A Reality Check on That Blue Shield of California Announcement: Evaluating the Unbundling of the PBM Model and Potential Impact on Specialty Pharmacy

Ben H.

Hatched by Ben H.

May 28, 2024

4 min read

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A Reality Check on That Blue Shield of California Announcement: Evaluating the Unbundling of the PBM Model and Potential Impact on Specialty Pharmacy

Blue Shield of California recently made headlines with its announcement to transform how medications are purchased and supplied. This move has been lauded as a disruptive force in the pharmacy benefit management (PBM) space. However, upon closer examination, it becomes clear that this announcement may not be as groundbreaking as it seems. In fact, Blue Shield's approach still relies heavily on the largest PBMs in the industry.

One of the key players in this new model is Amazon Pharmacy. While Amazon is often seen as a disrupter in various industries, its role in this context is limited to being an in-network mail pharmacy. It will deliver nonspecialty brand and generic prescriptions by mail and provide access to pharmacists 24/7. However, it remains uncertain whether beneficiaries will have access to Amazon Prime subscription pricing or if Amazon will present these prices to patients regardless of their benefit coverage.

Another notable participant in Blue Shield's new model is Mark Cuban Cost Plus Drug Company (MCCPDC). MCCPDC's role is to establish retail prescription prices through its Team Cuban savings card, which is accepted at a few thousand independent pharmacies and Kroger's pharmacies. However, it's worth noting that MCCPDC's pricing is limited to a subset of generics and a handful of brand-name medications. It seems that the hope is that beneficiaries won't check prices online, potentially undermining this aspect of the model.

Abarca, an independent PBM company, will process claims through its proprietary cloud-based PBM platform called Darwin. With 5.3 million covered lives and $8 billion in annual drug spend, Abarca's involvement will significantly increase its activity level thanks to Blue Shield's 4.8 million lives. This partnership seems to align with Blue Shield's goal of simplifying the system and cutting unnecessary costs.

Prime Therapeutics, a PBM owned by Cigna's Evernorth business, will be responsible for negotiating rebates. However, it is unclear how many manufacturers will provide better deals to a regional plan with fewer than five million beneficiaries. While Blue Shield believes it will negotiate directly in the future, the potential impact of this remains uncertain.

Despite firing CVS Health's Caremark business, Blue Shield will still rely on CVS Caremark for specialty pharmacy services. This decision is surprising considering that specialty pharmacy dispensing is a significant source of profit for large PBMs. It raises questions about who will control the pricing of specialty drugs and how beneficiaries will navigate comparison shopping between different pharmacies.

While Blue Shield's announcement claims to simplify the system and cut unnecessary costs, there are doubts about its ability to efficiently manage these subcontractors while maintaining an attractive beneficiary experience with lower total expenses. The headline figure of "$500 million in medication savings" may not take into account the new internal administration costs required to coordinate everything and provide additional services.

Considering the reliance on larger PBMs in this new model, it begs the question of why Blue Shield didn't explore partnerships with smaller, more transparent PBMs that would welcome the business opportunity. Companies like Capital Rx, Navitus, and WellDyne could have been potential partners.

In a related development, Walgreens Boots Alliance is reportedly considering the sale of its specialty pharmacy business, Shields Health Solutions. This move comes after Walgreens acquired a majority stake in Shields in 2019 and agreed to purchase the remaining stake for about $1.37 billion in 2022. The potential sale could value Shields at over $4 billion and attract interest from private equity firms and healthcare companies.

In conclusion, while Blue Shield of California's announcement to unbundle the PBM model may have generated excitement, a closer look reveals that it may not be as revolutionary as advertised. The heavy reliance on larger PBMs and the potential challenges in coordinating various subcontractors raise doubts about its effectiveness in simplifying the system and cutting costs. However, this development does highlight the ongoing evolution of the pharmacy and healthcare industry, with potential opportunities for smaller, more transparent PBMs to make their mark.

Actionable Advice:

  • 1. Evaluate partnerships with smaller, more transparent PBMs: Consider exploring partnerships with PBMs such as Capital Rx, Navitus, and WellDyne, which may offer more transparency and flexibility in managing pharmacy benefit services.
  • 2. Prioritize beneficiary experience and cost transparency: Focus on providing a seamless and transparent experience for beneficiaries, ensuring they have access to pricing information and options for comparison shopping.
  • 3. Consider alternative models for specialty pharmacy services: Explore partnerships or in-house solutions for specialty pharmacy services to have more control over pricing and ensure competitive options for beneficiaries.

By critically examining the Blue Shield of California announcement and considering alternative strategies, stakeholders in the pharmacy and healthcare industry can navigate the evolving landscape and find opportunities for improvement and innovation.

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