GAO Finds Mixed Cost Impacts from Vertically Integrated Medicare PBMs
A new Government Accountability Office report reveals that vertically integrated Medicare Part D plan sponsors directed nearly 28% of pharmacy payments to their own mail-order dispensaries in 2023, yielding lower generic drug costs but higher beneficiary expenses for select high-cost specialty medications.
A newly released Government Accountability Office (GAO) report highlights the expanding influence of vertical integration across federal prescription drug coverage. Analyzing 2023 data from four major Medicare Part D plan sponsors—representing over 40 percent of total enrollment—GAO found that owned pharmacies captured approximately 24 percent of drug utilization and 28 percent of total pharmacy payments. These vertically integrated entities, which combine health plan sponsors, pharmacy benefit managers (PBMs), and pharmacy networks under common ownership, predominantly leveraged mail-order distribution models compared to non-owned retail providers.
The report underscores a complex pricing dynamic created by internal healthcare supply chains. For the 100 most common prescription drugs—primarily low-cost generics—payments and beneficiary cost-sharing were lower at owned pharmacies for at least 94 percent of medications. However, for high-cost, brand-name drugs, vertical integration did not consistently reduce expenses. For roughly half of the 20 highest-payment drugs per 30-day supply, beneficiary cost-sharing at owned pharmacies was up to $340 higher than at independent retail options, raising questions about patient steering and cross-subsidization strategies within consolidated PBM structures.
For defense and civil agency leadership, these findings carry direct implications for broad-scale federal health programs, including TRICARE and the Federal Employees Health Benefits (FEHB) system. Like Medicare Part D, defense healthcare operations rely heavily on PBM contracting and mail-order pharmaceutical pipelines to sustain readiness and control spending across millions of active-duty service members, retirees, and dependents. Understanding how PBMs route volume through proprietary channels provides critical leverage for federal contracting officers evaluating vendor transparency, drug pricing structures, and pharmacy network access requirements.
As Congress and executive agencies intensify scrutiny of health sector market consolidation, acquisition officials must prepare for potential policy shifts governing federal health contracts. Program managers responsible for defense and civil health benefit solicitations will need to incorporate stricter auditing mechanisms to assess whether integrated supply chains deliver true savings or inadvertently drive up spending on specialty therapeutics. Oversight bodies will likely benchmark future procurement requirements against GAO’s baseline metrics to prevent non-competitive steering while preserving mail-order supply chain efficiencies. (Source: GAO Reports)
Executive takeaway
Subscribe to receive signals like this — plus the executive analysis behind them.
Get the Signals