Over the past several decades, the structure of the U.S. healthcare system has shifted dramatically.
What was once a fragmented landscape of independent insurers, pharmacies, hospitals, and providers has increasingly consolidated into a small number of large, vertically integrated corporations. This consolidation has raised important questions about competition, pricing, access to care, and long-term system sustainability.
One of the most prominent examples of this trend is CVS Health’s acquisition of Aetna and its continued expansion into primary care clinics, pharmacy benefit management (PBM), specialty pharmacies, and care delivery. While consolidation is often justified as a means of improving efficiency and coordination of care, critics argue that excessive market concentration may reduce competition, raise costs, and disproportionately affect low-income and vulnerable populations.
This article examines healthcare market concentration through a non-partisan policy lens, using CVS Health as a case study to explore broader systemic implications.
Understanding Market Concentration in Healthcare
Market concentration occurs when a small number of firms control a large share of a given market. Economists often measure concentration using indicators such as market share or the Herfindahl-Hirschman Index (HHI). High concentration does not automatically imply wrongdoing, but it can reduce competitive pressure, limit consumer choice, and allow dominant firms to exert pricing power.
Healthcare markets are particularly sensitive to concentration due to:
- Information asymmetry between patients and providers
- High barriers to entry
- Regulatory complexity
- Inelastic demand (people need care regardless of price)
These characteristics mean that consolidation can have more pronounced effects in healthcare than in many other industries.
Vertical Integration as a Strategy
Exhibit 1. Growth of Vertical Integration in U.S. Healthcare (2000–2024)
This exhibit illustrates the increasing prevalence of large health insurers owning pharmacy benefit managers and provider networks. The trend reflects a structural shift toward vertically integrated healthcare conglomerates, raising antitrust concerns related to foreclosure, barriers to entry, and the accumulation of market power across multiple levels of the supply chain.
Vertical integration occurs when a company expands ownership across multiple stages of a supply chain. In healthcare, this may involve:
- Insurers acquiring PBMs
- PBMs owning pharmacies
- Insurers or pharmacy chains acquiring physician practices or clinics
Proponents argue that vertical integration can:
- Improve care coordination
- Reduce administrative inefficiencies
- Align incentives across services
However, critics note that when integration occurs at scale, it may also:
- Reduce transparency
- Create conflicts of interest
- Limit competition through preferential internal contracting
Exhibit 2. Downstream Effects of Healthcare Consolidation
This exhibit presents illustrative trends linking consolidation to rising insurance premiums and cumulative provider exits. From an antitrust perspective, these downstream effects are relevant indicators of consumer harm, reduced competition, and diminished access—particularly in markets with limited alternatives.
CVS Health as a Case Study
Corporate Structure and Scope
CVS Health operates across multiple layers of the healthcare system, including:
- Health insurance (Aetna)
- Pharmacy benefit management (CVS Caremark)
- Retail pharmacies
- Specialty pharmacies
- Primary care clinics and physician groups
This structure allows CVS to manage insurance coverage, determine drug formularies, dispense medications, and deliver certain medical services within a single corporate ecosystem.
Potential Efficiency Gains
From an operational standpoint, vertical integration can offer advantages:
- Streamlined data sharing
- Reduced duplication of services
- Simplified patient navigation
- Greater leverage in negotiating prices with external suppliers
These efficiencies may, in theory, translate into cost savings or improved patient outcomes.
Competitive Implications
Highly integrated firms often possess greater negotiating power than independent pharmacies, clinics, or insurers. Smaller entities may face:
- Lower reimbursement rates
- Exclusion from preferred networks
- Difficulty competing on price or scale
Over time, this can lead to market exit by independent providers, further increasing concentration.
Network Steering and Market Power
Vertical integration enables companies to guide patients toward internally owned services. While not inherently improper, this practice may reduce consumer choice and raise concerns about whether decisions are based on cost, quality, or corporate interest.
Pricing, Transparency, and Cost Dynamics
Drug Pricing and PBM Influence
PBMs play a central role in determining which medications are covered and at what cost. When PBMs are owned by insurers or pharmacy chains, pricing arrangements can become opaque, making it difficult to determine:
- How much savings are passed on to patients
- Whether rebates influence formulary decisions
- How list prices relate to actual net costs
Insurance Premiums and Cost Sharing
Market concentration may reduce competitive pressure to lower premiums or out-of-pocket costs. Even if integrated systems negotiate lower supplier prices, those savings are not always reflected in consumer costs.
Exhibit 3. Pricing, Transparency, and Cost Dynamics in U.S. Healthcare (2005–2024)
This exhibit illustrates indexed growth in average insurance premiums, out-of-pocket costs, and prescription drug list prices over time. The divergence between underlying prices and consumer-facing costs highlights persistent transparency gaps in highly integrated healthcare markets. From an antitrust perspective, these trends are consistent with reduced competitive pressure, limited price signaling, and weakened consumer ability to compare or discipline pricing behavior.
Equity and Access Considerations
Disproportionate Impact on Low-Income Populations
While consolidation affects all consumers, its consequences are often felt most acutely by:
- Low-income households
- Rural communities
- Individuals with chronic conditions
Higher cost-sharing, limited provider choice, or insurer exits from less profitable markets can create barriers to continuous care.
Geographic and Market Withdrawal Risks
Large insurers may exit markets that do not meet profitability thresholds. When this occurs, affected populations may experience:
- Coverage disruptions
- Narrower provider networks
- Reduced access to specialty care
Is This a Monopoly? Legal and Policy Perspectives
Exhibit 4. Market Concentration and Monopoly Risk: Legal and Policy Benchmarks
This exhibit illustrates an illustrative trend in market concentration using the Herfindahl-Hirschman Index (HHI), overlaid with U.S. Department of Justice and Federal Trade Commission thresholds for moderately concentrated (HHI ≥ 1500) and highly concentrated (HHI ≥ 2500) markets. While healthcare markets rarely meet the strict legal definition of monopoly, sustained movement into highly concentrated territory raises significant antitrust concerns regarding market power, competitive constraints, and consumer welfare.
Monopoly vs. Oligopoly
Most healthcare conglomerates do not meet the legal definition of a monopoly. Instead, the system resembles an oligopoly, where a small number of firms dominate multiple segments of the market. However, oligopolistic markets can produce outcomes similar to monopolies when competition is limited.
Antitrust Oversight
Regulatory agencies assess mergers based on predicted effects on competition. Vertical mergers are generally viewed as less risky than horizontal mergers, though recent policy discussions suggest renewed scrutiny of large-scale vertical integration in healthcare.
Antitrust-Relevant Harms to Vulnerable Populations
Regulatory Significance of Distributional Effects
Traditional antitrust analysis has focused primarily on price effects and market efficiency. However, modern antitrust frameworks increasingly recognize that market structure and conduct can produce distributional harms that are not evenly experienced across consumer groups. In healthcare, these harms are particularly relevant due to inelastic demand, limited consumer mobility, and the essential nature of services.
Vulnerable populations serve as an important analytical lens for evaluating whether market concentration and vertical integration generate consumer harm, as these groups are less able to mitigate adverse market outcomes through substitution or exit. As such, impacts on these populations are directly relevant to antitrust assessments of market power and competitive effects.
Price Effects and Regressive Cost Burdens
Highly concentrated healthcare markets are associated with increased prices for insurance premiums, prescription drugs, and out-of-pocket cost sharing. While price increases alone may trigger antitrust concern, their regressive nature strengthens the case for regulatory intervention.
Low-income households experience healthcare cost increases as a larger proportion of income, magnifying welfare losses. When vertically integrated insurers and PBMs retain negotiated savings or leverage internal pricing advantages without passing benefits to consumers, the resulting price effects constitute measurable consumer harm under antitrust standards.
Foreclosure and Exclusionary Dynamics
Vertical integration creates the potential for foreclosure, whereby dominant firms disadvantage or exclude competitors by restricting access to critical inputs or distribution channels. In healthcare, this may include:
- Preferential formulary placement for affiliated pharmacies or manufacturers
- Network design favoring owned clinics and providers
- Reimbursement practices that disadvantage independent competitors
These practices can reduce market entry and survival for smaller providers, particularly those serving low-income or high-need populations. From an antitrust perspective, foreclosure effects weaken competition and entrench market power, raising barriers that disproportionately affect vulnerable consumers.
Network Design and Reduced Consumer Choice
Narrow networks are often justified as cost-control mechanisms. However, when implemented by dominant firms with limited competitive pressure, they may function as non-price restraints that reduce consumer choice without corresponding efficiency gains.
For vulnerable populations—especially those with chronic conditions, disabilities, or geographic constraints—restricted networks can significantly limit access to appropriate care. Antitrust analysis increasingly considers whether such constraints are necessary for efficiency or instead reflect the exercise of market power.
Market Exit and Service Retrenchment
Dominant healthcare firms possess the ability to exit unprofitable markets or discontinue services with minimal competitive consequence. Insurer withdrawals from public marketplaces, closure of clinics, or consolidation of pharmacy locations can leave entire communities with limited or no alternatives.
From a regulatory standpoint, such exits may indicate that market concentration has reduced redundancy and resilience within healthcare markets. The resulting access gaps disproportionately affect populations with limited geographic or financial mobility, reinforcing concerns about consumer harm and market failure.
Information Asymmetry and Diminished Consumer Agency
Effective competition requires informed consumers capable of comparing price and quality. Concentration exacerbates information asymmetry by reducing transparency in pricing, formulary design, and coverage decisions.
Vulnerable populations face heightened challenges in navigating these complexities, diminishing their ability to discipline firms through market choice. This reduction in consumer agency further weakens competitive constraints and supports antitrust intervention grounded in consumer protection.
Cumulative Harm and Structural Inequity
Importantly, the harms associated with concentration are cumulative rather than isolated. Price increases, reduced choice, foreclosure, and market exit interact to create structural inequities that persist over time.
Antitrust and regulatory frameworks are increasingly attentive to such cumulative effects, particularly in essential markets like healthcare. When consolidation produces durable disadvantages for specific populations, it signals not only market power but also a failure of competitive mechanisms to protect consumer welfare.
Implications for Antitrust Enforcement and Regulation
The disproportionate impact of healthcare consolidation on vulnerable populations provides a compelling basis for:
- Heightened scrutiny of vertical mergers
- Stronger evidentiary standards for claimed efficiencies
- Ongoing post-merger monitoring and behavioral remedies
- Integration of access and equity metrics into competitive analysis
Incorporating these considerations aligns antitrust enforcement with the realities of healthcare markets, where competition failures have direct and measurable consequences for public welfare.
Policy Options and Regulatory Considerations
Exhibit 5. Policy Options and Regulatory Considerations
This exhibit illustrates the relative emphasis of major policy tools used to address healthcare market concentration. Antitrust enforcement and transparency requirements represent the largest areas of regulatory focus, followed by pharmacy benefit manager oversight, support for market entry, and consumer protection measures. Together, these tools reflect a multifaceted regulatory approach aimed at preserving competition, improving affordability, and protecting access to care.
Enhanced Antitrust Enforcement
Greater scrutiny of mergers that combine insurance, PBMs, pharmacies, and care delivery could help preserve competition.
Transparency Requirements
Improved disclosure of pricing, rebates, and internal contracting arrangements may reduce information asymmetry and promote accountability.
Support for Independent Providers
Targeted policies could help maintain diverse provider ecosystems, particularly in underserved areas.
Consumer Protections
Regulations aimed at network adequacy, continuity of care, and affordability can mitigate some risks associated with concentration.
Conclusion
The increasing concentration of the U.S. healthcare system reflects a structural transformation rather than a series of isolated corporate decisions. Vertical integration among insurers, pharmacy benefit managers, pharmacies, and care delivery organizations has reshaped how healthcare is financed, delivered, and priced. While consolidation is often justified on the grounds of efficiency, coordination, and cost containment, the evidence suggests that these benefits are unevenly distributed and frequently offset by reduced competition, diminished transparency, and higher costs borne by consumers.
The case of vertically integrated healthcare conglomerates illustrates the limits of relying solely on market forces to discipline essential services. Healthcare markets differ fundamentally from traditional consumer markets: demand is inelastic, information asymmetry is pervasive, and consumers often lack the ability to substitute or exit when prices rise or access narrows. In this context, consolidation can translate into durable market power even in the absence of a single-firm monopoly, producing outcomes functionally similar to monopolistic behavior.
From a legal and policy perspective, this reality challenges narrow interpretations of antitrust harm that focus exclusively on short-term price effects. As the analysis demonstrates, market concentration can generate a constellation of downstream effects—including provider foreclosure, network restrictions, service retrenchment, and regressive cost burdens—that cumulatively undermine consumer welfare and system resilience. These harms are particularly salient for vulnerable populations, whose limited economic and geographic mobility reduces their capacity to absorb or avoid adverse market outcomes.
The persistence of these effects underscores the importance of a comprehensive regulatory approach. Antitrust enforcement remains a central tool for preventing excessive consolidation and preserving competitive market structures. However, enforcement alone is insufficient. Transparency requirements, targeted oversight of intermediaries such as PBMs, policies that support market entry, and robust consumer protections all play essential roles in mitigating the risks associated with concentration. Together, these measures help ensure that efficiency gains, where they exist, are translated into tangible benefits for patients rather than captured solely by corporate entities.
Ultimately, the challenge facing policymakers is not to reject integration outright, but to distinguish between consolidation that enhances value and consolidation that entrenches power. Achieving this balance requires sustained regulatory vigilance, empirical evaluation of market outcomes, and a willingness to adapt antitrust frameworks to the unique characteristics of healthcare markets. As consolidation continues to shape the future of U.S. healthcare, the stakes extend beyond economic efficiency to questions of affordability, access, and the equitable distribution of care.
A healthcare system that serves the public interest depends not only on innovation and scale, but on competitive structures that align corporate incentives with societal needs. Ensuring that alignment remains one of the central policy challenges of modern healthcare governance.
References
Government & Regulatory Sources
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Horizontal Merger Guidelines.
DOJ/FTC Antitrust Division. - Federal Trade Commission.
Vertical Merger Guidelines.
FTC Bureau of Competition. - Congressional Budget Office (CBO).
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U.S. Congress. - Government Accountability Office (GAO).
Prescription Drugs: Role of Pharmacy Benefit Managers.
GAO Reports to Congressional Committees.
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The Industrial Organization of Health-Care Markets.
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Paying a Premium on Your Premium? Consolidation in the U.S. Health Insurance Industry.
American Economic Review. - Cutler, D. M., & Scott Morton, F. (2013).
Hospitals, Market Share, and Consolidation.
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Health Affairs.
Professional & Medical Associations
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Pharmacy Benefit Managers & Drug Pricing
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Drug Channels Institute. - Medicare Payment Advisory Commission (MedPAC).
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JAMA.
Corporate & Industry Disclosures
- CVS Health Corporation.
Annual Report and Form 10-K Filings.
U.S. Securities and Exchange Commission. - Aetna Inc.
Public Filings and Merger Documentation.
Equity, Access, and Socioeconomic Impact
- Institute of Medicine (National Academies).
Unequal Treatment: Confronting Racial and Economic Disparities in Health Care. - Commonwealth Fund.
How Health Care Consolidation Affects Low-Income and Vulnerable Populations. - Kaiser Family Foundation (KFF).
Health Insurance Market Concentration and Consumer Costs.