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PBMs Are Evolving. Here's What HR Needs to Know

A pharmacist is handing a prescription to a customer in a pharmacy.

​When nonprofit health insurer Blue Shield of California announced in August that it was making a significant shift in how it administers pharmacy benefits for its 4.8 million members, the health insurance industry took notice, and so did the financial markets: CVS Health, the parent company of the insurer's outgoing pharmacy benefits manager (PBM), saw its stock plummet 8 percent the day Blue Shield made its decision public.

The Oakland-based insurer's new model, called Pharmacy Care Reimagined, includes new relationships with four entities in addition to the CVS PBM, known as CVS Caremark. In announcing the new model, Blue Shield said:

  • Amazon Pharmacy "will provide fast and free delivery of prescription medications, complete with status updates, as well as upfront pricing and 24/7 access to pharmacists."
  • Mark Cuban Cost Plus Drug Company "will establish a simple, transparent, and more affordable pricing model, reducing surprise drug costs at the pharmacy pick-up counter." 
  • Abarca "will pay prescription drug claims quickly and accurately while continuing to evolve its technology platform, Darwin, to support new, simplified payment models."
  • Prime Therapeutics "will work with Blue Shield to negotiate savings with drug manufacturers to move toward a value-based model that aligns drug prices to patient efficacy and health outcomes."
  • CVS Caremark "will provide specialty pharmacy services, including education and high-touch patient support, for members with complex conditions."

Blue Shield said the new approach could save the company up to $500 million annually once it is fully in gear, or slightly more than $100 per member per year. With open enrollment for 2024 underway at many employers, Tim Lieb, senior vice president for growth at Blue Shield, said other benefits managers interested in how the program rolls out will have to be patient.

"As it relates to 2024, you won't see the material changes yet from our program," Lieb said. "That really goes into place in 2025."

But whether the new Blue Shield model is the first of a wave of new PBM alignments that HR executives could and should keep track of for their own benefits design, or merely an approach with limited applicability, is still up for discussion.

"It will be interesting to track how this plays out in terms of member experience with so many different components of the benefit that are outsourced, when they are typically streamlined," said Katie Asch, senior director for health and benefits at consultancy WTW. "Pulling this apart could not only be hard for members to navigate who to go to for what, but could also be a challenging administrative experience, especially for HR teams that already have lean staff."

Asch had this observation for anyone considering emulating Blue Shield: "It is critical to assess the impact of disintermediation on the total plan spend. On the surface, pulling certain components out may seem to generate savings. However, in some cases, once all components are added up individually, that expected savings could turn into a cost both from the literal dollars perspective and in a figurative sense of added administrative and member experience burdens."

De-Concentrating the Market and Tackling Specialty Drugs

Matthew Fiedler, senior fellow at the Brookings Institution's Brookings Schaeffer Initiative on Health Policy, said Blue Shield's new relationships may be in the vanguard of carriers' attempts to dilute the market power of the three largest PBMs (Express Scripts, CVS Caremark and Optum Rx), which together control more than 75 percent of the prescription drug market nationwide.

"There are respects in which this is part of a broader trend," Fiedler said. "It's a fairly recent development that the big PBMs are all part of a company of big insurers. I think over time we are probably going to evolve to where at least the larger insurers are predominantly relying on in-house or somehow affiliated PBMs. The market structure we have right now—three big PBMs dominating the market—will probably not be the one we will be with over the long run."

In fact, Blue Shield's announcement might be a pioneering indicator of Fiedler's observation. In January 2020, the Blue Cross Blue Shield Association and 18 independent BCBS companies formed CivicaScript, a public benefit company that coordinates the manufacture and distribution of widely used but high-priced generic drugs. CivicaScript created a generic version of the prostate cancer drug abiraterone, branded as Zytiga, that is priced about 95 percent less than average for brand-name Zytiga. CivicaScript said Medicare patients pay an average of $3,200 monthly for Zytiga, and it recommends pharmacies charge no more than $171 for its version. In January 2023, Blue Shield of California was the first health plan to make generic abiraterone available to members.

In the biggest growth area in drug spending, specialty pharmacy, several BCBS insurers have banded together to form their own PBM, the Synergie Medication Collective, which will cover drugs administered in a clinical setting. The Synergie approach may also be an indicator of how pharmacy benefit and medical benefit administration will need to become more holistic.

"Drugs covered by the medical benefit are often high-cost treatments such as multi-million-dollar gene therapies and infusible cancer drugs," according to the Synergie website (the collective did not return requests for comment). "These treatments represent a substantial portion of overall drug spend, with significant growth in future spend anticipated." According to an analysis by IQVIA, an IT firm that focuses on health care, specialty drugs accounted for 55 percent of net drug spending as of March 2022, with an annual growth rate measured in January 2023 of 11.7 percent, compared to 7.3 percent for traditional drugs.

Better alignment and management of combined pharmacy and medical benefits could reap savings overall for specialty drugs, as well as those that treat chronic conditions addressed by traditional pharmaceuticals, Fiedler said.

"It is conceivable the shift toward greater insurer-PBM integration will create somewhat better incentives for coverage of drugs for chronic conditions," he said. "If you provide better coverage for prescription medications and reap the savings of those conditions that are better managed, that may lead to more robust coverage on the drug side.

"In many cases, it was still the same entity that was always on the hook—that is, a self-insured employer was always on the hook for both drug cost and medical spend—but having those things under the same roof may in some cases make coordinating the drug and medical benefits easier," Fiedler explained.

Indeed, such coordination is precisely what Blue Shield hopes to achieve, according to the company. Pharmacy Care Reimagined's goals are to lower costs across all prescription drugs—those covered under both pharmacy and medical benefits in the pursuit of a holistic experience within pharmacy care.

Estimating Counterfactual Savings

Proving a counterfactual—a statement that presents the resolution to a situation that differs from reality—is a widely recognized logical fallacy. However, recently developed drugs may soon create a need for benefits managers and their carrier partners to dig deeper into how coordinating pharmaceutical and medical benefits more tightly, including off-label use of medications, may save on overall health care costs that might have been incurred had a chronic disease not been staved off by a prescription.

For example, a study published in August on the New England Journal of Medicine website found that the drug semaglutide, which is used to treat obesity under the brand name Wegovy and type 2 diabetes as Ozempic, significantly reduced symptoms of a particular type of heart failure called preserved ejection fraction in people classified as obese—for whom the researchers said no approved therapies yet exist.

Independent research into the wide variety of net pricing and list pricing on the drugs by the American Enterprise Institute also discovered widely differing costs for users depending on their insurance status: Patients covered for the drugs by insurance who also had a manufacturer's coupon spent an implied net price (the price received by the manufacturer) of $290 monthly for Ozempic and $701 for Wegovy, while implied out-of-pocket costs for insured patients without coverage for the drugs were $936 for Ozempic and $849 for Wegovy.

Results for off-label indications for these drugs, such as heart failure, pose many questions regarding how to calculate how much such treatment may save on overall costs, which may result in lower premiums (the Centers for Disease Control and Prevention estimates those with diabetes incur $19,700 annually in medical costs). But benefits managers also have to calculate the upper limit of an employee's ability to absorb out-of-pocket costs.

"People want low premiums and low costs, and those things can't necessarily go together," Fiedler said. "There are reasonable arguments that many plans include more cost-sharing than they should, but that's because employers are trying to keep premiums down for their own sake but also for the portion they pass along to employees. In terms of making some of these choices more transparent, there may be things employers can do to present the benefits design of alternative plans in better ways. But honestly, there has been a lot of effort on this across a lot of domains, and I think the takeaway messages are in many ways pretty discouraging—for example, benefit plan design is just unavoidably complicated."

But as new entities such as CivicaScript and Synergie ramp up, Fiedler and Asch said benefits managers will have to balance prodding their vendors to provide back-end reductions, such as CivicaScript's abiraterone, with finding ways to make consumers' choices easier to understand. And that is likely to be a daunting endeavor.

"People don't need to just understand the plan, but also be able to forecast what they might need during the year, and put those things together to figure out what their costs are going to be," Fiedler said. "It's not an easy thing to do."

However, Asch said that such tools are becoming a widely requested item—and should be.

"Tools and technology for members and prescribers to make more informed choices about which therapies and pharmacies are the most cost-effective based on their specific plan design are key resources," she said. "Some vendors have made significant investments in this area, and others still have a ways to go. Almost everyone is looking for the easy button, so striking the right balance of sharing the best personalized recommendation and actually facilitating the selection for them—for instance, 'We'll contact your doctor to make the change'—is the next level of service our clients are looking for."

Blue Shield's Lieb said adopting an attitude of iterative improvement is crucial.

"Don't let the perfect get in the way of the good," he said. "If there's anything we learned from the tech industry, there can be a version 2.0 and a 3.0. You can have it evolve. We never would have done Pharmacy Reimagined if we would have said it has to be perfect out of the gate. We view it as it has to continuously evolve and continuously get better. That's the same way benefits professionals should think about what they are offering."

Greg Goth is a freelance health and technology writer based in Oakville, Conn.


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