Blue Shield of California dropped CVS as its PBM — why it could save them $500 million

Many employers have voiced criticisms of pharmacy benefit managers, or PBMs, questioning why prescription costs are getting higher with no relief in sight — and it looks like insurance carriers have the same question. 

Blue Shield of California dropped CVS as their PBM in August in the hopes of cutting down prescription costs by $500 million a year. Through Blue Shield's new initiative, "Pharmacy Care Reimagined," the carrier will work with multiple organizations — including Amazon Pharmacy, Abarca, Mark Cuban Cost Plus Drug Company, Prime Therapeutics and CVS Caremark — to cover the administration, navigation and delivery of prescription drugs. 

"Pharmacy Care Reimagined is Blue Shield of California's bold initiative to ensure every person has safe, equitable access to sustainably affordable prescription drugs," says Alison Lum, vice president of pharmacy services at Blue Shield. "By unbundling services currently provided by a single PBM and working with organizations who share our commitment to developing a more cost-effective pharmacy supply chain and transparent drug pricing, we will create greater value for our customers using a net cost pricing model based on the true cost of the drug." 

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For example, Amazon Pharmacy will provide free medication delivery as well as 24/7 access to pharmacists for Blue Shield's plan members. Mark Cuban's Cost Plus Drug Company will ensure plan members are getting their medication at the best price possible through their transparent pricing model, while Caremark will support members with complex conditions who need specialty drugs. Blue Shield enlisted Prime Therapeutics to negotiate savings with drug manufacturers based on patient efficacy and health outcomes, and Abarca will handle paying claims. In other words, Blue Shield delegated the responsibilities of one PBM to separate companies in an effort to gain more transparency and control on the pharmacy care side.

"Today's pharmacy system is broken — costs are skyrocketing and the entire ecosystem is unnecessarily complex and opaque," says Lum. "We are taking on this task because there is a human, a patient, a family member, a friend behind every prescription."

PBMs have constantly been in hot water for their lack of transparency, and for a good reason, notes Chris Blackley, CEO of Prescryptive, a prescription intelligence platform. While a PBM's role is by definition to work on behalf of insurers to obtain lower-cost drugs from manufacturers, many PBMs choose the drugs based on the best kickback, or rebates, they will get from the manufacturer. The IQVIA Institute for Human Data Science found that PBM rebates added 30 cents per dollar to the price of medications in 2019, and now it's likely more. This is why Blackley believes it's possible for Blue Shield to shave off $500 million dollars in costs in one year. 

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"Look at the way the U.S. drug system works, and the way price is set and controlled in the market," he says. "[Blue Shield's] ability to take ownership of their plans, negotiate prices and provide benefits their members need will make a difference."

For Blackley, Blue Shield's move represents the inevitable for most insurance companies. The exception would be the three carriers that are vertically integrated with the three biggest PBMs: Aetna and CVS Caremark, Cigna and Express Scripts, and UnitedHealth and OptumRx. These PBMs control 80% of the prescription drug market. 

"When a PBM vertically integrates with a health plan, you can require the health plan members to use the PBM and the pharmacies of the PBM," says Blackley. "The more members, the higher the profit. Blue Shield of California doesn't own their PBM, so they were just driving their members to a competitor."

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Blackley predicts more carriers will consider breaking away from the big PBMs so they can at least have a shot at reducing costs rather than indirectly feeding the profits of another insurer. Ideally, a majority of savings will be pushed to employers and employees. 

"What Blue Shield has done is a very significant shift in the market, because it signals how bad the current paradigm is," says Blackley. "It will be impossible for any savings to push through from the plan to the employer or the patient if more organizations don't do what Blue Shield of California has done."

For Lum, this move is part of a bigger fight to change who the healthcare system works for.

"This new pharmacy supply chain model is just one part of the larger pharmaceutical and drug pricing reform that is needed," she says. "While we can't speak on behalf of other carriers and PBMs, we can say that we have received a lot of interest and support from the healthcare industry in response to our announcement."