CVS Shares Slump as Blue Shield of California Turns to Amazon to Cut Costs

By
Kevin George
Kevin George
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Kevin George is a freelance crypto writer and editor for Investopedia. He holds a master's degree in finance and has extensive knowledge and experience in the area of trading, markets, and economics.
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Published August 17, 2023
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Key Takeaways

  • CVS Health Corp. shares slid after Blue Shield said it would reduce its reliance on the firm.
  • The non-profit insurer said it will also look to Amazon, and the Mark Cuban Cost Plus Drug Company to provide services.
  • Lawmakers have targeted pharmacy benefit managers over their pricing tactics.

Shares of CVS Health Corp. (CVS) lost 8.1% on Thursday after Blue Shield of California, a health insurance provider, said it would reduce its reliance on the company's pharmacy services and work with other firms, including Amazon (AMZN), to cut costs.

CVS had acted as the primary pharmacy benefit manager (PBM) for Blue Shield of California, or administrator for the health plans of the company's 4.8 million members. However, now Blue Shield of California said it will use five different companies, including Amazon and Mark Cuban's Cost Plus Drug Company, for "convenient, transparent access to medications while lowering costs," according to a release.

Blue Shield of California said it expects to fully launch the new system in 2025 and save $500 million annually on drug prices through the new arrangement.

Shares of other PBM providers, including The Cigna Group (CI) and UnitedHealth (UNH), also lost ground following the news.

PBMs have attracted scrutiny from several lawmakers this year, with House and Senate members from both parties working on at least nine bills to rein in the pricing power of the country's 70 PBMs. CVS is one of three firms that control approximately 80% of the prescription drug market.

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  1. Blue Shield of California. “BLUE SHIELD OF CALIFORNIA UNVEILS FIRST-OF-ITS-KIND MODEL TO TRANSFORM PRESCRIPTION DRUG CARE; SAVE UP TO $500 MILLION ON MEDICATIONS ANNUALLY.”

  2. NPR. "Why PBMs, or pharmacy benefit managers, are the focus of new bills in Congress."

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