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 This may seem like conflict of interest (COI), but that is apparently a quaintly outdated concept in this era of mega-corporations.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 

How the left is losing the COVID “war”

Guest post by Edgar Blaustein.  Originally posted at Medium.com

Can the left already be losing the political war regarding the COVID pandemic?

A look at the political impact of the current coronavirus crisis in the United States, the United Kingdom and France, and what it might portend for the left.

Hail to the chief! Pandemic as legitimization

Donald Trump’s, Boris Johnson’s and Emmanuel Macron’s rise to power share key similarities: lack of legitimacy, and, for Trump and Johnson, appeal to nationalist sentiments (MAGA, Brexit). Trump through lies, luck, and electoral math won the Presidency with less than a majority of voters. Johnson won through lies on Brexit (no hard borders, more money for health services). Macron won with less than a quarter of votes in the first electoral round. Nevertheless, the winner takes all systems in all three countries gave the victor complete control of the legislative and executive branches of their respective governments. Though lacking legitimacy, all three wanted to think of themselves, as great war leaders such as Churchill, Roosevelt or De Gaulle.

Unlike the World War II leaders, our modern day chiefs have had the leisure over the last several years to choose their wars. Trump’s initial attempts failed, as he was outmanoeuvred by Xi Jinping and Kim Jong-un. Trump and Pompeo sounded the drums of war with Iran, but Iran, notably through attacks on oil tankers and a Saudi refinery, stopped US escalation.

Johnson’s chosen enemy was the European Union, framed as a faceless foreign oppressor, trying to grind down the plucky English. But “getting Brexit done” ran up against barriers: no hard frontier” between the Ireland and Northern Ireland, and the impossibility of assuring economically vital free trade with Europe without membership in the European Union.

Macron’s struggle was against “recalcitrant” sectors that opposed his vision of the “modernisation” of France, clinging to “outdated” notions such as progressive taxation, unions, worker’s rights, public services, or a public retirement system. Macron had won most battles, but the ceaseless conflict — with the gilets jaunes, trade unions, students — had taken its toll, and at the end of 2019, Macron’s government was visibly suffering from wear and tear.

At the end of 2019, all three leaders were in difficulty. And then came the coronavirus.

The birth of the war against a virus.

German President Frank-Walter Steinmeier said “This pandemic is not a war. It does not pit nations against nations, or soldiers against soldiers. Rather, it is a test of our humanity.”

And yet, the three leaders wound up framing their reaction to a health emergency as a war. But the path that led them to the war paradigm was far from direct. Indeed, in a first phase, all three initially downplayed the risk of the pandemic. In a second phase, they for a short while followed the “herd immunity” strategy, letting the infection run its course. And then in a third phase, all declared war on the coronavirus.

The three leaders hesitated, contradicted themselves, changed discourse, lied about the lack of personnel protective equipment, were contradictory on the subject of tests, all in frantic efforts to avoid assuming responsibility for massive unemployment and tens of thousands of unnecessary deaths. Trump’s “I take no responsibility” will certainly go down in history.

The three tried to frame their failures as responsible action to find balance between the health and economic impacts. As the double health and economic crisis deepened, they pivoted to “communicating”, a difficult task, since several countries — South Korea, Taiwan, New Zealand, Germany, Viet Nam, the Kerala state in India, among others — have demonstrated that rapid effective action on health, combined with a strong safety net for workers, leads to optimal economic as well as health results.

There appears to be no simple left/right divide that explains which countries have been most successful in meeting the crisis. Some rightist or extreme right governments — Poland, Germany, Austria, Australia or Japan — have done better in dealing with COVID, than the Social Democratic governments of Spain or Sweden. It does seem that women leaders, whatever their politics — New Zealand, Taiwan, Germany, Iceland, Finland — do better than men.

The countries that did not act rapidly have had to impose lockdowns, a blunt medieval pandemic control instrument that dates back to the time when humanity knew very little about the science of disease. Lockdowns are in no way progressive, although progressives must respect them when there is no better alternative, as in the case of our 3 countries.

The combined health and economic crisis in these three countries represents a severe threat to the legitimacy of their leaders. The depth of the crisis and the loss of legitimacy of the governments has led many leftists to imagine that we are on the brink of radical change, even the end of capitalism. The remainder of this article will argue that this is not the case, and that whatever our long term goals are, in the short term we should focus on more immediate achievable victories.

COVID is worse for the left than the subprime crash.

The 2007–2010 financial crisis was triggered by the collapse of Bear Stearns and Lehman Brothers, in the very heart of the capitalist financial system. The “shadow bankers”, who engineered the 1999 repeal of the Glass-Steagall Act walked away with hundreds of billions in profits made during the decade of the expanding bubble, while the general public paid for the crisis when the bubble burst. At the time of the subprime crisis, many people (author included) thought that the bankruptcy of the capitalist system had been made evident to the majority, and that the way was open for radical change. The crisis gave rise to the occupy movements, their European variants such as “indignados”, and in part to the Arab Spring and “Nuit debout”.

The actual results over the last decade were the opposite of radical progressive change. Economic inequality increased, the hold of bankers on public policy expanded, the influence of the right wing press increased. Authoritarian regimes have come to power over half the globe. Democracy, trade unions, free press … all declined. As Naomi Klein has argued (“The Shock Doctrine: The Rise of Disaster Capitalism”), capitalists are generally better equipped than progressive forces to take advantage of a major shock. Furthermore, the specific nature of the COVID crisis makes a radical change even less likely than was the case in 2008.

• Capitalism did not cause COVID. Indeed, the modern capitalist system has contributed to the coronavirus pandemic, through globalisation-driven increases in travel, through accelerated exploitation of natural resources that increase interactions between wild animal populations and human activity, and through the neo-liberal sabotage of public health systems. Nevertheless, it is false, and harmful for progressive forces, to argue that capitalism caused COVID. Viruses, animal to human transmission, and long range trade all existed long before the emergence of capitalism.
• COVID weakens intergenerational solidarity. The lockdowns strike most heavily on the finances of the youngest, whose professional and economic situation is often fragile. In contrast, older people, a majority of whom have a stable retirement income, suffer most from the health risk of the double crisis. This divide in material interests, coupled with the lack of close links between generations, has led to a political divide.
• Weaken class solidarity. COVID divides workers by race, by class, and by type of work. The most obvious cleavage is between white collar workers who can telecommute, and essential blue collar workers who are exposed to sickness. Furthermore, since many of the essential workers are from minorities, this distinction is also of a racial nature: Black people are 4 times more likely to die than the general population in the UK, and 3 times more likely in the US.
• Increase oppression of women. In normal times, many two income families “outsource” the principal domestic tasks: childcare, cooking, cleaning. This has ended under lockdown. Furthermore, with schools closed, home schooling is a new domestic task. It is no surprise that women have assumed a major share of this increased workload.
• Physical distancing degrades the tissue of society. Staying 1 or 2 meters away from other people is a physical measure to prevent the spread of the corona virus. Breaking down social links is an unfortunate, and perhaps partially unavoidable, consequence. This frazzling of the tissue of society is harmful for progressives, since our main tools for collective action — demonstrations, public meetings, civil disobedience, strikes — are difficult or impossible for the moment. The rise of telecommuting will most likely make it even harder for unions to penetrate into tech related industries. Naomi Klein, in “How big tech plans to profit from the pandemic”, shows how the “tech bros” plans to make use of the crisis.
• Justify the permanent surveillance State. “Test, trace, isolate”, while essential to fight COVID, nevertheless involve public intervention into the private lives of citizens. Successful programs in China, South Korea, Taiwan and Hong Kong all involved massive privacy intrusions. China, in particular, has woven the COVID tools into already existing, widespread programmes of surveillance of citizens lives. We can expect that these surveillance tools and powers will be used against progressives.
• War on truth. Rightists have made a scale change in their war on truth. The chloroquine controversy, built on the basis of nothing, is just one example. Rightists no longer attempt to counter the truth, they simply bury it under a constantly growing pile of rumours, factoids and lies. Hannah Arendt, in “Lying in Politics: Reflections on The Pentagon Papers”, explains that the fog of lies aims to make both thinking and action impossible.
• Democracy, pollution, climate. It is clear that different strands of progressive movements will have lost ground and lost momentum during the pandemic. For instance, President Donald Trump signed an executive order to ease up on businesses that make so called “good-faith” attempts to follow regulations during the coronavirus pandemic. This text will not detail the many other cases of using the crisis to weaken democracy, and to sabotage regulations on the environment.

It thus appears that the specific nature of the COVID crisis will leave the left in a weaker position than was the case after the subprime crisis.

We are not in a pre-revolutionary period

Six months ago, the UK, France and the United States were led by men who, even if they were stumbling, were strongly supported by at least a substantial minority that was enthused by their nationalistic, racist, xenophobic fear mongering. Certainly — as shown by Bernie Sanders, Jeremy Corbyn or Jean-Luc Mélanchon — there were also substantial minorities of mostly young people that give enthusiastic support to reformist candidates critical of capitalism. Nevertheless, the three radical reformists have all lost elections to more conservative politicians: Sanders lost to Biden, Corbyn to Johnson and then Keir Starmer, and Mélanchon to Macron and Le Pen. From these results, we conclude that the support for substantial reforms stems from perhaps 20% of the population, far from the overwhelming large majority that could be the basis for a mass movement for radical, post capitalist change.

The COVID crisis paradoxically weakened the political support for the three Presidents, while at the same time — for reasons outlined above — weakening the tactical capacity for action by the anti-capitalist left. In this context, the killing of George Floyd and the BLM and related movements swept across all three countries. From the point of view of the author, the BLM movements are radical in character, but reformist in their demands, mostly seeking limited reforms of a democratic nature: the right for people of color to live without fear of being harassed, beaten or killed by police. The achievements of the ’60s civil rights movement shows that this and related BLM demands are hugely important, and nevertheless achievable within the current political and economic system.

Since the end of decolonisation and the wars in South East Asia almost half a century ago, the left, with the exception of victories on women’s and LGBTQ rights, has lost more struggles than it has won. Today, over half of our planet’s inhabitants live in countries controlled by different types of authoritarian, xenophobic and racist regimes.

The left desperately needs short term victories to reverse the drift towards authoritarianism. While the current situation is not in general favourable for progressives, the specific nature of the COVID crisis in the three countries could lead to victories on specific objectives, such as the following.

• Rebuild public health systems, and public hospitals.
• Universal health care. Millions of Americans lost their health care when they lost their jobs. The spread of the virus in poor communities shows that health care must include undocumented workers and families.
• Vastly increase international cooperation on preventive health issues. We cannot avoid a future pandemic unless all countries, even the poorest, have the capacity to rapidly identify and isolate new diseases. We need a strengthened WHO. Even the most closed minded of capitalists can understand that spending a few tens of billions per year to build up world health systems would cost much less than the next pandemic.
• Increase protection of workers in times of unemployment, both through financial support, and effective retraining to allow workers to adjust to inevitable economic change. Again, a portion of capitalists would support such action.

The BLM movements show support exists for another category of actions, focusing on policing, and more broadly on systemic racism. Two types of measures should be within our reach:

• Measures to limit police violence in poor communities, such as always-on body cams, new rules for use of firearms, end of choke holds, effective surveillance of deaths of people in police custody, some kind of control on abusive stop and frisk, or transferring some police functions to unarmed civilians. These measures broadly correspond to the slogan “defund police”.
• Measures to reduce discrimination against minorities in employment and in the media. The actions of several large enterprises (for instance in the Facebook boycott) show that large parts of the capitalist class will support some measures.

Three other measures might be within reach.

• a guaranteed of a job or of a basic income. This would be cheaper than the current hodgepodge of measures, and would be a more effective countercyclical Keynesian economic shock absorber. Unfortunately, opposition might come as much from some workers as from capitalists.
• deepening of democracy, or at the least limiting of corruption.
• perhaps a more progressive tax system. Possibly a one time special COVID wealth tax on multi-billionaires, to repay the public borrowing during COVID. Spain may create such a a wealth tax. Perhaps some kind of reparations for slavery.

We should use the opportunity of the weakness of our rulers to fight for significant and achievable short term goals. We need victories to strengthen progressive movements, to improve our capacity to win future battles. We must at the same time keep in mind our long term goals, and use the experience we gain in short term struggles to develop common ideas on our vision for the future, our strategies, our alliances, our tools and modes of action.

This text benefited from the generous help of Robert van Buskirk and Jérôme Santolini, who kindly contributed, even though they disagree with major portions of the text.