Antitrust Law Daily FTC claims that e-prescribing provider Surescripts suppressed competition avoid dismissal
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Tuesday, January 21, 2020

FTC claims that e-prescribing provider Surescripts suppressed competition avoid dismissal

By Nicole D. Prysby, J.D.

Surescripts allegedly used exclusive long-term contracts with customers to suppress competition from rivals.

Claims that e-prescribing solution provider Surescripts engaged in an anticompetitive scheme to maintain its monopoly through long-term exclusivity contracts survived a motion to dismiss. The FTC alleged that Surescripts’ loyalty program acted to maintain its monopolies in two separate, complementary markets: electronic prescription routing and eligibility. The federal district court in Washington, D.C. had jurisdiction to hear the case, because the FTC Act does not limit a court’s power to issue permanent injunctions upon request by the FTC to only routine, straightforward cases. The "proper cases" language in the FTC Act is not jurisdictional and this case was "proper" because that term referred to any case in which a permanent injunction would be appropriate. Further, the claim would go forward because the FTC adequately alleged that the loyalty program was anticompetitive exclusionary conduct, in that the loyalty program prevented the entrance of competitors into e-prescribing markets. The agency adequately alleged foreclosure of a substantial share of both of the two-sided markets by alleging that Surescripts’s loyalty program placed 70-80 percent of the routing and eligibility markets into effectively exclusive contracts (FTC v. Surescripts, LLC, January 17, 2020, Bates, J.).

The FTC alleged that Surescripts engaged in a long-running anticompetitive scheme to maintain its monopolies over two separate, complementary markets: electronic prescription routing and eligibility, which are often collectively referred to as "e-prescribing." The complaint sought injunctive relief to bar the challenged practices and other equitable relief, including monetary relief, to prevent unfair methods of competition.

Routing is the transmission of prescription and prescription-related information from a prescriber (via the prescriber’s electronic health record (EHR) system) to a pharmacy. Eligibility is the transmission of a patient’s formulary and benefit information from a payer (usually the patient’s pharmacy benefit manager or PBM) to a prescriber’s EHR. Specifically, the FTC alleged that Surescripts changed its pricing policies to require long-term exclusivity from nearly all of its routing and eligibility customers. The loyalty provisions in contracts with customers on both sides of the routing and eligibility markets conditioned discounts or payments on actual or de facto exclusivity. In addition, the FTC contended that Surescripts used threats to its customers to prevent them from working with competitors. Surescripts moved to dismiss the claims, arguing that the court lacked subject matter jurisdiction under Section l3(b) of the FTC Act, and that the FTC failed to state a claim.

Subject matter jurisdiction. Surescripts argued that section 13(b) of the FTC Act limits the court’s power to issue permanent injunctions upon request by the FTC to "proper cases." In other words, routine, straightforward cases, not a case involving complex and novel issues of antitrust law, such as how to understand the two-sided e-prescription markets of routing and eligibility. The court rejected that argument and concluded that the "proper cases" language in the FTC Act is not jurisdictional and that the instant case was "proper" because that term referred to any case in which a permanent injunction would be appropriate: i.e., any case in which a law enforced by the FTC has been violated and equitable remedies are needed to make harmed consumers whole. The provision does not include any statement regarding jurisdiction, and to interpret the statute in the manner suggested by Surescripts would lead to a cumbersome threshold test in which the court would need to assess the novelty or complexity of the claims’ merits before deciding whether to hear the case in the first place. Further, while straightforward cases may be the typical application of the permanent injunction statute, other claims are not precluded.

Sufficiency of the claim. The court rejected Surescripts’ arguments that the FTC’s claim should fail because the FTC did not allege either that Surescripts employed predatory pricing or that Surescripts’s market behavior violated the rule of reason. The FTC adequately alleged that the loyalty program was anticompetitive exclusionary conduct, in that the loyalty program prevented the entrance of competitors into e-prescribing markets. This absence of competitors allegedly led to increased prices for pharmacies and PBMs and lower incentive payments for EHRs. Although the loyalty program was optional, it had the practical effect of preventing customers from working with other e-prescribing platforms because to do so would trigger massive penalty provisions in their contracts.

Even if a few customers managed to have a non-exclusive relationship with Surescripts, competition could be foreclosed where the conduct substantially forecloses the market, which the FTC alleged occurred here. There was no need for the FTC to also allege that the pricing was predatory for Surescripts’s exclusionary practices to constitute illegal maintenance of a monopoly—where Surescripts, the dominant supplier, entered into de facto exclusive dealing arrangements with every customer in the market, other firms may be driven out not because they cannot compete on a price basis, but because they are never given an opportunity to compete, according to the court.

The court also rejected Surescripts’ argument that the claim failed under the rule of reason, because the FTC did not allege foreclosure of a substantial share of both the routing and eligibility markets. The FTC alleged that Surescripts’s loyalty program placed 70-80 percent of the routing and eligibility markets into effectively exclusive contracts and that Surescripts’ loyalty program foreclosed both of the two-sided markets at issue. In addition to charging lower fees to pharmacies and PBMs, the FTC alleged that one competitor was also willing to pay higher incentives to EHRs. Thus, on both sides of the market, Surescripts stood to gain above-market returns, charging higher fees and paying out lower incentives than its competitors. The FTC also alleged that Surescripts engaged in other anticompetitive conduct, like forcing key customers to terminate association with competitors, which hurt innovation, decreased output, and lowered quality. Surescripts argued that the FTC failed to plead sufficient facts showing that Surescripts’s business practices foreclosed market competition to a "substantial" degree, but this question turned on a factual dispute ill-suited for the pleadings stage, the court explained.

The case is No. 19-1080-JDB.

Attorneys: Bradley Albert for the FTC. Amanda P. Reeves (Latham & Watkins LLP) for Surescripts, LLC.

Companies: Surescripts, LLC

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