Can Mark Cuban Slash Drug Prices?

Final month, Mark Cuban, the billionaire serial entrepreneur and star of NBC’s Shark Tank, introduced the launch of a web-based pharmacy with a mission to drive down the price of generic medicine. Generic drug costs typically significantly exceed manufacturing prices, although competitors is mostly uninhibited by patents. However as a result of insurance coverage sometimes have very low copays for most well-liked generic medicine, Cuban’s new agency might battle to make a major influence on {the marketplace}, even when it considerably undercuts current suppliers on worth.

Till latest many years, prescribed drugs had been a modest, low-variance expense, typically not coated by insurance coverage. As not too long ago as 1980, 72 p.c of drug spending was paid for out-of-pocket. However as drug-development prices have escalated quickly and the expense of programs of therapy usually now quantities to tens of hundreds of {dollars}, insurance coverage protection has more and more been broadened to cowl prescribed drugs. In 2006, Medicare’s Half D prescription drug profit went into operation; by 2019, lower than 15 p.c of drug spending was paid for out of pocket.

The rise of third-party buying for prescribed drugs has fueled extra funding in creating new medicine—a course of that improves the worth of well being care total. Nevertheless, it could have additionally elevated the costs of older medicine, a consequence that confers no such profit.

Generic medicine account for 90 p.c of prescriptions in the USA. Costs for medicine fall quickly after the expiry of patents. Whereas a one-month prescription of Lipitor, the blockbuster drug used to deal with excessive ldl cholesterol, sometimes value $165 in 2011, generic variations now go for $8 in grocery shops.

But, whereas pharmaceutical costs are supposed to say no following the expiry of market exclusivity protections, how a lot they really fall depends upon the depth of competitors that arises. Medicine for uncommon circumstances supply the prospect of affected person populations too small to lure opponents into undercutting incumbents aggressively on worth. A single producer might subsequently in follow retain a monopoly over provide, even when competitors is legally allowed. This was notoriously exploited by hedge-fund supervisor Martin Shkreli, who engaged in a concerted technique of buying outdated uncared for medicine and climbing their costs by as a lot as 5,000 p.c.

Sensing a possibility to do nicely by doing good, the Dallas-based entrepreneur has launched the Mark Cuban CostPlus Drug Firm. The agency notes that generic medicine can value pennies to make however are sometimes offered for a lot extra. Its CEO, Alex Oshmyansky, argues that costs for generic medicine are inflated by pharmacy profit managers (comparable to Categorical Scripts or Optum), who negotiate the acquisition of medication on behalf of insurers and infrequently fail to go rebates and reductions to sufferers.

Cuban’s firm is pledging to promote a rising vary of generic medicine on-line at value plus 15 p.c, plus a $3 charge for pharmacists, plus $5 delivery. The MCCPDC web site guarantees huge reductions relative to “retail costs.” It provides a 30-pill provide of the leukemia drug Imatinib (greatest identified underneath the brand-name Gleevec) for $17 reasonably than for a “retail worth” of $2,500. In actuality, the drug is already sometimes accessible at a reduced worth of $40 to these paying out of pocket. MCCPDC’s $3.90 worth for 30 20-milligram capsules of Fluoxetine (Prozac) is far decrease than the $23 “retail worth” it cites—however little completely different from the $4.00 at which Walmart already sells it.

Nonetheless, Cuban’s agency on the whole provides substantial financial savings. So, to ask a query typical of Shark Tank: “Why hasn’t anybody else executed this but?” If medicine had been nonetheless bought predominantly by people paying out of pocket, these worth variations can be sufficient to win substantial market share. But, over 90 p.c of Individuals now have health-insurance protection that pays for prescribed drugs. The median normal copay in 2022 for most well-liked generic medicine coated by Medicare Half D is zero {dollars}. Copays for generics are sometimes equally negligible for Medicaid and lots of personal insurance coverage.

The marketplace for Cuban’s drug firm is subsequently more likely to be restricted to the uninsured and people with skimpy insurance coverage protection. This will nonetheless be ample to permit it to trim costs a bit for well-liked medicine the place volumes and economies of scale are excessive. However the agency might battle to take action for uncommon ailments, the place the issue of excessive generic drug prices is at the moment most substantial.

Chris Pope is a senior fellow on the Manhattan Institute.