Blue Shield of California is teaming up with Mark Cuban's Cost Plus Drug Company and Amazon Pharmacy — turning away from traditional drug store chains and ditching in part health giant CVS — in a move to save on drug costs for its 4.8 million members.
The CEO of the nonprofit health insurer, which spent over $3 billion on member prescriptions in 2022, calls the move a major milestone in its efforts to move toward a value-based model for pharmacy care.
"I expect we're going to — when this ramps up completely — we're going to be saving $500 million a year," said Paul Markovich, CEO of Blue Shield of California. "So, this is a very significant reduction in cost that we ultimately, as a nonprofit that caps our income, will be putting back into our premiums."
The health insurer will continue to use CVS Caremark for specialty drugs to provide prescriptions and services for patients with complex conditions, but the online pharmacies will provide services for the rest.
CVS Health has been Blue Shield's pharmacy partner for more than 15 years. It has also handled the company's pharmacy benefits negotiations for the last three years, but that part of the partnership will end in December 2024.
Analysts at Evercore ISI estimate that specialty drugs represent roughly 50% of Blue Shield's pharmacy costs, but the loss the pharmacy benefits management portion of the contract will result in a 2- to 6-cent hit to CVS earnings per share in 2025.
CVS shares fell about 8.5% in afternoon trading Thursday. A company spokesman defended its track record of providing value to its customers.
"Fragmentation in the health care industry is one of the primary reasons health care remains too complex and expensive," said Michael DeAngelis, a CVS Health spokesman.
"Blue Shield California is a unique health plan with a long history of unbundled pharmacy services. This is not a new concept. In fact, they only recently rebundled their pharmacy services in 2021. We have won several large Blue Cross Blue Shield plans on an integrated basis within the last two years and are confident in our ability to serve these large, sophisticated plans," he said.
For Amazon, the new contract represents a shift from its retail pharmacy model.
Amazon Pharmacy, which launched a $35 per month insulin program this week, will provide what the companies are calling up-front pricing, free delivery and round-the-clock access to pharmacists through its online services.
"Innovation is in our DNA, and we're excited by the potential savings this new partnership unlocks for customers," said John Love, vice president of Amazon Pharmacy. "We're thrilled to add upfront pricing, free delivery and 24/7 access to a pharmacist to Blue Shield of California's innovative new offer."
California Blue Shield is only the second insurer to sign with Cost Plus, which sells drugs at 15% above wholesale prices, since the online pharmacy launched in January 2022. Capital Blue Cross, based in Harrisburg, Pennsylvania, with 1 million members, signed with Cuban's venture last fall.
"It takes time. There are a lot of bad habits they need to break," said Cuban, Cost Plus co-founder, about the challenges of contracting with health insurance plans, which are often called payers.
"I think all payers realize that now that Cost Plus has made the price of medications transparent, providers and patients can see what prices should be, and the entire industry will have to adjust," Cuban said.
For Blue Shield of California the transition to Cost Plus and Amazon will begin with its own workers in 2024, before being introduced to members, to ensure that the online pharmacies will have the scale to meet its members' needs.
"We're talking about lifesaving drugs, in many cases," Markovich said. "So, making sure we get it right is important. And that's why you need a lot of lead time."
The health insurer expects to launch the program for its members in 2025.