“Whereas PBMs [pharmacy benefit managers] act as intermediaries negotiating reimbursements with manufacturers and pharmacies, wholesalers operate on the acquisition side, purchasing pharmaceuticals from manufacturers and selling and distributing them to pharmacies, hospitals, and medical practices. Wholesalers compete to distribute drugs to pharmacies and medical practices — at least under the traditional business model, in which independent practices have an incentive to shop for lower-priced drugs. This market has become increasingly concentrated and transformed by vertical integration.
Just three wholesalers — McKesson, Cardinal Health, and Cencora (formerly known as AmerisourceBergen) — control 98% of the wholesaler market. McKesson, the largest of these companies by revenue, generated $345 billion in revenue in 2024, just shy of the amounts generated by CVS Health ($373 billion) and UnitedHealth ($400 billion). Like other health care conglomerates, wholesalers have been engaging in vertical integration involving related entities; they now own group purchasing organizations (GPOs), private-label drug manufacturers, device-distribution companies, data and analytics companies, pharmacy franchises, specialty pharmacies, companies offering home-based infusion services, and pharmacy services administrative organizations, which represent pharmacies in negotiations with PBMs and insurers.
[..] opportunities for realizing efficiencies require competitive markets, as opposed to the consolidated, opaque markets in the pharmaceutical supply chain. Even if acquiring medical practices helps wholesalers obtain cheaper drugs, they could exercise their increased leverage with insurers to extract higher prices for those practices, rather than reducing prices for insurers and patients. Although empirical research on the effects of wholesaler ownership of medical practices is lacking, acquisitions of practices — including gastroenterology and ophthalmology practices — by private equity firms have led to increased prices, and studies generally haven’t found an association between vertical integration in health care and savings for consumers.
Rather than creating efficiencies, these acquisitions may raise costs and undermine clinical autonomy. Wholesalers can secure their role as the “prime vendor” for a medical practice by acquiring the practice itself. Controlling a practice’s business and administrative operations by means of an MSO [management-services organization], these conglomerates may be able to steer physicians toward dispensing drugs that maximize payouts for the wholesaler and the affiliated GPO [group purchasing organization]. Under such an arrangement, the MSO could, for example, implement workflows or physician-compensation models that encourage the use of certain drugs. Controlling procurement and inventory is another node of influence.
These acquisitions pose legal concerns relating to anticompetitive conduct, conflicts of interest, and corporate intrusion into the practice of medicine. Dominant intermediaries — such as insurers, PBMs, and distributors — may acquire entities in related markets to lock in customers, fortify their market position, and force rivals to compete at multiple levels of the supply chain. Wholesalers that acquire medical practices foreclose business opportunities for rival wholesalers and face incentives to steer drugs for which profit margins are high to their own practices and to squeeze independent medical practices that rely on the wholesaler for drug distribution. This “captive” model of competition is less about cost containment — which depends on wholesalers competing for medical practices’ business — than about selectively integrating throughout the supply chain to capture margins at each point. [..]
Physician practices face increasing challenges to remaining independent, which has fueled corporate acquisitions. Price discrimination by wholesalers and insurance companies places independent practices at a systematic disadvantage in relation to larger entities, because they have less bargaining leverage when acquiring and supplying drugs. Various compliance and administrative burdens also encourage consolidation. Despite the concerns associated with wholesaler-led vertical integration, alternatives to wholesaler ownership for a struggling practice — including acquisition by an insurer, a private equity firm, or a local hospital system — may be no better for physicians seeking to preserve their professional autonomy. Regulators may prefer certain acquisition types over others, depending on the perceived risks associated with various arrangements.”
Full editorial, H Rooke-Ley and RE Sachs, New England Journal of Medicine, 2025.10.4