Blue Shield of California To Revolutionize Drug Payment System: Ends CVS Caremark Partnership

Blue Shield of California has decided to discontinue its utilization of CVS Health Inc's CVS Caremark, the pharmacy-benefit manager responsible for negotiating drug prices and overseeing services like mail-order pharmacy.

Instead, the nonprofit health plan, which boasts a membership of approximately 4.8 million, is embarking on a partnership with a group of specialized companies. Amazon.com AMZN will manage at-home drug deliveries, 

Mark Cuban's Cost Plus Drug Company will facilitate access to affordable medications, and Abarca will handle drug claims processing.

This novel approach will employ a transparent net pricing structure to eradicate concealed fees and rebates. 

Blue Shield executives highlight that the existing intricate system often obstructs the accurate monitoring of payment flow. CEO Paul Markovich asserts that the current pharmacy supply chain emphasizes opacity and profit, a dynamic they intend to reverse with their innovative setup.

Blue Shield envisions its plan, scheduled for complete implementation in 2025 following a limited introduction next year, to generate annual savings of around $500 million, representing 10%-15% of its current drug expenditures, as The Wall Street Journal reported. 

The company intends to extend these savings to its customers while encouraging other insurers and employers nationwide to embrace this new framework.

Despite the perceived ambition of the plan, experts acknowledge the challenges inherent in coordinating various stakeholders, some of whom may have overlapping interests. 

Establishing new pricing structures that rival those negotiated by leading pharmacy-benefit managers might also pose difficulties.

Nevertheless, Blue Shield remains resolute in its belief that their transparent system will rein in costs by eliminating concealed profit margins and promoting openness. Companies will no longer be incentivized by higher drug prices or larger medication volumes in this system.

Although CVS Caremark will no longer oversee the comprehensive administration of drug benefits, it will continue to oversee specialty drugs, typically the most intricate and costly medications.

Price Action: CVS Health shares are trading lower by 6.63% at $67.90 premarket on the last check Thursday.