The major insurers’ ownership of the chain between a patient and their prescribed drug doesn’t end with PBMs. Insurance companies sometimes own the pharmacy that supplies the medicine — whether that’s a chain pharmacy like CVS that you run to for a statin refill, or a so-called “specialty” pharmacy that dispenses certain expensive meds that get delivered by mail. Most major insurers also own physician practices and other healthcare providers. The web site DrugChannels keeps tabs on this vertical integration, a business strategy where a company expands its operations to control different stages of the production and distribution. It is illustrated in this chart:
Let’s walk through an example from this chart of why vertical integration is problematic. Take a look at UnitedHealth. Its subsidiary, Optum, has expanded into multiple facets of healthcare services. OptumRx, its pharmacy benefit manager (PBM) arm, negotiates drug prices and manages prescription benefits, while OptumCare owns and operates medical practices and urgent care centers. OptumInsight focuses on healthcare data analytics, enabling UnitedHealth to leverage data for better care coordination and cost management. Optum Specialty Pharmacy provides specialized medication services for complex conditions, ensuring patients receive necessary support for managing their therapies. Additionally, UnitedHealth’s acquisition of Emisar, a healthcare consulting firm, adds another layer to its integrated approach by offering strategic guidance on healthcare management and operations.
This level of vertical integration raises significant concerns. By owning PBMs, specialty pharmacies, and healthcare providers, UnitedHealth can consolidate its control over the healthcare supply chain, reducing competition which can lead to higher prices for patients. Moreover, managing such a vast and integrated organization requires significant coordination and alignment of goals across different sectors, making it complex to ensure that the insurance, provider, and PBM arms work together effectively without compromising patient care.
Vertical integration also attracts regulatory scrutiny due to the potential for anti-competitive practices. Check out this [OPTIONAL] article from Healthcare Uncovered to learn about how United became the behemoth it is today — and why that is a terrible thing for patients.
All of this complexity is a problem for patients because, while insurance plans and PBMs are effective at negotiating rebates and fees from drug companies, they also use the complexity to extract the maximum out-of-pocket (OOP) costs from patients, even when the true cost of the medicines is well below a patient’s deductible. And in their eagerness to get as much money as possible from desperate patients, insurance plans leave a trail of untreated patients in their wake. These patients and people who hear their stories get angry. And some of that anger ends up directed at drug companies, whose high list prices are perceived as the root cause of unaffordability, when it is actually a matter of insurance design and OOP costs.
If we were to outlaw OOP costs, this vertical integration and opaque complexity would still cause some problems, but at a much lower magnitude spread across everyone’s premiums.