Cost Plus Drugs, the pharmacy backed by billionaire investor and reality TV star Mark Cuban, promised radical price transparency when it launched in January.
Cuban pledged to price every product exactly the same way: consumers would pay the manufacturer’s cost, plus a 15% markup, a $3 handling fee for the pharmacist and $5 for shipping.
The company, which has gained a reported 1.2 million customers, sells more than 1,000 generic drugs. Take the cancer therapy Gleevec, which has a list price for patients of $9,600. The Cost Plus price? $47.
While about 80% of prescription drugs are off-patent, roughly 80% of the $365 billion that the U.S. spends annually on pharmaceuticals goes toward branded drugs. When the business launched, Cuban vowed that he would eventually add brand-name meds to his site.
But if the Dallas Mavericks owner and “Shark Tank” investor has made significant inroads in that space, he’s been quiet about it. The question thus becomes whether Cuban & Co. can eventually sell more expensive medicines, such as specialty biologics, for the same terms under which he’s selling older pills.
Harold Paz, EVP of health sciences at Stony Brook University of Medicine and former chief medical officer at Aetna, referred to Cuban’s healthcare foray as a “disruptive experiment.” But when it comes to delivering low prices on newer medicines, Paz is keeping his expectations in check.
“I do think it offers a promise, given where we are today and the opportunities we have to create a much better alignment with discovery, innovation, value and ultimately improving lives,” Paz said at a recent forum tackling topics including drug pricing.
Today’s healthcare system is notoriously fragmented. The actual price paid by the patient is a composite of multiple – and often siloed – interests. They range from manufacturers to wholesalers and from pharmacies to pharmacy benefit managers and insurers. Removing layers from this equation, in addition to upping transparency, is where Cuban hopes to make an impact.
Drug pricing is a “byzantine world,” noted Joe Paduda, principal at the consultancy Health Strategy Associates. “Cost Plus appears to be able to drastically reduce the price consumers pay for many generic meds, which is a major win.”
Researchers from Harvard Medical School said Cuban’s business model could also benefit health insurers. Medicare, for one, could have saved up to $3.6 billion over one year had the taxpayer-funded health-insurance program for seniors used the new pharmacy to purchase generic meds directly from manufacturers.
As for bringing down the net price of branded therapies, the answer is more nuanced.
“Perhaps I could see Cost Plus passing on the brand rebate dollars to the consumer, which would reduce the price by about a third, on average,” Paduda said.
Meanwhile, Cost Plus has made traction in other ways. The company inked a deal with Rightway, a PBM, in September, Under the terms of that agreement, Rightway members get direct access to all meds offered by Cost Plus.
The new pharmacy needs a distribution channel – and Rightway might be able to assist with that by adding its employer and other payers to Cost Plus’ customer list, Paduda explained. He added that it’s not clear whether Rightway will tack on any extra charges to Cuban’s prices.
The deal also marked a symbolic step toward loosening the hold that the big PBMs have on the market.
Known for being healthcare’s ultimate middlemen, PBMs broker between drug manufacturers and insurers on rebates with drugmakers as well as hammer out details of plan coverage. A few large ones dominate the sector, which is why pharma companies may be loath to sign with an upstart. They might fear being shut out from their lists of preferred drugs, Cuban noted.
“This is an industry that is badly in need of disruption, so Cost Plus is a welcome development,” said Jonathan Oberlander, professor of health policy and management at the University of North Carolina at Chapel Hill. “But much more would have to happen for PBMs’ role in prescription drug pricing to be fundamentally altered.”
PBMs are not exactly holding the line on patient out-of-pocket costs. According to a study published last month in Annals of Internal Medicine, 1.3 million diabetes patients are rationing insulin. That’s a whopping 16.5% of the population surveyed.
“Undoubtedly, for a population with a chronic illness, cost is having a direct and immediate impact,” said Paz of the study results.
But with the total share of GDP coming from health spending projected to reach nearly 20% by 2030, high drug prices are a looming issue for everyone. Consumers understand that the issue goes beyond what they’re paying at retail.
The median annual price of novel drugs approved for chronic conditions by the Food and Drug Administration so far this year is $257,000. That’s well above last year’s median annual drug price of $180,000.
Cuban is planning on opening a drug manufacturing facility in Dallas this month. Still, the facility is relatively small at 22,000 square feet, so capacity is limited.
“If it focuses on a handful of drugs, it might be able to further reduce consumer prices,” Paduda said.
Cuban’s is not the only effort in this regard. CivicaScript, a subsidiary of non-profit Civica Rx, is making generics and partnering with some PBMs and payers. And DiRX, an online pharmacy which debuted in July, offers unlimited access to more than 1,000 generics for a fixed annual fee of up to $300.
The Inflation Reduction Act of 2022 empowered Medicare to negotiate the prices of a limited set of prescription drugs by requiring manufacturers to pay rebates for drugs in Medicare Part D whose price increases exceeded inflation. The newly enacted law also capped out-of-pocket spending for Medicare patients and closed the so-called “donut hole” on Part D drugs.
“Parts of it, we were very supportive of,” said Merck CEO Rob Davis of the new law during the aforementioned forum. “What it did around rethinking Medicare Part D, we very much were in favor of because it did what we believe is the issue; it helped address out-of-pocket costs. Frankly, we wish they had done more in that regard.”
Of the $200 billion the pharma industry committed over 10 years toward implementing the rebate rule, Davis said, only about $30 billion is going to reforming Medicare Part D. The rest, he noted, is going to fund other parts of the government unrelated to healthcare. Moreover, Congress stopped short of extending the rule to those covered in commercial plans.
Drug pricing is undoubtedly a complex topic. For a deeper look at how pharma’s $6 billion investment in DTC advertising affects public perception, listen to this week’s MM+M Podcast.