The Middleman’s Final Form

Earlier this week, the data wizards at 46Brooklyn Research released one of the best—and most disturbing—reports I’ve read in a while. It builds on something I’ve been writing about for months: how vertical integration has quietly transformed the drug industry from a competitive marketplace into a closed-loop system where the same few corporations own the insurer, the pharmacy benefit manager (PBM), and even the pharmacy itself.

Their new research reveals what happens when those same companies add “manufacturer” to that list—and start selling drugs to themselves.

In theory, PBMs exist to hold drugmakers accountable. They’re supposed to negotiate prices on behalf of employers and health plans, keep costs down, and ensure patients get affordable access to medication.

But what happens when the PBM also owns the drug company it’s supposed to negotiate against?

That’s the question 46Brooklyn just answered. Over the past few years, each of the Big Three PBMs has launched its own private-label drug manufacturer:

These subsidiaries produce generic and biosimilar medications—often just by contracting with outside manufacturers and slapping their own label on the bottle. On paper, it looks like healthy competition. In practice, it’s the first step in another colossal PBM scam.

Because when a PBM owns the manufacturer, wholesaler, and pharmacy, it controls the price at every step—and the “discounts” it reports to clients become accounting illusions rather than real savings.

To understand the trick, you have to learn a little about how drug prices are set—or at least how they appear to be set.

Every medication has a so-called Average Wholesale Price (AWP). It sounds official, but it’s basically the drug industry’s equivalent of an MSRP: a made-up sticker price that nobody actually pays. Contracts between PBMs, insurers, and pharmacies often peg reimbursement to AWP, usually expressed as a discount—say, AWP minus 85%.

Here’s the catch: the higher the starting number, the better the PBM looks when it says it “negotiated a discount.” If AWP is inflated, everyone in the chain can claim victory—except the patient and the employer footing the bill.

A simple analogy: if you’re buying a car, what sounds better?

In the end, it’s the same payment—but Option B sounds like a deal to the buyer.

This isn’t a new problem. Regulators called AWP “a faux price unrelated to actual drug prices” more than a decade ago. Lawsuits in the mid-2000s were supposed to kill it off. Instead, the industry just learned to live with the corpse. Nearly every PBM contract in America still uses AWP as the reference point, even though it’s completely divorced from reality.

As 46Brooklyn puts it, “AWP didn’t go extinct,” it evolved.

The report focused on Quallent, Cigna’s private-label drug arm, and what it found was stunning. Across thousands of products, Quallent’s AWPs ranked near the top of the market—sometimes dozens of times higher than competing generics—while its own internal cost basis was among the lowest.

Translated from research-speak: the PBM set the list price sky-high, then negotiated itself a deep “discount,” and then reimbursed its own pharmacy based on the inflated number. At the end of the day, it’s the employer sponsoring the insurance plan (and the patient) who foots the bill at the sky-high price.

Here’s a simple example:

That means the PBM will pay $15 for Company A’s product and $150 for its own—ten times more money for the same drug, while still bragging about giving an “85% discount.”

If you’re the PBM, that’s a dream scenario. You make more on the spread, your rebate is bigger, and you get to tell your clients you saved them $850 on their prescription instead of $85.

If you’re an employer or taxpayer, it’s legalized pickpocketing.

To prove the point, 46Brooklyn zoomed in on one specific drug: imatinib, the generic version of Gleevec, a life-saving leukemia medication.

When the drug went off-patent, competition should have driven prices down dramatically. Instead, Quallent entered the market with an AWP about 17% higher than the market average and roughly 7,000% higher than the cheapest competitor, Archis Pharma.

Despite the inflated price, Quallent captured a meaningful share of prescriptions through its own pharmacy network—pharmacies owned by the same parent company that owned the PBM that owned the manufacturer. Each PBM-owned pharmacy can decide which manufacturer’s version to buy—and they often pick their parent company’s.

Medicare data showed that a single Quallent prescription cost thousands more than equivalent generics sold through independent pharmacies. At the same time, companies like Mark Cuban’s Cost Plus Drugs were selling a year’s supply for less than one month’s cost under the PBM model.

That isn’t inefficiency—it’s engineered greed, built into the system.

Vertical integration has created a self-dealing feedback loop where profits flow in circles.

Try to follow along here:

The higher the sticker price, the more everyone inside the ecosystem can bill, rebate, and report as revenue. Even the government plays along, because its contracts are pegged to the same outdated benchmarks.

It’s the perfect business model—unless you’re the one paying for it.

46Brooklyn found that Quallent’s AWPs averaged 38 times higher than its own internal cost benchmark (the Wholesale Acquisition Cost, or WAC). In some cases, the spread was over 200x.

That means the same corporation was effectively buying from itself at one price and selling to itself at another—then using the inflated “list” number to calculate rebates, co-pays, and “performance guarantees.”

If you tried to pull that trick in any other industry, it would look like fraud. In healthcare, it’s just the business model.

PBMs claim these arrangements help fund lower premiums and no-cost drugs for patients. But when list prices balloon and discounts are measured against fiction, those savings rarely trickle down.

Employers still pay the inflated base price. Patients still get co-pays based on it.
And independent pharmacies get squeezed out entirely because they can’t buy or bill on the same terms.

And of course, the entire scheme is designed to be so confusing that nobody ever figures it out!

If this all sounds insane, that’s because it is—but it’s not irrational. The system rewards opacity. The people writing the contracts are the same ones profiting from them.

Since most plan sponsors never see the raw data, they judge PBMs by the size of their “discounts” instead of the truth behind the math.

That’s why the AWP benchmark—this fossil from the 1970s—still controls a trillion-dollar industry in 2025. It’s the perfect decoy.

Every party gets to point the finger somewhere else:

46Brooklyn’s report ends on a brutal truth: the system didn’t break—it adapted. Like any species in a hostile ecosystem, the drug channel evolved to survive. Patients are just collateral damage in the food chain.

The report compares today’s PBMs to their evolutionary ancestors—drug wholesalers who long ago discovered that private-label generics could generate massive profit spreads. PBMs simply took that playbook and added control over insurance benefits, creating a vertical monopoly from factory to formulary.

It’s a closed ecosystem where every dinosaur learned to eat the smaller ones—and where every attempt to introduce transparency gets treated as an invasive species.

All of this explains why drug pricing reform feels like running on a treadmill. Every time Congress or the FTC threatens to crack down, the industry mutates.

As 46Brooklyn put it, “The environment doesn’t reward companies that make us healthier—it rewards those who control the definition of cost.”

That’s why PBMs tell Congress they want “lower prices” while publishing price lists that are anything but. The game isn’t about selling drugs—it’s about controlling the benchmark that defines what a drug costs in the first place.

Vertical integration and PBM middlemen didn’t eliminate waste—they became the waste.

When you hear a PBM executive or politician claim they’re “reducing drug costs,” remember this: the people negotiating your discounts are also setting your prices.

And in this system, the only number that never goes down is profit.

Just another day in America’s drug supply chain, where the house always wins.

Alec Wade Ginsberg, PharmD, RPh
4th-Gen Pharmacist | Owner & COO, C.O. Bigelow
Founder, Drugstore Cowboy