Medicare beneficiaries enrolled in Part D plans offered by vertically integrated insurers paid lower monthly premiums but higher out-of-pocket drug costs compared to enrollees in other plans, according to a May 19 analysis from the HHS Office of Inspector General.
The report, which analyzed 2023 data across a sample of 60 high-cost and high-use drugs, found that enrollees without financial assistance in vertically integrated plans paid nearly 40% more in drug out-of-pocket costs than their counterparts in other plans. The OIG defined vertical integration as organizations that offer Part D coverage and own a pharmacy benefit manager.
Seven things to know:
- The Part D market is heavily concentrated among vertically integrated organizations. In 2023, 300 organizations offered Part D plans, and 11 were vertically integrated. Those 11 organizations were associated with 364 of the 1,035 total Part D contracts and covered 79% of the 54.6 million individuals with Part D coverage. UnitedHealth, CVS Health and Humana combined accounted for 57% of all enrollees.
- Six vertically integrated plans accounted for 82% of all Part D spending. Those six organizations, UnitedHealth ($75 billion), CVS Health ($49 billion), Humana ($39 billion), Centene ($29 billion), Cigna ($20 billion) and Elevance Health ($14 billion), collectively generated $225.9 billion of the $275.9 billion in total Part D gross spending in 2023.
- Across the drug sample, OIG found the overall net cost difference between vertically integrated and other plans was less than 1%. However, vertically integrated plans consistently paid pharmacies more at the point of sale for most drugs in the sample, then recovered larger amounts on the back end through manufacturer rebates, pharmacy price concessions and other fees. Other plans generally paid less upfront and recovered less afterward.
- Across 57 of the 60 drugs with comparable data, vertically integrated plans reimbursed their affiliated pharmacies 4% less at the point of sale than they reimbursed unaffiliated pharmacies. OIG noted the analysis could not account for post-sale payment adjustments, which typically reduce what pharmacies ultimately receive, so the full picture of net payments to affiliated vs. unaffiliated pharmacies remains unclear.
- For Medicare Advantage plans, monthly prescription drug premiums offered by vertically integrated plans averaged $10, compared to $20 for other sponsors. For standalone prescription drug plans, premiums averaged $38 for vertically integrated plans vs. $54 for others. However, enrollees without financial assistance in vertically integrated plans paid nearly 40% more in out-of-pocket drug costs overall, with higher costs observed for 52 of the 60 drugs in OIG’s sample.
- Because plans do not report pharmacy-level post-sale payment adjustments (such as fees and price concessions collected from pharmacies) separately from other back-end recoveries, OIG could not trace how those adjustments flowed to or from specific pharmacies. The gap prevented the agency from determining whether vertically integrated plans ultimately paid affiliated and unaffiliated pharmacies more or less than other plans did.
- As of 2024, plans must apply pharmacy price concessions at the point of sale, which could lower enrollee out-of-pocket costs. Beginning in 2025, enrollees’ annual drug costs are capped at $2,000. By 2028, PBMs will be banned from receiving compensation tied to drug list prices or rebate amounts and must instead accept flat service fees. Also by 2028, CMS must establish standards for fair pharmacy contract terms, with mandatory implementation across all network pharmacies by 2029. OIG noted it is conducting a separate ongoing audit examining contract arrangements between vertically integrated entities and pharmacies in 2023 and 2024.
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