A major health insurer says it will jettison the complicated system that Americans use to pay for drugs, and create something that aims to be better, with partners including Amazon.com and the entrepreneur Mark Cuban.
Blue Shield of California said it is dropping CVS Health’s Caremark, the pharmacy-benefit manager it currently uses, which negotiates drug prices and wraps in other services such as a mail-order pharmacy.
Instead, Blue Shield, a nonprofit health plan with about 4.8 million members, will work with a selection of companies that each perform a designated function. Amazon will offer at-home drug delivery. Cuban said Mark Cuban Cost Plus Drug Company will provide access to low-cost medications, including through retail pharmacies. Another company, Abarca, will process drug claims.
Blue Shield said that, working with its partners, it aims to negotiate prices with pharmaceutical makers in a way that is different from the typical approach—with a simple net price structure that is supposed to eliminate rebates and hidden fees.
Blue Shield executives said that with one company handling many aspects of how drugs are procured through the system, it is often hard to track the flow of payments accurately.
“The current pharmacy supply chain is a forest of opacity and profit,” said Paul Markovich, Blue Shield’s chief executive officer, in an interview with The Wall Street Journal. “It is overwhelmingly complex, it is designed to maximize the earnings of the participants.” His company’s new setup, he said, will be “flipping that on its head.”
Blue Shield said its plan, which it hopes to fully launch in 2025 after a limited rollout next year, could save the company about $500 million annually, or about 10% to 15% of what the insurer currently spends on drugs. The nonprofit said it would pass along savings to its clients. Ultimately, Blue Shield said, other insurers and employers around the country would be able to use its new structure.
The company’s plan is challenging, according to experts, who said it is likely to prove difficult to coordinate so many different parties, some of which might have overlapping or competing businesses. Blue Shield and its partners might also struggle to broadly implement new pricing with drugmakers that would match the discounts negotiated by the biggest pharmacy-benefit managers, they said.
“They are trading the black box for a collection of competing interests,” said Adam Fein, chief executive of the Drug Channels Institute, which provides research on the drug-supply chain. “They may be biting off more than they can chew.”
Blue Shield executives said they believe that many companies in the current drug- distribution system make more money when higher volumes of more-expensive drugs are sold, and that their new system will drive down costs by adding transparency and siphoning out hidden pockets of profit. Under its new setup, the insurer said, companies won’t have financial incentives tied to higher prices or larger volumes of medications.
The insurer’s partners, including Cuban and Amazon, said they expect similar benefits. “It will be a faster, more transparent and lower-cost end-to-end process than what exists today,” said John Love, vice president of Amazon Pharmacy.
Markovich said Blue Shield knows there will likely be operational hiccups and will plan carefully and ramp up over time.
Still, Blue Shield’s new setup will rely on incumbent players for some important services. While CVS Caremark will no longer oversee the overall administration of drug benefits, CVS will still be handling specialty drugs, typically the most complicated and expensive medications.
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.”
Blue Shield will also be tapping the drug-pricing contracts of the pharmacy benefit manager Prime Therapeutics.
Markovich said his company will phase in its new approach to drug pricing, and wants to link payments for medications to the outcomes they bring for patients. He has spoken to leaders of some drugmakers and has drawn strong interest, he said. “I literally had a CEO of a major pharmaceutical manufacturer say, ‘I will get you that price today,’” he said.