Blue Shield of California expects to save $500 million a year on prescription drugs by spreading its pharmacy benefit management operations among five companies and significantly scaling back its relationship with CVS Caremark, the nonprofit health insurer announced Thursday.
Amazon Pharmacy will handle medication delivery, the Mark Cuban Cost Plus Drug Co. will create a pricing model, Blue Cross and Blue Shield-affiliated PBM Prime Therapeutics will develop a valued-based care approach to negotiating discounts with pharmaceutical manufacturers and technology company Abarca will process claims. CVS Caremark, the CVS Health subsidiary that had been Blue Shield of California's PBM, will manage specialty medicines for policyholders with complex medical needs, according to the insurer.
The piecemeal approach disrupts insurers and employers’ traditional, single vendor approach to prescription services, said Antonio Ciaccia, CEO of drug pricing research firm 46brooklyn Research and president of 3 Axis Advisors. He has served as a consultant to the Mark Cuban Cost Plus Drug Co.
“It’s like a shark tank in that we’re incubating new ideas and a new model,” Ciaccia said. “It seems like there’s probably more to come in the very near future."
Blue Shield of California seeks to save about 15% on drug spending by retaining 100% of manufacturer rebates, and will pass on those savings to its 4.8 million members, Blue Shield of California Chief Operating Officer Sandra Clarke said in an interview. The company plans a limited implementation of the pharmacy program next year before fully offering it in 2025. The Wall Street Journal first reported on Blue Shield of California's new pharmacy benefit management structure on Thursday.
The insurance company anticipates more Blue Cross and Blue Shield carriers will adopt a similar model. “We’ve certainly shared the new concept with other Blues and we’ve had a number of them that have expressed interest in learning more,” she said. “We expect as we roll this out that we’ll have more conversations.” Blue Shield of California reported a $910 million net loss last year, more than three times its loss in 2021, as revenue grew 2.4% to $23.9 billion, the company reported in May.
CVS Health believes that multiple vendors providing pharmacy benefit management will increase costs and complexity for patients, a spokesperson wrote in an email. “We have won several large [Blue Cross and Blue Shield] plans on an integrated basis within the last two years and are confident in our ability to serve these large, sophisticated plans,” he wrote. CVS Caremark lost Centene's PBM contract to Cigna subsidiary Express Scripts last year.
Large insurers moving away from CVS Caremark may signal the beginning of a shift in the PBM landscape, analyst Julie Utterback wrote in a note for Morningstar Research Services on Thursday. “CVS’ dominance of the PBM business looks likely to decline materially in the near future with this and other contract losses, which creates another hurdle to its double-digit earnings growth ambitions,” she wrote.
CVS Health does not expect its diminished contract with Blue Shield of California to have a material effect on short- or long-term earnings, the spokesperson wrote.
CVS Health shares closed at $66.80 on the New York Stock Exchange on Thursday, down 8.1% from Wednesday’s close. Share prices for Cigna and UnitedHealth Group, owner of the PBM OptumRx, also fell Thursday. Cigna closed at $270.53, down 6.4%, and UnitedHealth Group closed at $493.96, a 1.9% decline.
Switching to multiple vendors for pharmacy services comes with more risk than relying on a single company, Stephens Inc. analyst Scott Fidel wrote in a note Thursday. “The market is viewing this as a disruptive model, although execution risk also seems elevated relating to this type of approach,” he wrote.
Blue Shield of California's Clarke made the opposite argument. “By splitting it up, you invite more competition into those areas, and so you get a better price and you can more clearly identify what you’re paying for, and the value that is being brought in that particular area,” she said. “That’s why we believe it will be a more transparent and more cost-effective structure.”
Blues carriers recently have been shaking up their prescription services. Thirty-four Blue Cross and Blue Shield companies founded Synergie Medication Collective this year to revamp the physician-administered drug supply chain. At least eight other Blues carriers have partnered with Amazon Pharmacy for prescription delivery services, and Capital Blue Cross last year became the first insurer to ink a PBM contract with the Mark Cuban Cost Plus Drug Co.
