Blue Shield of California Bids to Sidestep Traditional Pharmacy Benefit Management Services


In what could presage a radical reshuffling of drug pricing and distribution, the insurer is dropping CVS Caremark as its PBM.

Cost of Healthcare. Image Credit: Adobe Stock Images/samc

Image Credit: Adobe Stock Images/samc

A nonprofit health insurer with nearly five million covered lives, Blue Shield of California has announced a plan to negotiate with manufacturers directly on pricing, and to use mail order pharmacy from Mark Cuban Cost Plus Pharmacy and Amazon Pharmacy to deliver drugs at lower costs. When the plan goes into effect fully in 2025, the company expects to save $500 million on its annual drug spend.

Left unsaid in Blue Shield’s announcement is that it is dropping CVS Caremark as its pharmacy benefit manager (PBM), the type of company that usually intercedes between manufacturers and insurers on drug pricing. CVS Caremark is one of the industry leaders; its parent, CVS Health, reported first-half 2023 revenues of $174.2 billion earlier this month. According to the Wall Street Journal, which broke that news, Wall Street knocked 8% off the stock price of CVS Health.

“The current pharmacy system is extremely expensive, enormously complex, completely opaque, and designed to maximize the profit of participants,” says Paul Markovich, president and CEO of Blue Shield of California. “That is why we are working with like-minded partners to create a completely new, more transparent system that gets the right drugs to the right people at the right time at a substantially lower cost."

The partners Blue Shield has assembled for this effort include the two pharmacies (Cost Plus Pharmacy is also a manufacturer and wholesaler), Abarca, a claims-processing firm, and Prime Therapeutics, a PBM owned by a collective of Blue Cross/Blue Shield insurers that offers “pass-through transparency” on its pricing. Prime Therapeutics will handle some part of the price negotiations with manufacturers. CVS Caremark is still involved; Blue Shield will depend on it for “specialty pharmacy services for members with complex conditions, including education and high-touch patient support.”

According to the WSJ, CVS Health notes that specialty drug spending represents half of PBM services, implying that it will remain a key part of Blue Shield’s drug coverage. Also, in July, CVS Health announced a relationship with GoodRx, a company that offers to reduce or eliminate the price differences between drug plans and discount coupons or other discounts provided to patients.

If Blue Shield of California’s plan succeeds, it could represent the end of many of the gyrations that go on in the pharma supply chain, including the incentives to steer patients to higher-cost drugs (thereby generating higher rebates for a PBM), copay accumulators that offset the copay assistance manufacturers provide, and perhaps some of the formulary exclusions that restrict patient drug choice.

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