What is going on
Mark Cuban started a company that offers generic versions of drugs 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 those without insurance.
Billionaire entrepreneur Mark Cuban’s new company, which is less than six months old, sells hundreds of generic, widely used drugs at absolutely massive cost savings. And I mean massive. If you read the price tags, your mouth will fall open.
The generic version of Actos — prescribed for patients with diabetes and usually sold for $74.40 at standard pharmacies — is available for $6.60, according to the website. The generic version of Apriso — prescribed for patients with gastrointestinal conditions and sold for $122.70 at standard pharmacies — costs $36.60.
And that’s just a fragment. The Mark Cuban Cost Plus Drug Company’s medication book (yes, that’s the full name) is long. The drugs treat conditions ranging from mild migraines to acid reflux to cancer to neurological conditions. It also sells the generic versions of a variety of mental health medications, such as Wellbutrin, used to treat depression, and Adapin, sometimes prescribed for anxiety.
Overall, Cost Plus Drugs appears to be working in the name of fighting some very pressing public health problems in the United States. “If you don’t have insurance or have a high deductible, you know that even the most basic drugs can cost a fortune,” Cuban said in the company’s mission statement.
“Every American should have access to safe, affordable drugs,” he adds, and “we also think it’s just as important to introduce transparency into drug pricing so patients know they’re getting a fair price. “
As for the latter, the Cost Plus Drugs website outlines exactly what you may be wondering right now. How is it possible to lower the prices of drugs?
The Mechanics of Cost Plus
In general, it’s pretty complicated how brand-name prescription drugs — such as Humira, intended for patients with Crohn’s disease, or the EpiPen, used to treat severe allergic reactions on the spot — are priced.
There are many moving parts behind the scenes, involving the pharmaceutical companies themselves and insurers, to name just two. But in the end, the cost of branded drugs reflects demand.
That means prices aren’t necessarily determined by what drug manufacturers needed to gather ingredients and do the work to actually make the medication. And while research costs are 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; instead, prescription drugs in the United States are primarily priced based on what the market will bear.”
For example, EpiP increased its price by 500% between 2007 and 2016, although that is certainly a more extreme example of such a change.
Further, compared to global prescription drug prices, “many economic factors are at work leading to the U.S. paying two to six times more for prescription drugs than other countries,” John Clark, clinical associate professor at the U.S. College of Pharmacy and director of pharmacy services at Michigan Medicine, said in 2020. Those factors are also primarily hidden in the complex ins and outs of drug manufacturing.
Cost Plus Drugs takes a very different approach from the norm.
First, the company wants to remove all elusive complexities behind drug production. Second, it is not intended far more than charging manufacturing costs.
“Every product we sell is priced exactly the same,” Cuban said in the company’s mission statement. “Our costs plus 15%, plus any pharmacy fee.”
For example, the Cost Plus Drugs cost for albendazole is $26.08 per course, which is then increased by 15% for operating expenses to a total of $30. Add in the $3 pharmacy cost and you get a total of $33. That is the final price, the company states, excluding shipping costs.
“We started this company as an effort to disrupt the drug industry and do our best to end ridiculous drug prices,” Cuban said in his statement.
Medicare can save billions
Like many experts, Harvard Medical School researchers were intrigued by this ultra-money-saving pharmaceutical venture — so they decided to quantify exactly how useful these inexpensive drugs would be on a larger scale.
They conducted a study, published Monday in the Annals of Internal Medicine, to calculate how much money Medicare could have saved in a year if all the generic drugs they offered to patients had come from Cost Plus Drugs rather than drug companies. with standard retail prices.
In short, billions.
For 109 generic drugs sold by Cost Plus Drugs on Feb. 8 this year, the research team identified the price — including pharmacy dispensation and shipping charges — for the minimum and maximum quantities available to sell in bulk. Minimum quantity refers to 30 counts and maximum to 90 counts.
Next, the team looked up Medicare Part D spending for 2020 for 89 of those 109 medications. They left out 20 because those were the ones deemed sufficiently incomparable to parallel, retail generics.
After adjusting all of the aggregated prices to remove confounding variables, such as the cost of ingredients between 2020 and 2022, the team concluded that if Medicare purchased generic drugs in the maximum amount provided by Cost Plus Drugs, it would cost $3. Could have saved 6 billion on 77 of the 89 generics in the year 2020 alone. Had Medicare bought them in the minimum quantity, it could have saved $1.7 billion on 42 of the 89 of the drugs.
The team also said this is a conservative estimate, as Cost Plus Drugs had added a whole lot more drugs since this analysis. Nevertheless, the study said, “our findings suggest that Medicare is overpaying for many generics.”