June 19, 2024

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Mark Cuban says CEOs don’t understand their health care costs. Here’s what the Cost Plus Drugs cofounder’s mistakes have taught him

6 min read

When a CEO fails to grasp the nuances of their company’s health care costs, it’s not just the bottom line that suffers. Employee efficiency and productivity could plummet, too, not to mention the corrosion of company culture. For these reasons, billionaire entrepreneur and Cost Plus Drugs cofounder Mark Cuban urges business leaders to take a hard look at how their health dollars are spent.

“Even though health insurance costs are the second-largest line item after payroll, CEOs don’t really understand it or know anything about it,” Cuban tells Fortune. “You have employees that are more worried about whether their kids can get their medications paid for by the company insurance, or whether they’re going to be able to get the surgery that they know they need and that the doctor recommends, but the insurance company is not approving.”

Cuban spoke with Fortune on Monday after participating in a White House roundtable discussion on lowering health care costs and bringing transparency to the role of prescription drug middlemen. He was joined by Dr. Alex Oshmyansky, the CEO and cofounder of the Mark Cuban Cost Plus Drug Co., a low-cost drug supplier. Before government leaders including Secretary of Health and Human Services Xavier Becerra and Federal Trade Commission Chair Lina Khan, Cuban and Oshmyansky accused those middlemen companies, known as pharmacy benefit managers, or PBMs, of prioritizing profits over patients.

These third parties act as intermediaries between health insurance providers and drug manufacturers. Cost Plus Drugs launched its online marketplace in early 2022, with the mission to buy drugs and sell them directly, and thereby more cheaply, to consumers. Oshmyansky announced at the White House that the Dallas-based company would begin manufacturing its own medications this week.

PBMs respond to Cuban’s cost claims

The so-called Big Three PBMs—CVS Caremark, Cigna’s Express Scripts, and UnitedHealth’s Optum Rx—controlled 80% of the market in 2022, according to the Drug Channels Institute, and faced particular ire during the roundtable. 

“If you’re using a Big Three PBM, you are getting ripped off,” Cuban tells Fortune. “Period. End of story.”

CVS Caremark spokesperson Phil Blando tells Fortune in an email statement: “Employers, unions, health plans, and government programs work with CVS Caremark precisely because we deliver for them—lower drug costs, better health outcomes, and broad pharmacy access. Through our TrueCost, CostVantage, and Choice Formulary initiatives, we are the leading agent of change, innovation, and transparency in the market.”

An Express Scripts representative tells Fortune via email: “Our clients choose to work with us because we offer broad flexibility and choice, the clinical expertise to ensure better health outcomes for the people they serve, and the negotiating muscle to secure savings across the thousands of brand, specialty, and generic medications available today, not just a handful of generic medications.”

Optum Rx didn’t respond by deadline.

The Pharmaceutical Care Management Association (PCMA), a trade organization representing PBMs, places blame on drug manufacturers. The Transparency section of the PCMA website contends there are right and wrong ways to be transparent about prescription prices. “Specific price concessions that allow drugmakers to realize they can discount less” is one such move PCMA says increases costs.

Neera Tanden, domestic policy advisor to President Joe Biden, said during Monday’s roundtable that PBMs play a critical role in negotiating lower drug prices.

“We have to remember that the original conception of PBMs is that they had the power to negotiate against Big Pharma,” Tanden said. “However, we have seen in current practices that that is a real challenge.”

The quest for PBM reform has bipartisan support in Congress. At the same time, pharmacy groups have criticized politicians for their lack of consensus and failure to pass what they view as meaningful change into law. In a statement Monday, the National Community Pharmacists Association said, “If Congress fails to act this year, thousands of pharmacies could close, and millions of patients could be stranded.”

Conceptual image of a seesaw with a piggybank and an oversized pharmaceutical pill balancing on itConceptual image of a seesaw with a piggybank and an oversized pharmaceutical pill balancing on it
“What we spent $160,000 on at the [Dallas Mavericks], we could have purchased for $19,000 for Cost Plus,” Mark Cuban tells Fortune.

J Studios/Getty Images

Cuban’s companies ‘walked away from the traditional way’ of health care coverage

Two years ago, Cuban’s companies were self-insured, with him effectively writing personal checks for out-of-pocket health care expenses. As Cost Plus Drugs got off the ground, he says he compared the prices of generic prescription medications he’d been paying for to those offered by his new pharmacy.

“What we spent $160,000 on at the [Dallas Mavericks], we could have purchased for $19,000 for Cost Plus,” he tells Fortune. “We decided once that plan ended last year, we were going to replace it, and so I wanted to go through the entire process of understanding what I did right or wrong.”

He first turned to the employee benefits consultant who had assured him he was getting a great deal—someone whose advice also cost $30 per employee per month.

“That’s insane, that was millions of dollars,” Cuban says. “The person who put me into a program where I was paying eight times more than I should have for generic medication, they’re done.”

Around the time he dropped the consultant, Cuban was planning to get a CT colonoscopy, which he says would’ve cost more than $2,000 through insurance. Yet the walk-in cost for the same procedure was less than $500.

“What is the purpose of this insurance company that I’m working with—and the PBM that they’re connecting me to—when I can just walk in off the street and save myself a ton of money?” Cuban asks. “What we’ve done at my companies is we’ve walked away from the traditional way.”

Cuban decided his companies wouldn’t work with PBMs that deal in rebates, including the Big Three. A study of rebates for nearly 450 branded drugs, published in 2021 in the journal JAMA Network Open, found an association between increased rebate sizes and increased out-of-pocket costs for people with Medicare, commercial insurance, or no insurance. Cuban says he looked into whether the Big Three PBMs could offer any advantages that smaller PBMs that don’t use rebates couldn’t: “When we compared feature to feature, it was nothing.”

He adds, “We were able to get rid of the pre-authorizations that we didn’t need, the step-up therapy—where they make you try these five drugs before they give you the drug that the doctor wants—all of the hassles that patients, employees, HR, everybody hates.”

Close Up Of Senior Man Organizing Medication Into Pill DispenserClose Up Of Senior Man Organizing Medication Into Pill Dispenser
A study of rebates for nearly 450 branded drugs, published in 2021 in the journal JAMA Network Open, found an association between increased rebate sizes and increased out-of-pocket costs for people with Medicare, commercial insurance, or no insurance.

Getty Images

Cuban: Oldest, sickest employees suffer from uninformed CEO health coverage choices

With his companies’ previous PBM, Cuban says he spent hundreds of thousands of dollars annually on Humira (adalimumab), a drug used to treat a variety of conditions including Crohn’s disease, plaque psoriasis, rheumatoid arthritis, and ulcerative colitis. The PBM wouldn’t allow the use of biosimilars, lower-cost biologic medications. Today, Cost Plus Drugs sells the biosimilar Yusimry (adalimumab-aqvh) for 41% off the retail price.

For his employees, Cuban now uses AffirmedRx, a pass-through PBM, meaning it’s designed to collect revenue from administrative fees instead of discounts and rebates, and pass savings along to customers. 

“Everything we just pay for on a transactional basis, and they do what we tell them to do,” Cuban tells Fortune. “That was an easy switch.”

CEOs shouldn’t depend solely on their HR departments and CFOs to untangle such costs, Cuban advises, stressing that the oldest and sickest employees end up bearing the brunt of co-pays and high deductibles when employers make uninformed health coverage decisions.

“I really think that we’re going to start seeing a trend for health care CFOs, in any company with more than 1,000 employees, where there’s somebody focused on the economics and wellness of their employees,” Cuban says.

CVS Health is a sponsor of Fortune WELL.

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