Fed. Trade Comm'n v. Surescripts, LLC

665 F.Supp.3d 14

FEDERAL TRADE COMMISSION, Plaintiff, v. SURESCRIPTS, LLC, Defendant.

Civil Action No. 19-1080 (JDB)

United States District Court, District of Columbia

Signed March 30, 2023

Bradley Albert, Andrew Kennedy, Daniel Butrymowicz, Nicholas Aaron Leefer, Timothy Grayson, Markus H. Meier, Daniel John Matheson, David B. Schwartz, Joseph P. Mathias, Tanya T. O'Neil, Federal Trade Commission Bureau of Commission, Washington, DC, for Plaintiff.

Amanda P. Reeves, Allyson M. Maltas, Latham & Watkins LLP, Washington, DC, Alfred C. Pfeiffer, Jr., Pro Hac Vice, Latham & Watkins LLP, San Francisco, CA, John Francis Frost, Pro Hac Vice, Marc Robert Lewis, Pro Hac Vice, Lewis & Llewellyn LLP, San Francisco, CA, Elyse Greenwald, Pro Hac Vice, Latham & Watkins LLP, Los Angeles, CA, for Defendant.

MEMORANDUM OPINION

JOHN D. BATES, United States District Judge

Before the Court are two motions for summary judgment. This case arises from loyalty pricing contracts offered beginning in 2010 by defendant Surescripts, LLC ("Surescripts"), a health information technology company, to its customers in the electronic prescription routing and eligibility markets, complementary markets collectively known as "e-prescribing." Plaintiff Federal Trade Commission (the "FTC") brought this suit against Surescripts alleging two violations of Section 2 of the Sherman Act—Count I alleges a violation in the electronic routing market, and Count II alleges a violation in the electronic eligibility market. The FTC argues that Surescripts violated Section 2 through its loyalty pricing contracts and other allegedly anticompetitive conduct in both markets. The parties now each seek summary judgment: Surescripts seeks total summary judgment on both claims, and the FTC seeks partial summary judgment on a limited pair of issues—specifically, market definition and monopoly power. Almost a year after summary judgment briefing began, the parties recently notified the Court that the case may be moot due to Surescripts's voluntary cessation of its loyalty pricing program. For the reasons explained below, the Court determines that the case is not moot at this time and will grant the FTC's motion for partial summary judgment but reserve decision on Surescripts's motion for summary judgment.

Background

I. Factual Background

Surescripts is a Virginia-based health information technology company created in 2008 by the merger of RxHub LLC and SureScripts Systems, Inc. that provides routing and eligibility network services. Statement of Undisputed Facts in Supp. of Surescripts's Mot. for Summ. J. [ECF No. 104]¹ ¶¶ 1, 10 ("Surescripts SUF"); Pl. FTC's Statement of Undisputed Facts [ECF No. 103-2] ¶¶ 1-3 ("FTC SUF").

A. Routing and Eligibility

An electronic routing transaction is the transmission of prescriptions and prescription-related information (e.g., requests for prescription refills) from a prescriber's electronic health record vendor ("EHR") to a pharmacy either directly or indirectly through an intermediary pharmacy technology vendor ("PTV"). FTC SUF ¶ 4; Surescripts SUF ¶¶ 2-4. An electronic eligibility transaction is the request for and subsequent transmission of a patient's formulary and benefit information from the pharmacy benefit manager ("PBM") to the prescriber's EHR before the patient's appointment. Surescripts SUF ¶ 5; FTC SUF ¶ 5. This information includes "which drugs are covered by the patient's drug benefit plan, the location of covered drugs on a patient's health insurance company's formulary, what copay (if any) a patient will have to pay to obtain a prescribed drug, and lower-cost alternatives, such as generic drugs." Surescripts SUF ¶ 6; seeid. ¶ 9; FTC SUF ¶ 5. Electronic routing and eligibility are sometimes referred to collectively as "e-prescribing." FTC SUF ¶ 6. While routing and eligibility transactions can occur directly between the relevant parties, id. ¶ 8, Surescripts provides a two-sided platform to connect the players in both routing and eligibility markets, id. ¶ 7. Before the advent of e-prescribing, the transmission of routing and eligibility information occurred only by other means, such as by paper, fax, or phone, referred to as "analog methods." Id. ¶¶ 9-10.

Routing and eligibility are two-sided platforms with indirect network effects, meaning that "participants on one side of the platform value having more participants on the other side." Pl. FTC's Statement of Material Facts Presenting a Genuine Issue for Trial in Opp'n to Def.'s Mot. for Summ. J. [ECF No. 156-1] ("FTC SOMF") ¶ 25;²see Surescripts Resp. to FTC SOMF ¶ 25;³see also FTC SUF ¶ 7. Indirect networks often feature a "chicken-and-egg" problem in which "the entrant cannot get one side on board without having the other side on board, and vice versa." FTC SOMF ¶ 26; see Surescripts Resp. to FTC SOMF ¶ 26. Indirect network effects tend to work against new entrants and instead in favor of preexisting market participants that have already amassed a large customer base on both sides of the market. See FTC SOMF ¶ 27; see Surescripts Resp. to FTC SOMF ¶ 27.

B. E-Prescribing Versus Analog Methods

Electronic routing and eligibility differ in critical ways from analog methods. Starting with routing, analog methods of routing are distinct from electronic routing on several key metrics.

• Efficiency: Electronic routing is less error-prone and more accurate than analog methods. See FTC SUF ¶¶ 34-35. Electronic routing is also more efficient than analog methods because it is associated with fewer instances of "manual follow-ups" and "adverse patient events," "causes less interruption to the pharmacy workflow," "results in increased prescription adherence," and eliminates human error associated with analog methods of transmitting prescription information. Id. ¶¶ 36-40 (internal quotation marks omitted).

• Cost: Electronic routing is also more cost-effective than analog methods. See FTC SUF ¶ 42. It is estimated that pharmacies save between $0.89 and $1.05 per script when they use electronic routing to send prescription information instead of analog methods, which is a significant portion of the gross margin on prescription-filling. Id. ¶¶ 43-44. Electronic routing also yields cost-savings for prescribers due to the federal incentives to switch to e-prescribing methods. Id. ¶ 47.

• Pricing: Electronic routing and analog methods of routing also feature different pricing structures. Surescripts charges a per-transaction price to pharmacies and PTVs for using its network and either charges nothing or gives a loyalty payment to EHRs for each transaction on its network. FTC SUF ¶¶ 50-51. There is no analogous "price" charged for the use of analog methods. Id. ¶ 52.

• Customers: Electronic routing and analog methods also have a different customer base. EHRs do not contract with any company for prescriptions delivered by analog methods (though may in some instances receive prescription information via analog method if the electronic method were to fail). See FTC SUF ¶ 54; Surescripts's Resp. to FTC SUF [ECF No. 157-1] ("Surescripts Resp. SUF") ¶ 54; Pl. FTC's Reply to Surescripts Resp. SUF [ECF No. 118-1] ("FTC Reply SUF") ¶ 54. Similarly, PTVs do not contract for prescriptions delivered by analog methods. See FTC SUF ¶ 56; Surescripts Resp. SUF ¶ 56; FTC Reply SUF ¶ 56.

• Vendors: Finally, vendors typically provide electronic routing, while analog methods are not provided by a vendor, except in the case of an e-prescribing company using an analog method as a back-up in case electronic routing were to fail. See FTC SUF ¶¶ 57-59; Surescripts Resp. SUF ¶ 59; FTC Reply SUF ¶ 59.

The electronic transmission of eligibility information differs from analog methods in many of the same ways.

• Efficiency: Electronic eligibility transactions provide "more effective communication of a patient's insurance coverage and generic alternatives, which reduces the possibility that a patient does not pick up their prescription due to a surprising high price." FTC SUF ¶ 60.

• Cost: Electronic eligibility is also more cost-effective than analog methods. It saves PBMs money by encouraging prescribers to use cheaper generic drugs and reduces insurer spending on drugs by 8 to 15%. Id. ¶¶ 65-66. These savings provide "substantial value to PBMs, delivering several times the return on investment per transaction." Id. ¶ 67. In addition, using electronic eligibility made some prescribers eligible for federal incentives. See id. ¶ 68; Surescripts Resp. SUF ¶ 68; FTC Reply SUF ¶ 68.

• Pricing: Electronic eligibility and analog methods have different pricing structures. On Surescripts's network, PBMs are charged on a per-transaction basis and EHRs are charged nothing or given a loyalty payment on each transaction. FTC SUF ¶¶ 71-72. Analog methods, on the other hand, are not priced on a per-transaction basis. Id. ¶ 73.

• Customers: Electronic eligibility and analog methods also have different customers. EHRs are customers of electronic eligibility but they are not customers of analog methods because such methods entail prescribers calling PBMs directly or mailing plan information to PBMs without the use of EHRs. FTC SUF ¶¶ 74-75; see also Surescripts Resp. SUF ¶ 74; FTC Reply SUF ¶ 74.

• Vendors: Electronic eligibility information is transmitted by vendors over the vendor's network. In contrast, analog methods do not involve transmission of information through a vendor on a network—instead, such information is transmitted via phone calls and benefit manuals. See FTC SUF ¶¶ 76-78; Surescripts Resp. SUF ¶ 78; FTC Reply SUF ¶ 78.

Market participants—namely, Surescripts and its largest competitor, Emdeon (discussed below)—have also implied in several business documents that e-prescribing is distinct from analog methods. FTC SUF ¶¶ 85-95.

C. The Rise of E-Prescribing

Before 2007, e-prescribing was prohibited in many states and was rarely used. Surescripts SUF ¶ 14. In 2007, e-prescribing was widely legalized, id. ...