Opinion Medicare could have saved $3 billion buying drugs the Mark Cuban way
Stock photo: Pill box (iStock)
Hussain S. Lalani is a physician at Brigham and Women’s Hospital and a fellow at the Program on Regulation, Therapeutics and Law (PORTAL). Benjamin N. Rome, an instructor at Harvard Medical School, is on the PORTAL faculty. Aaron S. Kesselheim, a professor at Harvard Medical School, is the PORTAL director.
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Many of our patients struggle to afford their medicines, and it’s agonizing to have a front-row seat to this injustice. Despite politicians’ frequent promises to lower drug prices, Congress has failed to pass any meaningful reforms in decades. As different states experiment with their own solutions, one approach spearheaded by Mark Cuban, the billionaire owner of the Dallas Mavericks, has attracted growing attention.
The Mark Cuban Cost Plus Drugs Company, which launched online in January, promises lower prices and complete transparency about how those prices are set. This venture offers a welcome reprieve to some patients, but it does not address the root causes of high drug prices. For that, we need congressional action.
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Cuban’s new company purchases hundreds of generic drugs from manufacturers and sells them online directly to consumers. Each generic drug is priced at a cost negotiated with the manufacturer plus a 15 percent markup, a $3 pharmacy dispensing fee and $5 for shipping. Remarkably, this sometimes adds up to substantially lower prices for many patients.
In a recent study published in the Annals of Internal Medicine, we analyzed 89 generic drugs sold by Cost Plus Drugs and found that Medicare could have saved more than $3 billion in 2020 by purchasing 77 of them at Cost Plus Drugs prices. For example, Medicare paid more than $2 per pill for aripiprazole, a commonly used psychiatric medication, while Cuban’s company sells the same formulation of the drug for $0.24 per pill. At those prices, the government could have saved $233 million in 2020 on just this one drug.
So where do these savings come from?
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By directly purchasing and selling drugs, the company eliminates insurance companies, pharmacy benefit managers, wholesalers and in-store pharmacies. These multiple middlemen play important roles in the supply chain but in some cases can introduce inefficiencies that lead to higher prices for patients. This is particularly problematic for uninsured patients or those with high-deductible health plans.
To be clear, Cuban’s company is not the first direct-to-consumer firm to sell generics. Walmart, Costco and several other retailers also sell low-cost generic medicines. Additionally, GoodRx offers free coupons for hundreds of generic drugs that can be used at pharmacies across the country.
Beyond offering savings for some patients, Cost Plus Drugs’s transparent pricing begins to lift the veil on drug prices, which have been shrouded in secrecy. Understanding the true cost of production and distribution can help us to understand when and why Medicare is overpaying for generics.
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But Cuban’s approach has limitations. Patients must pay the full cost out of pocket, and those dollars do not count toward their insurance deductibles. Shopping around to find the lowest price for each generic is cumbersome and might be particularly challenging for patients taking multiple medications or those with limited health-care experience or digital literacy. This process is also time-consuming for patients and clinicians, who may need to send prescriptions to multiple pharmacies for a single patient.
Most importantly, Cuban’s company does not provide relief for patients who need expensive brand-name drugs, including biologics and specialty drugs — which often cost individual patients tens of thousands of dollars per year. This is because, unlike most other countries, the United States allows patent-holding brand-name manufacturers the freedom to set prices as they wish. Insurers and pharmacy benefit managers can seek to negotiate better prices, but they often lack the leverage to achieve a meaningful discount. This is particularly true of Medicare, which is required by law to cover certain drugs, including those treating cancer.
Even with insurers footing most of the bill, high prices for brand-name drugs are passed on to patients. In Medicare, for example, the broken Part D prescription drug benefit forces patients to pay more than $10,000 a year out of pocket for certain expensive medications.
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Cuban has said that his company will be adding brand name drugs to its offerings. However, even if Cost Plus Drugs negotiates steep discounts with manufacturers, the price without insurance would still be out of reach for most patients.
Thus, to meaningfully lower drug prices for all Americans, Congress must act. The House was on the right track last fall, proposing to allow Medicare to negotiate prices for a limited number of brand-name drugs, disincentivize annual price increases over inflation, cap out-of-pocket spending at $2,000 per year and limit insulin copayments to $35 per month. But those changes were part of the ill-fated $1.7 trillion Build Back Better Plan. The Senate is actively attempting to salvage a similar set of drug pricing reforms, although passage is far from certain. The scope of these changes is limited, but the reforms could reduce excess spending and help millions of Americans afford their medicines.
Cuban’s company can provide relief for some patients and chip away at the secrecy surrounding generic drug prices. But with brand-name drug prices skyrocketing and 1 in 4 patients struggling to afford their medicines, congressional action is desperately needed.
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