Washington Post Staff Writer

Tuesday, February 9, 2010; B03

The Federal Trade Commission is investigating allegations of improper business practices by a firm that provides prescription drug services for health insurance companies that cover most federal employees.

In a series of letters last year, a bipartisan group of congressional members outlined a number of allegations against CVS Caremark. The group urged the FTC to investigate the company, which was formed in a 2007 merger of CVS and Caremark Rx.

CVS Caremark, in its role as a pharmacy benefit manager, acts as a middleman, negotiating prescription drug prices between pharmaceutical companies and insurance plans serving a large segment of U.S. consumers. The congressional letters to FTC Chairman Jon Leibowitz did not focus on federal employees, but among the insurance plans doing business with CVS Caremark are some in the Federal Employees Health Benefits Program, including the big one, Blue Cross/Blue Shield, and those sponsored by the National Association of Letter Carriers and the National Rural Letter Carriers' Association.

In a related matter, the House Oversight and Government Reform subcommittee on federal workforce, Postal Service, and the District of Columbia plans to hold a hearing Wednesday on legislation designed to strengthen government supervision of prescription drug benefits for federal workers.

One of the more detailed letters to the FTC was from Illinois Democrat Jan Schakowsky, vice chair of the House Energy and Commerce subcommittee on commerce, trade and consumer protection.

"[T]here have been troubling signs that this merger may be harming consumers and competition," she wrote on May 12. She listed a number of "widespread complaints," accusing CVS Caremark of:

-- Steering customers to CVS facilities instead of pharmacies patients choose.

-- Using customer data "as a vehicle to increase retail and prescription drug sales."

-- Switching patients to drugs that are more profitable for CVS Caremark.

Apparently unaware that the FTC probe had begun in August, four Republicans and four Democrats in the House, led by Rep. Anthony Weiner (D-N.Y.), signed another letter in September asking the FTC to investigate the merger. "We strongly believe that CVS Caremark is engaging in unfair and deceptive business practices that are causing harm to consumers, patients and local community pharmacies," the letter said.

The lawmakers asked the commission to investigate allegations that CVS Caremark notifies its pharmacies when customers of those stores also patronize non-CVS druggists. "In those situations, the CVS pharmacist is instructed to inform the consumer of the dangers of using multiple pharmacies," the congressmen wrote. "Obviously, the only way the CVS pharmacist knows the consumer uses multiple pharmacies is through the misuse of consumer information possessed by Caremark."

In all, at least 10 representatives and five senators (nine Democrats and six Republicans) raised serious complaints about CVS Caremark in five letters to the FTC.

CVS Caremark strongly defended its business practices and said it welcomes the FTC probe as an opportunity "to demonstrate again that our focus is on lowering health care costs, improving service and increasing access to quality pharmacy services."

Carolyn Castel, CVS Caremark vice president for corporate communications, e-mailed a statement saying the company does not decide where prescriptions are filled, "does not improperly 'switch' members to more expensive brand drugs" and maintains "a firewall to ensure that certain competitively sensitive information is not shared between our pharmacy service business and retail operations."

CVS Caremark has been the target of a persistent campaign by Change to Win, made up of five large labor unions. The coalition has complained to congressional and FTC officials about CVS Caremark business practices, and the labor organization has issued three reports that are sharply critical of the company, including one focusing on federal employee drug plans.

No major federal employee organization belongs to Change to Win. Alex Goldschmidt, a spokeswoman for the coalition, says it is interested in federal insurance plans because four of its five members do represent some federal workers and "We're at the forefront of health-care reform, including trying to lower drug prices."

CVS Caremark attributes a different motive to the labor organization, one that has nothing to do with health care. "In regard to CtW, this organization has been waging a campaign to disparage CVS Caremark since 2007," Castel said. "While camouflaging themselves as a consumer protection group, CtW is actually attacking us because we refuse to waive the right that our employees have had for decades under federal law to vote confidentially in union elections."

Competing allegations aside, the real question remains: Are federal employees getting a good deal on their prescriptions or not? The FTC probe might provide an answer.