We’re pleased to inform you that Mark Cuban and his company, Mark Cuban Cost Plus Drugs Company (MCCPDC), have continued to send ripples through the world of pharmacy-benefit management (PBM). Recently, health insurer, Blue Shield of California has made a huge announcement. Blue Shield of California declared its intention to replace CVS’s Caremark PBM unit with a consortium of companies, including MCCPDC, Amazon Pharmacy, Abarca, and Prime Therapeutics. Amazon will deliver prescriptions by mail, MCCPDC will provide pricing, Abarca will process claims, and Prime Therapeutics will negotiate prices. CVS Caremark will only retain the role of providing specialty pharmacy service. This announcement was felt in the market immediately- CVS Health’s stock dropped 8% while other major PBM players saw a smaller dip. This shake-up underscores the growing scrutiny faced by the PBM business and the potential for new competition among its dominant players.
While some may view the Blue Shield move as insignificant, it raises questions about whether the industry's largest clients might also reevaluate their relationships with the established PBM giants. Are they dissatisfied with the current PBM business model? Could this be the first sign of a shift away from these industry behemoths? We certainly hope so. As you know, PBMs, who work for employers and insurers, are responsible for tasks such as negotiating drug prices with manufacturers and facilitating mail-order prescriptions. This industry is huge and is often rightfully blamed for America’s outrageous drug costs. However, their practices have come under a microscope. This attention implies that innovative approaches to PBM are not only welcome but also necessary to address the high-pricing and accessibility of drugs.
Blue Shield's new PBM setup is creating a buzz, but it won't fully launch until 2025. Experts warn that it will face significant challenges, including the coordination of MCCPDC and other companies, and the negotiation of deals with drug manufacturers. Building a transparent and cost-effective drug supply chain is a momentous task, but one that Blue Shield eagerly accepts, echoing the sentiments of industry critics. Michael Thompson, the CEO of the National Alliance of Healthcare Purchaser Coalitions, acknowledges that when sophisticated buyers like Blue Shield make moves, it captures the attention of many. He argues that the healthcare industry is ripe for disruption. As this series has demonstrated, there are a growing number of players trying to amplify this disruption. Additionally, as mentioned in previous blogs, Congress is currently mulling over legislation that could impose new regulations on PBMs, and the Federal Trade Commission (FTC) is actively investigating the industry. The PBM sector is facing the twin threats of regulatory intervention and market competition.
CVS, as the largest PBM, responded to these developments with confidence. They filed a statement with the Securities and Exchange Commission asserting that Blue Shield's move would have an immaterial financial impact on their operations. The big three, CVS Caremark, Cigna's Express Scripts, and UnitedHealth's OptumRx, collectively represent about 80% of the PBM market. Their strategies and responses to this evolving landscape are crucial to watch. While CVS remains confident in its value proposition, Cigna and UnitedHealth have chosen to remain silent regarding the recent stock market fluctuations. Their next moves and adaptations will be closely observed by analysts and investors alike. The big three have long maintained that they play a pivotal role in reducing drug costs and passing on savings to clients. It seems more people are realizing that their incentives lie much closer to maximizing profits than limiting healthcare costs.
The healthcare industry is experiencing a momentous transformation, and the disruption led by entrepreneurs like Mark Cuban is reshaping the landscape. Blue Shield of California's decision to replace CVS's Caremark unit with a coalition of companies, including Mark Cuban's drug venture and Amazon, is just the beginning. With the double-pronged attack of industry competition and government regulation, we’re confident that the movement against Big Pharma will snowball. Many, especially DWM, are closely watching how these moves will play out. As this story unfolds, investors, healthcare professionals, and industry stakeholders must remain vigilant. While there are still uncertainties, there is also excitement about the industry's readiness for innovation and change. As we continue to explore the evolving landscape of healthcare, stay tuned for more insights into the exciting developments in the industry. We encourage you to continue following this series, and if this is your first introduction to the saga, you can find the 1st blog here, the 2nd here, and the 3rd and latest here.