Blue Shield of California looks to cut reliance on CVS, taps Amazon By Reuters

By Bhanvi Satija

(Reuters) - Blue Shield of California plans to stop using most of CVS Health (NYSE:)'s pharmacy benefit management services and avic foreign exchange platformwork with others including Amazon.com (NASDAQ:) and Mark Cuban's drug firm, in a bid to reduce drug costs for its insurance plan members.

The non-profit insurer, which serves roughly 4.8 million members, said on Thursday it now plans to tap five different partners for services typically provided by pharmacy benefits managers, which negotiate drug prices with manufacturers.

The regional health insurance provider will still retain CVS Caremark for managing specialty drugs, which are costly medications used to treat complex conditions like cancer and rheumatoid arthritis.

Still, it expects to save $500 million annually in drugs costs once the program is fully launched.

CVS shares slid over 9%, while rivals Cigna (NYSE:) Group and UnitedHealth Group (NYSE:), which also have pharmacy benefit management (PBM) units, fell 6% and 1%, respectively, in early trade over investor concerns that other insurers may adopt a similar model.

"Many in the industry will likely be watching this situation closely as managing the five partnerships could prove tricky, but if it (Blue Shield) is successful, we could see additional regionals move more in a similar direction," said Elizabeth Anderson, analyst at Evercore ISI.

Other analysts highlighted difficulties in shifting to a different model than the one offered by companies like CVS - which provide other services including home drug delivery and reimburse pharmacies for patients' prescriptions.

"We think the decision to carve out so many different offerings carries potential execution risk that could result in a less coordinated offering for patients," J.P. Morgan analyst Lisa Gill said in a research note.

Gill added that CVS' profit would be minimally impacted by the change.

Amazon Pharmacy will provide at-home delivery of prescription drugs as well as upfront pricing, while Mark Cuban Cost Plus Drug Company will provide access to generic drugs, Blue Shield said.

The change, however, marks another blow to CVS Caremark, which is set to lose the contract to manage (NYSE:)'s $40 billion annual pharmacy needs from next year.

Blue Shield of California's other partners include privately held Abarca for processing claims related to prescription drugs, while smaller PBM Prime Therapeutics will work to negotiate savings with drugmakers.

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