The start of a consequential shift? Here's what we're watching. 

By Solomon Banjo and Chloe Bakst

BSC's shift away from a traditional PBM suggests that yesterday's PBM disruptors are today's competitors. It also demonstrates that the largest PBMs are vulnerable in ways that they previously weren't. Here are our three biggest takeaways from BSC's new pharmacy care model:

1. There are benefits to collective scale for disruptors

BSC's new pharmacy care model represents new opportunities for organizations that aren't part of the big three PBMs — CVS Caremark, Express Scripts, and OptumRx* — to compete for pieces of larger contracts.  

Under BSC's new model, Mark Cuban Cost Plus Drugs Company (MCCPD) will provide access to low-cost medications online and through retail pharmacies, Amazon Pharmacy will provide another avenue to home delivery, and Abarca, a transparent PBM, will process drug claims. Drug negotiations will be left to Prime Therapeutics, a PBM with relationships with many Blues plans, and CVS Caremark will hold on to specialty drug benefit management.   

For MCCPD and Amazon, their partnership with BSC is a natural next step. Amazon Pharmacy has existing partnerships with Prime Therapeutics, and MCCPD has been launching new partnerships regularly in an attempt to disrupt the traditional PBM market.  

While neither organization has the expertise, capacity, or interest in assuming every aspect of a traditional PBM contract, by honing their respective niches and value propositions, they can offer a suite of services in partnership that represents new competition to the large, vertically integrated PBMs.  

With this move, BSC has potentially created a template for other health plans to follow. Notably, BSC selected partners that are national organizations, meaning these companies could potentially win similar contracts with health plans across the country should this experiment work. Many eyes will be watching to see how this unfolds.  

2. Scale alone may not be enough for incumbent PBMs 

CVS Caremark is suffering the brunt of the loss in this move, but it's a warning knell to its competitors, Express Scripts and OptumRx. These PBMs have historically dominated the market, with approximately 80% of market share in 2022 between them. The big three PBMs have been strategically savvy, exploring new and innovative ways to grow revenue while lowering pharmacy costs for their plan sponsors.  

However, their strategies aren't without controversy. The past few years have brought new pressures to the largest PBMs, including an investigation by the Federal Trade Commission and multiple bills making their way through Congress proposing new regulations in the industry.  

Previously, the big three PBMs have used their scale to differentiate themselves in the market, largely by negotiating the lowest net costs possible via rebates. However, BSC's move may signal that this strategy is less effective in light of the Consolidated Appropriations Act's new provisions.  

Given that BSC's CEO referenced a "forest of opacity and profit" when describing the current pharmaceutical supply chain, the health plan may be looking for partners who can provide increased transparency and access to data that can ensure their own compliance and that of their plan sponsors. 

The list of differentiating competences for PBMs and their competitors is expanding, and the big three PBMs will need to adapt to these shifts.  

3. Specialty drug benefit management will stay in the hands of the largest PBMs — for now 

CVS Caremark may see the silver lining in the fact that they will continue to provide coverage for BSC's specialty medications. Importantly, CVS can potentially capture those prescriptions for CVS Specialty Pharmacy, since Amazon Pharmacy does not provide delivery for specialty drugs. 

If there is a line in the sand where the big three PBMs have the most at stake, it is the management of the specialty drug benefit. This is where their value proposition shines — arguably, you need their scale to effectively negotiate, because a very small portion of the population takes specialty medications.  

It's also worth noting that the big three PBMs own their own mail-order and specialty pharmacies which accounted for 36% of their gross profit in 2019. Accordingly, the big three PBMs are invested in maintaining their market position in this space.  

However, disruptors are imminent, and appetite for specialty benefit carveouts may be growing. Notably, one survey found that employers (22%) were more likely to carve out specialty drug benefits from their overall drug benefit than health plans (4%).  

We may be in the early stages of greater disruption in this space, with smaller entities looking to build that collective scale and compete more aggressively against the big three PBMs across all elements of the pharmacy benefit. Only time will tell, but we will continue to monitor this rapidly evolving sector. (Mathews, Wall Street Journal, 8/17; Satija/Wingrove, Reuters, 8/17; Luhby/Valinsky, CNN, 8/17; Pifer, Healthcare Dive, 8/17; Blue Shield of California news release, 8/17) 

*Advisory Board is a subsidiary of Optum. All Advisory Board research, expert perspectives, and recommendations remain independent.