A major California health insurer is shaking up the prescription drug pricing system as it seeks to lower the cost of medication for its 4.8 million members.
Blue Shield of California will no longer use CVS Health’s Caremark as its pharmacy benefit manager and instead will partner with several companies, including Amazon Pharmacy and Mark Cuban Cost Plus Drug Company. The insurer expects to save up to $500 million in annual drug costs once the multi-year plan is fully implemented.
Pharmacy benefit managers are companies that negotiate rebates from drug manufacturers to insurers. They have come under fire from other players in the health care industry and from Congress because of their opaque practices. In particular, critics are concerned about how the companies are compensated and how their practices could drive up drug costs for consumers. Top benefit managers are part of large health care businesses that also own big insurers.
High drug costs have long been one of Americans’ largest health care headaches, and spending on drugs is on the rise. Most adults take at least one prescription drug annually, while more than a third take at least three, Blue Shield said, citing Centers for Disease Control and Prevention data.
A broken system
Blue Shield said that its new pharmacy care model is intended “to fix problems in today’s broken prescription drug system.”
“The current pharmacy system is extremely expensive, enormously complex, completely opaque, and designed to maximize the profit of participants instead of the quality, convenience and cost-effectiveness for consumers,” Paul Markovich, the insurer’s CEO, said in a statement. “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.”
Under the plan, Amazon Pharmacy will provide free delivery of medications to members, while Mark Cuban Cost Plus Drug Company will establish a pricing model that Blue Shield says will be “simple, transparent and more affordable.” Two other companies will provide additional services.
Cuban told CNN that the partnership with Blue Shield “will benefit their members and can have a profound impact on the industry.”
CVS Caremark will continue to work with Blue Shield, providing specialty pharmacy services for members with complex conditions.
In a statement, CVS Health said: “We look forward to providing care for Blue Shield of California’s members who require complex, specialty medications – as we have for nearly two decades.”
CVS (CVS)’ stock tumbled around 9% in morning trading. It had already fallen more than 21% this year before Thursday’s decline due to fears of competition from Amazon and other low-cost pharmaceutical companies, as well as a decline in consumer discretionary spending.
Amazon’s latest move
Blue Shield’s plan also furthers Amazon’s involvement in the health care sector, particularly the pharmacy industry.
The company bought online pharmacy PillPack in 2018, launched its own Amazon Pharmacy in 2020 and last year created a virtual health care clinic. The company also closed on its $3.9 billion purchase of One Medical, a primary care provider, in February.
Earlier this year, Amazon debuted RXPass, a $5 monthly unlimited delivery pass on 60 common generic prescription drugs treating allergies, inflammation, high blood pressure and other conditions.