Billionaire entrepreneur and investor Mark Cuba thinks the American healthcare industry is broken, and he hasn’t written a word about it.
“No one looks at the financial side of healthcare and says, ‘This should work,'” Cuban said in an episode of this week’s Equity Podcast. “When you go to the doctor and get a prescription… You don’t know what your expenses will be. You don’t know if you can afford it.”
The former “shark” host and minority owner of the Dallas Mavericks basketball team explained the root of the issue. Most drug prices today are set by the pharmacy benefits manager (PBM) or by the third party who manages the prescription drug program. Cuba said drug prices are uncertain by design.
That’s exactly why he launched Cost Plus Drug in 2022. Pull back the curtains of drug pricing, cut costs for the average consumer, and disrupt the traditional pharmacy industry.
“They price the market. We price it based on costs,” he said.
The difference is shocking. For example, generic chemotherapy drugs can cost thousands at the counter at the pharmacy, but can cost “$21 from the cost and drug.”
The Cuban approach, as the name suggests, is very different from the way drugs are traditionally priced in the US. Costs and drugs sell directly to consumers at a transparent price, in addition to manufacturer costs, plus 15% markup and $5 pharmacy fees.
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“And we’re adding the ability to pick it up at our local pharmacies,” Cuba added.
To understand why Cuban models are disruptive, it helps us to know why drugs are so expensive in the first place. The industry is defending drug overcharging practices in the United States, one of the only high-income countries where governments do not set or negotiate drug prices. Without high profit encouraging companies claim that they cannot invest the billions of dollars needed to bring new drugs into the market.
However, critics argue that prices are set to maximize profits and are not directly linked to R&D costs. A 2021 survey found that revenues from only the top 20 bestselling drugs remain billions for companies to narrow their returns from R&D costs.
Cuba also pointed out another reason for drug prices to skyrocket in the US: artificial shortages. “Believe it or not, in this era there are pediatric cancer drugs, pitocin, sterile water and more. [and] This long list of medications is not even possible to pronounce correctly. That’s because manufacturers want them to be short, and that’s how they jack the price.
Although direct evidence of intentional benefits is limited, it is true that prices rise significantly during shortages.
His answer? He builds his own factory. Cuba has a manufacturing plant in Dallas and is “all robotics-driven.”
“We created this factory and now we can take over the new drugs and ship them to the hospital in four hours,” he continued. “So we’re starting to attack those shortages.”
There is a thin margin of razor in the transport of drugs to patients, but costs and other aspects of drugs, like drug manufacturing, are more profitable and help business work towards profitability. Manufacturing is also another way to challenge the drug supply chain.
But Cuban’s strategy doesn’t just offer cheaper drugs. He says he refuses to play the rules entirely. “Everyone was saying, you can’t compete with these big companies, insurance companies, PBMs,” he said. “I said, ‘Well, I’m not going to work with them. I’m not going to work the way they want to do it.
Even Amazon, which Cuban pointed out, fell into this trap. Tech Giant is partnering with PBMS through Amazon Pharmacy, which is still “found in PBMS,” putting large tech companies at a disadvantage.
What’s his advice for founders trying to defeat existing people?
“Don’t depend on them,” he said. “If I was 25 and started this business, I would work through the profit manager at the pharmacy because it’s a place of money. All healthcare is basically arbitrary law. Can I get a small $5 trillion market through technology, pricing, etc.”
“When I started, someone said this to me: ‘When you run with an elephant, there are quick dead,'” Cuba said. “You have to be quick, or you will die, and you have to be lean, mean. You have to be able to adapt. You have to look for ways for Zig and Zag to do better all the time. [the incumbents]right? They have to protect their legacy businesses, but they can’t move that fast. They can’t respond so quickly, so it’s always trying to give the founders an edge. ”
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