Mark Cuban Says He Has the Prescription for High, Opaque Drug Pricing

A new online pharmacy founded by Mark Cuban, billionaire investor and Dallas Mavericks owner, hopes to be a slam dunk when it comes to drawing in consumers who are seeking an alternative to paying high prices for essential drugs. The Mark Cuban Cost Plus Drug Company launched in January and offers what it claims are the lowest prices available on 100 generic drugs.

With this online pharmacy, “consumers can get access to routine drugs at lower costs, forcing other organizations in the industry to meet or beat it,” says Amel Hammad, managing director and leader of the healthcare industry practice of Riveron Consulting.

A major part of Cuban’s pharmacy pitch is that it will be transparent about pricing. The new pharmacy says it sets prices based on the cost to manufacture the drug, plus a 15% markup for each drug it dispenses, and a $3 charge for labor. The consumer pays for shipping. In the press release announcing the venture, Cuban’s online pharmacy held up Gleevec (imatinib), a cancer drug, as an example, stating that Gleevec retails for $9,657 per month, but the generic version can be purchased through the new online pharmacy for just $47.

Cuban’s online pharmacy is also promising good deals on less expensive drugs. The company’s website is pricing a 30-day supply of lisinopril, a blood pressure medication, at $3.60. The company says, by contrast, a 30-day supply sells for $24 at retail pharmacies. However, that is a bit misleading, because GoodRx lists prices that are less than half that at several retail pharmacies with a price of
$4 for a 30-day supply.

Cuban’s new company doesn’t accept insurance payment, so anyone buying drugs from the online pharmacy will be paying out of pocket. But “often, the same drug is cheaper than it is with an insurance copay,” says Lovisa Gustafsson, MBA, vice president at the Commonwealth Fund, a foundation that focuses on healthcare research.

Hunger for lower prices

Cuban is starting his pharmacy when there is widespread discontent with the drug costs. President Joseph R. Biden mentioned high drug prices in his State of the Union address in February. According to the federal government actuaries, expenditures on prescription drugs topped $348 billion in 2020, which is up 3% from the previous year. A study released this past year by RAND Corporation found that prescription drug prices in the United States were, on average,
2.56 times higher than in the 32 other countries in the study. For brand-name drugs, U.S. prices averaged 3.44 times higher. However, generic drug prices in the U.S. were slightly lower. Generic drugs account for almost 85% of drugs that are sold in the U.S. but just 12% of spending, RAND found.

Poll results released in September by Gallup showed that
18 million Americans couldn’t afford at least one of their medications in the previous three months. The problem of affordability was especially serious for those earning less than $24,000 per year. However, the pricing of drugs in the U.S. is complicated by a web of rebates and discounts that separate the stated price from the one actually paid. By some accounts, trends in net prices paid by insurers and other payers have been flat and have even dipped in recent years.

Cuban’s online pharmacy may be particularly attractive for those who pay out of pocket for their prescriptions, which is a group that would include people without insurance or those who have signed up for a high deductible plan, says Stacie Dusetzina, Ph.D., associate professor of health policy at Vanderbilt University. However, “the challenge is that they are somewhat limited in scope,” Dusetzina says, noting that Cuban’s pharmacy is offering only a limited selection of generic drugs. In addition, Hammad says the new online pharmacy may help address access because of the mail-order delivery, although mail-order delivery is hardly unique to Cuban’s new pharmacy.

Cutting out the “bouncers”

The inspiration for Cuban’s pharmacy came from an email Alex Oshmyansky, M.D., Ph.D., sent to Cuban, who is perhaps best known for being one of the investors on the television show, “Shark Tank.” Oshmyansky, a radiologist who earned his medical degree from Duke University and trained at Harvard University and Johns Hopkins, was seeking investment in his company, Osh’s Affordable Pharmaceuticals, according to Texas Monthly. Oshmyansky had set up the company to purchase generic drugs directly from manufacturers and sell them to pharmacies, thereby cutting out the pharmacy benefit managers (PBMs).

In an interview with NPR, Cuban said he asked Oshmyansky, who now serves as CEO of Cuban’s online pharmacy, “Can we cut out the inefficiencies?” Cuban’s company has created its own PBM to work with the manufacturers, and later this year, the company is set to open a manufacturing facility in Dallas.

On NPR, Cuban likened PBMs to “bouncers at a club,” saying they are “controlling access to all the big insurers. And if you want this insurance company to sell your drug, you’ve got to pay the cover charge,” which comes in the form of rebates paid by drugmakers. When the Wall Street Journal reported on Cuban’s new enterprise in October 2021, months before the official announcement, the newspaper
charaterized the venture as a PBM.

Cuban’s operation has “found a way to address pain points around prescription drugs by going directly to the manufacturers to avoid the markup created by the healthcare industry while cutting out the middlemen of third-party insurance and pharmacies,” Hammad says.

Ventures such as Cuban’s are a “pushback against middlemen,” Gustafsson says. “(It will be) interesting to see how successful they are,” Gustafsson says, especially as they scale up their offerings over time.

Because the new pharmacy doesn’t take insurance and only offers a subset of generic drugs, Dusetzina says she’s unsure of how disruptive this would be to a PBM.

Other disrupters

Cuban’s venture is “one in a broader trend of new entrants to the pharmaceutical supply chain,” Gustafsson says. Amazon also has an online pharmacy, she notes. Prices are posted on the website and payments from most major insurers are accepted. In addition, Amazon Prime members get extra savings. Prime members save up to 80% on generic medications and 40% on brand names when paying without insurance, according to the website.

Gustafsson also mentions Civica Rx, a nonprofit drug manufacturer that produces generics for hospitals and health systems. In early March, Civica announced that it plans to manufacture and distribute low-cost insulin. Consumers can also use GoodRx, which tracks drug prices and offers discounts and coupons. “GoodRx has done a lot to be a household name,” Dusetzina says.

Also in the wings is EQRx, a company founded two years ago that aims to produce drugs that are very similar to existing medications and can be brought to market quicker and less expensively than drugs developed by other drugmakers.

Gustafsson says the new entrants in the drug supply chain could eventually have an impact on PBMs if the companies wind up negotiating on behalf of fewer people.

“Innovators in healthcare understand the pain points consumers are encountering,” Hammad says. “They recognize many people are willing to take the private-pay approach, and not utilize insurance or any third-party payer, to avoid the administrative burden.”

Susan Ladika is an independent journalist in Tampa, Florida, who covers business and healthcare.