- [Narrator] In January, billionaire investor Mark Cuban
launched a low-cost online drug company.
- The goal is to (beep) up the pharmacy industry,
and I'm sorry for my language, right?
Our business model's very, very simple.
Our goal first that drives everything
is to be the low-cost providers
for medications to patients.
- [Narrator] The company sells over 200 generic drugs
in partnership with a digital pharmacy.
Prescription drug prices remain out
of reach for many Americans
who pay among the highest prices in the world.
So more private market players are stepping in.
This leukemia medication
goes for about $2,000 at many pharmacies.
Cuban's company sells it for as lot as $17.10.
- Patients want the medication they need
at the lowest possible price.
Period, end of story.
That's not what
these vertically integrated companies are providing.
They may say so but that's not what's happening.
- [Narrator] Still, the Mark Cuban CostPlus Drug Company,
or CostPlus, faces challenges in a consolidated drug market.
It also remains limited in the medications it can offer.
So how is Cuban's company able
to offer such steep discounts?
Which patients will benefit the most?
And could businesses
like his actually disrupt the healthcare industry?
There's usually not a straight line
between the list price a drug maker charges
and the price patients pay at the pharmacy counter.
The drug supply chain can be complicated,
containing multiple parties
who all negotiate to purchase,
sell and provide rebates for drugs.
Cuban's business model works in large part
by circumventing this drug pricing model.
- America, unlike other rich countries,
doesn't really give the government a role
in negotiating prices on behalf of its citizens.
It is a much more fragmented market.
So you have all of these individual players trying
to negotiate prices on behalf of other employers,
and no real sort of insight
into how much the other guy is paying.
- [Narrator] One way CostPlus is able
to lower the price of prescription medication
is by removing insurance plans
and healthcare industry middlemen,
known as pharmacy benefit managers or PBMs.
Nearly 80% of US prescriptions are managed
by three PBMs.
PBMs manage prescription drug benefits
on behalf of health insurers and large employers.
They use their purchasing power
to negotiate rebates and discounts from drug manufacturers
but they don't always pass along the savings to consumers.
- And so what they'll do is they'll go to say a Pfizer
and say you charge X amount of dollars for this drug
but we would like to get a 15% rebate
that you'll pay us back off of the drug
as a discount and which we will then pass along
to our clients.
One of the criticisms that they've received
is that PBMs also tend to keep a percentage
of the rebates that they negotiate from manufacturers.
The higher the drug prices go,
the larger the rebates that they'll receive
and that they'll negotiate,
and hence, the more money that they'll get to keep
at the end of the day.
- [Narrator] The Pharmaceutical Care Management Association
represents pharmacy benefit managers.
In a statement, its spokesperson said,
"PBMs pass the vast amount of rebates negotiated
from drug manufacturers along to employers,
health plans and others sponsoring health insurance."
To get around these inflated drug costs,
CostPlus cuts out third-party PBMs
by making it a cash-only pharmacy,
meaning no health insurance plans are allowed.
But for some drugs,
like the leukemia pill we showed you earlier,
it can be cheaper to pay out of pocket
at Cuban's pharmacy than going through an insurance plan.
- Insurance companies want you to work
within their world.
So their logic is look, if you want access
to all of our customers,
you're gonna have to play the game,
which is what other companies
that have tried to do the same thing we're doing have faced.
And so we're just saying nope,
we're not gonna play that game.
- [Narrator] So how exactly are CostPlus drugs priced?
The company sets it rates by negotiating directly
with the drug manufacturer
and then adding a 15% markup,
a $3 fee for pharmacy labor
and a $5 shipping cost.
- The goal is to be very transparent
and that's exactly what we do
and that transparency we think
is our most effective marketing.
- [Narrator] Some CostPlus medications
are more than 10 times cheaper
than those sold elsewhere.
Because CostPlus doesn't accept insurance,
uninsured or underinsured individuals
may benefit the most from the low-cost options.
- For people who don't have insurance,
oftentimes, they get charged the highest prices
because they don't have anybody negotiating
on their behalf like insurance companies do
and like PBMs do.
- [Narrator] Still, there are limitations
to the CostPlus business model.
- Right now, they're really targeting people
who don't have insurance for generic drugs
and that's a relatively small part
of the overall market.
Also, generic drugs typically
aren't the biggest cost problems for people.
It's really brand name drugs
that don't have any competition.
- [Narrator] At the same time,
CostPlus faces challenges in adding new medications
to its website.
- You have to do the deals with all the manufacturers
and there are manufacturers who are afraid
to work with us
because they're afraid they'll lose
those big pharmacy benefit managers
who are doing a lot of business with them.
So we have to overcome that hurdle.
- [Narrator] To expand its offerings,
CostPlus is launching its own pharmacy-benefit manager.
Once operational, its PBM could allow the company
to offer more low-priced medications
and eventually provide their services
to those with health insurance plans.
- We're not gonna distort retail or wholesale prices.
We're not gonna ask for rebates.
To be a pharmacy benefit manager,
you have to carry enough drugs
and right now, we don't have enough drugs
to be a full-service pharmacy benefit manager.
We hope by the end of the year to be past 1,000.
- [Narrator] The company is also planning
to become an all-in-one pharmaceutical supplier,
combining manufacturing, wholesale distribution
and pharmacy services all under one roof.
Right now, CostPlus is building a facility
in Dallas, Texas to manufacture certain drugs.
Meanwhile, the Biden administration's Social Spending
and Climate Bill, currently stalled in Congress,
includes several provisions meant
to rein in drug makers' pricing power.
- The Build Back Better Plan included a number
of provisions around drug prices.
Probably the most significant of which
included things like allowing Medicare
to negotiate prices for certain medicines
and that would have been a real watershed
because that hasn't ever existed before
and as of now, we haven't seen a big push to try
to get those drug pricing provisions passed.
- [Narrator] While there is still no long-term solution
to the problem of high drug costs in the US,
Cuban's business could offer consumers more choices
in a fragmented market.
- I think it's too soon to say or really to know
whether or not the Cuban pharmacy's having an impact.
A big thing will be whether they can expand
into brand name drugs,
which they can't manufacture or buy
through multi-source manufacturers.
I think the question is is whether they can keep going
for the long haul and gain more market share,
and as they do that, that will give them more opportunity
to disrupt the market.
(pensive music)