Mark Cuban’s Major Impact on the Drug Industry


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Wonder from wondery I'm David Brown, and this is business wars daily on this Thursday, December 14, if you ever want to feel confused, may I suggest you take a look at how pharmaceuticals are paid for in the US. Currently, many major drug retailers subscribe to a system in which complex formulas are used to set prices. The system also determines how much money the pharmacies that sell the drugs are reimbursed by pharmacy benefit managers, which negotiate costs between drug makers and insurers. Indeed, the system is so convoluted, notes the Wall Street Journal, that sometimes drug makers set two different prices for the exact same drug and make retailers and customers choose the higher one. The result is a mess of paperwork, inconsistent reimbursements, and an outsized burden of cost on the people who need the drugs the most. The customers.


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Well, last week, one of America's major drug retailers announced that the days of that old, complex system are numbered. CVS said that starting in early 2024, it's adopting a simpler model in which CVS's roughly 9500 retail pharmacies will be reimbursed by pharmacy benefit managers based on how much CVS paid for the drugs, plus unlimited markup and flat servicing fee. Before, pharmacy, reimbursements were often not tied at all to the specific drug and its costs. Now they will be, at least at CVS. CVS'new model, called cost vantage, will have mixed effects for consumers, employers and health insurers, according to the journal. Some drugs may cost less, but some may rise in price. CVS executives said that they expect to see more declines than increases.


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However, what CVS executives did not mention, but what appears to be the case, is just what pressured them to make this decision in the first place. The answer could be billionaire Mark Cuban. We've told you in the past about Cuban's latest venture, a pharmacy called Mark Cuban Cost plus drugs. The company buys drugs directly from manufacturers and sells them to consumers at a consistent 15% markup, plus fees.


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That's where the cost plus part of.


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The name comes in. Consumers buy the drugs out of pocket, avoiding the need for pharmacy benefit managers and insurers entirely. Usually, cost plus customers end up paying far less for their necessary prescriptions. Since its launch in early 2022, Cost plus has amassed around 2 million members, and retailers have taken notice. In July, retailer Kroger announced it was partnering with Cost plus. Its popularity has even driven insurers to reevaluate. In August, health insurance giant Blue Shield said it would be ending its relationship with CVS's in house pharmacy benefit manager, Caremark. It plans to replace it with a series of other options, like Amazon and, you guessed it, Mark Cuban's cost Plus drugs. CVS'cost vantage looks eerily similar to Cuban's cost plus formula, and that suggests that the industry is moving, albeit slowly, toward greater transparency in drug pricing.


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And that could eventually mean a win for consumers. From wondery this is business wars daily. I'm your host, David Brown. Written and produced by Jessica Yarmoski. Our executive producers are Tina Rubio and Marshall Ruby.


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