Nonprofit insurer Blue Shield of California said on Thursday that it will end its use of a prescription benefit management middleman to negotiate contracts with drugmakers. Instead, it plans to piece together an alternative model, ending a PBM contract with CVS Health (CVS) and relying on multiple service providers, including Amazon (AMZN) Pharmacy for home delivery.
XCVS Health stock slumped 8.8% in Thursday stock market action. UnitedHealth Group (UNH), whose Optum health services unit includes a major PBM, fell 1.2%, but off early lows Meanwhile, Amazon stock rose 0.3%.
Dumping CVS, PBM Model
The Wall Street Journal reported that Blue Shield of California, which has 4.8 million members, will end its contract with CVS Health's Caremark prescription-benefit-management unit. PBM's have been a target of reform for both political parties as they target the substantial rebates paid by drugmakers. However, a Congressional Budget Office analysis concluded that getting rid of those rebates would end up raising drug prices paid by Medicare.
Yet Blue Shield of California believes that there are hidden costs associated with the PBM model, which lacks transparency and includes incentives that may drive up usage of medications. The health plan says it expects to save up to $500 million in annual drug costs once its plan is fully implemented.
The reason that UNH stock may have fallen along with CVS is that, according to the WSJ, Blue Shield says it will ultimately open up its new model to other insurers and employers.
Amazon, Cuban Join PBM Alternative
Blue Shield of California isn't completely dumping CVS. It still plans to use CVS Caremark for specialty pharmacy services for patients with complex conditions. In addition to Amazon Pharmacy, the nonprofit insurer also will weave in access to low-cost medicines from the Mark Cuban Cost Plus Drug Company. Abarca, a much smaller pharmacy benefits manager, will process prescription drug claims. Prime Therapeutics will work with Blue Shield on developing a value-based model for negotiating drug prices with manufacturers based on efficacy and patient health outcomes.
Adam Fein, CEO of the Drug Channels Institute research firm, told the WSJ that Blue Shield of California "may be biting off more than they can chew" in trying to replace the "black box" PBM model.
Still, Fein noted on his blog this week that "the likelihood of major national legislation over the pharmacy benefit management (PBM) industry has never been greater." The aim he said is to ensure that rebates to PBMs are passed through to plan sponsors, which can in turn share them with plan members.
That means the threats to the PBM model are now coming from two sides.
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