Consumer / Employer

CVS Exec: We’re Going To Find Out if Blue Shield of California’s New Drug Model Will Lower Costs

Blue Shield of California recently switched up its pharmacy benefit model by distributing responsibilities to several different vendors. The model has the potential to increase drug costs, but it remains to be seen, according to Creagh Milford, SVP of retail health at CVS Health.

From left to right: Arundhati Parmar, editor-in-chief of MedCity News; Creagh Milford, SVP retail health of CVS Health; Nworah Ayogu, general manager and chief medical officer of Amazon Clinic; Kevin Ban, executive vice president and global chief medical officer of Walgreens Boot Alliance.

Blue Shield of California recently launched a new experiment for 2025: It will largely cut out CVS Caremark as its pharmacy benefit manager and will instead put the company in charge of just specialty pharmacy services. Meanwhile, Amazon Pharmacy will be in charge of home delivery of prescription drugs, Mark Cuban Cost Plus Drug Company will create a more transparent pricing model, Abarca will handle the payment of prescription drug claims and Prime Therapeutics will negotiate savings with drug manufacturers.

Will this experiment of distributing pharmacy benefit responsibilities to different vendors work? It remains to be seen, said Creagh Milford, senior vice president of retail health at CVS Health, during a panel discussion on Sunday at Engage at HLTH in Las Vegas. CVS Health owns CVS Caremark.

“The problem with that generally — and not saying this specific example [of California] — is that you actually see costs go up because you have all the integration costs across,” Milford said. “We’re going to find out. We’re part of that experiment.”

He noted that there is a need for “radical price transparency,” whether it’s in regards to PBMs, health systems or other areas in the healthcare system. But Milford thinks that PBMs — which are being scrutinized by the FTC and Congress — have played a part in spurring competition.

“PBMs have created competition,” he said. “I would argue that most of America didn’t know what a PBM was until this year when we started talking about them. That’s actually a good thing. We’re creating a dialogue with Congress and others and informing them and [spending] a lot of time on the Hill educating them on how PBMs actually create competition and ultimately serve to bring down prices.”

Milford added that the new prescription drug companies coming into the market don’t do all the formulary drugs. He used the example of a company with “the letter M and the letter C” in the name, likely hinting at Mark Cuban Cost Plus Drug Company.

“At the end of the day, you need to fill in the gaps and/or have a PBM that’s going to help you do that,” he said. 

When it comes to Blue Shield of California’s model, Milford said he doesn’t have a “straight answer” as to what the ultimate effect will be, but thinks that costs will likely increase. He also said that the idea of unbundling pharmacy benefits isn’t necessarily new.

“I do think fragmenting it and creating a lot of different aspects of your PBM actually is going to drive up costs, but we’ll find out,” he said. “What I’ve been told from our Caremark folks is that this has been kind of a cycle that goes on. If you look back 10-15 years ago, you saw disaggregation, costs going up and going back to vertically integrated.”

While Milford anticipates costs going up in the Blue Shield of California model, many disagree, including Antonio Ciaccia, president of 3 Axis Advisors.

“The legacy PBM model is convoluted and laden with conflicts of interest. Large PBMs like CVS Caremark are setting prices for drugs that are later dispensed by their own pharmacies — all while receiving compensation from drugmakers in exchange for coverage,” Ciaccia previously told MedCity News. “These raise legitimate questions about their incentives to actually lower drug costs, when so much of their business model is dependent on making money off those drugs. When you compare this to the more aligned approach being taken by Blue Shield of California — where they are separating out different functions as a means to eliminate those conflicts — I believe they are in a much better position to succeed in bending the cost curve for medicines.”

Photo: MedCity News