Blue Shield of California recently announced its plan to drop CVS Health’s pharmacy benefit management services in favor of more cost-friendly PBM alternatives, including Amazon Pharmacy and Mark Cuban’s Cost Plus Drugs company.
According to Reuters, this transition is expected to save the regional health insurance provider more than $500 million annually in drug costs after the program fully launches in January 2025. The announcement is causing many individual and group health insurers to reconsider using traditional pharmacy benefit managers as a money-saving endeavor.
Blue Shield of California Replacing CVS Is a Big Blow to PBMs
In August, Blue Shield of California unveiled its new pharmacy care model to fix a broken prescription drug system. The Pharmacy Care Reimagined program will result in the health plan severing ties with its current pharmacy benefit manager, CVS Health’s Caremark.
The results of Blue Shield of California’s decision have already been seen, with shares of CVS Health plunging 8% soon after the announcement. According to CNBC, UnitedHealth Group and Cigna dropped 2% and 6%, respectively. Blue Shield of California believes the PBM model conseals hidden costs, lacks transparency, and introduces incentives driving up prescription medication use.
PBMs are Gatekeeping Accessibility to Cheaper Generics
CEO of Blue Shield of California, Paul Markovich, shared a contributing factor in the decision to drop CVS pharmacy services. Earlier in the year, CVS was hesitant to cover a more affordable generic version of a prostate cancer drug by Johnson & Johnson called Zytiga.
The current pharmacy system has been deemed too costly. With the distorted financial views of traditional PBMs, Blue Shield of CA believes the choice to drop the retailer’s pharmacy services was justified.
PBMs Hold Nearly 80% of the Market
PBMs are responsible for negotiating with drug companies for the best costs and helping insurers determine which drugs should be covered. They play an essential behind-the-scenes role in controlling total drug costs for insurers, determining how much pharmacies are paid, and impacting patients’ ability to access medications.
Today, approximately 80% of the market is controlled by three key players: Cigna’s Express Scripts, UnitedHealth’s Optum Rx, and CVS Caremark. However, there has been ongoing controversy over the rebates that PBMs receive from drug companies. Many drug manufacturers argue that the skyrocketing rebates paid to PBMs are forcing them to increase list prices on prescription medications.
The Problem with PBMs
PBMs operate in the middle of the prescription drug distribution chain. They use their purchasing power to negotiate discounts and rebates from drug manufacturers. Still, these savings are not always allocated to the proper parties.
Many critics say that PBMs retain a sizable portion of the discounts they negotiate. Instead of saving patients money, they direct them toward more expensive drugs to maximize the rebates they receive, thus padding their bottom lines.
PBMs have been said to significantly inflate drug prices by requesting major rebates from manufacturers in exchange for placement on health insurers’ lists of covered medications, also referred to as formularies. Blue Shield of California’s decision to seek PBM alternatives is a step toward regulating healthcare costs.
Pharmacy Systems Become Expensive and Complex
Obscure negotiations between drug manufacturers and PBMs, coupled with formulary changes, could result in price increases and leave employers uncertain about their pharmacy benefits. Pharmacy systems have become more complex and costly to manage, causing many employers dissatisfied with a lack of transparency to consider changing or ending contracts with their PBMs.
Rebates Incentivize Influencing Patient Decisions
Rebates negotiated by PBMs can heavily influence which drugs are chosen for a formulary. Many patients believe that these rebates are saving them money. However, in many cases, the savings are not passed directly onto the patient.
Instead, rebates are leveraged to get certain drugs placed on formularies. Any rebate savings are then split between the PBM and the health insurance provider. Patients may be deceived into choosing more costly drugs associated with a large rebate when more affordable generic versions are available.
The New Key Names of the Pharmacy Industry
There are some new names in the pharmacy industry currently making a buzz. Under this recent plan, Prime Therapeutics, a midsized PBM, will negotiate with drug manufacturers for brand-name drugs.
Mark Cuban’s Cost Plus Drug plan will help establish a more transparent pricing model for generic drugs. In addition, Amazon Pharmacy will begin to provide drug delivery services, and Abarca will assist with paying prescription drug claims.
Here is a closer look at how these emerging players will influence the pharmacy industry.
Mark Cuban’s Cost Plus Drugs Bring Competition with Transparent Pricing Plans
Mark Cuban’s Cost Plus Drugs launched in January 2022 and offers over 800 generic drugs designed to treat a wide range of common diseases, such as leukemia, dementia, and cancer. The online pharmacy promises steep discounts and transparent pricing plans, creating stiff competition in the pharmacy industry.
The new venture strives to combat skyrocketing prescription drug prices in the U.S., which has become a significant concern over the last decade. According to a 2021 poll from West Health and Gallup, an estimated 18 million Americans could not pay for at least one medication prescribed by their doctor.
Abarca and Amazon Will Pay Claims and Provide Delivery
Blue Shield of California has also teamed with Abarca and Amazon Pharmacy to help streamline the claims and delivery processes. Abarca Health will be responsible for paying prescription drug claims quickly and efficiently as the company continues to evolve its technology platform.
Amazon Pharmacy will provide free prescription drug delivery services, which include round-the-clock access to pharmacists, upfront pricing, and regular status updates. This will allow patients with transportation limitations to access their prescribed medications easily and affordably.
Prime Therapeutics Negotiates Down Branded Prices
Blue Shield of California’s new model aims to restructure traditional PBM services, with one of the most significant developments being replacing CVS Caremark with another company, Prime Therapeutics. The leading pharmacy benefit manager is focused on helping its members get the medications they need at an affordable price by offering value-added solutions that create opportunities for health plans to realize savings.
Prime Therapeutics will negotiate savings with drug manufacturers to progress to a value-based model that enhances patient health outcomes. The pharmacy benefit manager has a track record of consistently lessening the cost burden for health plans on members despite increases in spend and utilization.
Coordinate Your Prescription Medications to a Lower-Cost Option with Consulting from New City
Employers continue to feel the pressure of rising healthcare costs in California and across the United States, even after implementing changes to slow cost growth. Enhancing benefits packages to attract and retain talent while meeting changing needs is a juggling act in which many businesses struggle.
Fortunately, the team of employee benefits experts at New City Insurance have extensive experience helping employers maximize their benefits cost savings in both the immediate and long-term. To learn more about how New City can help coordinate your prescription medications to a lower-cost option, request a consultation online or call 888.210.2765.