The Mark Cuban Cost Plus Drugs Company, which launched online in January, promises lower prices and full transparency on how those prices are set. This company is providing some welcome respite for some patients, but it is not addressing the root causes of high drug prices. For that, we need action from Congress.
The new Cuban company buys 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% markup, a $3 pharmacy dispensing fee, and $5 for shipping. Remarkably, this sometimes adds up to significantly 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. For example, Medicare paid over $2 per pill for aripiprazole, a commonly used psychiatric drug, while the Cuban company sells the same formulation of the drug for $0.24 per pill. At these prices, the government could have saved $233 million in 2020 on this drug alone.
So where do these savings come from?
By buying and selling drugs directly, the company eliminates insurance companies, drug benefit managers, wholesalers and in-store pharmacies. These multiple intermediaries play an important role in the supply chain but, in some cases, can introduce inefficiencies that lead to higher prices for patients. This is especially problematic for uninsured patients or those with high-deductible health plans.
To be clear, the Cuban company is not the first direct-to-consumer company to sell generics. Walmart, Costco and several other retailers also sell generic drugs at low prices. Additionally, GoodRx offers free coupons for hundreds of generic drugs that can be used at pharmacies across the country.
In addition to offering savings to some patients, Cost Plus Drugs’ transparent pricing is beginning to lift the veil on drug prices, which have been shrouded in secrecy. Understanding the true cost of production and distribution can help us understand when and why Medicare overpays generics.
But the Cuban approach has limits. 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 tedious and can be especially challenging for patients on multiple medications or those with limited healthcare 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.
More importantly, Cuban society fails to relieve patients who need expensive brand name drugs, including biologics and specialty drugs – which often cost patients tens of thousands of dollars a year. Indeed, unlike most other countries, the United States allows patent-holding brand manufacturers to set their prices freely. Insurers and pharmacy benefit managers may seek to negotiate better prices, but they often lack the leverage to obtain a significant discount. This is particularly the case with health insurance, which is required by law to cover certain drugs, including those that treat cancer.
Even though insurers bear most of the bill, the high prices of brand name drugs are passed on to patients. In Medicare, for example, the broken Part D prescription drug benefit requires patients to pay more than $10,000 a year out of pocket for some expensive drugs.
Cuban said his company would add brand name drugs to its offering. However, even though Cost Plus Drugs negotiates deep discounts with manufacturers, the price without insurance would still be out of reach for most patients.
So, to significantly 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 on a limited number of brand-name drugs, discourage annual price increases relative to inflation, cap out-of-pocket spending to $2,000 per year and limit insulin co-payments to $35 per month. But those changes were part of the $1.7 trillion Build Back Better plan. The Senate is actively trying to save a similar package of drug pricing reforms, though passage is far from certain. The scope of these changes is limited, but the reforms could reduce overspending and help millions of Americans afford their medications.
Cuban society can bring relief to some patients and break the secrecy surrounding generic drug prices. But with brand name drug prices soaring and 1 in 4 patients struggling to afford their medications, congressional action is desperately needed.