Mark Cuban Cost Plus Drug Co. CEO Addresses Specialty Drug Cost Criticism

Alex Oshmyansky, M.D., the CEO of Mark Cuban Cost Plus Drug Co. (MCCPDC), the online cash pharmacy funded by the eponymous billionaire investor, said the company has become a licensed drug wholesaler nationwide and has plans to roll out quasi-PBM business lines including a retail pharmacy network. Oshmyansky discussed these new ventures — and addressed criticism by health care experts that his firm can’t lower specialty pharma costs — during a June 13 keynote at the 2023 AHIP Conference in Portland, Oregon.

“I think it was always our ambition” to work with retail pharmacies, Oshmyansky said. “I think there’s a variety of products where it just doesn’t necessarily make sense for them to be mail-order products,” citing “cold supply chain” and “acute care medications” as examples.

“We’ve sort of been working in the background on having our own retail network for quite some time,” he said. “There, it’s exactly the same as our B2C [business to consumer] model in terms of the pricing. We’ll post all the pricing publicly on our website, in terms of ingredient costs, at a flat 15% markup. And for physical retail, it’ll be an $8 dispensing fee, which is a combination of the $5 mail-order shipping and handling, plus a $3 dispensing fee. So patients should be able to get the same price they would at our B2C mail-order [pharmacy] at their local independent pharmacy.” The same fee structure applies to the company’s online pharmacy orders, Oshmyansky said.

Oshmyansky added earlier in his remarks that “we are a pharmaceutical wholesaler registered in all 50 states. At the moment, we use that ability primarily to wholesale to ourselves.”

CEO: Other Pharmacy Actors Seek ‘Bribes’

Part of the reason for the wholesaling licenses and direct contracting with independent pharmacies, Oshmyansky said, is the existing system’s rent-seeking incentives.

“Wholesalers are under no obligation to buy our products if there’s not enough margin in it for them. Similar with pharmacy chains, and certainly…pharmacy benefit managers are under no obligation to put our drugs on their formulary if there’s not enough — de facto bribe dollars — rebate dollars for them,” Oshmyansky said. “So we decided to do the rational thing and build out all of that infrastructure ourselves.”

Oshmyansky said it’s riskier for his firm to stay small than overreach.

“I’ve heard people say, ‘It’s a good idea for your company to do one thing and do it really well.’ Well, unfortunately, we don’t have that luxury if we really want to get the product to the patients, which is the most important thing at the end of the day. At the price that it actually should cost, we kind of have to own everything.”

Brand-Name Prices Are Stubbornly High

While MCCPDC does sell many generics for prices lower than the out-of-pocket costs of the same drug sold through a typical pharmacy benefit, it has been criticized by drug policy experts and pharmacy benefit insiders for its focus on generics. Generic costs have, broadly speaking, declined over the last decade, and similar prices are available through large retailers like Costco Wholesale Corp. and Amazon.com Inc. And most of recent years’ dramatic escalation in drug spending has occurred because of the high cost of brand-name products like AbbVie Inc.’s Humira (adalimumab). Combined with the grand scale of Oshmyansky and Cuban’s pronouncements, some health care experts have doubts about MCCPDC’s actual potential to disrupt the current drug-pricing paradigm.

“Mark Cuban is getting concessions. I would be shocked if Mark Cuban was getting bigger concessions than what these big PBMs are getting,” said Karen Van Nuys, Ph.D., executive director of the Value of Life Sciences Innovation program at the USC Schaeffer Center, during a June 14 KFF webinar. MCCPDC has “set up a system where [they’re] not going to do all of the crazy shenanigans that end up raising the price of what they charge [their] customers….They send me a price list every week, an updated price list. This is unheard of in this industry.

“I think the main thing about the Mark Cuban example is that it is demonstrating, and people can now see, how much padding there is in these prices because they can go to Mark Cuban’s website and find out what these drugs would cost them,” Van Nuys added. However, she pointed out that incumbent retailers like Costco and other startups like Blueberry Pharmacy also offer patients substantial savings.

In a study of the 200 most common drugs dispensed to Medicare members, Van Nuys said, “the addition of the PBM plus the health plan compared to just going to Costco and picking it up for cash was adding 20% to the cost of the spread. I think now that we have these sort of public prices, we can appreciate what’s going on here a little bit more.”

“Right now, it’s mostly limited to generic drugs. That’s where Cuban is focused, and I think that’s good as far as it goes,” Van Nuys said.

MCCPDC “is focused on the lowest expense portion of the market [and] simplifies the claim adjudication and dispensing processes to provide low-cost generics,” Brian Anderson, principal at Milliman Inc., told AIS Health, a division of MMIT, in 2022. “This approach is an avenue to improve pricing for low-cost items, but it does not solve for the administration side and what to do for specialty, limited disruption, and brand name products. Generics are currently the smallest portion of the overall costs, and lowering costs can provide a short-term Band-Aid but not a long-term solution. An estimated 85% of [drug] spend falls into the other categories.”

“This type of pharmacy is good to challenge the market to be innovative and pushes the best option of low-cost generics, but it does not solve for the broader issue of lowering pharmacy spend,” Anderson added.

Oshmyansky said in his AHIP remarks that he understands that line of criticism, and that MCCPDC plans to address it.

He noted that “10% to 20% of overall spending is on generic drugs,” adding, “I think there have been multiple studies done on our pricing model at this point by academic groups, consulting firms, various industry actors. And they all come up with the same results, which is our pricing on generics tends to be 50% to 60% lower than traditional supply chains….But what we have found is specialty is a very hot topic. Because just a few…drugs [account for] 50% of your drug spend at this point.

“And actually, we already covered 10% to 20% of specialty drugs at our pharmacy. These are drugs which really require no clinical services, no special handling, generally pills — but which are often classified, for some reason, as specialty products. Think imatinib, abiraterone — onco[logy] products — [and] a variety of immunology products,” Oshmyansky said. (Imatinib is a tyrosine kinase inhibitor often used to treat leukemia, and abiraterone is a hormone-associated therapy typically used to treat prostate cancer.)

Working with MCCPDC to purchase one specialty product can save “an employer…hundreds of thousands of dollars for a year,” Oshmyansky said. “That may not be brands specifically, but certainly specialty can provide an enormous savings.”

Regarding brand pricing, Oshmyansky added, “I think some of those same dynamics” used by MCCPDC “can work. Certainly transparency. That margin — who really knows what percentage of rebate dollars are captured at various industry levels [due to] rebate aggregators, copayment maximizers, what have you. So just that on its own can help the actual dollars flow back to plan sponsors.”

Of course, “competition within a therapeutic category” is one key way to lower prices, Oshmyansky added. “Most definitely, even if a brand is a non-patent molecule, there might be other drugs in a similar category which can be negotiated against each other.”

But with brand-name patent protections often extending further than ever due to pharma firms’ successful gaming of the patent process, competition can be years away for patients in dire need of breakthrough therapies.

“It’s obviously not great,” Oshmyansky said of long patent windows. “The root causes, from my perspective, are multifactorial. One is the drugs are genuinely more complicated. Think of biosimilars as compared to…small molecule generics of the past.” The complexity of new biopharma products “gives [manufacturers] the opportunity for more in the way of process patents, evergreening strategies that may exist.”

With those sorts of obstacles, Oshmyansky conceded, “the low hanging fruit seems to us really to be the payment processing part of it — the intermediary actors where some significant savings can be had for really no detriment. So that’s where we really focus our efforts.”

This article was reprinted from AIS Health’s biweekly publication RADAR on Drug Benefits.

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