Mark Cuban Wants to Solve the U.S. Prescription Drug Price Crisis
Billionaire business owner Mark Cuban is on a mission to “disrupt” the pharmaceutical industry and sell low-cost prescription drugs directly to Americans. His startup venture, the Mark Cuban Cost Plus Drug Company, is offering steeply discounted prices on hundreds of generic prescription drugs.
Some of the potential savings are staggering. A generic leukemia drug called Imatinib currently retails for $2,502 for 30 100 mg tablets. Cuban’s company is selling the exact same medication for just $17.10. In an industry famous for keeping its pricing models in the dark, Cuban’s drug company is fully transparent. That $17.10 is exactly 15 percent more than the cost of manufacturing Imatinib ($12) plus a $3 pharmacy fee.
At first glance, Cuban’s new online pharmacy couldn’t have come at a better time. Americans pay 244 percent more for prescription drugs than any other developed country, according to a 2021 study by RAND. And 7 percent of adult Americans — an estimated 18 million people — reported they can no longer afford to pay for one or more of their prescriptions in a September 2021 West Health and Gallup survey.
But while the Texas billionaire should be applauded for trying to make life-saving drugs more affordable, a single startup isn’t going to solve America’s prescription drug price crisis, say health care industry reformers. Ultimately, Congress has to rewrite the decades-old rules that let drug companies essentially name their prices and rake in billions in profits.
Generics Aren’t the Problem, It’s Name-brand Drugs
Currently, Cuban’s new company offers discounted prices on only generic drugs. In America, drug companies are awarded patents for new medications plus something called exclusivity rights. That means that the drug company has the exclusive right to sell the medication for 12 to 16 years at whatever price they want (a legal monopoly, basically).
When the exclusivity period is over, other drug manufacturers can start making and selling generic versions of the same medication. If a lot of companies make generic versions, the price of the medication will come down quickly. If fewer companies jump in, perhaps because the medication treats a rare condition, then even the generic version might still be expensive.
The good news is that four out of five medications prescribed in America are generic. And while Americans pay 84 percent more for generic drugs than other Organization for Economic Co-operation and Development (OECD) countries like Australia, France, Germany, Japan, Spain and the United Kingdom, generics are not what’s breaking people’s budgets. The culprit is patent-protected, name-brand medications.
David Mitchell has an incurable type of blood cancer called multiple myeloma. He’s currently taking four non-generic cancer medications that retail for $935,000 a year.
“One of the drugs I’m taking retails for roughly $1,000 a capsule, but costs less than a dollar for the drug company to make,” Mitchell says. “Those are the kind of profit margins the drug companies run.”
Mitchell is the founder of Patients for Affordable Drugs Now, an advocacy group calling on lawmakers to limit the exclusivity rights enjoyed by name-brand drugmakers, among other major reforms that would lower drug prices.
Even though name-brand drugs only make up 16 percent of all medications prescribed in America, they are responsible for 88 percent of total prescription drug spending, according to RAND. And while Americans only pay slightly more than other countries for generic drugs, they pay 344 percent more for the exact same name-brand drugs.
Name-brand drugs are what’s driving the prescription drug price crisis, Mitchell says, and unfortunately that core problem is not addressed by Cuban’s new company, which only sells generics.
Let the Government Negotiate Lower Prices
Why do other developed countries pay almost four times less for the same name-brand drugs? Because their governments are allowed to negotiate lower prices directly with the drug companies, says Mitchell, but not in America.
When Congress wrote the current Medicare legislation back in 1983, the drug companies successfully lobbied for the inclusion of something called a “noninterference clause.” This clause prohibits the secretary of the Department of Health and Human Services (HHS) from “interfering” with negotiations between drug manufacturers and prescription drug plan sponsors.
In practice, the noninterference clause means that the U.S. government, which is the largest buyer of prescription drugs through Medicare, can’t use its collective purchasing power to negotiate lower prices. Instead that negotiating power is handed over to private businesses called pharmacy benefit managers or PBMs.
The problem is that PBMs are driven by profit. They are supposed to negotiate lower prices for health insurance companies, large employers and even Medicare recipients, but they make money by pocketing a percentage of the cost of the drugs. Critics like Mitchell say that PBMs are incentivized, therefore, to keep drug prices high.
“The prescription drug system we have right now is designed to benefit the people who make money on it at the expense of the people it’s supposed to serve,” says Mitchell.
One of the reasons why Cuban’s new company can offer such low prices is that it’s registered as a PBM, which means that it can negotiate its own deals with drugmakers. Since Cuban is already filthy rich, he’s not in it for the money. Instead of marking up the medications to earn a fat profit, he only tacks on enough to cover his costs and keep the business running. He calls it a “public-benefit corporation.” By that measure, all other PBMs should be called “shareholder-benefit corporations.”
Congress’ Role in Prescription Drug Prices
The “Build Back Better Act,” which was passed by the House of Representatives in November 2021, includes several provisions that would lower prescription drug prices for millions of Americans. It’s now waiting for a vote in the Senate.
For starters, the legislation gives the government authority to negotiate prices with drug makers for a select few, very expensive medications. The list of negotiable drugs will include no more than 10 in 2025 and grow slowly from there, but it’s a step in the right direction.
The law, if passed by the Senate, would also cap out-of-pocket costs for prescription drugs at $2,000 a year. That might sound like a lot, but Mitchell currently pays $26,000 a year out of pocket for his cancer drugs. So again, a big step in the right direction.
But something the proposed legislation doesn’t touch are those exclusivity rights that gives drug companies the ability to name their price for more than a decade. The pharmaceutical industry says that they need that legal monopoly to recoup the expensive cost of research and development.
In other words, if people like Mitchell want life-extending drugs for incurable cancers, then the drug companies need to be compensated for their hard work and innovation.
There’s a logic to the pharma industry’s argument, but Mitchell says that they are leaving out some important details. For starters, most of the truly “innovative” scientific work is funded by taxpayers through National Institutes of Health (NIH) grants to research universities. When a drug company spots a promising (i.e., profitable) innovation, they buy the patent for a bargain and make it their own.
Beyond that, there’s the question of fair compensation. Yes, drug companies should be allowed to make money from delivering a life-saving cure, vaccine or treatment, but how much money? According to an analysis by West Health, name-brand drug companies could lose $1 trillion in sales and still be the most profitable industry in America.
“I take this whole notion of incentivizing innovation very seriously,” says Mitchell. “I need new drugs or I will die sooner than I hope to. But we are way far away, even with the legislation proposed in Congress, from doing anything that would stifle innovation.”