CVS sues pharmacy benefit startup Capital Rx over ‘unenforceable’ non-compete clause

CVS is suing pharmacy benefit startup Capital Rx, claiming an “unenforceable” non-compete clause is preventing it from hiring an employee. CVS sued the company after trying to hire Dr. Suresh Yarlagadda, who worked as Capital Rx’s medical director of pharmacy services for three months.

Yarlagadda had planned to start working for CVS in early August, when Capital Rx allegedly sent a letter to CVS, saying he couldn’t work for them because of a non-compete agreement barring him from working for competitors for six months. Capital Rx threatened legal action, according to the lawsuit, delaying his employment.

CVS filed suit on September 16, saying the contract could not be enforced because of a state law barring non-compete agreements for some professions, including physicians. Although Capital Rx is based in New York, Yarlagadda lived and worked in Massachusetts, where the act is enforced.

Additionally, Yarlagadda claims he was not aware that the contract he signed included any non-compete provisions. They were not mentioned in his original offer letter, but were buried in an 11-page non-disclosure agreement he signed a month later, according to the complaint.

CVS is seeking treble damages and a declaration that the non-compete is invalid and unenforceable.

Capital Rx, which was founded in 2017, is looking to compete with bigger PBMs by taking a different approach. It uses Medicaid’s National Average Drug Acquisition Cost, rather than the average wholesale price, to calculate drug costs for health plans.

Last year, it struck a partnership with Walmart to bring in pricing information for specialty and mail order drugs. It more recently launched a prescription discount card, as an alternative to those offered by GoodRx and SingleCare.

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