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 This may seem like conflict of interest (COI), but that is apparently a quaintly outdated concept in this era of mega-corporations.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

"Health care" Corporations are Evil. Most of the people who work for them are not. Fight back!

Usually, when I write a blog post, I start with something that has happened or is happening, try to develop it and point out the relationships between it and other things that are happening. Toward the end I make an effort to form a conclusion, and, perhaps even make suggestions as to how the problem(s) might be addressed. However, today I think I’ll lead with the conclusion, so folks do not have to read too far:

All of the US healthcare industry (not system) is run by corporations that are effectively evil.* They function for only one purpose: to suck as much money, in the form of profits, stock price, and executive salaries (the executives, who are people, are of course evil) from our economy under the false flag of providing health care. They care not one whit about the health of people, society, or community, nor about decency. They include insurance companies, large hospital systems and provider groups (often owned by insurance companies and -- the exemplar of morality-free rapacious profit -- private equity), pharmaceutical companies and device companies, the large pharmacy chains (e.g., Walgreen’s, CVS) and the PBMs (pharmacy benefits managers) that control drug distribution.

*[I do not believe that corporations are people, despite the scandalous Citizens United decision that decided that they were and that money is speech, so are without human characteristics.]

I could end it there, and say “if you have any questions, read my previous blogs, and the references I cite”, but I will go to talk about a few recent events and actions that bolster this case. First, however, I want to talk about people, the people who work in health care, the people who the other people (called “patients”) seeking health care actually run into. Almost uniformly, they are not the problem. From the higher-paid physicians and other clinicians, including nurses, who provide clinical care, to the pharmacists and pharmacy assistants who dispense medications, to those who answer the phones, schedule appointments, take questions to be transmitted to the clinicians, and even collect money, these are overwhelmingly hard-working people trying to do a good job of serving you. They are almost all employed, however; even about 75% of physicians (and growing) are employed by corporations. If your doctors seem rushed and not to have enough time for you, if they are focused on computer screens, if they don’t quickly call you back, this is not their choice, it is the mandate of the corporation that employs them. It is essentially the same as the traditional “speed up” for assembly line workers: to be “more efficient”, a euphemism for “making more money for the corporation”. The same is true for the clerks who may take a lot of time to answer the phone, or who are “unwilling” to cut you some slack on your bill (when really they do not have the power to), or the pharmacist who takes “too long” to fill a prescription or provide you with the information that you need. These are, by and large, good people trapped in a heartless system.

And, yet, because these are the people –physicians, nurses, pharmacists, clerks – whom we, as patients, see and interact with, they are the ones on whom we take out our frustrations when we feel we are not being treated as we should be. When we are denied care when we are late because the bus was delayed, or because we had to get our children off to school but the early appointment was the only one available, or because we don’t get off work until 4:15 but the 3:30 appointment was the last available. Yes, like the rest of us, all these people in healthcare want to work reasonable hours and get home on time, but the rules that they are required to enforce are not made by them. They are made by the corporate executives, those who have sold their souls, the CPAs and MBAs (and occasionally MDs and RNs, but usually those also have MBAs) whose expertise is in making money for the corporation, not in serving you, and who are handsomely rewarded for it. They are the people who are responsible and to whom your anger should be directed, but good luck getting to them. Maybe you can reach the CEO of a small rural hospital (who will almost never be the real CEO, since it is probably owned by a large hospital corporation) but not the heads of the insurance companies and pharmaceutical companies and massive health systems and private equity owners of all of these. More than the highest Mafia dons, they are protected by layers and layers of others who keep them from having to interact with you. But they ARE the evil people (even if, like those Mafia dons, they are nice to their children), creating, maintaining, and expanding an industry designed to extract as much money as possible from the economy and mis-label it “health care”.

The idea that this skates close to the edge of what is legal is disingenuous. It is often illegal; a huge part of the industry regularly acts illegally. We want there to be laws against such abuse, but even when there are they are irregularly, even rarely, enforced largely due to inadequate funding for the regulators. This is on purpose; those huge corporations have the money to buy – I mean donate to – congresspeople and also offer high-paid jobs to former regulators who “behaved” in the revolving door system. And when the rules are enforced, the fines are relatively low, and are just written off as a “cost of doing business”

Examples?

How about “Whistleblower Accuses Aledade, Largest US Independent Primary Care Network, of Medicare Fraud”, KFF Health News (March 5, 2024)? Using a practice known as “upcoding”, the company employs large numbers of people to add additional diagnoses to the one for which the person is being treated, increasing the reimbursement. This practice results in greater fee-for-service payment, but is even better (for the company) in increasing the “capitated payment” that they get for a particular “covered life”, both in general managed care and in Medicare Advantage programs. In this case, and in many hospitals, it is the provider who is fiddling the data to get more money from the insurer (which, in the case of Medicare Advantage, as well as Medicaid and some other programs, is the government – that is, you, the taxpayer).

But let’s not cry for the poor insurance companies, although they would like you to think it is the doctors and hospitals who are at fault for milking them. Even when something very bad happens, like the recent cyberattack at the largest health insurer, UnitedHealth, in which they may have paid a $22M ransom, it is the providers who are not getting paid. UnitedHealth is doing just fine, thank you. Not only is $22M not that much for them, but as pointed out by former insurance executive and current whistleblower Wendell Potter in his substack

Keep in mind that while the company is unable to pay thousands of the country’s doctors and hospitals for who knows how long because of the hack, UnitedHealth will be able to hold on to billions of dollars in premium income longer, and that will boost its investment income, which is considerable on any day of the week.

They have the system covered from all angles. UnitedHealth has moved into owning practices directly, through Optum, a very large provider and the source of a big percent of their profit. Along with their Medicare Advantage products.

Indeed, as providers and insurers point the finger at each other, and as pharmacies buy up the PBMs that control utilization, increasing vertical integration, and as private equity companies buy up all of these, there is one thing that you can be sure of: the benefit to the customer, consumer, patient, person, society is the one thing not being considered. We are the collateral damage in the fights among these amoral (at least, really immoral) behemoths.

What can we do? It often seems like there is not much. Our feeble cries are drowned out by the corporate contributions to our congresspeople. But we can let our elected representatives know that we are on to the abuses by those companies, and that we hold them responsible for holding (or not holding) the corporations responsible. We can, for example, demand something specific, that they sign on to the Patients over Profits pledge (initiated by National Nurses United, NNU, and now sponsored by many patient and community groups):

I pledge to put patients over profits and not take contributions over $200 from the executives, lobbyists, and PACs affiliated with the corporate health care industry, including private insurers, pharma corporations, and private hospitals who are organizing to take over our health care system.

They won’t if just a few of us ask. But if LOTS of us do, they just might.

And that’s a start.