Giant Foods Case Analysis

Elensys uses information from Giants pharmacy to send personalized letters, written on pharmacy letterhead but often paid for by pharmaceutical companies, that remind customers to refill prescriptions and pitch new products to customers with particular ailments. Giant first tested the feasibility of running a drug compliance program in-house but quickly determined that its’ Information System requirements were too overwhelming and decided to outsource the program to Elensys.

However, the backlash to this new initiative was negative and strong as dozens of angry customers called officials at Giant to complain. Privacy specialists said the practice raised new questions about patient confidentiality and also blurs the line between medicine and marketing. "People assume that their medical information, including prescription information, is held in the strictest confidence," said Beth Givens, director of the Privacy Rights Clearinghouse, a nonprofit consumer group in San Diego. "When that information is shared with a third party, they're surprised and outraged.

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This case exemplifies the privacy issues surrounding Giant Food's decision to outsource a prescription drug compliance program to Elensys. Ignoring for a moment the underlying profit motive of this program, approximately half of all patients stop taking their medication within the first six months of being prescribed, compliance programs remind patients to refill their prescriptions and help address a major public health issue. However, these programs also raise privacy issues because they involve the use of sensitive personal information.

This case provides business and law students, firms and legislators with an opportunity to assess the privacy issues raised by this situation. The case also provides an opportunity for firms to deal with the challenges of developing a privacy sensitive implementation strategy and CRM programs in general. Background: Giant Foods, Inc. Beginning in February of 1936, Giant Foods was brought to life by N. M. Cohen and Samuel Lehrman. Using the business model of offering a large, self-service grocery store with revenue based on high volume and low prices, the store was an instant success.

An innovator from the very start, Giant Foods was the first to install front-end scanners in all its stores, market a private label house brand and the first to hire a consumer advocate to promote its products. Much of the success that Giant has earned is due to technology, innovation and well planned vertical integration. Giant presently operates its own bakery, dairy and soft drink firm. Giant also builds its own stores, produces its commercials and advertising in-house and even makes its own signs. This vertical integration strategy has been highly successful in the food-pharmacy combination with which Giant helped to pioneer.

The fact that each Giant pharmacy fills over 1,000 prescriptions per week suggests that this is a profitable tactic and highly regarded by its customers. Elensys: Elensys began its business life in 1993, in Burlington Massachusetts. Its business model was one of an IT enabled information system built as a “prescription compliance” program between consumers and Pharmacists. Elensys, whose name comes from an ancient Greek city known for medicine and health, was a “first mover” in this area and, due to strong network effects, was able to reach a critical mass within three years.

Initially, Elensys started with four employees and served two local pharmacies. Presently, Elensys receives prescription information from 15,000 pharmacies about millions of people every week, and it uses proprietary, cutting-edge computer equipment to keep track of these records, according to Elensys founder Dan Rubin. In an Internet post, Elensys describes itself as "the leader in patient behavior modification programs. " Interest in the company has soared, in part because so many people fail to take medicine properly and most chains don't have the technical wherewithal to track customers as precisely as Elensys, Rubin said.

Up to half of all patients who should routinely take medicine for such ailments as hypertension or high cholesterol quit prematurely, he said. "It's the primary reason for our existence. " Much of the cost of the analysis and mailings is offset by payments from drug manufacturers, who contract with pharmacies for the right to mail information to individual customers. Among other things, Rubin said, that material could include suggestions that customers switch from one drug to another.

In addition to the customer backlash from this program, many legal issues become prescient due to the ill-defined nature of privacy laws. In a marketing practice that some experts say raises new questions about medical privacy, several large drug store chains and "thousands" of independent pharmacies have been providing confidential patient information to a Massachusetts database company that profiles and targets patients who don't refill prescriptions.

The Washington Post reports Elensys receives prescription information on millions of individuals from 15,000 pharmacies each week, using "some of the most sophisticated computer equipment available" to profile patients and send them "educational materials" about drugs available for their conditions. Dr. George Lundberg, editor of the Journal of the American Medical Association, called the direct marketing tactics, known as "drug compliance programs," a "breach of fundamental medical ethical issues. "

He said, "Do you want ... the great computer in the sky to have a computer list of every drug you take, from which can be deduced your likely diseases -- and all without your permission? " Elensys describes itself in an Internet posting as "the leader in patient behavior modification programs" The Boston Globe reported that "Giant Foods said yesterday it is considering suspending" the practice of sending confidential information to Elensys. Stung by disclosures in the Washington Post, Giant Foods held high-level meetings all day before issuing a statement defending the program and asserting extensive measures were taken to protect confidentiality. "

The statement said, "Giant pharmacies engages in a limited number of programs designed to educate customers about prescription therapy and improve compliance with their drug regimen. These programs in no way compromise the confidentiality of patients. " Elensys backed Giant, defending itself in a statement that emphasized it "merely served as an agent of Giant, and the chain exerted sole control over the use of information.

The Washington Post reported Sunday that officials at Giant defended the marketing program, "saying customers benefit from their reminders and from the information provided by drug manufacturers. Both companies said they value customer privacy and allow customers to remove themselves from participation by submitting an 'opt-out' form. "

A spokesperson for Giant "stressed that Elensys does not share its prescription database with third parties," and Elensys President Daniel Rubin "said drug companies never get access to the pharmacy's files. Instead, pharmaceutical companies decide which patient groups they want to target and pay Elensys and the pharmacies to mail information to those patients. The Washington Post also reports that the direct marketing is "part of a far-reaching move by drug manufacturers and pharmacies across the country to make greater use of medical information, new technology and sophisticated marketing techniques to sell more drugs. Rather than promoting their products to doctors," companies are targeting patients in hopes of influencing them to ask for specific prescriptions.

The New York Times reports a parallel trend in which the "pharmaceutical industry is increasingly marketing mental health drugs directly to consumers. " Manufacturers claim the information is useful to patients, while some doctors and patient advocates contend that "people with certain mental illnesses are much more susceptible to being manipulated than those with other medical problems. " The Times reports that "in the most aggressive example of approaching patients directly, Eli Lilly & Company said recently that it would offer scholarships to some schizophrenic patients who took Zyprexa, its new antipsychotic drug.

Future problems associated with this new marketing ploy include: The melding of the entrepreneurial ethic, where the goal is to sell a product and the more traditional medical ethic, where the goal is the well-being of the patient. The information could be sold to an insurance company that would then refuse to sell the person insurance or charge them a higher premium. This private information could make its way to head-hunting firms, employers and even divorce courts.