A U.S. District Court judge in Rhode Island sided with CVS Pharmacy in granting a preliminary injunction to enforce CVS’ noncompete agreement blocking the executive who ran its Caremark retail network from working for Amazon’s online pharmacy PillPack.
John Lavin, who negotiated with retail pharmacies on behalf of CVS Caremark, the company's pharmacy benefit manager (PBM), had a noncompete agreement that barred him from working for a competitor for 18 months should he leave CVS. Lavin worked at CVS Pharmacy for 27 years, most recently as senior vice president for provider network services at CVS Caremark.
When Lavin accepted a position with Amazon in April, CVS filed a lawsuit and sought a preliminary injunction, arguing Lavin's work with PillPack would violate the agreement.
U.S. District Judge John J. McConnell Jr. granted the motion (PDF) in June, finding that Lavin violated the noncompetition agreement and that there is sufficient likelihood Lavin’s move would result in the disclosure of confidential information that could cause CVS irreparable harm.
It's the second high-profile lawsuit of its kind in recent months.
Optum also sued a former executive, David Smith, who left the company to join another Amazon healthcare venture, Haven, saying he stole trade secrets he then provided to the still-nascent disrupter. A judge later dismissed the claim.
The lawsuit and preliminary injunction are one more sign that the retail pharmacy wars between industry incumbents like CVS and digital disrupter Amazon are heating up as companies look to defend their competitive positions.
The lawsuit also reveals that CVS Caremark and other PBMs treat PillPack as a mail-based pharmacy rather than a retail pharmacy because more than 25% of the company’s prescriptions are delivered by mail. According to CVS, PillPack is resisting this characterization, as it will reduce the amount of money PillPack can charge for filling prescriptions on behalf of PBMs' clients. “Lavin would be uniquely positioned at PillPack to oppose such efforts by CVS Caremark and other PBMs,” CVS said in the lawsuit.
Lavin signed a noncompete agreement in May 2017 and also received restricted stock units worth $157,000, according to CVS' lawsuit and the judge's decision. One year later, he began discussions with PillPack about employment, including interviewing with both PillPack and Amazon executives. Lavin was offered the position of director of third-party networks and contracting, reporting directly to PillPack CEO T.J. Parker.
Exactly what Lavin would be doing at PillPack seems to be a moving target, McConnell wrote in his decision. “His roles and responsibilities at PillPack seem to ebb and flow with this litigation,” he wrote.
PillPack now asserts that Lavin would be negotiating only with PBMs, excluding CVS Caremark, on behalf of the online pharmacy. Lavin’s original job description at PillPack included negotiating with payers, McConnell wrote.
PillPack expected Lavin to contribute to the company’s “overall growth strategy and help drive its long term disruptive strategy,” according to the judge’s order.
This matters to CVS because PillPack, as a mail-order pharmacy, competes with CVS Caremark’s mail-order pharmacy and CVS’ retail business, and it participates in CVS Caremark’s pharmacy network.
In his new role, Lavin would still be negotiating between pharmacies and PBMs, he would just be switching sides and negotiating with CVS Caremark's competitors, Lavin told CVS, according to the lawsuit.
In his last three years at CVS, Lavin was tasked with analyzing the terms CVS had with mail-in retail pharmacies, and he took part in “executive-level strategy” with other CVS executives in both the PBM and retail businesses, according to CVS.
"Lavin has been involved to some degree in almost every negotiation between CVS Caremark and the 70,000 pharmacies in its network," CVS said. The rates pharmacies charge PBMs is not public information, and Lavin had access to confidential information on pricing and terms that clients demanded. He also had significant insight into both sides of the pharmacy-PBM relationship.
Lavin's knowledge of CVS Caremark's business will allow him to strike more favorable deals for PillPack with CVS Caremark's competitors, CVS argued.
District Court Judge McConnell sided with CVS in his decision, noting that Lavin's role at PillPack would involve negotiations related to network inclusion but just on the opposite side of the negotiation table. Despite Lavin and PillPack's arguments to the contrary, PillPack is a competitor of CVS, and Lavin would be involved in the competition, the judge ruled.
PillPack is looking to negotiate directly with insurers and others on the payer level, and Lavin would likely oversee negotiating with health plans, which are CVS Caremark's clients, the judge wrote. PillPack has already started contacting CVS Caremark's clients, and PillPack's CEO would not deny that PillPack is planning to provide its own PBM-like services directly to clients, the judge wrote in his decision.