Make or Buy?

Individuals face make-or-buy decisions every day. Cook dinner or order takeout? Fix a leaky faucet or call a plumber? Bake a cake or buy one?

Clothing was once part of that equation, too. My older sister was a sewing wiz making clothes for herself and others. But as mass production made clothing more affordable, buying it became easier—and often less expensive—than sewing it yourself. What was once a necessity gradually became a hobby.

Businesses make the same choice: buy services or bring them in-house. That’s vertical integration—and healthcare is a prime example.

All in the Family
Let’s start with a little pharmacy history.

In 1922, Walgreens soda jerk Ivar “Pop” Coulson added two scoops of vanilla ice cream to a malted milk drink, creating what became the famous Walgreens chocolate malt. To meet demand and maintain quality, Walgreens built its own ice cream plants.

Rather than buy from another company, it made its own. Vertical integration in action!

Beyond Milkshakes
Pharmacy benefit managers (PBMs) manage prescription drug benefits for employers, union trust funds and health insurers. They negotiate with drug manufacturers, set formularies and pharmacy networks, and offer clinical programs to manage costs and promote appropriate medication use.

The largest PBMs belong to large healthcare companies. CVS Health owns CVS Caremark and Aetna; Cigna owns Express Scripts; and UnitedHealth Group owns Optum Rx and other healthcare businesses.

Integration can help companies coordinate services, share information, reduce administrative costs and use combined purchasing power to negotiate better prices.

But when the same company owns the PBM, mail-order pharmacy and specialty pharmacy, critics ask about who’s getting paid, how much and why.

Show Me the Money
On October 29, 2026, the U.S. Department of Labor issued its final rule, Improving Transparency into Pharmacy Benefit Manager Fee Disclosure. It requires PBMs to disclose detailed compensation information to fiduciaries of large, self-insured employer and union trust plans covered by ERISA.

Disclosures include manufacturer rebates, spread pricing—the difference between what a plan pays for a prescription and what the PBM reimburses the pharmacy—and the net price of formulary drugs after rebates. Plan fiduciaries will also have audit rights.

The rule takes effect January 4, 2027, for plan years beginning on or after July 1, 2027.

Seeing Isn’t Saving
For AEPC, transparency is nothing new. Its CVS Caremark contract has long included detailed disclosure, accountability, and audit requirements.

Envision Pharmaceutical Services was an early pioneer of transparent, pass-through PBM models. When it launched EnvisionRx in 2001, it passed manufacturer rebates and administrative fees back to clients and charged a flat per-member monthly fee.

But transparent, pass-through PBM models never gained the traction supporters expected. They also revealed an important lesson: knowing where every dollar goes doesn’t mean spending less. Employers and union trust funds could receive 100% of rebates and still pay more overall.

Not the Whole Prescription
The new Department of Labor rule responds to growing criticism of PBMs and vertically integrated healthcare companies—and calls for greater transparency.

Yet, in what other industries do customers routinely demand to know the discounts companies receive from suppliers, the markups on products or the financial arrangements between related businesses? Most people don’t ask their grocery store what it paid for a box of cereal or how much profit it makes. They care about the price on the shelf—and whether they’re getting a good deal.

The same should hold true for prescription drug benefits. Whether a PBM buys services or provides them within its own corporate family isn’t necessarily the issue. Vertical integration isn’t inherently bad; the results are what count.

You can know exactly who supplied the ice cream, added the chocolate syrup and malt powder, and how much each earned along the way.

But that doesn’t make the milkshake any less expensive. What matters is whether you’re getting good value at a competitive price.

Happy reading,
Suzanne Daniels, Ph.D.