Blue Shield of California to shake up drug supply chain. Here’s how it will affect consumers

Blue Shield of California is shifting the way it manages its pharmacy supply chain for its ratepayers, a move they say could save $500 million annually in drug costs, lessening the burden on customers.

The nonprofit health plan, which serves 4.8 million people in California, will transition its drug supply chain management from CVS Health’s pharmaceutical benefit manager to five companies, including Amazon and Mark Cuban Cost Plus, in an attempt to create a new model for procuring drugs, negotiating prices and delivering prescriptions to patients. No other major health plan has attempted such a shift, and the insurer said it hopes it can be replicable across the country, lowering prescription drug costs nationwide.

“We have a system that has a lot of its incentives based on the gross price of the drug. That’s not a system that has a lot of motivation to drive the cost down, and the way the system is currently structured right now, there isn’t transparency on what you’re paying for some of these different services versus the value they’re providing,” said Sandra Clark, chief operating officer of Blue Shield of California.

Americans pay higher prices for prescription drugs than any other country in the world, often 2.5 times higher than other high-income countries, according to the U.S. Department of Health and Human Services. Some have labeled pharmacy benefit managers as a principal culprit, scraping off fees and rebates in exchange for, critics allege, not much value.

Pharmacy benefit managers oversee the complicated prescription drug supply chain. They work and negotiate with manufacturers, pharmacies and insurance companies and develop formularies, determining which drugs are covered by an insurance company — and, in turn, how much a patient pays out-of-pocket for their drug.

“Given that everyone hates PBMs (consumers, employers, retailers, smaller insurers, drugmakers) except for the companies who own them, (it) will be interesting to see if someone can create a viable alternative,” said Lisa Bielamowicz, co-president of Gist Healthcare, a health care analyst group, in an email to The Bee.

Wall Street reacted to Blue Shield of California’s announcement, and the stocks of CVS Health and two other major health groups with pharmacy benefit managers all took a hit: CVS shares fell Thursday by 9%, Cigna was down 6% and UnitedHealth Group was off 1%.

How will it change the cost of prescriptions?

Customers should expect both lower cost of drugs and reduced premiums, said Clark, Blue Shield of California’s COO. The group projects $500 million of annual savings that they said would be passed on to customers.

How will it change how Blue Shield of California patients receive their prescriptions?

The main difference Blue Shield of California customers will see starting January 2025 is in who delivers their mail-order prescriptions, Clark said. In lieu of CVS, Amazon will manage the delivery process.

Amazon ventured into the dispensing industry in 2020. This year, it launched RxPass, a mail-order prescription service where customers pay a monthly flat-rate fee in exchange for unlimited access to common generic prescription drugs — though California regulation currently bars residents from using the service.

Americans have increasingly received their drugs from mail-order pharmacies — a 35% increase from 2016 to 2021. The COVID-19 pandemic turbo-charged the tide toward mail-delivered prescriptions.

Customers who pick up their prescriptions at CVS or other pharmacies should not expect to switch to a new pharmacy, said Clark. The pharmacy contracting system is separate from the drug contracting system. CVS Health will continue to manage Blue Shield patients’ specialty drugs, which are prescription medications used to treat complex chronic conditions like cancer, arthritis and multiple sclerosis.