Tuesday, May 07, 2024

Mapping the Vertical Integration of Insurers, PBMs, Specialty Pharmacies, and Providers: A May 2024 Update

It's time for Drug Channels’ annual update of vertical integration among insurers, PBMs, specialty pharmacies, and providers within U.S. drug channels.

Below you’ll find our latest illustration of the major vertical business relationships among the largest companies along with some of the notable activity since our previous update. These organizations continue to exert greater control over patient access, sites of care/dispensing, and pricing, although some have started to unwind their vertical efforts.

The companies face renewed scrutiny from the Federal Trade Commission, the Office of Inspector General, and members of Congress. But until anyone takes action, we will continue to live with the golden rule of the drug channel: Whoever has the gold gets to make the rules.


The chart below provides our latest illustration of the major vertical business relationships among the largest companies in the U.S. healthcare system. The companies are listed alphabetically by the name of the insurer.

[Click to Enlarge]

A slightly earlier version of this chart appears as Exhibit 254 in our 2024 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers. In that report’s Section 12.3.1., we review the transactions that created these companies, explain some of the financial incentives for vertical integration, and highlight how these organizations are generating synergy from their interconnected relationships.

Note that the businesses within these vertically integrated organizations have become significant customers of other jointly owned businesses within the same organization. For instance, 62% of Optum Rx’s revenues come from other affiliated businesses within UnitedHealthcare Group. For CVS Health in 2023, over $49 billion of the combined $273 billion revenues at its pharmacy and healthcare services segments reflected transactions between the two segments.

The footnotes in the exhibit above outline some of the notable recent developments. Here are a few highlights:
  • In late 2022, Prime Therapeutics completed its acquisition of Magellan Rx from Centene.
  • In 2023, Cigna’s Evernorth business made a significant minority investment in CarepathRx Health System Solutions, which assists hospitals and health systems with specialty pharmacy operations.
  • During 2023, CVS Health completed two significant acquisitions—Signify Health and Oak Street Health—and created CVS Healthspire, a new health services reporting segment.
  • UnitedHealth Group completed its acquisition of home health provider LHC Group and has continued to acquire numerous physician practices.
  • In 2022, Cigna invested $2.7 billion for an estimated 14% ownership stake in VillageMD. (Walgreens Boots Alliance is the majority shareholder of VillageMD.) In 2024, Cigna recorded a $1.8 billion loss on its investment.
  • In 2023, Elevance Health completed its acquisition of BioPlus Specialty Pharmacy. In 2024, Elevance Health launched CarelonRx Pharmacy, a digital and home delivery pharmacy, and acquired Paragon Healthcare, which operates specialty pharmacies and infusion centers, and Kroger Specialty Pharmacy. It also recently announced a primary care partnership with investment firm Clayton, Dubilier & Rice.
  • In January 2024, Centene’s PBM business transitioned from CVS Health to Express Scripts, which began a five-year agreement to manage pharmacy benefits for about 20 million Centene beneficiaries.
  • In February 2024, MedImpact Healthcare Systems, the largest privately held PBM, completed its purchase of Rite Aid’s struggling Elixir Solutions PBM business.
We may soon have much more insight into these businesses. Lina Khan, chair of the Federal Trade Commission, has hinted that early results of the agency’s PBM study may be released this summer. In addition, the Office of Inspector General has announced intriguing new studies on the effects of vertical integration on Medicare part D and an audit of vertically integrated Medicare Part D sponsors.

For more DCI background on these companies’ market positions, check out three of our popular market analyses:

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