Impacts of Vertical Integration in Medicare Part D on Sponsors’ Drug Costs, Pharmacy Reimbursement, and Enrollee Cost Sharing

Why OIG Did This Review

• Stakeholders have raised concerns about the potential effects of vertical integration, including higher drug costs and anticompetitive behavior that negatively affects independent pharmacies. The Part D market is heavily concentrated among a small number of vertically integrated organizations and their associated sponsors (i.e., VI sponsors). In 2023, 6 of 11 vertically integrated organizations we identified accounted for about 82 percent of the $275.9 billion in Part D spending that year.
• In order to understand the impact of vertical integration on Medicare and enrollee costs, OIG initiated this evaluation and audit work.
• For the purpose of this study, vertical integration refers to the consolidation of Part D sponsors with pharmacy benefit managers (PBMs). Pharmacies can also be affiliated with sponsors or PBMs. For example, a single entity may own a Part D sponsor, a PBM, and pharmacies.

What OIG Found

Due to (1) data limitations pertaining to Part D sponsors’ adjustments to pharmacy payments, and (2) recent dynamic shifts in the Part D market, the full impacts of vertical integration—particularly on pharmacies—remain unknown. However, we are able to provide the following broad insights into Part D sponsors’ net costs, point-of-sale reimbursement to pharmacies, and enrollees’ cost sharing in 2023:

• Overall, the net cost of drugs was similar for vertically integrated Part D sponsors and other Part D sponsors for select drugs. However, the approaches used by Part D sponsors to reach the net costs of drugs differed. For most drugs, vertically integrated sponsors paid pharmacies more upfront, but then took back more money later through rebates and fees. In contrast, other sponsors paid less upfront and got less back later for most drugs.
• Vertically integrated sponsors paid their own pharmacies a little less than they paid other pharmacies. Because of data constraints, we couldn’t account for later payment adjustments to pharmacies that usually reduce what they ultimately receive.
• In general, enrollees in plans offered by vertically integrated Part D sponsors paid lower monthly premiums but substantially higher drug out-of-pocket costs.

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