The following interview with Mark Cuban, entrepreneur and co-founder of Cost Plus Drugs, was conducted by a SoMeDocs member seeking to better understand prescription drug pricing, pharmacy benefit managers, and the challenges physicians and their patients face in navigating the system.
Clinicians are seeing more patients in less time than ever. After we write a prescription, there is rarely a spare minute to guide the patient through actually getting it filled at a reasonable price. We hit “send,” hope for the best, and move on to the next room.
Meanwhile, the patient is left on their own to figure out a convoluted system with minimal transparency behind prices. Nobody can tell them what the drug will cost until they are standing at the pharmacy counter, and by then the number could be anything. Who knows how many of our prescriptions are quietly abandoned right there. And when the system does loop us back in, it is usually to demand a prior authorization for something like tretinoin, a drug that has been on the market for more than 50 years.
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I had the privilege of asking Mark Cuban, entrepreneur and co-founder of the Mark Cuban Cost Plus Drug Company (Cost Plus Drugs), why the system is so messed up and what Cost Plus Drugs does differently. If terms like pharmacy benefit manager (PBM) and wholesaler are unfamiliar, I strongly encourage you to start with the glossary at the end of this article. You can’t change a system you don’t understand.
- Most physicians have no idea what a PBM is. What is it, and why does it make drugs so expensive?
They are the middlemen that control the pharmaceuticals in your patients’ insurance plans. They try to make as much as they can in fees and margin on drugs from all stakeholders: pharmacies, manufacturers, patients, providers and more.
Not only do they extract money where they can, they make sure that every contract has a gag clause. This clause makes it impossible for the market to be efficient. Which keeps prices high.
- Skyrizi has a reported list price of more than $20,000 per dose, yet a commercially insured patient with the manufacturer’s copay card often pays almost nothing. Who is actually footing the bill for expensive biologics?
The employers and taxpayers pay the difference, with the manufacturer absorbing some of the cost.
- Most patients with employer coverage are in plans where the employer pays these bills directly. Why do employers keep signing such expensive contracts, and what stops them from switching to something cheaper?
They are dumb. Truly. All they would have to do is run their contracts through AI and ask where they are getting ripped off. That alone would save them a fortune.
I’m trying to educate CEOs to do this. Hopefully they will.
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- Tools for real-time prescription benefit checks technically exist, but most physicians have never heard of them, let alone used one. Why is it not standard for our EHRs to show what a prescription will cost the patient, given their insurance or lack of it, before we hit send?
HHS is working on it. But it’s expensive and no one wants to pay for it.
- Why do insurers require prior authorizations for some cheap, effective generic drugs?
So they can deny them, knowing a material percent of patients won’t appeal.
It’s the same with copays that are more than the medication costs.
It’s part of the middleman scam from the big healthcare conglomerates.
- The National Average Drug Acquisition Cost (NADAC), which tracks what pharmacies pay on average, shows that some decades-old generics remain expensive, far above the cost of their raw ingredients (despite years of investigations into price fixing by generic drug manufacturers). Why is that?
The wholesalers charge a premium for generics to make up for the PBMs preventing them from making a markup on brand and specialty drugs.
I’m hoping the DOJ will finally take this on.
- How are Cost Plus Drugs’ prices so much lower than what patients pay at a typical pharmacy, and why don’t more pharmacies do the same thing?
We buy directly from manufacturers. And we work outside the PBM system. Most pharmacies need access to brands for claims by patients that have insurance. That forces them to pay a premium to wholesalers. It’s called the generic compliance ratio. It’s crazy.
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- What pushback have you gotten from regulators or legacy industry players for trying to disrupt a broken system?
They love it. The PBMs hate us.
- Cost Plus Drugs offers affordable prices on many drugs, but not every drug is available. Which categories are hardest to offer through Cost Plus, and why?
We don’t have many brands because the big PBMs threaten the manufacturers. They tell them if they work with Cost Plus they will reduce the number of patients available to them, by reducing their placement in their formularies.
- What can physicians do to take back control over their own practice and help their patients?
You know what drugs you prescribe. If your state allows it, I would take a look at also fulfilling at your practice. Where you can charge a fee for the service.
Glossary
The Players:
Pharmacy Benefit Manager (PBM): A company hired by insurers and employers to manage prescription drug benefits. PBMs decide which drugs are covered, negotiate rebates from manufacturers, and set what pharmacies are paid. The three largest handle most U.S. prescription claims, and each shares a parent company with a major insurer.
Drug Manufacturer: The company that makes a drug and sets its list price. Brand manufacturers sell patent-protected drugs, while generic manufacturers sell copies once patents expire.
Wholesaler: A distributor that buys drugs from manufacturers and resells them to pharmacies and hospitals. Three companies control the vast majority of U.S. drug distribution.
Pharmacy: The business that dispenses the drug to the patient. Retail pharmacies fill prescriptions in person and typically buy through wholesalers and get paid through PBM contracts. Mail-order pharmacies ship directly to patients.
Self-Funded Employer: An employer that pays its employees’ health claims with its own money instead of buying insurance. Most large employers work this way, and they hire an insurer and a PBM only to administer the plan.
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So they can deny them, knowing a material percent of patients won't appeal.
Key Terms:
List Price: The price a manufacturer publicly sets for a drug before any rebates or discounts. For brand-name drugs, the net price that the manufacturer keeps after rebates and other discounts is often far lower.
Rebate: A payment a manufacturer makes to a PBM after a drug is dispensed, usually in exchange for favorable placement on the formulary. The PBM passes most of it on to the insurer or employer, but a drug with a high list price and a large rebate can earn the PBM more than a cheaper alternative.
Formulary: The list of drugs a health plan covers, sorted into tiers that determine what patients pay and what restrictions apply. PBMs control formulary placement, which gives them leverage over manufacturers.
Gag Clause: A contract provision that bars one party from disclosing prices or terms. When nobody can compare what others are paying, nobody can tell whether they are getting a fair deal. Federal law has banned some forms, but confidentiality terms covering rebates and net prices remain common.
Generic Compliance Ratio: The share of a pharmacy’s total purchases from its primary wholesaler that are generics. Wholesaler contracts tie rebates and brand discounts to hitting a target ratio, which pushes pharmacies to buy generics from that wholesaler even when cheaper sources exist.
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Editor’s note: The views and claims expressed in this interview are those of the interviewee and do not necessarily reflect the positions of SoMeDocs. Responses have been presented for informational purposes.
About Cost Plus Drugs: Mark Cuban is the co-founder of Cost Plus Drugs, a company working to bring greater transparency to prescription drug pricing. Additional information about the company’s pricing model, medication availability, and operations can be found on its website.
