CVS Health shares tumbled after Blue Shield of California, one of the state’s largest health insurers, said it would drop the company’s Caremark unit as its main pharmacy benefit manager.
The insurer, a nonprofit, said Thursday it expects to save as much as $500 million a year by switching to a group of companies including Amazon.com Inc. and an upstart from billionaire Mark Cuban. It’s the biggest win yet for those newcomers trying to upend the existing prescription benefits system, and if it works could provide a blueprint for other insurers and employers to follow.
The goal is to change the incentives for prescription benefits managers, distributors and pharmacies, said Paul Markovich, chief executive of Blue Shield of California. “They make more revenue and they make more profit when we sell a higher volume of more expensive drugs,” he said in an interview. “We just need to start over in terms of thinking about this system.”
News of the high-profile experiment sent shares of dominant PBMs down sharply: CVS shares fell 8.1% as of trading close Thursday, its most since October, while rival Cigna Group fell 6.4%.
The Wall Street Journal earlier reported the change-up.
Blue Shield may face challenges replacing one vendor for PBM services with five, some with competing interests. “We’re skeptical this approach is sophisticated enough and practical, yet it bears watching,” Bloomberg Intelligence analysts Jonathan Palmer and Jordan Dahan said in a note.
The insurer is also not dropping CVS entirely, as Caremark will continue to process more expensive specialty drugs, a profitable and growing market for PBMs.
Tapping Newcomers
Companies that provide health benefits have long bemoaned their lack of visibility into how much drug middlemen pay and charge for medications. The California insurer’s move will test whether it can assemble an alternative supply chain involving a mix of companies new to the pharmacy benefits…