$275 Billion and the Government Still Can’t Follow the Money

If you haven’t read the Office of the Inspector General’s recent Data Snapshot on vertical integration in Medicare Part D, here are two sentences you need to know.

First: “In 2023, 6 of 11 vertically integrated organizations we identified accounted for 82% of the $275.9 billion in Part D spending that year.”

Second: “Due to data limitations pertaining to Part D sponsors’ adjustments to pharmacy payments, and recent dynamic shifts in the Part D market, the full impacts of vertical integration — particularly on pharmacies — remain unknown.”

Unknown. The federal government sent roughly $225 billion in taxpayer dollars through six vertically integrated organizations, all of which include PBMs that are not fiduciaries to that money, and can’t fully account for where it went.

That phrase “data limitations pertaining to Part D sponsors’ adjustments to pharmacy payments” is doing a lot of work. Plain English: the PBMs weren’t transparent about the DIR fees they clawed back from independent pharmacies.

If the OIG needs better data, they might start by talking to the 3,000-plus independent pharmacies in the TRUST LLC antitrust lawsuit. Those pharmacies lived the DIR fee reality firsthand: clawbacks ranging from 10% to 40% of the reimbursement amount, based on arbitrary PBM-assigned “performance metrics.” Meet 100% of their metrics? They still clawed back 38%. Miss entirely? 40%. There was no negotiating these fees out of a Part D contract.

The math tells the story. Say a vertically integrated company pays an independent competitor $100 for a $90 drug, and pays its own pharmacy $95 for the same drug — then claws back 10% from both. The independent pharmacy nets zero. The corporation nets $15. Both sold a $90 drug. The difference? For the vertically integrated corporation, money just moves from one pocket to another… while the competition gets paid nothing.

The OIG report actually confirms the shell game: “At the point of sale, vertically integrated sponsors reimbursed their own pharmacies slightly less than unaffiliated pharmacies; however, this does not account for sponsors’ subsequent adjustments to pharmacy payments.” Translation: the PBMs engineered the upfront numbers to look fair, then recouped the difference through DIR fees — which, by the way, increased 107,400% over ten years.

The OIG also noted it hasn’t reviewed the actual contracts between sponsors and pharmacies. That’s a significant gap.

Here’s the bottom line: the OIG didn’t have enough data from the PBMs to measure the true damage of vertical integration; even as nearly 40% of independent pharmacies closed over the last decade, driven largely by PBM underpayment. So much for PCMA’s claim that PBMs are “the most transparent actors in the healthcare system.”

PUTT welcomes the OIG’s continued work on this important issue. We’d simply add one suggestion: put an independent pharmacist at the table.

Chris Hobart, PharmD | Pharmacist & PUTT Executive Board Member, Pharmacists United for Truth and Transparency | www.truthrx.org