With prescription costs soaring, Blue Shield of California last year dramatically overhauled how it purchased and supplied prescription drugs for its 4.8 million members.
The nonprofit insurer, which brings in $20 billion in annual revenue, replaced its existing pharmacy benefit manager (PBM) with healthcare upstarts including Amazon Pharmacy for drug delivery and Mark Cuban Cost Plus Drug Company to provide affordable drugs. CEO Paul Markovich says the effort will save the insurer $500 million per year once it’s fully implemented—while keeping patients’ own costs down.
Speaking at Fortune’s Brainstorm Health conference in Dana Point, Calif., on Tuesday, Markovich said the insurer was still on track to meet the ambitious goal it announced last year when it rolled out the program.
It’s a tenacious swing at a problem that’s plagued American health care for decades—namely, that the profit-driven system is incentivized to keep costs up. And nowhere is this more evident than in prescription drug pricing.
“The economics make my head hurt,” added Neil Lindsay, the senior vice president of Amazon Health Services, who appeared on the panel with Markovich.
Blue Shield’s new program aims to change the broken incentives that currently encourage higher drug prices, Markovich added. In recent years, pharmacy benefits managers (PBMs), middlemen that manage prescription drugs benefits for insurers, have come under scrutiny, including from Congress, for the opaqueness of their practices and accusations that they keep drug prices high for patients.
PMBs that negotiate discounts from drugs’ high list prices often keep the difference for themselves or split it with insurers, with little benefit for patients, former Democratic National Party Chair Howard Dean wrote in 2022. More recently, PBMs have been accused of squeezing independent pharmacists as retaliation for added scrutiny from the Biden administration.
Fixing drug costs long-term will require deep reform of these issues, Lindsay and Markovich said.
“The biggest lesson that I have learned in my more than two decades in healthcare is you cannot fight for financial self-interest,” Markovich said.
Ultimately, managing companies’ incentives to align with what’s best for the patient is the end goal, said Markovich. For example, he said many of Blue Shield’s primary care physicians are paid on a per-member basis but get bonuses for quality, keeping costs down, effective care, and patient satisfaction.
Although the current system is not going away anytime soon, Amazon’s Lindsay said it’s important to support innovations, including Blue Shield’s new program, that aim to simplify the system.
“This is complicated as a pharmacy, and that’s a shame, because it’s not in the customer’s interest,” Lindsay said. “It’s not in the patient’s interest. And it’s not helping people get well.”
