introduction
Imagine stepping into a pharmacy to get you inside. Worse, even worse, you have to pay more as insurance claims it uses mail order services. Millions of Americans face similar challenges. This is because prescription costs and access to medications are more complicated and expensive.
Pharmacy Benefit Managers are Strong Intermediaries Negotiating Drug Prices | Image Credit: doidam10 | stock.adobe.com
At the heart of these changes are pharmacy benefits managers (PBMs), a powerful intermediary that negotiates drug prices, determines drug coverage and influences where patients can fill prescriptions. PBMS holds huge shaking in the health care system and directly affects patient costs and access to care.
In recent years, the rise of vertical integration has fundamentally changed the PBM landscape. This is the trend for companies such as CVS Health, Optumrx, and Express Scripts to consolidate insurance, PBM and pharmacy controls into a single entity. These companies argue that this integration reduces costs and increases efficiency, but the reality is more complicated and patients often have bills.
What is vertical integration?
Vertical integration occurs when a single company manages multiple layers of healthcare processes, including health insurance, PBM services, and pharmacy businesses. For example, businesses may manage their health plans, determine which medications are covered, and own the pharmacy they need to meet their prescriptions.
While this may seem like an efficient approach to streamlining healthcare, it raises serious concerns about competition, fairness and rising costs. By controlling every step of the process, vertically integrated companies hold a great force on patients’ medical journeys, from premiums to pharmacy counters.
Key players in vertical integration
Three major companies dominate the vertically integrated PBM market, collectively controlling the profits of more than 75% of Americans1:
- CVS Health Control Aetna (Insurance), Caremark (PBM), and CVS pharmacies.
- optumrx It is a subsidiary of UnitedHealth Group and is the largest health insurance company in the United States.
- Expression script Operated by Cigna, it manages the benefits of prescriptions along with insurance and healthcare services.
This integration squeezes the competition and makes it difficult for independent pharmacies and smaller PBMs to survive. In the case of patients, it often translates to less choice and higher costs.
Why is vertical integration happening?
Vertical integration is driven by three key goals: cost management, efficiency and profitability. Companies argue that consolidation will improve drug price negotiations and reduce healthcare costs. By centralizing control, businesses streamline processes such as advance approval and billing management. Additionally, by controlling multiple healthcare, companies can maximize revenue by favoring their own services and products.
These goals sound beneficial, but the promised savings and efficiency rarely reach patients. Instead, they often limit price bulging and access to care.2
How vertical integration affects patients
1. Competition and access to pharmacies
Vertical integration often reduces competition at the expense of independent pharmacies. PBMS, managed by large companies, are usually forced to refund independent pharmacies at unfairly low rates, forcing many to close the door.3 For patients, this means there are fewer personalized pharmacy options. Insurance plans related to vertically integrated PBMs frequently require patients to use their pharmacy or mail-order services, limiting both choice and convenience.2,3
2. Drug pricing
Despite cost management claims, patients often experience higher prices due to PBM practices such as:2:
- Rebates and Discounts: PBM negotiates rebates with pharmaceutical companies, but their savings rarely shrink to patients.
- Formation arrangement: Even if there are cheaper or more effective alternatives, the best rebates are prioritized.
- Expand pricing: PBMS will reimburse the pharmacy and charge the insurance company for the drug rather than pocketing the difference. This is a practice that increases overall healthcare costs.
For example, a 2022 report by the National Community Pharmacists Association found that price alone costs more than $900 million a year to Medicaid programs.4
3. Patient access and delay
Patients often have limited access to drugs due to vertical integration. Some patients are forced to use mail order pharmacies, which can result in delays, higher costs, or incorrect shipments. Patients need to travel far and resolve for less convenient pharmacy options. Prior permitting requirements and formulaic restrictions can prevent timely treatment and worsen health outcomes.3
Critics of vertical integration argue that vertical integration leads to reduced competition, lack of transparency and conflicts of interest. Independent pharmacies are often approaching due to unfair reimbursement rates, and opaque pricing makes it difficult for patients to understand their costs, and PBMSs make more profitable than patient care by prioritizing their pharmacies and high-leubic acid medications.
However, supporters argue that vertical integration will allow consolidated companies to secure significant discounts on drugs, resulting in better price negotiations. They also argue that integrated systems reduce redundancy and simplify processes such as advance approval. Finally, supporters say centralized management improves care delivery by coordinating services.
Supporters highlight potential cost savings, but critics emphasize how these benefits do not reach the patients who are most struggling.
Reform and Advocacy Opportunities
Promoting transparency: Laws such as the PBM Transparency Act may require PBMs to disclose pricing structures, rebate practices, and conflicts of interest.5 Transparency will enable patients and policymakers to demand fairer practices.
Empowering the patient: We encourage you to seek clarity from your insurance company or PBM regarding your pharmacy coverage and pharmacy options. You can also use tools like GoodRx to find the lowest drug prices, file complaints with the state insurance commissioner or the Federal Trade Commission, and support organizations fighting for PBM reform and fair competition.
Changes to Demand Policy: Patients and pharmacists alike can request regular PBMs from policymakers to protect patients and promote competition. This can be done by implementing fair reimbursement rates for independent pharmacies, banning practices in favour of vertically integrated pharmacies, and supporting alternative care models such as value-based care.
About the Author
Muhammad Cheema of MPBA, Pharmd received his MPBA degree from the University of Pittsburgh. He works in high-traffic community pharmacy settings, managed care and specialized pharmacies, showing him operational excellence and commitment to patient care. His diverse background positions him as a leading leader in the pharmacy and healthcare industry.
Conclusion
Vertical integration of PBMS is restructuring healthcare, but it’s not always good. Companies such as CVS Health, OptumRx and Express Script control the market and prioritize profits over patients. The results are clear. Increased costs, fewer access, and fewer options for millions of Americans.
It’s time to demand a more fairer, more transparent system. By advocating for reform, supporting transparency, and advocating for PBMS accountability, we can work towards a healthcare system that truly serves the needs of our patients.
