OBJECTIVES: Studies published by Aetna and Health Partners have demonstrated the value of integrated medical and pharmacy benefits in their populations.  Combined coverage provides the opportunity for coordinated patient outreach and aligned policy decisions.  The purpose of this analysis is to determine if integrated benefits result in lower total medical costs when compared to plans that utilize a carve-out pharmacy benefit. METHODS: A retrospective matched cohort study was utilized in order to compare the total medical costs associated with customers in integrated health plans with customers with a carve-out PBM.  Individual customers were included if they were continuously enrolled for at least 12 months within the same plan type, had a full set of demographic, risk, and clinical data, and were between the ages of 18 and 65.  The two groups were matched based on demographic, comorbidity, and employer characteristics. RESULTS: This analysis matched 39,896 customers in 2007 (19,948 in each group) and 151,144 customers in 2008 (75,572 in each group) for the final analysis.  Medical costs were $13.77 (p-value 0.067) and $11.39 (p-value 0.006) per customer per month lower for customers with an integrated pharmacy benefit as compared to carve-out customers in 2007 and 2008 respectively.  In 2007 and 2008 the bulk of the savings ($6 and $7 pcpm respectively) were associated with lower utilization of outpatient services. CONCLUSIONS: When controlling for demographic, clinical, and employment characteristics, there is a significant savings associated with integrating medical and pharmacy benefits.