The rise and consequences of PBM vertical integration

Pharmacy benefit managers (PBMs) have come under a lot of pressure lately. They’re accused of raising drug costs and pushing independent pharmacies toward closure. But how did they get so much power?

PBMs negotiate drug prices on behalf of health plans and pharmaceutical manufacturers. They create formularies, which list which drugs health plans cover and reimburse.

Decades ago, PBMs were independent operators, but now, the biggest ones are vertically integrated with healthcare conglomerates, giving these companies major control over drug prices and reimbursement.

The three largest PBMs are all owned by health insurance companies. OptumRx is owned by UnitedHealth Group, Express Scripts is owned by Cigna, and CVS Caremark is owned by CVS Health, which includes Aetna.

The Federal Trade Commission (FTC) reported in 2024 that UnitedHealth Group, CVS Health, the Cigna Group, and Humana—four of the largest healthcare conglomerates in the US—control 22% of all health expenditures.

“There’s very little transparency when there is all this vertical integration,” Lovisa Gustafsson, VP of making healthcare affordable at healthcare research foundation the Commonwealth Fund, said. “We can’t see all of the behaviors behind the scenes and really understand where money is being made.”

The Pharmaceutical Care Management Association, a trade group that represents PBMs, did not respond to a request for comment.

What is vertical integration?

Vertical integration is a business strategy where a company buys up several areas of the supply chain. Think of a furniture builder that owns raw materials sources, manufacturing facilities, and stores.

In healthcare, this means that a single company may control the entire lifecycle of a patient’s prescription. Its providers can prescribe a patient a drug. Its PBM can negotiate drug prices for its health plans, and its retail pharmacies can then dispense the drugs.

This creates an incentive for PBMs to direct patients to medications that are most financially beneficial for their affiliated pharmacies, according to the FTC report.

“The dominant PBMs can often exercise significant control over which drugs are available, at what price, and which pharmacies patients can use to access their prescribed medications,” the report reads.

The FTC reported that this business practice resulted in the three largest PBMs profiting by $1.6 billion in excess revenue on two cancer medications between 2020 through part of 2022.

“It could be that it’s more profitable for them to have a high-cost drug on a formulary with a big rebate than it is to have a lower-cost alternative, and so you may see that, perhaps, a biosimilar is not being covered,” Gustafsson added.

Why is PBM vertical integration a challenge in healthcare?

Back in 1995, the General Accounting Office reported that there were over 40 PBMs in operation.

Back then, the government found that the five biggest PBMs at the time—PCS Health Systems, Medco, Value Rx, DPS, and Caremark International Inc.’s Prescription Service Division—managed benefits for more than 80% of insured people.

Since then, consolidation has increased. In 2024, the FTC estimated that the Big 3—OptumRx, Express Scripts, and CVS Caremark—managed 79% of prescription drug claims for 270 million people. The Big 6 PMBs, which include the Big 3 plus Humana Pharmacy Solutions, Prime Therapeutics, and MedImpact Healthcare Systems, manage 94% of prescription drug claims in the US, according to the FTC.

PBMs “have unchecked power to be able to control those formularies, and it all comes down to being part of these vertically integrated conglomerates,” Rajiv Leventhal, senior analyst in digital health at research firm Emarketer, said.

Independent pharmacies are disadvantaged by this structure. Vertically integrated PBMs can nudge patients toward their own affiliated businesses by providing high reimbursement rates at, say, a CVS and not a family-owned local store.

This puts immense pressure on smaller pharmacies. A 2024 study reported that 1 in 3 retail pharmacies closed between 2010 and 2021.

What’s being done to address PBM vertical integration?

In 2022, the FTC asked the six largest PBMs to show data and documents that would provide more insight into their financial practices, though the Commission has reported some companies haven’t fully complied.

The Commission also filed antitrust lawsuits against the Big 3, accusing them of inflating insulin costs (which have since settled).

PBM oversight is a bipartisan issue. Congressional bills including the Consolidated Appropriations Act of 2026 and the Break Up Big Medicine Act seek to break up PBM influence over drug prices.

States are also taking action. Tennessee and Arkansas passed laws to prevent companies from owning both a PBM and a retail pharmacy in their states. Both have faced lawsuits and backlash from PBMs.