Blue Shield of California plans to stop using most of CVS Health's pharmacy benefit management services and work with others, including Amazon.com and Mark Cuban's drug firm, in a bid to reduce drug costs for its insurance plan members.
The non-profit insurer, which serves roughly 4.8 million members, said on Thursday it now plans to tap five different partners for services typically provided by pharmacy benefits managers (PBMs), which negotiate drug prices with manufacturers.
The regional health insurance provider will still retain CVS Caremark for managing specialty drugs, costly medications used to treat complex conditions like cancer and rheumatoid arthritis.
Still, it expects to save $500 million annually in drugs costs once the program is fully launched in January 2025.
Paul Markovich, Blue Shield of California's CEO, said in an interview that the move had been in the works for some time but was spurred by CVS's reluctance to cover a much cheaper version of Johnson & Johnson's cancer drug Zytiga this year.
"We managed to get to the same drug for about $160 a month (from around $3,000) and went to CVS and said we'd like them to sell it, but they told us 'no' for about five months until they would," he said.
Lawmakers and the Federal Trade Commission have been investigating the role of PBMs in rising healthcare costs this year, which Markovich said is needed alongside further scrutiny from employers to mold a fairer pharmacy system for patients.
CVS shares slid over 9%, while rivals that also have PBMs also fell. Cigna Group shares fell 6% and UnitedHealth Group dipped almost 2%, in early trade over investor concerns that other insurers may adopt a similar model.
"Many in the industry will likely be watching this situation closely as managing the five partnerships could prove tricky, but if it (Blue Shield) is successful, we could see additional regionals move more in a similar direction," said Elizabeth Anderson, analyst at Evercore ISI.
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