Mark Cuban started a company that offers generic versions of medication at extremely low prices. A recent study calculated that Medicare could save billions with this business model.
Why it matters
Life-saving prescription drugs in the United States are often too expensive, especially for people without insurance.
Billionaire entrepreneur Mark Cuban's new company, which is less than six months old, is selling hundreds of generic, commonly used medications with absolutely massive cost cuts. And I mean massive. Perusing the price tags will make your jaw drop.
The generic version of Actos -- prescribed for patients with diabetes and typically sold for $74.40 at standard pharmacies -- is available for $6.60 for 30 pills, according to the website. The generic version of Apriso -- prescribed for patients with gastrointestinal disease and sold for $122.70 at standard pharmacies -- goes for $36.60 for 30 pills.
And that's just a snippet. The medication ledger of the Mark Cuban Cost Plus Drug Company (yes, that's the full name) is long. The drugs treat conditions ranging from mild migraines to acid reflux to cancer to neurological disorders. Cost Plus Drug also sells the generic versions of a variety of mental health medications like Wellbutrin, used to treat depression, and Adapin, sometimes prescribed for anxiety.
Overall, Cost Plus Drugs appears to operate in the name of combatting a few very pressing public health issues in the United States. "If you don't have insurance or have a high deductible plan, you know that even the most basic medications can cost a fortune," Cuban said in the company's mission statement.
"Every American should have access to safe, affordable medicines," he adds, and "we also think that it is just as important to introduce transparency to the pricing of drugs so patients know they are getting a fair price."
With regard to the latter, the Cost Plus Drugs website outlines precisely what you might be wondering right now. How is it possible to slash drug prices?
The mechanics of Cost Plus
Generally, it's pretty complicated how name-brand prescription drugs -- like Humira, meant for patients with Crohn's Disease, or the EpiPen, employed to treat severe allergic reactions on-the-spot -- are priced.
There are a lot of moving parts behind-the-scenes, involving the drug companies themselves and insurers, to name just two. But at the end of the day, the cost of name-brand medication reflects its demand.
That means prices aren't necessarily dictated by what it took for drug manufacturers to gather ingredients and do the work to actually make the medication. And while the cost of research is sometimes used to justify high prices, a 2016 study found that "there is no evidence of an association between research and development costs and prices; rather, prescription drugs are priced in the United States primarily on the basis of what the market will bear."
For instance, EpiPen raised its price by 500% between 2007 and 2016, though that's definitely a more extreme example of such a change.
Further, when compared with global prescription drug prices, "there are many economic factors at work that lead the US to pay two-to-six times more for prescription drugs than other countries," John Clark, clinical associate professor at the College of Pharmacy and director of pharmacy services at Michigan Medicine, said in 2020. Those factors are also hidden within the complex ins and outs of drug manufacturing in the first place.
Cost Plus Drugs has quite a different approach from the norm.
First, the company aims to remove all the elusive complexities behind drug manufacturing. Second, it intends notto charge much more than manufacturing costs.
"Every product we sell is priced exactly the same way," Cuban said in the mission statement. "Our cost plus 15%, plus the pharmacy fee, if any."
As an example, Cost Plus Drugs' cost for albendazole, which treats tapeworms, is $26.08 per course, which is then marked up by 15% for company costs to equal a total of $30. Add on the pharmacy fee of $3 and you get a grand total of $33. That's the final price, the company states, not including shipping.
And, per Cuban, the company also has a second method of keeping costs as low as possible: Cost Plus Drugs doesn't intend to spend any money on marketing, but rather rely on word-of-mouth.
"We started this company as an effort to disrupt the drug industry and to do our best to end ridiculous drug prices," he said in his statement.
Medicare could save billions
Like many experts, Harvard Medical School researchers were intrigued by this ultra-money-saving pharmaceutical endeavor -- which is why they decided to quantify exactly how helpful these low-cost drugs would be on a larger scale.
They conducted a study, published in June in the Annals of Internal Medicine, to calculate how much money Medicare could have saved in one year if all the generic drugs they offered to patients came from Cost Plus Drugs instead of pharmaceutical companies with standard retail prices.
In short, billions.
For 109 generic medications sold by Cost Plus Drugs on Feb. 8 of this year, the research team identified the price -- including pharmacy dispensing and shipping fees -- for the minimum and maximum quantities available to sell in bulk. Minimum quantity referred to 30 count, and maximum to 90 count.
Then, the team looked up 2020 Medicare Part D spending for 89 of those 109 drugs. They left out 20 because those were the ones deemed incomparable to parallel, retail generic medication at a close-enough degree.
After adjusting all collected prices to remove any confounding variables, like ingredient cost between 2020 and 2022, the team concluded that if Medicare purchased generic drugs in the maximum quantity supplied by Cost Plus Drugs, it could have saved $3.6 billion on 77 of 89 generic drugs in just the year 2020. If Medicare purchased them in the minimum quantity, it could have saved $1.7 billion on 42 of 89 of the drugs.
The team also said this is a conservative estimate because, since this analysis, Cost Plus Drugs had added a bunch more medications. Nevertheless, the study said, "our findings suggest that Medicare is overpaying for many generic drugs."