While everyone seems to be talking about the rising cost of healthcare, very few have noticed the big corporations that have been quietly distorting clinical decision making and inflating costs across the system. Drug wholesalers are reshaping the structure of American healthcare, and the consequences are impossible to ignore. The entities that deliver drugs to pharmacies and medical practices are acquiring the practices themselves.

A recent New England Journal of Medicine article, Pharmaceutical Wholesalers – Under the Radar Middlemen? warns that wholesalers have become powerful and largely unexamined players inside the healthcare supply chain. The article documents how these firms have evolved into sprawling conglomerates that own group purchasing organizations (GPOs), data companies, specialty pharmacies, management services organizations (MSOs), and increasingly the medical practices that prescribe high-cost drugs.

One would think that wholesalers merely buy and distribute products. That is no longer the case.

Three companies control virtually the entire drug wholesaler market in the United States. McKesson, Cardinal Health, and Cencora account for an astonishing 98 percent of the sector. Now they are purchasing and partnering with the medical practices that diagnose illness and prescribe the very drugs that the wholesalers sell.

This wave of vertical integration can be found in oncology, ophthalmology, urology, gastroenterology and other specialties that rely heavily on expensive buy and bill drugs. The wholesalers have spent more than sixteen billion dollars across eight major transactions with publicly known values.

Cencora has taken large stakes in networks such as Retina Consultants of America and OneOncology. Cardinal Health has bought into GI Alliance, Specialty Networks, and, most recently, Solaris Health. McKesson, which kicked off this phenomenon in 2010 by purchasing US Oncology Network, has since purchased PRISM Vision Holdings. These acquisitions are accelerating.

Wholesalers present these arrangements as benign partnerships that preserve the independence of medical practices, but the incentives attached to the new role wholesalers are playing are deeply misaligned with patient interests.

When a wholesaler owns or controls a medical practice, the wholesaler gains the ability to influence what drugs are prescribed and purchased. A practice that depends on its corporate parent for equipment, billing, contracting, and staffing has little ability to push back.

Research on private equity acquisitions in specialties such as ophthalmology and gastroenterology has found increased prices after consolidation. It stands to reason that wholesaler ownership would produce the same outcome.

A wholesaler that owns dozens or hundreds of practices can lock up a significant portion of drug purchasing volume, effectively blocking competition which would lower prices. Instead of passing along lower drug acquisition costs, wholesalers can use their market power to extract higher reimbursement for the practices they control. Insurers and patients eventually bear the cost.

The use of multiple affiliated entities such as wholesalers, group purchasing organizations, and MSOs creates arrangements that may violate the federal Anti-Kickback Statute and various prohibitions on the corporate practice of medicine. Policymakers must scrutinize these structures as the potential for abuse is clear.

There are real-world examples of wholesaler misconduct in Louisiana’s distributor community. Last year, Morris & Dickson, a Shreveport-based wholesale distributor, settled with the Department of Justice for failing to report suspicious opioid orders to the DEA, paying a $13.75 million fine.

Independent physicians’ practices in today’s highly regulated healthcare system face rising costs, aggressive payer negotiations, and compliance burdens. Wholesalers pitch themselves as a friendly solution to the management issues, reporting requirements, and red tape.

Without intervention, wholesalers will continue to capture more of the drug channel and the clinical environment that depends on it. In Louisiana, where healthcare funding is tight and many providers face financial strain, those outcomes could be damaging. Vertical integration by wholesalers could lock practices into a pattern that prioritizes profit over patient care.

Legislators in Louisiana should explore ways to limit wholesaler ownership of medical practices or at least require transparent reporting. State regulators should monitor affiliations between wholesalers, GPOs, and physician networks to ensure that referral patterns and drug procurement don’t fall prey to self-dealing.

Without oversight, the unchecked consolidation of the pharmaceutical distributors could erode the independence of Louisiana’s medical practices, raise costs for patients, and concentrate power in a few corporate hands.