Blue Shield of California taps Amazon, Cost Plus for pharmacy

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.

Shares of CVS fell 7% in premarket trading Thursday.

CVS Health has been Blue Shield’s pharmacy benefits partner for more than 15 years. Analysts at Evercore ISI estimate that specialty drugs represent roughly 50% of Blue Shield’s pharmacy costs.

“Helping customers achieve common goals is one of the many ways we provide value to health plans of all shapes and sizes,” said Michael DeAngelis, a spokesman for CVS Health in a statement. “We look forward to providing care for Blue Shield of California’s members who require complex, specialty medications – as we have for nearly two decades.”

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.

For Cost Plus, which sells drugs at 15% above wholesale prices, California Blue Shield is only the second insurer to sign with the online pharmacy since it 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. “Other than the big three [health insurers] we will be in discussions with all other payers.”

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 life saving drugs, in many cases for people. So, making sure we get it right is important. And that’s why you need a lot of lead time,” Markovich said.

The health insurer expects to launch the program for its members in 2025.