PillPack Puts Pressure on Express Scripts in Pharmacy Dispute

Xconomy Boston — 

[Updated, 10:30pm. See below] It’s a timeworn tale: a startup forms a key partnership with a big company, only to see said company change the terms or end the deal. Think Microsoft, Amazon, or any other giant throwing its weight around with smaller players.

Now think healthcare—and a fight between one of the fastest-growing local startups and one of the biggest healthcare companies in the world.

The startup is PillPack, an online pharmacy and medication-management firm based in Somerville, MA, and Manchester, NH. The big company is Express Scripts, a St. Louis-based pharmacy benefit manager that serves health insurance plans and corporations that pay for consumers’ medications. (Pharmacy benefit managers process prescriptions and negotiate prices with pharmacies and drug makers; they can also operate their own mail-order pharmacies.)

PillPack ships pre-sorted medications in time-stamped packs to help people take their pills properly, and helps manage their refills. The startup has worked with Express Scripts (NASDAQ: ESRX) since the fall of 2013, as a member of its network of pharmacies. Now, Express Scripts says it’s terminating the contract at the end of April, and PillPack is fighting back with a public campaign and website to draw attention and put some consumer pressure on the $100-billion company.

A statement on Express Scripts’ website reads: “We were compelled to remove PillPack from our networks this month because it misrepresented itself and was unable to meet the terms and conditions of our provider contract.” (It’s worth noting that the comments at the bottom of the page are overwhelmingly in support of PillPack’s service.)

The contract dispute seems to boil down to whether PillPack qualifies as a retail pharmacy, rather than a mail-order pharmacy. Express Scripts also claims the startup shipped meds to at least one state where it didn’t have a license to do so.

But according to PillPack, at least, the move is all about Express Scripts quashing competition and trying to own more of the value chain—in this case, the mail-order prescription process.

“They’ve enjoyed a pseudo-monopoly for a long time,” says TJ Parker, PillPack’s CEO and co-founder (pictured). “By the time someone becomes a real threat, they try to block or eliminate them.”

The move will affect “thousands of customers” and roughly one-third of PillPack’s users, Parker says. “It’s certainly impactful.” But he adds that 50 million people still fit the criterion of PillPack’s target customer, which is that they take three or more medications per month. “We are full steam ahead—it doesn’t slow us down,” he says.

PillPack’s goal is simple. “We’d love to continue to work with Express Scripts,” Parker says. “But they’re choosing their interest over their consumers’ interest.”

He adds that his team is looking into legal options, but “it’s a last resort.”

[Updated with Express Scripts comments in next two paragraphs—Eds.] Express Scripts spokesman Brian Henry writes: “Basically, the assertion that this is about competition is not true at all. If anything, we would be collaborators with PillPack, given its focus on adherence. The bottom line is this: they misrepresented themselves as a retail pharmacy, they shipped medications to a state where they don’t have a license to practice pharmacy, and they are not URAC accredited. All of those violate our provider agreement. We’d welcome them back to our network, but they need to address those issues, which we have asked them to do several times over the past few months and they have not yet complied.”

Asked why he thinks PillPack hasn’t complied, Henry says: “It’s not clear to us why they would take the actions they have. We’ve been open to collaborating with them. We have also been very clear about the steps they need to take, over the past several months, to reapply to our network and, to date, they haven’t taken those steps.”

PillPack has tripled in size over the past year, and now has 225 employees. The company is not profitable yet, Parker says. But it has a lot of support from its investors—which include CRV, Accel, Accomplice, Founder Collective, and Techstars—who have put $62 million-plus into the startup.

“We started the company to make stuff easier for people who’ve had a hard time and haven’t had a good experience” with managing medications, Parker says. “It feels morally wrong that it’s taken away because of some random business” issue, he adds. “It doesn’t feel like how healthcare should work.”

Yet, as Parker would know—he was a pharmacist in his family’s business—it is exactly how healthcare works. But this fight could be a first step in changing that.

And meanwhile, somewhere, Amazon, Uber, and other transportation-related tech companies are watching this sector with interest.