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Exclusive: Pharmacy giant Surescripts buys cost-focused prescription startup

Illustration: Aïda Amer/Axios

Prescription services giant Surescripts acquired ActiveRADAR, a company that identifies lower-cost medication alternatives, chief data officer Lynne Nowak tells Axios exclusively.

Why it matters: Partially owned by two of the nation's largest pharmacy benefit managers (PBMs), Surescripts is acquiring in ActiveRADAR a company focused on lowering prescription drug costs.

How Surescripts works: Surescripts' software is used by prescribers, pharmacists, payers, PBMs and patients to access data on prescription benefits, medication history and prescription routing.

How ActiveRADAR works: Formerly known as RxTE Health, Minneapolis-based ActiveRADAR identifies lower-cost prescription options that are therapeutically equivalent to brand and generic drugs.

  • The company's reference pricing model was featured in a 2020 study published in the Journal of the American Medical Association that found the model increased prescriptions for the lowest-cost drugs and drug alternatives and was linked with reduced employer spending and lower cost-sharing by employees.

What they're saying: "I think it's safe to say that this is probably a good signal of ... potential acquisitions," says Nowak. "I think we're really looking to grow and expand."

Details: Nowak declined to disclose financial terms of the deal but said Surescripts is bringing on all of ActiveRADAR's staff — roughly 11-50 employees, per LinkedIn.

  • "I think it fits very nicely in what the PBMs are offering and should be offering to their patients," says Nowak. "The challenge is [while] most PBMs offer alternatives ... it's really challenging for them to keep them up to date. ActiveRADAR actually updates our databases every week."

The intrigue: Surescripts recently settled a 2019 FTC lawsuit that accused the company of using illegal methods to maintain monopolies within the electronic prescriptions market.

  • The suit also accused Surescripts of mandating customers' long-term exclusivity and punishing them for buying medications from a competitor by raising prices.
  • The settlement blocks Surescripts from "engaging in exclusionary conduct and executing or enforcing non-compete agreements with current and former employees."

Be smart: Surescripts is half owned by two pharmacy lobbying organizations — National Association of Community Pharmacies and the National Association of Chain Drug Stores — and half owned by CVS Caremark (which represents 33% of the PBM market share) and Express Scripts (24%), per Fierce Healthcare.

The big picture: The PBM industry has been targeted in recent years for its role in driving up drug costs.

  • Three companies command 80% of the drug market, and, per experts and research, control drug prices while acting as brokers between insurers and consumers.
  • Dominant PBMs direct patients to the mid- or large-scale pharmacies they own, which experts say block most competitors from operating within their networks and making it harder for customers to use them.
  • PBMs are also paid based on the price of medications, though a number of bills currently moving through Congress are attempting to change that.

State of play: Hoping to compete with the dominant players, venture-backed pharmacy and PBM startups have proliferated in recent years. For example:

  • PBM startup SmithRx, which runs claims through algorithms seeking lower-priced medications, last March filled a $20 million Series B round.
  • Former OptumRx CEO Mark Thierer last April reentered the drug pricing fray with a $35.4 million Series A raise for Waltz Health, a startup that lets users search for the lowest-cost medications.
  • Mark Cuban's Cost Plus Drug Co. launched in January promising steep discounts on 100 generic medications with prices that include a flat 15% fee and a $3 charge for pharmacists' labor.
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