- Blue Shield of California is dropping CVS Caremark as its pharmacy benefit manager in favor of a new arrangement that the nonprofit payer expects will save $500 million annually.
- BSCA, which covers 4.8 million members, plans to contract with multiple partners to deliver its pharmacy benefit, including e-commerce giant Amazon and Mark Cuban’s Cost Plus Drug Company.
- CVS will continue to offer specialty drugs for BSCA members with complex conditions, according to a Thursday press release.
Large PBMs, which sit at the center of controversy over rising drug prices, are facing increasing competition from newer entrants who say they can administer pharmacy benefits and negotiate drug prices more affordably.
BSCA said its current pharmacy supply chain is too complicated and expensive. Instead of having CVS manage its entire pharmacy benefit, the nonprofit insurer is electing to carve out various PBM functions to allow for more direct control, with the goal of simplifying the price structure and eliminating any hidden fees or rebates.
The insurer is contracting with Amazon Pharmacy for at-home drug delivery; online pharmacy Mark Cuban Cost Plus Drug Company for access to low-cost medications; PBM services company Abarca for claims processing; and PBM Prime Therapeutics to negotiate savings with drugmakers.
BSCA will begin the new arrangement on a limited rollout next year, and it’ll fully be in place by 2025. The major California insurer said it plans to pass on savings — which total roughly 10% to 15% of its current drug spending — to consumers.
CVS Caremark is the biggest PBM in the U.S., dominating the industry along with Cigna’s Express Scripts and UnitedHealth’s OptumRx.
The marriage between health insurers and PBM middlemen has sparked antitrust concerns, at a time when PBMs face a number of government investigations into their business practices, and state lawsuits over their role in raising drug costs.
CVS’ stock fell 9% over Thursday’s trade after the news broke, though analysts noted BSCA’s decision won’t have much of an effect on CVS earnings.
TD Cowen analyst Charles Rhyee estimated BSCA accounts for less than 1% of CVS’ earnings per share. In addition, the payer will continue to rely on CVS for specialty pharmacy, which is increasingly more of PBM earnings.
“What we find interesting is that BSCA cites the complexity and opacity of the current system. However, BSCA is now building a model using five different vendors to achieve the same result that CVS was providing,” Rhyee said. “BSCA's new drug benefit structure may provide some incremental clarity in regard to pricing, but we believe it is not something most other plans, and certainly not the majority of employers, are able to or willing to manage.”
The arrangement also carries potential execution risk for BSCA that could result in a less coordinated offering for patients, according to J.P. Morgan analyst Lisa Gill.
And, the group might not be able to match the discounts negotiated with the biggest PBMs.
“The announcement actually highlights the value of legacy PBMs and limitations of newer models as Blue Shield is keeping the fastest growing and largest portion of its drug spend with CVS,” Gill wrote in a note on the announcement.
CVS said the partial loss of the BSCA contract will not change earnings targets for 2023 or its longer-term outlook in a filing with the SEC on Thursday.
CVS Caremark controls roughly a third of the U.S. PBM market, according to Drug Channels, but has seen recent setbacks.
Late last year, CVS lost a major PBM contract with health insurer Centene to Cigna-owned Express Scripts that accounts for about $40 billion in pharmacy spend.
Editor’s note: This story has been updated to include details from CVS’ filing with the SEC.