Mapping the Vertical Integration of Insurers, PBMs, Specialty Pharmacies, and Providers: DCI’s 2025 Update and Competitive Outlook

It's time for Drug Channels’ annual update of vertical integration among insurers, PBMs, specialty pharmacies, and healthcare services within U.S. drug channels. As you can see below, we have revised, renovated, and refurbished our infamous illustration of the major vertical business relationships among the largest companies.

Proponents of these vertical integration arrangements argue that they create opportunities to mine healthcare costs. However, these organizations remain highly controversial, due to the potential for anti-competitive behavior. We summarize some of the key issues below.

While some major companies have narrowed their focus or unwound previous integration efforts, ongoing consolidation and selective deconsolidation will continue to reshape the healthcare biome by trying to build something epic, block by block.

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TIME TO GET BUILDING

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]

This chart appears as Exhibit 261 in DCI’s new 2025 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers.

Use your pickaxe to dig into Section 12.3.1. of the report. There, 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. Throughout the 2025 report, we analyze the various businesses within these organizations:

• Pharmacy benefit managers (Section 5.2.2.)

• Retail pharmacies (Section 2.3.3.)

• Specialty pharmacies (Section 3.3.2.)

• Group purchasing organizations (Section 5.2.4.)

• Private label products (Section 5.2.5.)

• Healthcare providers (Section 1.4.1.)

LET'S GO...CRAFT SOME HEALTHCARE

Proponents of vertical integration arrangements argue that they create opportunities to lower healthcare costs.

For example, owning a PBM and pharmacies could allow a health plan to access data about net prices of drugs and beneficiaries’ behaviors that would not generally be available from external vendors. Since patients who take expensive specialty drugs tend to have high overall medical expenses, medical-pharmacy integration and provider services can be a crucial component of their offerings.

This integration provides insurers with greater control over downstream pharmacy and provider assets, enabling more effective implementation of formulary and site-of-care strategies. There are limited data to document such cost savings from vertical integration.

In support of this reasoning, OptumHealth expects to manage 5.4 million patients in fully capitated, risk-bearing care arrangements during 2025, an increase from 4.7 million patients in 2024. Employed physicians and in-house clinics could make it easier for organizations to act as risk-bearing healthcare providers. Ownership of clinics can enable much greater control over provider-administered drugs—including opportunities to tighten utilization management, negotiate greater rebates from manufacturers, and shift patients to lower cost sites of care.

IS THE CAKE A LIE?

However, such extensive vertical integration also creates the potential for anticompetitive behavior that raises profits. Examples could include:

• Raising prices of PBM services for external rivals

• Paying PBM-owned pharmacies at higher rates than external pharmacies

• Raising transfer prices between parts of the organization to disguise the true profitability of a subsidiary

• Establishing proprietary acquisition cost benchmarks to enable higher reimbursement from plan sponsors.

Such practices can add quasi-connectivity to these corporate structures. For instance, the businesses within these vertically integrated organizations have become significant customers of other jointly owned businesses within the same organization. For 2024, 60% of Optum Rx’s revenues come from other affiliated businesses within UnitedHealthcare Group. For CVS Health in 2024, $53 billion of the combined $263 billion revenues at its pharmacy and PBM business segments reflected transactions between the two segments.

What's more, the Federal Trade Commission’s (FTC) investigation into the three largest PBMs revealed differences between reimbursement to PBM-affiliated pharmacies compared with unaffiliate pharmacies. The FTC found that affiliated pharmacies were almost always reimbursed at higher rates than unaffiliated ones—with disparities especially pronounced in commercial plans versus Medicare Part D. Specialty generic drugs with the most significant markups were primarily dispensed by PBM-affiliated pharmacies.

Intercompany transactions between insurers and providers also create risks. Healthcare services are not restricted by risk-based capital requirements or profitability regulations that insurance companies face, due to state regulations and such federal policies as the Affordable Care Act’s medical loss ratio (MLR) requirements. Consequently, integration into pharmacy and provider services can allow the companies to retain a greater share of total healthcare spending. Put another way, a healthcare service that counts as a cost for the MLR computation could represent revenue to a related business.

MOBS AHEAD

As these large organizations become more like End Cities, their inner workings grow more difficult to mine for transparency. Drug Channels will keep tracking the strategic moves that reshape the healthcare system’s economics.

Stay tuned for deeper dives in upcoming posts—and don’t forget to explore the tunnels in our full analysis in DCI’s 2025 report. Even the strongest fortress needs a watchtower to spot the next creeper.

P.S. If today’s post felt unusually blocky, you can thank/blame Minecraft.