Why Blue Shield of California Is Shaking Up its Prescription Drug Model

The pharmacy care system is broken, said Salina Wong, senior director of clinical pharmacy programs at Blue Shield of California in an interview. That’s why the organization announced Thursday that it is taking a unique approach to its prescription drug benefit by largely cutting out CVS Caremark as its pharmacy benefit manager (though not entirely ditching the company either) and partnering with an additional four companies, including Mark Cuban Cost Plus Drug Company and Amazon Pharmacy.

“[The pharmacy care system] is fundamentally broken in such a way that drug costs are just enormous and continuing to skyrocket and they continue to aggravate healthcare inequities. … This is a time when we’ve got to make a fundamental change,” Wong said.

In the new model, Amazon Pharmacy will be responsible for the home delivery of prescription medications and will provide access to virtual pharmacists. Cost Plus Drugs will be building a more “transparent” pricing model. Abarca will handle the payment of prescription drug claims. Prime Therapeutics will negotiate savings with drug manufacturers. CVS Caremark, meanwhile, will provide specialty pharmacy services. The changes are set for 2025.

While “it’s hard to know the exact reasons that would motivate Blue Shield of California’s move away from CVS Caremark,” it does show that the insurer believes there’s a need to change and separate the responsibilities of a PBM, said Antonio Ciaccia, president of 3 Axis Advisors, which offers independent data analysis to private and government sector organizations, with a focus on the U.S prescription drug supply chain. Ciaccia disclosed that the company provides data analytics services to Cost Plus Drugs.

“Broadly, it’s safe to say that [Blue Shield of California] felt significant value could be achieved from unbundling and demystifying the way that they pay for prescription drugs on behalf of their members,” Ciaccia told MedCity News. “In general, the PBM industry has been plagued by opaque pricing practices, misaligned incentives, and bloated costs for patients and plan sponsors. There is a reckoning happening in Congress, state governments, and the commercial sector, and I believe this is a reliable signal that there is more industry disruption yet to come.”

Wong said that for Blue Shield of California, the “overall picture is not specifically about moving away from CVS or any PBM particularly.” Rather it’s about “recreating the system and figuring out what is in the system that isn’t adding value,” she said. The insurer believes that it could save $500 million annually on medications through this new model.

“At this point, what we’re looking to do is start moving out some of the middlemen in the space that just really don’t add significant value from a health and wellness perspective and really refocusing our work and what we do for our members so that there is benefit,” Wong stated.

While the move is certainly a shake up, one industry player noted that keeping CVS Caremark in the fold shows how difficult it is to remove PBMs from the system.

“Scale matters in the market segment and Blue Shield of California happens to be led by someone who’s progressive enough to break away from the status quo and push back on the stranglehold that [Express Scripts], Caremark and Optum have had for decades,” said Joe Murad, president and CEO of WithMe Health, a company that seeks to be a replacement of existing large PBMs. “However, by continuing to hang on to their relationship for specialty medications (where most of the revenue and rebates dollars are coming from) only proves it ain’t that easy to sever those relationships due to the economic impact it can have.”

Mike DeAngelis, executive director of corporate communications at CVS Health, told MedCity News in an email that Blue Shield of California’s decision will have “no impact to our 2023 guidance” implying that the vertically-integrated behemoth will not see any material effect on its financial future.

“Based on nearly 20 years of success, we have retained the specialty business for Blue Shield of California,” DeAngelis said. “Specialty pharmacy spend now represents over 50% of pharmacy benefit spend in the marketplace. Fragmentation in the health care industry is one of the primary reasons health care remains too complex and expensive.”

DeAngelis added that CVS is “confident in the value” it offers customers and that its solutions will continue to have a place in the marketplace.

Will Blue Shield of California be successful and create a meaningful impact on prescription drug costs for its 4.7 million members through these changes?

Ciaccia thinks the insurer has a chance.

“The legacy PBM model is convoluted and laden with conflicts of interest. Large PBMs like CVS Caremark are setting prices for drugs that are later dispensed by their own pharmacies — all while receiving compensation from drugmakers in exchange for coverage,” he said. “These raise legitimate questions about their incentives to actually lower drug costs, when so much of their business model is dependent on making money off those drugs. When you compare this to the more aligned approach being taken by Blue Shield of California — where they are separating out different functions as a means to eliminate those conflicts — I believe they are in a much better position to succeed in bending the cost curve for medicines.”

Murad also believes this could reduce prescription drug costs, but not right away.

“It’s largely immaterial in the immediate term, but it is certainly a step in the right direction anytime you can disintermediate spread based PBMs and incrementally move towards pass through models and improving the nonsense that’s been happening to plan sponsors and individuals who have been shouldering an increasingly larger percentage of the overall costs,” he said. 

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