Surescripts Explained
On the back of GoodRx’s IPO (and Steve Hardgrove’s great breakdown on its drug pricing arbitrage business model), I wanted to dig into another relevant and mercurial company: Surescripts.
For those not in healthcare, you’ve probably never heard of Surescripts but there’s a high likelihood your doctor has requested a prescription from a pharmacy through its e-prescribing software.
In 2020, prescription drug costs in the US will account for $350 billion in spend ($1.3 trillion globally 🤯). Insurers, who outsource Rx coverage to pharmacy benefits managers (PBMs), attempt to control costs by excluding some medicines from coverage, suggesting preferred alternatives, requiring tiered copayments from patients, or demanding prior authorization. These restrictions are specified in formulary tables. Every patient has specific drug coverage and costs that clinicians check to determine the best choice of prescription.
After checking eligibility, clinicians need a way to send that prescription to a pharmacy. Prescriptions used to be transmitted via fax or printed and handed to a patient in the not-so-distant past. But it’s one thing to prescribe Rx; clinicians also want to know if the prescription has been filled. A “dispensing history” can reveal unexpectedly excessive or insufficient use that a “prescribing history” cannot.
These two needs form the separate but complementary segments of e-prescribing: eligibility and routing.
RxHub was the first major eligibility network, providing clinicians with real-time / point of care formulary checks. RxHub formed in 2001 with $60M in capital from three PBMs: AdvancePCS (acq. CVS Caremark), Express Scripts, and Merck-Medco Health Solutions. Each PBM would publish multiple formularies, and RxHub made all of them available in a central location interfaced via an “Eligibility Response.”
In reaction to RxHub’s foundation, two pharmacy trade groups, the National Association of Chain Drug Stores (NACDS) and National Community Pharmacists Association (NCPA), formed the Surescripts routing network. Surescripts was the post-eligibility transmission of prescription orders between a clinician’s EHR and a pharmacy’s EHR.
RxHub and Surescripts saw momentum build with the inclusion of e-prescribing in the Medicare Modernization Act (MMA) of 2003. The Institute of Medicine’s (IOM) report on the effect of e-prescribing reducing medication errors also received widespread publicity in 2006. But it wasn’t until the passing of the Medicare Improvements for Patients & Providers Act (MIPPA), that the industry reached the tipping point it needed to advance healthcare technology adoption and enable broad information exchange. AKA clinicians received incentive payments for adopting e-prescribing.
I imagine executives at both companies viewed a merger as a means to establish the most dominant two-sided network: linking the biggest PBMs to EHRs (RxHub) and EHRs to thousands of NACDS and NCPA pharmacies (Surescripts). These network effects would feed each other: the more pharmacies joined, the more incentivized EHRs were to join (and the more EHRs joined, the more pharmacies were incentivized to join).
Their 2008 merger consolidated operations, forming a single, secure, nationwide network for e-prescriptions. Surescripts-RxHub possessed nearly 95% of the eligibility market and 95% of the routing market (by transaction volume). While the company’s share now hovers at 80% of the billions of prescriptions written annually in the US, e-prescribing has surged in the past decade with meaningful use requirements under the American Recovery and Reinvestment Act (which also ramped EHR adoption) and federal rules addressing fraud and abuse of controlled substances.
Surescripts continues to acquire and partner with clinical data information (CDI) businesses. In 2010, Surescripts partnered with Quest to enter the lab data sharing market. It later acquired collaborative HIE messaging vendor, Kryptiq, and added ambulatory EHR vendors to the CDI network in 2012. Surescripts started selling to long-term facilities in 2016. These acquisitions forecasted Surescripts’s goal beyond e-prescribing to become a trusted health information network.
But Surescripts’s pursuit of quality information sharing has not come without criticism.
In 2019, the FTC accused the company of the antitrust tactic of multihoming, raising costs for customers to use additional platforms. The complaint articulates loyalty-based pricing with discounts and incentive payments for long-term exclusivity (use of “Surescripts’ networks for 100% of their transactions”) from almost all of its customers. In one instance, Surescripts allegedly prohibited EHR vendor Allscripts from entering into an agreement with a competitor for 6 years.
What the FTC failed to consider is that CMS took too long to rally around e-prescribing. Private companies took on the burden of establishing standards, funding the infrastructure, reconciling state laws, and templatizing use cases. This is often the delicate dance between public policy and private entrepreneurship. I’ll give the FTC that multihoming crossed a line but ownership of Surescripts by CVS (17%), Express Scripts (33%), and pharmacy trade associations NACDS (25%) and NCPA (25%) is not in itself a violation. A company like Surescripts can’t be condemned for developing popular software, even if that success entrenches market dominance. It’s how a monopoly is obtained or (suspiciously) preserved that matters, not its mere existence.
So where does that leave Surescripts today?
It’s still the go-to clearinghouse for medication history and ordering, despite competition from CoverMyMeds (acq. McKesson) and Armada Care. The company’s multi-sided network, Surescripts Network Alliance, is made up of an increasing number of health plans, care organizations, and specialty hubs… but I hope enterprises will be given wider access to Surescripts’s systems. At present, partners only access Surescripts when performing some kind of care delivery e.g. planning a patient’s discharge. What about clinical and cost data to inform plan design (for insurers)? Or volume and form factor data (for pharma R&D)? Even sales and marketing (for retailers like Amazon)?
I’d like to see the network principle of Surescripts’s eligibility and routing applied to other areas of healthcare like durable medical equipment (DMEs) where ordering and prior auth still subsists in CSV files. Parachute Health is one such company helping insurers and providers assess and order from qualified DME suppliers against formularies. Availity, born of a joint venture between Florida Blue Cross and Humana, similarly took the pain point of digitizing claims and created the largest network processing payer-provider transactions.
As these data exchange networks grow, they have the ability to set standards just like Surescripts in e-prescribing and labs. PatientPing’s arc has included working on continuity of care standards for health information exchanges (HIEs). Veeva has used its position as the life sciences CRM to lead consortiums of clinical research organizations (CROs) and pharma sponsors streamlining clinical-study data processes. The macro push towards interoperability will likely see Surescripts push into other areas of health data exchange, leveraging its near-universal PBM, pharmacy, and provider penetration level.
Thank you to Anat Gilboa for her astute edits.