Could Mark Cuban’s plan to disrupt Big Pharma actually work?

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Billionaire entrepreneur Mark Cuban recently announced his latest, ground-breaking innovation, and it’s one that should catch the attention of Americans. The venture is an online pharmacy for generic medications that cuts out the middlemen (insurance companies, PBMs, etc), and offers price transparency for consumers.

By doing this, Cuban stands to substantially lower the prices of these drugs for patients and make money in the process.

“Not everyone sets the goal of being the lowest cost producer and provider,” Cuban told Axios. “My goal is to make a profit while maximizing impact.”

According to Cuban and the company’s website, all drugs will be priced at cost plus a 15 percent mark-up.

The Mark Cuban Cost Plus Drug Company is set-up to eliminate pharmacy benefit managers (PBMs), which pharmacists have been warning Americans about for some time.

These entities manage prescription drug benefits on behalf of large employers and health insurance companies, and while they’re a lesser-known player in the pharmaceuticals industry, they’re an expensive one.

In short, these middlemen negotiate with drug manufacturers and pharmacies to control drug spending. They choose what drugs are covered by insurance, determine co-pays, decide which pharmacies fall under what plans, and decide how much pharmacies will be reimbursed for certain drugs. As a whole, they drive up the price of drugs through things like price spreading, where they charge the plan sponsor above the cost of the drug and keep the spread as profit.

Crony insurance companies, which are backed by both state and federal regulations, force pharmacists to work with these middlemen (by refusing to cover prescriptions otherwise) who block information about the true price of drugs and the rebates they receive in the negotiations. They also obfuscate cost-saving information about drugs (say, should the patient be able to pay cash and actually get a cheaper price vs. going through insurance).

“Would you trust your doctor to make the decision about your chemotherapy, or a corporation?” Ted Okon, the executive director of the Community Oncology Alliance, a group of community-based cancer doctors, said. “It’s just not acceptable when a cancer patient, especially someone who is in dire need of treatment, doesn’t understand why they can’t get the drug.”

Since insurance companies refuse to work with pharmacies that go around PBMs, Cuban is cutting PBMs out of the picture altogether—offering a cash-based alternative that sells drugs directly to the consumer.

Out the gate, consumers will have access to 100 generic medicines at a price that will still be less than what customers would pay through their insurance or co-pays (yes, that’s how much PBMs jack the price of medicines up). The company will buy directly from third-party suppliers and, soon, manufacture its own products.

How much savings are we talking? NPR offered a glimpse of the potential.

“A 30-count of imatinib, which is used to treat leukemia and other cancers, goes for as low as $17.10 at Cuban’s pharmacy compared with $2,502.60 at other pharmacies,” reported NPR’s Joe Hernandez.

This is thrilling news. Few Americans understand how substantial of a role insurance companies and their middlemen play in messing up our healthcare market and driving up the costs of basic products and services. Bureaucrats, politicians, insurance companies, and healthcare lobbyists have created such an over-regulated, crony market that the only way to stop the red tape from strangling consumers is to cut them out of the equation altogether.

Cuban, a brilliant and shrewd businessman, clearly saw the root of the problem when it comes to drug prices and is doing something to cut out the rot.

“Transparency is the buzzword in healthcare. It’s easy to understand why. US healthcare markets generally lack transparency. And, without it, the market cannot operate optimally,” wrote Forbes’ Joshua Cohen. “Mark Cuban is to be commended for tackling the lack of transparency.”

Cuban’s insight stands in stark contrast to many lawmakers who continue to miss the point, working to enact drug price caps that would create shortages rather than address the real underlying problems making prescriptions expensive in the first place.

Price transparency allows consumers to shop around, effectively forcing companies to have better products and lower prices. So competition and consumer choice are the key to making medication affordable.

Price is really just a signal that conveys scarcity. But in the US, the regulatory scheme between the government and the insurance companies prevents consumers from knowing this important signal. That means they’re lacking information that could help them drive the price of products down in healthcare. As economist Thomas Sowell said, “Prices are important not because money is considered paramount but because prices are a fast and effective conveyor of information through a vast society in which fragmented knowledge must be coordinated.”

If consumers knew they had cheaper options for prescriptions they would choose them. If the drug manufacturers were able to directly communicate their costs to consumers, they might bring them down to meet demand and sell more of their product. Cuban’s new business cuts out all the middlemen and allows these kinds of negotiations to take place. It’s free market brilliance.

It’s time to build models that go around the insurance companies and politicians. We must eradicate their hold on the market.

The vast majority of those in government are missing the mark when it comes to drug prices. Cuban is pioneering the actual pathway that will produce the results Americans desperately need.

This article was originally published on FEE.org. Read the original article.

Photo: Gage Skidmore from Peoria, AZ, United States of America, CC BY-SA 2.0 https://creativecommons.org/licenses/by-sa/2.0, via Wikimedia Commons

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