caremark Rx, LLC, (No. 08-2-06098-5SEA, WA Sup. Ct., King Co. Feb. 14, 2008 (consent decree providing for payment of $38.5 million to 28 states and the District of Columbia); United States ex rel. Lisitza v CVS Caremark, Jan. 31, 2003; Press Release, “CVS Caremark Issues Statement on Settlement Concerning Retail Dispensing Practices for Ranitidine, Mar. 18, 2008 (agreeing to pay $37 million to the federal government, 23 states and the District of Columbia to settle claims that CVS improperly switched Medicaid patients to a more expensive form of an antacid, Ranitidine).    

10Reed Abelson and Natasha Singer, “Pressure Grows to Unwind CVS Merger,”The New York Times, Apr. 14, 2011, available at http://www.nytimes.com/2011/04/15/business/15cvs.html.

11Cecile Vannucci, “CVS Caremark Should Split in Two, Consumer Groups Tell FTC,” Bloomberg, Apr. 15, 2011, available at http://www.bloomberg.com/news/2011-04-15/cvs-caremark-should-split-in-two-five-consumer-groups-tell-ftc.html.

12Bell, supra note 5; Davidson, supra note 5.


14FTC Closing Letter from Secretary Donald S. Clark, Federal Trade Commission, to Bruce Sokler, Mintz Levin, Jan. 3, 2012, available at http://www.ftc.gov/os/closings/120112cvsclosingletter.pdf.


16Concurrent with the issuance of the closing letter, the FTC filed a complaint involving the Medicare Part D program.   See Complaint, In re CVS Caremark Corp., (No. 112-3210), Jan. 12, 2012, available at http://ftc.gov/os/caselist/1123210/120112cvscmpt.pdf.  The FTC’s complaint alleges that CVS participated in a reimbursement relationship that resulted in beneficiaries who were seeking a Medicare drug plan seeing estimates for prices of drugs at CVS and Walgreens that had no bearing on the actual prices charged, and, as a result, many utilized their benefits coverage faster than anticipated and unexpectedly entered the “donut hole,” becoming responsible for the total cost of their prescriptions.  The Commission concluded that these acts were false or misleading, in violation of Section 5, and CVS Caremark agreed to pay the FTC $5 million to settle the charges.

17Federal Trade Commission, “Pharmacy Benefit Managers: Ownership of Mail-Order Pharmacies” (Aug. 2005).

18Id. at vi-vii.

19Id. at x.

20No. 06-md-01782 (E.D. Pa.), consolidating Brady Enterprises, Inc. v. Medco Health Care Solutions, Inc., No. 03-4730 (E.D. Pa.); Bellevue Drug Co. v. AdvancePCS, No. 03-4731 (E.D. Pa.); Mike’s Medical Center v. Medco Health Solutions, No. 06-4112 (N.D. Cal.); North Jackson Pharmacy v. Express Scripts, No. 06-4114 (N.D. Ala.); North Jackson Pharmacy v. Medco Health Solutions, No. 06-4115 (N.D. Ala.); North Jackson Pharmacy v. Caremark Rx Inc., No. 06-4305 (N.D. Ill.).

Contact Information

If you have any questions regarding this alert, please contact—

Mark J. Botti
Washington, D.C.
C. Fairley Spillman
Washington, D.C.
Diana L. Gillis
Washington, D.C.