Blue Shield of California is teaming up with Mark Cuban’s Cost Plus Drug Company and Amazon Pharmacy — turning away from traditional drug store chains and ditching partially health giant CVS — in a move to avoid wasting on drug costs for its 4.8 million members.
The CEO of the nonprofit health insurer, which spent over $3 billion on member prescriptions in 2022, calls the move a significant milestone in its efforts to maneuver toward a value-based model for pharmacy care.
“I expect we will — when this ramps up completely — we will be saving $500 million a yr,” said Paul Markovich, CEO of Blue Shield of California. “So, this can be a very significant reduction in cost that we ultimately, as a nonprofit that caps our income, might be putting back into our premiums.”
The health insurer will proceed to make use of CVS Caremark for specialty drugs to supply prescriptions and services for patients with complex conditions, but the net pharmacies will provide services for the remaining.
CVS Health has been Blue Shield’s pharmacy partner for greater than 15 years. It has also handled the corporate’s pharmacy advantages negotiations for the last three years, but that a part of the partnership will end in December 2024.
Analysts at Evercore ISI estimate that specialty drugs represent roughly 50% of Blue Shield’s pharmacy costs, however the loss the pharmacy advantages management portion of the contract will lead to a 2- to 6-cent hit to CVS earnings per share in 2025.
CVS shares fell about 8.5% in afternoon trading Thursday. An organization spokesman defended its track record of providing value to its customers.
“Fragmentation within the health care industry is considered one of the first reasons health care stays too complex and expensive,” said Michael DeAngelis, a CVS Health spokesman.
“Blue Shield California is a novel health plan with an extended history of unbundled pharmacy services. This will not be a latest concept. Actually, they only recently rebundled their pharmacy services in 2021. Now we have won several large Blue Cross Blue Shield plans on an integrated basis throughout the last two years and are confident in our ability to serve these large, sophisticated plans,” he said.
For Amazon, the brand new contract represents a shift from its retail pharmacy model.
Amazon Pharmacy, which launched a $35 monthly insulin program this week, will provide what the businesses are calling up-front pricing, free delivery and round the clock access to pharmacists through its online services.
“Innovation is in our DNA, and we’re excited by the potential savings this latest partnership unlocks for purchasers,” said John Love, vice chairman of Amazon Pharmacy. “We’re thrilled so as to add upfront pricing, free delivery and 24/7 access to a pharmacist to Blue Shield of California’s progressive latest offer.”
California Blue Shield is just the second insurer to sign with Cost Plus, which sells drugs at 15% above wholesale prices, because the online pharmacy launched in January 2022. Capital Blue Cross, based in Harrisburg, Pennsylvania, with 1 million members, signed with Cuban’s enterprise last fall.
“It takes time. There are lots of bad habits they should break,” said Cuban, Cost Plus co-founder, in regards to the challenges of contracting with medical health insurance plans, which are sometimes called payers.
“I believe all payers realize that now that Cost Plus has made the worth of medicines transparent, providers and patients can see what prices ought to be, and the complete industry can have to regulate,” Cuban said.
For Blue Shield of California the transition to Cost Plus and Amazon will begin with its own staff in 2024, before being introduced to members, to make sure that the net pharmacies can have the size to fulfill its members’ needs.
“We’re talking about lifesaving drugs, in lots of cases,” Markovich said. “So, ensuring we get it right is essential. And that is why you wish lots of lead time.”
The health insurer expects to launch this system for its members in 2025.
