Billionaire entrepreneur and investor Mark Cuban thinks America’s healthcare industry is broken, and he’s not mincing words about it.
“No one looks at the financial side of healthcare and says, ‘This is the way it should work,’” Cuban said on this week’s episode of the Equity podcast. “When you go to the doctor and you get a prescription . . . you have no idea what the cost to you is going to be. You don’t know if you can afford it or not.”
The former “Shark Tank” host and minority owner of the Dallas Mavericks basketball team explained the root of the problem: most drug prices today are set by pharmacy benefit managers (PBMs), or third parties that manage prescription drug programs. Cuban said drug prices are opaque by design.
That’s exactly why he launched Cost Plus Drugs in 2022 — to pull back the curtain on drug pricing, bring down costs to the average consumer, and disrupt the traditional pharmacy industry.
“They price to market; we price based off of cost,” he said.
The difference is shocking. For example, a generic chemotherapy drug might cost thousands over the counter at a pharmacy, whereas it might cost “$21 from Cost Plus Drugs,” Cuban said.
Cuban’s approach is vastly different from how drugs are traditionally priced in the U.S. As its name suggests, Cost Plus Drugs sells meds directly to consumers at a transparent price – the manufacturer’s cost, plus a 15% markup, plus a $5 pharmacy fee, plus shipping.
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“And we’re adding the ability to pick it up in a local pharmacy,” Cuban added.
To understand why Cuban’s model is disruptive, it helps to know why drugs cost so much in the first place. The industry has defended its practice of overcharging for medication in the U.S. – which is one of the only high-income countries whose government doesn’t set or negotiate drug prices – by arguing that without the incentive of high profits, companies couldn’t invest the billions of dollars needed to bring new drugs to market.
But critics argue that prices are set to maximize profit and aren’t directly tied to R&D costs. One 2021 study found that revenue from the top 20 best-selling drugs alone was enough for companies to wring a return from their R&D costs with billions left over.
Cuban also pointed out another reason that drug prices skyrocket in the U.S.: artificial shortages. “Believe it or not, in this day and age, there are things like pediatric cancer drugs, Pitocin, sterile water, [and] this long list of drugs I can’t even pronounce right, that go in short supply because the manufacturers want them to go in short supply, because that’s how they jack up the price,” Cuban said.
While there’s limited direct evidence of intentional profiteering, it is true that during shortages, prices rise significantly.
His answer? Build his own factory. Cuban’s has a manufacturing plant in Dallas that’s “all robotics driven.”
“We created this factory where we can turn over a new drug in four hours and ship it out to hospitals,” he continued. “And so we’re starting to attack those shortages.”
While shipping drugs to patients has razor-thin margins, other aspects of Cost Plus Drugs, like drug manufacturing, are more profitable and help the business work toward profitability. Manufacturing is also another way to challenge the drug supply chain.
But Cuban’s strategy goes beyond just offering cheaper drugs — he says he’s refusing to play by the rules entirely. “Everybody was saying . . . you can’t fight these big companies, the insurance carriers, the PBMs,” he said. “I’m like, ‘Well, I just won’t work with them. I’m not going to work the way they want to do it, because that’s not what’s best aligned for patients.”
Even Amazon, Cuban noted, fell into this trap. The tech giant has partnered with partnered with PBMs through Amazon Pharmacy, but that puts the big tech firm at a disadvantage because it’s still “beholden to PBMs.”
His advice to founders trying to take down incumbents?
“Don’t be dependent on them,” he said. “Because if I were 25 and starting this business, I probably would work through the pharmacy benefit managers because that’s where the money is. All of healthcare is basically an arbitrage. How can I just get a small percentage of a $5 trillion market through technology, pricing, whatever it may be?”
“When I started out, somebody told me this: ‘When you run with the elephants, there’s the quick and the dead,’” Cuban said. “You’ve got to be quick, or you’re going to be dead, and so you’ve got to be lean, mean. You’ve got to be able to adapt. You’ve got to be able to zig and zag and always look for ways to just do better, because it’s the whole Innovator’s Dilemma thing for [the incumbents], right? They’ve got to protect their legacy businesses, but they can’t move as quickly. They can’t react as quickly, and so that’s always going to give the founder an edge.”
