PBMs Perfect Self-Dealing by Owning Manufacturers Too, Eli Lilly Switches to Rightway After CVS Picks Novo, and Payer Margins Collapse Despite Quarterly 'We'll Fix It' Promises

Hey all,

Happy Thursday! Vertical integration was supposed to create efficiency, but mostly it just created new ways to extract rent until the whole thing implodes. PBMs now own the entire supply chain—insurer, pharmacy, and manufacturer—allowing them to negotiate discounts with themselves while pocketing the spread, yet health insurers in government programs are posting 0.5% margins (or negative if you exclude Cigna). Meanwhile, Eli Lilly just ditched CVS's PBM for a smaller competitor after CVS chose Novo's drug over theirs, proving that even pharma companies have limits on how much self-dealing they'll tolerate. Consolidation promised lower costs and better outcomes—we got neither, but at least a few executives got very rich before the music stopped.

Enjoy the rundown!

Jacob Brody (Co-Founder & CEO, ZorroRX)

(Drugstore Cowboy) PBMs Selling Drugs to Themselves

Alec Ginsberg delivers a sharp breakdown of how PBMs have used vertical integration to take full control of the drug supply chain—owning the insurer, the PBM, the pharmacy, and now even the manufacturer. By creating private-label drug companies, PBMs set artificially high list prices, then “negotiate” deep discounts with themselves, pocketing the spread while employers and patients foot the inflated bill. It’s not inefficiency—it’s an engineered system where the middleman has become the market. Full Article

(Bloomberg) Eli Lilly Drops CVS Drug Plan After Novo Obesity Deal

Eli Lilly is cutting ties with CVS Health’s pharmacy benefit plan after CVS removed coverage of Lilly’s weight-loss drug Zepbound in favor of Novo Nordisk’s rival drug Wegovy. Starting January 1, Lilly’s 50,000 employees will get pharmacy coverage through Rightway, a smaller, tech-driven PBM, signaling a shift away from traditional benefit managers and spotlighting growing tensions in the $100 billion obesity drug market. Notably, Rightway has used the federal 340B program to lower costs—raising the question of whether Lilly, a longtime critic of 340B abuse, will now engage with the program through its new PBM partner. Full Article