Mark Cuban’s next act on drug costs: Tackling insulin

Billionaire entrepreneur Mark Cuban says it’s not a matter of if his online business will sell low-cost insulin — but when.

“It may be a month, it may be six months, it may be two years,” said Cuban, referring to when his business, the Mark Cuban Cost Plus Drug Company, could begin offering insulin directly to consumers.

The diabetes medicine would join a list of about 350 generic drugs that the online prescription drug company now offers at discounted prices. In almost a year since its launch, Cuban said it has attracted nearly 1.5 million customers.

Adding insulin to the company’s offerings will be an expensive endeavor. The business has already spent $5 million just to go through the initial phases of selling the medication, Cuban said, and even considered spending another $150 million to $250 million to create a manufacturing plant.

But that’s money Cuban, who also owns the NBA team the Dallas Mavericks and is an investor on ABC’s “Shark Tank,” is willing to invest to lower drug costs.

“It’s the right thing to do,” Cuban told NBC News, though he added that the company will make money. “I don’t want this to seem like it’s completely altruistic, you know?”

Exorbitant drug prices, experts say, are a key reason many people in the U.S., including those with cancer or diabetes, are forced to skip or delay filling their needed prescriptions.

A recent poll from KFF, also known as the Kaiser Family Foundation, found that 8 in 10 U.S. adults say they think the cost of prescription drugs is “unreasonable.”

Cuban said his interest in the health care space was inspired in part by Martin Shkreli, dubbed the “Pharma Bro,” who was widely criticized for hiking the price of a medication called Daraprim by more than 4,000%. Daraprim is used to treat a parasitic infection that can be deadly to people with weakened immune systems, such as those with HIV or cancer.

“If this Pharma Bro guy can raise prices 75%, 100%, there must be inefficiencies in this marketplace to reduce prices in the same manner,” Cuban said.

In 2018, Cuban received an unsolicited email from Dr. Alex Oshmyansky, a radiologist at Vision Radiology, a medical diagnostic imaging center in Dallas. Oshmyansky pitched the idea of starting a business dedicated to bringing down the high cost of prescription drugs.

“I started reading the email, and I’m like, ‘This guy gets it. I need to talk to him some more,’” Cuban said.

Drug costs in the U.S.

The amount a customer pays for a drug depends on a number of factors, beginning with the initial price the drug company sets for the medicine, known as the list price. It’s rare that anyone pays the list price, but it’s the figure that all subsequent negotiations are based on.

Insurance companies, often working with middlemen called pharmacy benefit managers, will negotiate discounted prices from the drug companies, in exchange for including the drug in their coverage. The biggest health insurance companies often have their own PBMs in house. 

Depending on a person’s insurance plan, he or she may only pay a set price, or copay, for a drug at the pharmacy.

Even people with a so-called high-deductible plan — who need to pay a certain amount out of pocket before coverage kicks in — often pay the same negotiated rate as insurance companies, not the list price.

Uninsured individuals may also not pay the list price — they are often eligible for discounts from the drug companies.

According to the Commonwealth Fund, three pharmacy benefit managers — CVS Caremark, Cigna’s Express Scripts and UnitedHealth Group’s OptumRx — make up 80% of the market, giving them enormous negotiating power. All three are tied to major health insurance providers.

CVS Caremark declined to comment. Express Scripts and OptumRx didn’t respond to requests for comment.

PBMs have said that the price discounts they negotiate with manufacturers are passed along to insurers, and in turn, the customer. Drug manufacturers have argued that the increasing discounts they give PBMs are forcing them to raise list prices for their products.

“It’s a little bit of a chicken-and-egg-type situation,” said Stacie Dusetzina, a health policy professor at Vanderbilt University Medical Center in Tennessee.

In a statement to NBC News, JC Scott, the president and CEO of the Pharmaceutical Care Management Association, a trade group that represents PBMs, said, “Drug manufacturers alone set and raise drug prices — and that’s the root cause of high drug costs for patients.”

Sarah Ryan, a spokesperson for Pharmaceutical Research and Manufacturers of America, a trade group that represents the drug industry, said, insurance companies and PBMs should “acknowledge their role in determining what medicines people can get and how much they pay for them at the pharmacy.”

How Cost Plus can cut costs

One way the cost of drugs can be reduced is by allowing drugmakers to sell directly to pharmacies, said Eric Tichy, division chair of pharmacy supply solutions for the Mayo Clinic in Rochester, Minnesota.

So far, that’s been the strategy for the Mark Cuban Cost Plus Drug Company.

“They’ve just gone directly to manufacturers and negotiated these upfront low prices,” Tichy said.

Some other companies have used the same strategy, but not at the same scale, Dusetzina said.

Working with Oshmyansky, now CEO of Cost Plus Drug Company, the company went online in January, selling generic medications at what it says is a fixed markup of 15%, plus a $3 flat fee. Shipping costs an additional $5. The company doesn’t accept most insurance, so patients typically pay out-of-pocket.

The company currently mostly sells generic drugs — not the brand-name drugs that account for the vast majority of drug costs in the U.S., so the business is unlikely to make a significant dent in overall spending, Dusetzina said. That being said, generic drugs account for the most use.

However, Cuban said he wants to add brand-name drugs as well.

He also said he wanted the Mark Cuban Cost Plus Drug Company to be as transparent as possible on pricing — something he said is missing within the current U.S. health care system, where insurers and drug manufacturers negotiate rebates and other discounts behind closed doors.

He’s also not against partnering with insurance companies or smaller pharmacy benefit managers.

In October, Cost Plus Drug Company announced a partnership with Capital Blue Cross. This month, it also announced a partnership with pharmacy benefit manager EmsanaRx to allow self-insured employers access to lower-cost prescription drugs.

The partnerships would extend Cuban’s reach, said Inma Hernandez, an associate professor at the University of California, San Diego’s Skaggs School of Pharmacy and Pharmaceutical Sciences, adding that these smaller PBMs don’t have as large of an effect on drug prices compared with the biggest three.

“Big PBMs aren’t going to work with him because he’s trying to disrupt them,” she said.

To be sure, Cuban’s costs aren’t necessarily lower for everyone; many insurance plans cover certain drugs fully or have a low copay.

And some people may not feel comfortable getting their drugs in the mail, preferring to go to a pharmacist, Hernandez said.

Still, “the model that they’ve set up, buying at a low cost and marking up at a very small amount, is very good for customers,” Dusetzina said, particularly “people who are uninsured and many people who have health insurance but whose copays or whose share of the cost is causing them to have to pay too much.”

Hernandez said that for generic drugs, the copay can be more expensive than the actual price of the drug. “You may have a $10 copayment but some generics are very cheap,” she said.

A study published in June in the journal Annals of Internal Medicine found that Medicare could have saved nearly $4 billion in 2020 by purchasing generic drugs at the same prices offered by the Cost Plus Drug Company.

What about insulin?

The cost of insulin is emblematic of high drug prices in the U.S.

The Inflation Reduction Act’s $35 per month cap on the out-of-pocket cost of insulin goes into effect in January — but it’s only for older people on Medicare. That leaves behind millions of younger people with diabetes in the U.S. who need the drug to live.

According to the RAND Corp., a public policy think tank, the average list price for one vial of insulin in the U.S. in 2018 was $98.70, up to 10 times more than other Organization for Economic Cooperation and Development countries. People with Type 1 diabetes need two or three vials per month, according to the American Diabetes Association; people with Type 2 diabetes may need even more.

Cost Plus Drug Company is considering a test program for insulin that would offer a 90-day supply of insulin, or a total of 12 vials, for $170.

Cuban said manufacturing and selling low-cost insulin is a bit trickier than some of the other drugs the business offers.

Insulin is a biologic product, a class of medicines extracted from living cells. That makes it more difficult to make than other drugs, which can be synthesized chemically.

Additionally, there are several forms of the medication; not everyone can take the same kind.

At the moment, Cuban is focused on partnering with insulin-makers to produce the drug at a large scale.

Cost Plus selling insulin would provide patients with more options, said Hernandez, of the University of California, San Diego. “This may be a very good way for people without insurance to get insulin,” she said.

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