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Healthcare

Cost Plus at CVS: Mark Cuban’s Drug Company Is Disrupting the Biggest Players in Healthcare

CVS Health announced a cost-plus model last week in a major win for drug price transparency.
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Last year, Mark Cuban told “How I Built This Host” Guy Raz that his company was still too small for the prominent pharmacy benefit managers to take notice of how the Mark Cuban Cost Plus Drug Co. was changing the way medicines were bought and sold in the U.S. But, according to an announcement made by CVS last week, the major players in healthcare are taking notice of the way Cuban and other drug companies are doing business and creating savings for patients.

CVS Health announced last week that the company will be launching a pharmacy model that adds transparency and simplicity to what has long been a complicated and costly drug pricing model. CVS CostVantage will now define the drug cost and related reimbursement with the contracted pharmacy benefit managers and payers with a transparent formula built off the drug’s price with a set markup and fee–the exact cost-plus model used by Cuban’s company and others. The plan will launch with commercial payers in 2025.

“We are leading with an approach that will shift how our retail pharmacy is compensated by implementing a more transparent and sustainable model that fairly aligns pharmacy reimbursement to the quality services we provide,” said Prem Shah, chief pharmacy officer and president of pharmacy and consumer wellness of CVS Health. “It provides our PBM and payor clients a foundational step towards more pricing clarity for consumers.”

CVS Health will also launch TrueCost in 2025, which will offer the ability to find the actual cost of prescription drugs, including administrative fees. The initiative is meant to help customers know the price of the medications and if the seller is giving them a fair price.

Cuban and his company’s CEO, Dr. Alex Oshmyansky, have talked about how they wanted the company to prove that the model could be successful, inspiring patients to demand more drug price transparency and other leaders to provide it. “At the end of the day, if the big guys have undercut our prices, I will be happy as a clam,” Cuban told Raz last year. “So will millions of patients who are paying a fraction of what they were last year.”

CVS and Cost Plus aren’t the only ones pursuing alternative payment models for prescription drugs. Waco-based ScriptCo offers members generic prescription drugs at cost after they pay an annual membership fee. The company’s profits come from the membership fee, and like Cuban’s venture, it operates primarily outside of the health insurance space.

Even though the companies don’t work with major insurers, cutting out the pharmacy benefit manager allowed them to offer prescriptions at lower prices than the patients could get when using their insurance. Pharmacy benefit managers, the massive organizations between patients and manufacturers, have historically had enough buying power to squeeze manufacturers’ margins while extracting significant profits from patients.

According to the Center for American Progress, Americans spent 50 percent more on prescription medication in 2018 ($535 billion) than in 2010, easily outpacing inflation. Pharmaceutical companies increased prices on their most prescribed drugs from 40 to 71 percent between 2011 and 2015.

Oshmyansky has found that many drugmakers prefer to work with his company because, by eliminating the middleman, they can often sell to customers for less and pay manufacturers more. According to Harvard research, Medicare would have saved nearly $4 billion in 2022 if it had purchased all its medicine through Mark Cuban Cost Plus.

As innovators continue to provide cheaper medicines to patients, the industry is forced to adjust. CVS Health’s new programs are evidence of shifting expectations for patients. “We are successfully executing on our strategy to advance the future of health care while unlocking new value for consumers,” said CVS Health President and CEO Karen S. Lynch. “The combination of our businesses, and the key growth areas we have invested in, drive our ability to lower the total cost of care, improve health outcomes, and deliver on our commitments to our customers, consumers, and shareholders.”

Author

Will Maddox

Will Maddox

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Will is the senior writer for D CEO magazine and the editor of D CEO Healthcare. He's written about healthcare…

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