Inside Blue Shield’s restructuring: ‘These things aren’t cheap’

Blue Shield of California is seeking to better position itself and other Blue Cross and Blue Shield insurers against stiff competition from larger, for-profit competitors.

The nonprofit health insurer is one of the latest Blues plans to undergo a corporate restructuring this year in its attempt to tackle rising medical and drug costs and administrative burdens plaguing insurers, providers and patients, Paul Markovich, president of Ascendiun, Blue Shield of California’s new nonprofit parent company, said in an interview.

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Ascendiun comprises nonprofit Blue Shield of California, which has nearly 6 million members, its clinical services company Altais, and Stellarus, which will build up and sell the insurer’s existing offerings.

The shakeup enables Ascendiun to better invest in and market capabilities, such as a pharmacy care model that went live for Blue Shield of California clients this year, to other insurers, said Markovich, who also is interim president of Stellarus.

This interview has been edited for length and clarity.

What prompted Blue Shield of California to reorganize?

We wanted to set up Blue Shield of California for its best chance at fulfilling its mission, which is to create a healthcare system that's worthy of our family and friends and sustainably affordable for everyone. To do that, we have to pursue major strategic, bold initiatives that reinvent the healthcare system, like the new pharmacy model we launched on Jan. 1. We also need more scale and more health plans participating in helping pay for this in order for us to go at maximum speed and with the greatest confidence.

We've created other companies to support and drive that strategy, like Stellarus, which is going to provide and sell these strategic capabilities, like "Pharmacy Care Reimagined" and our modern technology infrastructure, to Blue Shield of California and others.

How did Blue Shield of California perform in 2024?

We earned a profit, but it fell short of the 2% net income we shoot for every year. ... That post-COVID surge has lasted for quite a long time, and it's been higher than I think almost every health plan expected.

How might this restructuring better position Ascendiun and other Blues carriers?

There are several fundamental things health plans need to do to stay competitive in the coming years. One of them is to simplify, digitize and automate everything they can. You really need a cloud-based technology infrastructure. You need to move to more modern technology applications.

They need to move to a payment model to create better-aligned incentives for physicians and hospitals. I would also argue they need to move to a different pharmacy distribution model.

These things aren't cheap. We spent nearly $100 million getting our pharmacy model set up and working. When you start adding up what it takes to accomplish these things, it's very difficult for smaller plans to do on their own at a speed that allows them to be competitive.

That's really what we're looking to do: Offer up a solution to other plans to be able to get these cutting-edge capabilities that allow them to compete effectively while remaining independent.

Tell us more about Stellarus’ ambition to enhance offerings and make them available to other health plans.

We've pulled all the strategic capabilities we think are foundational to transforming the healthcare system — that would include our entire technology platform, "Pharmacy Care Reimagined" capabilities and other capabilities we have developed over time at Blue Shield of California — and put into Stellarus.

Stellarus now has its only and biggest customer for today, which is Blue Shield of California, and we need to make sure we serve that customer really well. We're talking to other plans about the possibility of being customers or possibly even investors in Stellarus.

It would be my hope that at least our initial customers will be Blues plans. Thirty-two of the 33 independent Blues plans are nonprofit, so there's a lot of mission alignment, and they are not direct competitors with Blue Shield of California.

What’s the status of the pharmacy care model?

All the things you can imagine a pharmacy benefit manager does in terms of administering their pharmacy benefit are now being done by a combination of Blue Shield of California and Stellarus, the mail-order fulfillment is being done by Amazon, we are using Abarca Health as our claims processing system, and we are using Prime Therapeutics to help manage our rebates.

We've basically put together our own oversight and administration of the entire pharmacy benefit. It's operational, people are getting their prescriptions fulfilled and it’s working.

What early feedback have you received?

There are several million people who get their pharmacy benefits with us, and it's a big switch. We projected an increase in call volume [during open enrollment season] because of the change, but we had much more call volume than we had expected. Other than that, we're hitting all our goals.

What are the biggest challenges for the insurance industry this year?

One is affordability. ... The other thing key for the industry is to demonstrate a willingness and ability to proactively improve the healthcare system. I think a lot of the friction over prior authorization that is going on right now is a good example of that.

Last fall, Blue Shield of California announced we are going to do prior authorization in real time. We are doing that on a smaller scale in 2025, and we expect to make it widely available Jan. 1, 2026. ... If you’re a health plan and you want to do real-time prior authorizations, you could build that capability yourself, or you could get it from Stellarus.