Reshaping the PBM, Payer Relationship Could Improve Access to Care

March 04, 2024 - Pharmacy benefit managers (PBMs) and health insurers have significant influence on prescription drug costs and, as a result, on access to care, but the traditional model for this relationship may not support affordability. 

PBMs were designed to alleviate payers of the responsibility of coordinating with pharmaceutical manufacturers. While the services that PBMs provide are necessary and useful, they can contribute to higher drug costs. Blue Shield of California's (Blue Shield) answer to this problem was to cut out the middleman entirely, nixing its traditional PBM relationships and opting to take full control of working with pharmaceutical stakeholders in order to reduce prices. Alison Lum, vice president of pharmacy services at Blue Shield, shares how the payer plans to change its pharmacy model and the lessons learned from this experience.

Kelsey Waddill 

Hello, and welcome to Healthcare Strategies. I'm Kelsey Waddill, managing editor and multimedia manager at Xtelligent Healthcare.

Before we get into today's episode, I just want to share a little update. Next week, our VP of editorial Kyle Murphy and I will be at HIMSS 2024 in Orlando. As a result, we will have a bit of a different publication schedule in March this year. But that's just because we'll be recording a ton of great conversations at the conference, which we'll be excited to share with you over the subsequent weeks.

By the way, for those of you who will also be at HIMSS, feel free to reach out we'd love to chat with you. Email me at k-w-a-d-d-i-l-l@techtarget.com. To see if we can set up a time to meet up. Alright, well, without further ado, let's get into the conversation.

Prescription drug costs are a major driver of the financial challenges burdening the US healthcare system. Typically, at the heart of the drug price negotiation process is the relationship between pharmacy benefit managers--or PBMs--and health insurers. One payer, however, is decoupling from this traditional model and creating a system all its own.

Here with us today to talk more about that effort is Alison Lum, vice president of pharmacy services at Blue Shield of California. Alison, thank you so much for coming on to Healthcare Strategies.

Alison Lum 

Hi, Kelsey, thanks for having me.

Kelsey Waddill 

So, before we get into the actual meat of this conversation, I just want to make sure that everybody is on the same page. Our audience is pretty broad at Healthcare Strategies and not everyone might be familiar with the payer-PBM relationship. So could you just start by breaking down that relationship and how it typically operates in the health insurance industry?

Alison Lum 

Yeah, so oftentimes, health plans like Blue Shield of California, we are responsible for providing your health insurance. And we will contract with a network of providers, including pharmacies, to deliver the health care services that are part of your insurance plan. Health plans typically own and manage all of the strategy around designing the benefit plan, which is how many tiers of copay you might have or which drugs are covered on the formulary or drug list. And not every health plan has the big back office operations like claims processing.

Health plans, like Blue Shield of California, might partner with vendors called pharmacy benefit managers to do things like process pharmacy claims, contract a pharmacy network, make payments to those pharmacies. And over time, pharmacy benefit managers have really grown in terms of the types of services they offer. And they are largely the entities that manage all the different stakeholders in the drug supply chain, including pharmaceutical manufacturers. They might even have partnerships with wholesalers. Pharmacy benefit managers might even own a pharmacy like specialty pharmacies or home delivery or mail service pharmacy. So they've really expanded over time and gone beyond just processing claims.

Kelsey Waddill 

Yeah, it seems like they definitely cover a wide spread of services there, even widening by the year. But at the same time, I know that these organizations, these PBMs, have also been under some scrutiny over certain practices in recent years. I was wondering if you could walk through that and how it's impacted the payer industry and then, also, what are some of the challenges that more specifically Blue Shield faced when partnering with PBMs that ultimately drove the payer to abandon those partnerships altogether?

Alison Lum 

Yeah, as pharmacy benefit managers have expanded their services, and also come under scrutiny over how they make their money, they've tended to not only expand the services, but there's a lack of transparency around where their largest revenue comes in from and sometimes the pricing that they charge a payer does not necessarily match what their fees are. And that's acceptable, like businesses have to be able to make profit to say in business. However, over time, what's really happened is pharmacy benefit managers have found these pockets of revenue and it's impacting the cost of the drugs themselves. And pharmacy benefit managers in the model that we have today--the traditional model--the more expensive the drug costs, the more money a pharmacy benefit manager makes for providing the same exact service regardless of what the drug is, or how expensive the drug is. They've really come under scrutiny for lack of transparency. And for making profits at the expense of patients, essentially, all of our systems were set up really well intentioned. And we've turned our pharmacy benefit management system and ecosystem into one that is extremely complex, with large profit margins based off of really expensive drugs.

And so that system and that way that we price everything, and the way that we pay for drugs is broken. It is completely unsustainable. It's not transparent. And oftentimes, it results in unintended consequences of inequities in health care, or blocking access to care. If people can't afford their prescriptions, they're not going to take them. Health plans, like Blue Shield of California, we've tried to do different things, we've tried to innovate. And it's been really difficult because the pharmacy benefit management industry has really consolidated down to what we call "the big three." So there are three main companies that control a lot of the pharmacy benefit management industry, and have made it really difficult to innovate. And that's why Blue Shield of California, we announced our new model last year, and our new model is really focused on increasing transparency, really getting to the meat of affordable prescription drugs and a better experience for all.

Kelsey Waddill 

So yeah, thank you for breaking that down. That makes sense. A lot of times in healthcare industry, the challenges that we face today are based on well-intentioned strategies that originally sought to solve a real problem. And then, as you mentioned, in some ways, it eventually then ends up adding to the complexity instead of decreasing it.

So with that in mind, I'd love to hear more about what Blue Shield of California did, and this new model that you started, and also how this approach differs from the standard approach to medication purchasing and PBM relationships in the payer industry.

Alison Lum 

Well, Kelsey, last August in 2023, we launched our first-of-its-kind model that is going to completely overhaul how drugs are paid for and how our members experience the pharmacy ecosystem in California. We are replacing the existing middle organizations with organizations that share our values. This new model is going to provide our 4.8 million members--2.4 million of which have pharmacy benefits with us--with convenient, transparent access to medications while lowering costs.

We're doing this by working with the following companies. Amazon Pharmacy will provide our home delivery services. We will have Abarca process prescription drug claims quickly and accurately with their new evolving technology platform called Darwin. We have Prime Therapeutics, who's working with us to negotiate with the drug manufacturers and moving towards a value based model for contracting. We have CVS Caremark providing specialty pharmacy services. And we have Navitus Health Solutions, who ensures our members continue to have access to our pharmacy network and communities in which they live and work. We've unbundled all the pharmacy services that typically go to a single traditional pharmacy benefit manager. And by doing so we've really taken out the secrecy around how drugs are priced, and also how there may be hidden prescription costs. And as a result, we're making prescription drugs much more affordable for our members.

Kelsey Waddill 

Yeah, and I know that you just mentioned that this only kicked off in August last year. So it's still early on in its implementation. But I was curious, what have been some of the outcomes that you've seen so far?

Alison Lum 

You're right. We are fairly early in this process of implementation. But we're having productive conversations with all the different stakeholders, employers, brokers, clients, trying to explain to them how these changes will benefit not only them but also their members starting January 1, 2025. We've also been talking to pharmaceutical manufacturers, working with them to increase adoption of our new model, and also ensuring that there's transparency and our collaboration with them. We're continuing to do work with policymakers lawmakers at all levels, both local, state and federal, to advocate for policies that improve prescription drug transparency in terms of pricing and accessibility for our members and the communities that we serve.

And [at] the end of the day, we're continuing to make sure that our members have the right medications at an affordable price. That's something that we've been doing this whole time. And really making sure that there are strong relationships between our members and the pharmacists that take care of them.

And although we announced the new model in August, it's not the start of what we've been doing. We have other programs that we've been working on to get to more transparent drug pricing, and we have a drug cost transparency tool that we've built with Gemini Health. And that has brought us $60 million in drug cost savings alone. We also have a generic drug company that we've partnered with several other Blues plans. And in January of 2023, we were able to bring to market CivicaScripts--CivicaScripts is the generic drug company--we were able to bring CivicaScripts's prostate cancer drug--abiraterone--to market and it was priced about 95%, less than average. So while our model is new, it's not new that Blue Shield has been in the space of getting to more drug cost transparency, as well as simplifying and improving the experience for our members.

Kelsey Waddill 

Yeah, that's great. It sounds like this would have the potential to simplify the patient end of things. But it also sounds like Blue Shield is taking on a lot of kind of the responsibility of what the PBMs are doing. And although it seems like it's reduced a lot for the number of companies that the payer potentially has to be involved in, there's still, I think, five or a few there that the payer has to coordinate with. And so I was curious what kind of strategies Blue Shield has put into place to work with these entities to make sure that they align that there's not duplication or redundancies, and that taking on all those different services doesn't weigh down the organization.

Alison Lum 

It really comes down to two main areas here, Kelsey. First of all, it all started way back when we developed our selection process. And it was a pretty rigorous process. But it was also agile in terms of identifying which companies were aligned with our philosophical goals and also could meet our technology requirements. So I would say the selection process was one area of how we started to implement that strategy.

Secondly, I would say that the execution is also dependent upon having strong contractual requirements, as well as getting really clear about service level requirements and the business requirements needed to build this new model. So it's really selection process, and also all of the requirements.

Kelsey Waddill 

Yeah, that makes a lot of sense. I'm curious, as well, about the lessons learned from this process. Again, I realize it's early on. But anytime you're starting a new model like this, there's going to be unexpected challenges and also unexpected benefits that come out of it. And I'd just love to hear more about what you've seen from this process.

Alison Lum 

Yes, Kelsey, it's new. And there are definitely lessons learned even this early in the game. And I would say that our model we've created to transform the way prescription drugs get from manufacturers to our members, and how it's priced along the way. It is completely aligned with our Blue Shield mission to create a healthcare system that is worthy of our family and friends and sustainably affordable.

And you would think, given such a noble mission, that others would be ready to jump on in. But there is a healthy dose of skepticism because it's new. And change is hard. We, as we talked about earlier, have been in this model, this traditional model for some time, and it has evolved to be extremely complex. And still, we are all very used to the complexity. And so when a pioneering company like Blue Shield of California announces that we're going to completely change that and transform, you can imagine that there would be other plans, other stakeholders out there, that would be scared. And at the same time, there is a lot of interest because this could really change the trajectory of healthcare and the trajectory of these unsustainable prescription drug prices.

So I would say one main lesson learned that I have is that you have to think about and engage lots of different stakeholders if you're going to completely transform the industry. And that engagement strategy has to have a very strong component around change management. And it's not just about Blue Shield and our internal teams that need to be ready for the change. We have to get so many others ready for the change, whether that be pharmacy benefit managers, pharmaceutical manufacturers, policymakers, brokers, our clients, even our members. And it's not easy because pharmacy is a pretty specialized area; prescription drugs, it's pretty specialized. And so there's a lot of education that goes along with that as well. So I would say big lesson change management and education.

Kelsey Waddill 

That makes sense. Yeah, great. Before we hop off, I just wanted to see if there's anything else that we either didn't get to touch on or that we did touch on that you want to like kind of dive into a little bit more just before we close out our conversation today.

Alison Lum 

I just want to reiterate, Kelsey, that we've been on this mission to create a healthcare system worthy of our family and friends, and that is sustainably affordable. And even though we made our announcement here in August of 2023, we've been working on this for quite some time. And we have a history of investing in drug pricing solutions since 2017. Not just advocacy in terms of legislation, but we also have our partnerships with Gemini Health, Civica and Civica Scripts, Evio Pharmacy Solutions, and Synergy Medication Collective.

Kelsey Waddill 

Yeah, it must be really exciting to see those historic efforts building up to something new in the industry anyway. So thank you so much, Alison, for sharing these thoughts. And yeah, I can't wait to hear where this goes.

Alison Lum 

Thank you, Kelsey. We'll stay in touch and we'll be sure to provide you with some updates.

Kelsey Waddill 

And to our listeners. Thanks so much as always for tuning in today. We hope that you liked what you heard. If you did, please remember to give us a like, subscribe to the channel, put down a review, and let others know what you thought. Also, we would love to hear what you think. So feel free to email us any questions or stories that you think we should cover on the podcast. You can reach out to me at kwaddill@techtarget.com That's k-w-a-d-d-i-l-l@techtarget.com. I can't wait to hear from you. See you next time!