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Pharmaceuticals

What Happened When Mark Cuban ‘Opened the Kimono’ on Drug Pricing?

Two years in, Cuban discussed the evolution of Mark Cuban Cost Plus Drug Company and why he picked the pharmaceutical industry to disrupt on a Business Group on Health podcast.
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The Mark Cuban Cost Plus Drug Company is in a simple business, according to its eponymous founder and former “Shark Tank” host: buying and selling drugs. The reason Mark Cuban’s company has seen so much growth and success, he says, is because of transparency that builds trust with consumers.

Cuban sat down with the CEO of the Business Group on Health, Ellen Kelsay, to discuss the changing nature of Cost Plus and how he sees future disruption in the pharmaceutical industry on the Business Group on Health’s podcast. The organization represents large employers’ perspectives and interests on improving health, benefits, well-being solutions, and health policy.

The pharmaceutical industry, Cuban says, is lacking trust because there is no transparency between what payers are buying and the actual cost of those products. Rebates, spread pricing, and intermediaries like pharmacy benefit managers obfuscate the costs of these products. Cuban says he likes to target industries where prominent players control most of the market, leaving room for disruption by smaller companies that can be more agile, responsive, and focused on the customer. “That’s why this is such a simple business because we didn’t do anything hard; we just opened the kimono,” Cuban told Kelsay.

He has aimed to do just that with Mark Cuban Cost Plus Drug Company, which he launched with founding CEO Dr. Alex Oshmyansky. The company began selling drugs via a transparent model exactly two years ago today. It allows buyers to see the cost of the drug, the markup by the company, and the price paid by the customer. That level of transparency has attracted individuals looking for lower drug prices, payers who want to save money, and manufacturers tired of dealing with PBMs. The company now works with employers and sells around 1,500 different drugs.

Knowing the markups that occur when buying drugs through traditional insurance companies and PBMs, Cuban expected that his 15 percent markup would provide dramatically lower drug prices for many, even when purchasing outside insurance. He didn’t expect that the transparency provided by Cost Plus would serve as a benchmark to compare to what others were selling and how much employers were paying. The Annals of Internal Medicine published a study last year that said that Medicare could have saved $3.6 billion in one year if it had bought its generic drugs through Cuban’s company.

So where is the company going? Cuban says that when he looks ahead five to ten years, he envisions Cost Plus selling every branded medication through a network of independent pharmacies disconnected from the big three PBMS, which are also owned by insurance companies: Caremark (CVS Health), Express Scripts (Cigna), and OptumRx (UnitedHealth Group). “If you have no rebates and you’re transparent, we’ll work with anybody,” he told Kelsay.

The only entities who benefit from the current system are the big PBMs, and Cuban sees as much frustration from often-maligned manufacturers who want their drugs to be cheaper as he does with buyers of the drug. The PBMSs are large enough to squeeze the manufacturers and the consumer from both ends. He says many manufacturers are rooting for companies like Cost Plus working outside the traditional insurance and PBM system.

Cuban says he has put his benefits where his mouth is (they call it Project Alpo for his employees, where they eat the metaphorical dog food they make) and investigated his own employees’ benefits. He ditched his benefits consultant and moved all drug purchases over to Cost Plus, shrinking his pharmacy costs from $160,000 to $19,000 in a period of 18 months for his Dallas Mavericks employees alone.

Despite the success, Cost Plus depends on competition in the drug market to be effective. A company manufacturing the popular weight loss GLP-1 drugs can’t make enough of them, so they can charge whatever they want. But as competition increases, all the drugmakers won’t be able to get on every formulary, and Cost Plus will be there, ready to make a deal.

Though building a health plan outside the traditional system is time-consuming, he hopes his company’s groundwork will serve as a template for other companies to follow. When he meets with CEOs, he asks them if they are getting a rebate or cash back on drugs, and they almost always are. “You don’t think this is free money where they’re just giving it to you, are you? No. Well, who do you think is paying for it?” he asks. He found that it is a company’s sickest employees, who meet their deductibles every year, suffer from chronic illness, and have high drug costs, who are footing the bill.

Cuban wanted to go on the podcast to connect with employers to let them know they don’t need to continue with the status quo. He says there is another path that will help the company’s bottom line and employees’ pocketbooks. “If five of the Fortune 100 stop dealing with benefits consultants, stop dealing with their insurance companies, stop dealing with rebates and PBMs that use rebates, over the next three years, the industry changes. If 25 of them do, the industry is revolutionized,” Cuban said on the podcast. “The game is over. It changes.”

Listen to the full podcast here.

Author

Will Maddox

Will Maddox

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

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