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 This may seem like conflict of interest (COI), but that is apparently a quaintly outdated concept in this era of mega-corporations.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

Medicare re-enrollment: Time to consider being dissatisfied with a new plan!

It is Medicare re-enrollment season again. It began Oct 15 and runs through the end of the year. This is when, if you are dissatisfied with the Medicare plan that you are in, you can choose a new plan with which to be dissatisfied. I know this, if for no other reason, by the large number of pieces of junk mail telling me of the joy I will have if I enroll in this-or-that Medicare Advantage (MA) plan, not to mention the commercials blanketing television programs. I almost only watch live TV for sports, so I am seeing these on sports shows; I don’t know what it means that sports show ads target seniors. Maybe it’s just that ads on all shows target seniors; it is presumed that we are sitting around doing nothing but watching television so are an audience not only for Medicare Advantage but all kinds of “health” ads, ranging from those for incredibly expensive recombinant-DNA drugs (anything ending in “ab”, for starters) for uncommon conditions to the touting of ineffective (and possibly dangerous) nostrums. At least we don’t see as many ads for mobility scooters “at no cost to you” (albeit to the taxpayers) since some of the vendors went to prison. Unless they are soon to be pardoned, not an impossibility.

There is only one form of real Medicare, “Traditional Medicare” or TM. This is what you paid those Medicare taxes for that were recorded on all your paychecks, to fund the Medicare Trust Fund. Well, at least for Medicare Part A, which covers inpatient care and is what is covered by the Medicare Trust Fund. Medicare Part B, covering outpatient care (including outpatient procedures) is funded by general taxes plus monthly payments from recipients that are graduated by income (based upon the previous year’s tax form, so for the coming year, 2026, based on your last filed return which was for 2024). The base payment this year is $185/month, although subsidies may be available for low-income people. But while TM (unlike MA) does cover you for all Medicare-approved treatment, and it, not the hospital, sets the charge, it does not cover all of what it permits the hospital to charge you. For inpatient care, in particular, it will only pay 80% of whatever it has approved as what a hospital can charge. That is, if Medicare has approved a charge of $1000 for procedure X, it will only pay the hospital $800, and you are on the hook for the rest. So (if you can afford it) you should buy a Medicare Supplement (Medigap) policy to cover that. There are several types, but at least they are standardized benefit packages (labeled by letters A-N, except E, I, and J; these letters not to be confused with the Medicare Parts A, B, C, D). In addition, you are required to have a drug plan (Medicare Part D), which is an additional expense.

Besides being confusing, that is a lot of expense for TM: monthly payments for Part B, Part D, and your Medigap. On top of that it doesn’t cover all the things you may need or want, like vision correction (glasses; it does cover treatment of eye diseases and surgery), or hearing aids. That facilitates the marketing of Medicare Advantage (officially Medicare Part C), as intended: one easy monthly payment (which, depending upon the MA plan, may be completely covered by Medicare without out-of-pocket payments from you) covers it all – inpatient, outpatient, drugs, and glasses, hearing aids and even gym memberships! Why would you not want this?

I have written previously why you may not want MA (The WiSER program to erode your Medicare coverage: Not WISE for you! Sept 22, 2025, Medicare and Medicaid at 60: Need more -- and more threatened -- than at 50!, Aug 6 2025, and other older posts), which boils down to the fact that they are health insurance plans like the one you had, and can, and do, delay and deny coverage for individuals in order to save money (or, really, make more money!) They usually are HMOs or PPOs with a limited panel of doctors and hospitals for which they will pay. While the Medigap and Part D coverage you need with TM are also sold by the same insurance companies, these benefits are much more explicitly stated and required by law to be provided, although there are certainly efforts to get you to use cheaper drugs (usually not the “ab” drugs being advertised in the next commercial!) If you travel a lot, you may find that MA plans are often based in one geographical area. Also, many “destination” hospitals that people travel to in order to receive excellent care for conditions like cancer (eg., Mayo, MD Anderson) do not accept MA. To a large extent, having an MA plan is like having the insurance that non-Medicare recipients have, warts and all. There are reports (such as in Health Care Un-Covered) that, in addition to raising their rates and cutting benefits, MA plans will be “exiting certain markets” (the unprofitable, or really less-profitable-than-they-would-like markets), leaving residents in those areas without available coverage.

"Health Care Un-Covered", the substack founded by Wendell Potter, also reports on the new report from Physicians for a National Health Program (PNHP) “No Real Choice: How Medicare Advantage fails seniors of color”, that shows MA plans increase (rather than decrease, as they claim) racial inequity.

PNHP’s researchers found that communities of color are being steered into MA plans not because they’re better — but because they’re cheaper upfront. This dynamic, dubbed the “Gap Trap,” means that affordability is driving people into coverage that often denies care, delays treatment and locks them into narrow networks.

The old “cheaper up front but not once you get sick” gambit.

Plus, from the PNHP study:

·       Black, Hispanic and Asian/Asian-American beneficiaries are disproportionately concentrated in MA plans that score lowest on quality ratings, while white beneficiaries are more likely to live in counties served by higher-quality plans.

·       One study found that MA prior authorization requests were denied 23% of the time for Black seniors vs. 15% for their white counterparts.

·       Despite industry claims to the contrary, racial and ethnic health disparities in the United States are not being reduced by Medicare Advantage.

·       Studies show that Black enrollees are more likely than white enrollees to choose a 5-star MA plan when offered one. They’re just not offered them as often.

·       Racial minority enrollees in MA suffer from worse clinical outcomes and face barriers accessing best quality care because of restrictive networks and misaligned financial incentives. Black MA enrollees experience higher rates of hospital readmission compared to their white peers.

When is having insurance worse than not having insurance?

And, while we’re talking about the insurance that people not yet on Medicare and not eligible for Medicaid (ie., most Americans) have, it is (you may have noticed) getting more costly. At the present time the government is shut down over disagreement between Democrats and Republicans (including the administration) as to whether subsidies that made enrollment in health insurance through the Affordable Care Act (ACA) actually affordable should be extended. For those who are fortunate enough to have employer-funded health insurance and do not have to buy plans through the ACA exchanges (154 million people), KFF (formerly the Kaiser Family Foundation) reports that covering a family of four now costs almost $27,000 a year, after two straight years of more than 6% increases, and 26% over 5 years. That is a lot, especially if the family is paying a hefty portion of it (often 50% or more) out of pocket.

It's not a good situation for people not yet on Medicare, not for those on Medicaid, not for those receiving subsidies to buy policies through the ACA, and increasingly difficult for those on Medicare or Medicare Advantage. How about we covering 100% of everything through Traditional Medicare, enroll every American of all ages in it, and fund it by not having to pay insurance companies?

Don't miss laughing at, and more important being informed by, this John Oliver video!

Recalling an old post: Le Havre and not paying for health care -- in France

Sometimes I think about old posts, and how sad it is that things have not changed in the years since I wrote them. But, as with this one, from Jan 12, 2012, I enjoyed writing it, and highly recommend the film that inspired it, Le Havre.

 One thing to NOT worry about: paying for health care -- in France

Once again, the US trails rich countries in health care -- except in cost! Why do we tolerate it?

Sometimes the news is good, sometimes it is bad (too much of the latter!!). Sometimes it is surprising, and sometimes it is not. Often it is more of the same, and sometimes this is surprising because we had thought or hoped that it had changed, preferably for the better, and sometimes it is not surprising because we knew it had not.

A good example of this is international health rankings, in which the US consistently and continually ranks at the bottom of the wealthy nations and has a health status that is in the middle of what are known as “middle income countries”. These are called middle-income because they are better off than the really poor countries, but compared to the US and similar countries, they are poor.  In 2000, the World Health Organization (WHO) published a ranking of health system performance in their member nations, based on 1997 data, in which the US ranked #37 in the world, between Costa Rica and Slovenia, on overall performance. When many were aghast that the US could be like Slovenia, the prime minister of that nation took offense and pointed out that his country had been making significant advances. In the area of Disability Adjusted Life Expectancy (DALE) the US in fact ranked #72! I had reproduced these tables in  US Health Rankings remain low and #Trumpcare will make them worse!, June 18, 2017, and do so again now.

Of course, 1997 is a long time ago. Maybe, since then, we, like Slovenia, have gotten better. Except we haven’t. This is the sadly non-surprising part of the news.

While the WHO has not redone that 2000 survey, in 2017 Bloomberg published its Global Health Index, and, as I said then,

Now, we have new rankings to refer to, the Bloomberg Global HealthIndex from 2017. It would be nice to be able to say that the US had moved up from the 2000 WHO report, but now, at #34 (and still just behind Costa Rica) the change is really insignificant. Slovenia, it might be noted, has moved up, to #27, so maybe their efforts are paying off!

For an ongoing comparison, the Commonwealth Fund publishes a report every few years called “Mirror, Mirror on the Wall” comparing US health outcomes and cost to other high-income countries. I have cited it, in its various editions, on many occasions (Mirror on the Wall: Commonwealth Fund report continues to show US has poor outcomes at high cost, June 26, 2010, ACA: Where are we? And where should we go?, July 27, 2014, US Health Rankings remain low and #Trumpcare will make them worse!, June 18, 2017, Our health system: Not equitable, not effective, and not even efficient. Bad business!, March 24, 2022), and address it in detail in my 2015 book “Health, Medicine and Justice: Designing a fair and equitable health system” (Copernicus). The relative performance and ranking of the other countries varies a bit over the years, but the position of the US at the bottom of the heap, #1 only (and consistently) in cost, and worst in performance, is unchanging. The most recent report, “Mirror, Mirror 2024: A portrait of a failing US health system” has just come out, and the title provides the answer: not good. Not better. Failing. And, probably, failing worse. The study’s conclusion, in the Summary, is:

The U.S. continues to be in a class by itself in the underperformance of its health care sector. While the other nine countries differ in the details of their systems and in their performance on domains, unlike the U.S., they all have found a way to meet their residents’ most basic health care needs, including universal coverage.

Here is the table of rankings:

And, if you prefer a visual portrayal about how much worse the US health system is performing:

But we do lead in spending:

And, logically, trail the pack by a lot in value for dollar spent:

This is the non-surprising non-news. But, while not surprising, it should be very concerning. It’s not getting better, and there is little reason to think that it will, if past performance is a predictor of future performance. And we’re talking more than two decades of consistent past performance. It is not a question of what the fact are, of what is true, no longer if it ever was. The US health system performs terribly as a health (or even medical care) system. Costs are enormously high, outcomes are consistently poor, and we dramatically underperform every other country that has in any way comparable resources (and many, many with far fewer resources). It is incredibly inequitable. See, for example, some of the countries grouped around the US in the 2017 Bloomberg rankings, such as Qatar, Brunei, and Bahrain – countries with money and inequitable distribution. So, the question is why are we not doing anything about it?

The answer simply requires a little re-framing of the data presented above. I, and likely you, see the incredible cost/performance ratio as a negative, something to be addressed and fixed. But all that money that is being spent is going somewhere, and certainly a large amount of it is not going to provide high-quality healthcare. It is going to profits for insurance companies and pharmaceutical companies and the Wall St. investors that own them, and for enormous salaries for the C-suite executives who run them, as well as those in the ostensibly non-profit sector (see Why many nonprofit (wink, wink) hospitals are rolling in money by Elisabeth Rosenthal (Washington Post, July 29, 2024). For them the current system is working very well, thank you, they are getting very rich. Your problem, and mine, is that we think that this system should be about providing high-quality and cost-effective care for the American people, at which it is obviously failing. But if we understand it as a cash-cow for these corporations, as a method for transferring money from the rest of the economy to them, it is working great. And, because it is working so well and they are making so much money and spending a great deal of it contributing to politicians, it is unlikely to change.

Unless YOU make it change.  There is, and has been for decades, a loud and effective rant from the corporations and individuals profiting from your health care dollars and their employees (or shall we say “beneficiaries of their largess”) in the legislative, think tank, and punditry arenas, that the Democratic party, and particularly its progressive wing, are radical socialists who are anti-American. This has been very successful. See above, we have kept to the unique American way of doing things. The one that takes money from you in premiums, co-pays, and deductibles and provides you with poor outcomes. That every other wealthy capitalist country has found a way of delivering higher quality for less money is the evidence that it is possible and will not destroy the country. But it will destroy the conveyor belt that takes your money and puts it into their pockets, and this is a terrifying thought, so that they will do anything to prevent it.

Their tactics include both painting mainstream Democrats who merely want to tinker around the edges of the system as flaming radicals, and funding organizations such as the Heritage Foundation to come up with truly radical proposals like Project 2025 (pdf of the health section here) that would institutionalize the worst, most anti-human practices going on today. The strategy is that if they can get half the country to support politicians who support those policies (whether those voters actually support those policies or not), it moves the center of the discussion to the “right” and means compromise will be much less threatening to them. But much more threatening to you.

People want good healthcare for themselves, for their families, and for their friends. They don’t want to pay ever-more for health insurance only to have the insurers deny their care, often as a matter of routine, when they need it. They deserve, as do the people of other countries, a health system that is intrinsically structured to provide the best possible health care for our people and not to make money for Wall St., big corporations, insurance companies and health systems. We know it can be done as it has been done everywhere else.

Make it the thing you vote for and let your representatives know it; you want health care, as the old saying goes, for people and not for profit!