Federal Watchdog: Medicare Drug Plans Tied to Pharmacy Chains Offer Lower Premiums but Substantially Higher Drug Costs

A federal watchdog report published in May found that Medicare Part D drug plans operated by companies that also own pharmacy chains and pharmacy benefit managers have come to dominate the market, but those plans tend to leave enrollees paying substantially more out of pocket for their prescriptions than plans that do not have those ownership connections.

The Office of Inspector General examined the role of vertical integration in Part D, looking at companies where the insurer, the pharmacy benefit manager, and retail pharmacy operations all fall under common ownership. In 2023, just 6 of the 11 vertically integrated organizations the OIG identified accounted for about 82 percent of the 275.9 billion dollars in total Part D spending that year.

Those plans charged lower monthly premiums. But enrollees in vertically integrated plans paid substantially higher drug out-of-pocket costs compared with enrollees in other Part D plans, the OIG found. The gap was most pronounced for enrollees who did not qualify for Extra Help or other low-income subsidy programs. Those subsidy programs cap most prescription cost-sharing regardless of which plan a person chooses, so enrollees who receive them are largely shielded from the tradeoff.

The OIG noted that it could not fully measure all payment adjustments made after the point of sale, meaning the complete picture of how vertical integration affects net pharmacy costs remained unclear.

The finding arrives as Medicare's Annual Enrollment Period opens October 15 and runs through December 7. Beneficiaries can compare both monthly premiums and estimated out-of-pocket drug costs for their specific prescriptions at Medicare.gov using the Plan Finder tool, which draws on each plan's formulary and cost-sharing data.