Vertical Integration saves money. And CVS and its competitors use that to line their pockets, not provide healthcare

I have several times referred to the concept of “vertical integration” in the health care/health insurance/pharmaceutical industry, most recently on March 28, 2026, Everything is becoming more unaffordable, but health care may lead this list!. These posts often reference the posts of former insurance executive-turned-whistleblower Wendell Potter on his substack “Health Care Un-Covered”, including “With CVS’s Vertical Empire Under Threat in Tennessee, the Company Threatens to Leave”, which discusses the fact that CVS, most widely known as large pharmacy chain, also owns the Pharmaceutical Benefit Manager (PBM) Caremark. PBMs are add-on middlemen that negotiate better rates for insurance companies with pharmacies. CVS owns pharmacies, a lot of them. This may seem like conflict of interest (COI), but that is apparently a quaintly outdated concept in this era of mega-corporations.

Actually, the PBM-pharmacy COI is only a part of the CVS megalopoly. They also own one of the nation’s largest health insurers, Aetna, so they have both ends and the middleman! And, to round it out, they own a large primary care provider group (Oak St. Health) and long-term care company (Signify Health) and urgent care provider (Minute Clinic). Just read the AI summary if you Google “Companies CVS owns”, but if you want it, the comprehensive list by the SEC is here. This is what vertical integration is; you buy from yourself, and sell to yourself, set the prices (usually in a way that minimizes tax liability), and make a lot of money. The structure is not hard to understand, but it maximizes the conflict of interest. (For a discussion of why this is conflict of interest and not “potential” conflict of interest, see this blog post from August 20 2010, The AAFP, Coca-Cola, and Ethics: Serving the public interest? . In brief, COI exists when a decider has interests in both parties, and a decision one way would help their other interest. The conflict exists whatever the decision is actually made. A judge hearing a case in which one party is a company in which they own a great deal of stock has a conflict of interest; it doesn’t require waiting to see how they rule.)

To be clear, CVS is far from the only major player in the “healthcare industry” (quotes on purpose, and emphasis on “industry”) that is vertically integrated. The largest health insurance company in the US, UnitedHealth, also owns a PBM, (OptumRx), a primary care group (Optum) and a whole host of other companies (SEC listing here). So does CIGNA (their PBM is ExpressScripts). So, there is competition within the “healthcare” sector; it is an oligopoly (few companies) not a complete monopoly. But oligopolies don’t really compete in the way classic capitalist theory would have it; rather, they tend to set prices and divide up the market so they all do well (although they would prefer the other companies to go out of business, the existence of a few tends to forestall any governmental intervention that might occur with a true monopoly).

Is vertical integration bad? A major argument in favor of it is that it can, and often does, increase efficiency. If you own everything, from insurer to care delivery system to pharmacy, and all the other players in between, you can minimize the obstruction from a piece that is owned by someone else. Things can move more smoothly. Costs can be reduced significantly. These are the arguments most commonly put forward, to the public, by vertically integrated corporations that control a huge market sector, oligopolies as well as monopolies.

It is also the argument put forward to stockholders, particularly large stockholders like private equity firms. Especially the “reduced costs” part. This is very attractive to stockholders. It could also be attractive to those ostensibly served by the “healthcare” industry, those people needing – healthcare. After all, they are heavily burdened by the cost of their healthcare, which constantly goes up. This includes the portion that they are responsible for in the form of premiums, deductibles, copayments and “cost sharing” (meaning insurance only pays a part of the bill and you’re on the hook for the rest). Another recent Potter piece, The Bill That Never Ends, summarizes the situation and addresses the fact that deductibles reset every year, so people are constantly behind the 8-ball and can never pay it off. It reminds me of the compound interest that keeps former students in debt for decades even though they may have paid off far more than the original loan! It is an example of how our laws are set up to benefit large businesses, not regular people.

Which, of course, brings us to the issue of efficiency, and lower costs. To what use is this efficiency, this lower cost, put? Cui bono? There is an argument that such efficiency could decrease the overall cost of health care to the nation, as well as to the individuals who require care, which has actually been promulgated for decades by academics and others. There are fewer of them these days, as it has been demonstrated repeatedly that such an idea is frightfully naïve. Yes, money is saved, but it is all used for greater salaries and bonuses for management and greater profits for shareholders. If it were being used to lower premiums, decrease deductibles, lower the cost of drugs, or increase the availability and affordability of health care, we would have seen it. We have not. Too bad.

A weak, but possibly useful, analogy is to a family. The adults (usually) generate the income, and certainly choose how to spend it. This can be mainly to provide food and housing, education for children, health care (to the extent that it is available) and other benefits for the family. Or it could be spent on relatively transient pleasure for the adults – alcohol, tobacco and other drugs, gambling, etc. Most of us feel that the first is better, a “good” thing, and the second is not good, is selfish, and even reprehensible. Apparently, such moral judgement is not applied to corporations, certainly not, in this case, those involved in “healthcare”.

I keep putting “healthcare” in quotes when applied to the industry. This is because it is not an industry that is at any significant level dedicated to providing healthcare to our people; when it does, this is a byproduct. It is an industry that is dedicated to extracting the most dollars possible from the rest of the economy and putting them in their own pockets. While this is, of course, the goal of most of our industries, it seems worse that “healthcare”, perhaps because of the veneer that come from ostensibly doing something good, seems to be particularly effective at it.

A single payer health insurance system only addresses coverage. A national health service, such as in Britain, is a more comprehensive manifestation of vertical integration. It doesn’t always work well, mostly because it is starved of funds as a political act to demonstrate that the public sector does not run efficiently or effectively, thus an argument to privatize it, which has to some degree been done in the UK. And, like almost all efforts to privatize formerly public services, the cost goes way up, the service does not improve or gets worse, and the money that could have been used to benefit the people is lining the pockets of ganevem. This does not seem like a good use of benefits of efficiency and decreased cost arising from vertical integration to me.

Maybe we can do something about it! Imagine if the phrase “healthcare” industry didn’t have to be in quotes!

 

For more (or maybe just more terse):

“The health insurance company gets a cut, the pharmacy benefit manager gets a cut, the drug manufacturer gets a cut, and the patient…gets screwed!” Rep Alexandria Ocasio-Cortez, interviewing CVSHealth CEO David Joyner at a congressional hearing.

Also “Federal rules require the insurer to spend a certain percent on care. But, when you own the care, when the insurer owns the pharmacy, owns the PBM, owns the drug manufacturer, you also own the health care cost.”

The whole clip is not that long and makes the point about vertical integration very clear, including 1000% markups on some drugs! Thank you, AOC!  If you have time to do nothing else, watch this video!

https://ocasio-cortez.house.gov/media/press-releases/icymi-ocasio-cortez-calls-out-cvs-healths-corporate-strategy-monopolize 

COVID-19 is hard and horrible and exposes existing gross inequities in our society. But don't drink the snake oil

The COVID-19 global pandemic is hard. It is just a little bit hard for those of us who can work from home or are retired, and live in lowish-incidence areas with a high outdoors/people ratio who can go for walks, and just have to worry about not going to the gym or our hair getting shaggy, or whether to try to go to the store to get things to cook or get takeout, or being able to see our children and grandchildren in faraway places. It is harder for those who live in more congested and affected areas, and really hard for those who have lost friends or family to the disease, or have had it themselves.

I read the NY Times, published at the epicenter of the US pandemic, and am torn up by the suffering of so many there. It is really hard if you are not any of the things I mentioned in the first sentence; if you have a very low-paying job and no savings and either cannot work and get paid or have to go to work because you are essential, despite the fact that no one ever told you that before – or certainly paid you as if you were. It is showing us not only which workers are essential even if very low paid, it is showing us which are absolutely not even though highly paid, like the manipulators of finance in the legal gambling casinos of Wall St. An article by a NYC subway conductor in the NY Times says “we are not essential; we are sacrificial”. It is really hard if you have pre-existing conditions such as diabetes, obesity, chronic lung disease, or all of them. Nursing home patients were the initial victims and remain the hardest hit.

It is really, really hard if all these things come together. If you are a low-wage health worker in New York, or a farmworker (documented or not) picking vegetables and fruit and living in dangerous conditions at the best of times, or a Native American on a reservation where services are meager and the virus is spreading. The two counties of Arizona including the Navajo reservation have just about 2.5% of the state’s population and 15% of its COVID-19 cases. If you are a racial or ethnic minority, whether Asian and being blamed by the President for the virus and harassed and worse by people on the streets, or Black or Latinx, and having your usual differential level of risk and harassment exacerbated, not mitigated, by the virus.

The virus has not affected countries across the world, or parts of countries, or communities equally, but the pandemic is far from over. The rates of infection are not fading; the NY Times coverage frankly says ‘The reality of the coronavirus in the U.S. is an unrelenting crush of cases and deaths.’

More than a month has passed since there was a day with fewer than 1,000 deaths from the virus. Almost every day, at least 25,000 new cases are identified, meaning that the total in the United States — which has the highest number of known cases in the world with more than a million — is expanding by 2 to 4 percent daily.

Rural towns that one month ago were unscathed are suddenly hot spots. It is rampaging through nursing homes, meatpacking plants and prisons, killing the medically vulnerable and the poor, and new outbreaks keep emerging, an ominous harbinger of what a full reopening of the economy could bring.

As New York, which has the largest burden of cases, sees plateauing and even decrease it brings down the national rate, but if NY is excluded, the rate is continuing to rise, moving more and more into the rural states and counties who have seen the least, and, despite their frequently suffering from poverty and drug addiction and unemployment, have sometimes deluded themselves into thinking this was a big-city problem.

Both the Trump administration and independent (e.g., University of Washington) sources estimate that the deaths from COVID-19 in the US will be at least double what has been previously predicted, up to 120,000. This is not coincidentally associated with the relaxation of public-health motivated controls including social distancing mandates, business closures, etc. The states that are taking the “lead” in this regressive movement are mostly in the South and Midwest, have Republican leadership, and are creating a macabre natural experiment to demonstrate how bad public policy can kill.

Despite the morbid, if accurate, predictions that come from his own administration, and that the administration has set federal guidelines for reducing restrictions based on decreasing rates of cases and deaths and increased testing, the President himself has provided a different message. He has overtly lauded the “opening” of states that have not met these criteria, visited a mask factory in Arizona without wearing a mask. and encouraged the shocking, stupid, and dangerous demonstrations by overwhelmingly white, armed men against the appropriate restrictions in states with Democratic governors such as Michigan. These folks may think that they look cool and tough, but in fact what they look like is the yahoos they are. It is impossible for me to look at a photo like this and not imagine what would happen to these demonstrators if their skin were a darker color. It doesn’t take much imagining, and it is an awful reminder of our ongoing racism that they are allowed to do this.

With all of the hard-to-terrible impact of the pandemic, it is also hard to resist the temptation to latch on to hope in the form of new magical miracle treatments, cures, tests, vaccines. It is clearly hard for the President, who enthusiastically touted the wonders of hydroxychloroquine before there was real evidence of whether it was truly beneficial – and the evidence came in overwhelmingly negative. He also, of course, has suggested the benefits of “disinfecting” the body with chemicals or UV light. These would seem as ridiculous as they in fact are, except for the folks who drank fish-tank cleaner because it had chloroquine, or ammonia or bleach, or did Tide-pod enemas. As much as I rue it, there are a large number of Americans who view his pronouncements as gospel, and act on his every suggestion.

In addition, the complexities of the science are hard for most people to understand, and the uncertainties can seem unbearable. What level of antibodies are produced by natural infection? Do they protect against reinfection? If they do, how long will this immunity last? Can their antibody-containing plasma be used to effectively treat other sufferers? We don’t know, and won’t know, until we know. That takes time.

Another recent article in the NY Times, said

Researchers and politicians in China, the United States, Germany, Britain and beyond have latched onto antibodies as a potential solution to the virus and an outlet from containment measures. But that talk, always ahead of the science, has grown more muted in recent weeks. With the research refusing to cooperate, experts in Italy say the promise of antibodies may not be what people have imagined. At least for now.

This needs to become the new mantra for essentially every medical and scientific intervention for the novel coronavirus (officially “SARS-CoV-2”). Our talk can be ahead of the science when we are expressing our hopes and desires, but we cannot allow these hopes and desires to become something we act on until we have real evidence. Too much has already been disappointing, or misstated. “Compassionate” use is sometimes advocated, but we had better be sure that our compassion does not create more problems for people than they already have. Hydroxychloroquine does, certainly drinking disinfectants does; high-dose vitamin C is water-soluble and thus may not – unless you are a stone-former; vitamin D is fat-soluble and you can overdose on it.

A moving article in the NY Times about Rep. Alexandria Ocasio-Cortez, whose district includes the hardest-hit areas of the hardest-hit city (including, with sad irony, the neighborhood of Corona in Queens), addresses the challenges of the community and the sadness it engenders in her, in her constituents, and in us. It says ‘The wreckage in her community has made a darkly eloquent case, she said, for her agenda of universal health care and less income inequity. “This crisis is not really creating new problems,” she said. “It’s pouring gasoline on our existing ones.”

She is correct. We need to move forward not following snake-oil salesmen but resolving to address the structural problems that have made this crisis worse than it had to be.