Can Mark Cuban solve America’s healthcare spending?

Sascha: [00:00:02] From Equity Mates Media. Welcome to the dive. American health care is a mess. It doesn't matter what your political persuasion is, it's not really in dispute. Successive presidents have spent plenty of political capital trying to improve it. [00:00:17][14.9]

Audio clip: [00:00:17] We share a common goal making health care more affordable and accessible for all Americans. [00:00:21][4.1]

Sascha: [00:00:22] Hello, Senator Sanders. I'm drawn to your plan for universal health care. [00:00:26][3.6]

Audio clip: [00:00:26] Let's give Medicare the power to save hundreds of billions out by negotiating lower drug prescription prices. [00:00:32][6.4]

Sascha: [00:00:33] But while the politicians keep talking, prices keep rising. And surprisingly, it's a celebrity billionaire with a TV career who's working on a solution. Move over Donald Trump. Mark Cuban, an early pioneer of Internet streaming owner of the Dallas Mavericks NBA team and shark on the TV show Shark Tank. One of my favourites has entered the healthcare space with a company that carries his name, Mark Cuban's Cost Plus Drugs. Now putting your name on a company, it sounds like a little bit of a vanity project, but the early results are pretty incredible. Cuban's company is offering more than 700 medications at steep discounts to rival pharmacies, and it's saving patients real money. [00:01:18][44.4]

Audio clip: [00:01:18] Goal is to gut the pharmacy industry. I'm sorry for my language. [00:01:21][2.7]

Sascha: [00:01:21] It's Wednesday, the 29th of June. And today, I want to know how is it? Television star, sports owning, celebrity billionaire, solving the problem of American health care costs? To do this, I'm joined by my colleague and the co-founder of Equity Mates. It's Alec Renehan. Alec, welcome back to The Dive. [00:01:39][17.5]

Alec: [00:01:39] Thanks, Sascha. Great to be back in an exciting episode to be back for. [00:01:42][2.9]

Sascha: [00:01:43] I am so keen to get into this with you. It's a problem, as I outlined, that no company, politician or entrepreneur has ever been able to solve for decades. Before we even get started on how Mark Cuban Cost Plus Drugs operates. Gosh, that's such a mouthful. [00:01:59][16.1]

Alec: [00:01:59] Yeah. [00:01:59][0.0]

Sascha: [00:02:01] Let's discuss the impact. Tell me about the land before time. The land before. Mark Cuban cost plus drugs. [00:02:07][6.5]

Alec: [00:02:08] Well, wherever you are in the world, you know that American health care costs are out of control, as you said in your intro. Successive presidents have tried to tackle the issue. There's been so much reporting about the issues of American health care costs. The world knows it's a problem. It's hard to say what health care and medicine should cost. Pharmaceutical companies spend billions of dollars on research and development, and they need to see a return on those investments to continue investing and continue research new treatment. But that being said, America is just out of control. A poll from September last year found that 18 million Americans reported being unable to afford at least one doctor prescribed medication in the previous three months. 18 million Americans, Sascha. So when we measure just how out of control American health care costs are, we can sort of look at it maybe in two ways the price growth over the past few years and then the comparative price to other countries. So price growth, drug spending in the United States jumped by 76% between 2020 17. So prices almost doubled, while overall spend almost doubled. And it's partly because America is just rampantly, shamelessly capitalist and in in health care, like in everything. And that story is really exemplified by Martin Shkreli. Do you remember him? [00:03:32][84.3]

Sascha: [00:03:33] I don't. Can you remind me? [00:03:34][1.2]

Speaker 4: [00:03:34] Thank you, Brian. Martin Shkreli joins us now from the Nasdaq. He's the CEO of Touring Pharmaceuticals. Martin, thank you for joining us. Thanks for. [00:03:40][5.5]

Alec: [00:03:40] Having me. So mid 20 tens, like 2015, his hedge fund bought the maker of Daraprim, which is a drug for HIV patients needed to survive. At that stage, the drug was 17.60 uphill. He raised it to $750 a pill. [00:03:56][16.7]

Audio clip: [00:03:57] Now, you guys have said that the reason you increased this price so much after acquiring the drug was in order to do the research and development to develop a better version of Daraprim. I just got off the phone with an HIV doctor who told me they don't need a better version of this drug. What are you doing here? [00:04:09][12.8]

Alec: [00:04:10] Yeah, that's not true. [00:04:11][0.5]

Sascha: [00:04:11] I remember this as a great dirty money episode on this. On Netflix, right? [00:04:15][3.7]

Alec: [00:04:16] Yeah, there is. There is. He ended up in jail. Not specifically related to that. But American health care is incredibly capitalist and we see that in the price rise the other way. We say that is in the comparative price that American consumers pay to the rest of the world. Americans pay almost 1400 dollars per capita for medication. No other country pays over $1,000 so well outstrips there. A Rand Corporation study found that the US consumer pays 2.56 times the price of medication compared to a basket of 32 other nations. These researchers also found that total drug spending, total medication. Spending across the OSA day, $795 billion. The U.S. accounts for 58% of that spend, but just 24% of the volume of drugs. So they account for more than half the spend. But less than a quarter of the consumption. [00:05:15][59.1]

Sascha: [00:05:15] And that's what I find the most interesting in the comparative price, because, you know, you said 2.5, six times the price compared to other nations is not like the American flu is 2.5, six times more flu than the Australian flu. So that's when you really start to see the comparison kind of blow out. I mean, that was not a very eloquent analogy, but there you go. [00:05:39][23.4]

Alec: [00:05:40] No, it's a good. [00:05:41][1.1]

Sascha: [00:05:41] Point. So the U.S. is paying more for the same medication that the rest of the world is. And we know that because most OECD nations have single payer health care like the UK's NHS, and then there's price controls on many drugs like Australia's PBS. So that's the world pre mark Cuban cost plus drugs. Tell me about the world we're living in now that this company has started. [00:06:04][22.7]

Alec: [00:06:04] Well, Sascha, I had a look at cost plus website. We're going to start calling it Mark Cuban Cost Plus Drugs. And it is pretty incredible. Imatinib, a cancer drug. $2,503 for 30 pills. Cost plus is selling it for $14 a pacifier. And HIV drug retails for $1,096. Cost plus is selling it for 58 albendazole, a drug to treat tapeworm infections retails for $6,565. Cost plus is selling it for 453. [00:06:39][34.7]

Sascha: [00:06:41] This leukaemia medication goes for about $2,000 at many pharmacies. Cuban's company sells it for as low as $17.10. [00:06:47][6.6]

Alec: [00:06:49] Even at the less extreme end, a diabetes drug metformin retails for 20 bucks, but cost plus is selling it for 3.90. [00:06:57][8.1]

Sascha: [00:06:59] That's just extraordinary. Those numbers. [00:07:01][1.8]

Alec: [00:07:01] Those gaps are mind blowing. But Sascha, perhaps the best feedback is anecdotal. We found a Wall Street Journal video explaining cost plus drugs and the comments underneath were pretty incredible. So let me write a few of them out to you. CBS was charging my father $114 for his cholesterol medication. Under his new insurance, Mark Cuban had the lowest price of any retailer for that medicine at 16.70. Thank you, Mark Cuban. I went from $456 to $33 a month for my medication. Recent prescription with insurance was going to cost $1,000 plus for a three month supply through cost plus it became $90. I'm so glad I heard about it. My meds were almost 500 bucks. I get them at 60. [00:07:48][46.6]

Audio clip: [00:07:49] Now, patients want the medication. They need it the lowest possible price period, end of story. [00:07:52][3.7]

Alec: [00:07:53] These are incredible cost savings for millions of Americans who take these drugs. [00:07:59][5.8]

Sascha: [00:07:59] Yeah, it's not often that you kind of feel emotional about a business story, but this is one where I would say that you don't have a heart. You don't feel like get some goose bumps at some point of reading those messages. So I guess the big question then is how how is he doing it? How are they able to price drugs so much lower than before? I mean, we hear about retail mark-ups, but that price of like $6,000 to 500 ish, like that's just blows my mind. [00:08:28][29.3]

Alec: [00:08:29] Yeah. Pricing of medication in America is a really complicated mess. Pharmaceutical companies, the insurance companies, pharmacy benefit managers and then the pharmacies themselves, rather than trying to work through this complicated mess, cost plus drugs, has tried to sidestep it. For example, they don't work with insurance companies because they don't want to negotiate prices or take minimum prices from insurance companies. So it means that they can't take insurance to buy drugs on the system. You have to buy them in cash. But all costs plus drugs is doing is going directly to the manufacturers, cutting out all those middlemen and negotiating prices directly. Then they add 15%, a $3 handling fee and a $5 delivery fee, and that's it. [00:09:14][45.5]

Audio clip: [00:09:15] Our approach, our cost plus drugs, which is we'll show you our actual cost, will mark it up 15% or add $3 pharmacy handling fee and $5 shipping. And that's all you ever pay. That's simplification. And transparency has really had an impact. [00:09:31][16.3]

Alec: [00:09:32] It's also worth noting, and we laugh about the fact that it's Mark Cuban cost plus drugs, but they're not spending a cent on advertising or marketing and they're relying completely on word of mouth. So on one hand, you might say calling it Mark Cuban Cost Plus Drugs is a bit of a vanity project, but it also helps get the media attention. It's got us talking about it today. So again, it's also a cost saving measure. I guess the goal is. [00:09:58][26.9]

Audio clip: [00:09:59] To be very transparent, and that's exactly what we do. And that transparency we think is our most effective marketing. [00:10:04][5.4]

Alec: [00:10:05] It reminds me of that classic Jeff Bezos line. Your margin is my opportunity. And it seems like in American health care, there's plenty of margin. [00:10:13][7.9]

Sascha: [00:10:14] Well, I was going to say, if anyone from Mark Cuban's team wants to reach out and sponsor this episode, you know, we're not too proud to say we'll take it. [00:10:20][5.9]

Alec: [00:10:20] We have tried to get him on for this episode. As you can say, it's may not him. So we were unsuccessful. [00:10:26][5.8]

Sascha: [00:10:27] Hey, we'll do a part two if he agrees to. Come on. So it just sounds like, as you said, America is shamelessly capitalist. And this just sounds like they've put that shamelessly capitalist brains to use and found, as you said, the Jeff Bezos line your margin. It's my opportunity way to disrupt the market. [00:10:45][17.8]

Alec: [00:10:46] Yeah, for decades it's been seen as a political problem. But I think the impressive thing with this story is Cuban and his team have approached it purely as a business problem. If capitalism is the cause, then capitalism can be the cure. [00:10:58][12.7]

Sascha: [00:10:59] Sascha It just makes me wonder. There's been so many smart people who want to make money in the last century. Why it's taken so long for someone to to act. So let's chat about that after the break. And then let's also look at some of the criticisms and how the broader health care industry has responded. Welcome back to the dive. We are talking about promise it's the last time mark cuban's cost plus drug's full title for the injury back to the second half. Before the break, Alec, you were explaining how the company was able to offer drugs at such a huge discount. But there's a big caveat here. It is not every drug. This is not the miracle cure that's coming in to revolutionise everything. Some of the most expensive and desperately needed drugs are still not available. And true that a frequently discussed an effect, a lot of people are insulin and EpiPens. [00:11:55][56.1]

Alec: [00:11:56] Yeah, that's right, Sascha. 30 million Americans have diabetes and about 31% of that group take insulin, manage the condition. And prices of insulin have gone crazy over the past decade. They've risen between 15 and 17% a year. A year. Yeah, affordability is such a big challenge that a recent study found that one in four people who use insulin in America ration rationing to save money. Similarly, EpiPens, they've also skyrocketed in price. In 2007, the cost of a set of two auto injectors $94. Today, that's over $700. And in this first part of this episode, Sascha, we spoke about how we can compare American health care prices to other countries. Well, an EpiPen in America costs ten times more than in other countries. But this is also where the shortcomings of cost plus drugs become clear. If it's not a generic medication, if it's a, you know, IP patent protected medication that one pharmaceutical company can make, they struggle to get a good price on that. And if it's a really complicated medicine to make like an insulin or an EpiPen, and there's not a lot of competition, there's not a lot of supply. They can also struggle to get a cheaper price. [00:13:17][80.4]

Audio clip: [00:13:17] You have to do the deals with all the manufacturers. And there are manufacturers who are afraid to work with us because they're afraid they'll lose those big pharmacy benefit managers who are doing a lot of business with them. So we have to overcome that hurdle. [00:13:29][12.1]

Alec: [00:13:30] When it comes to a generic medication, when there's a number of manufacturers and they can negotiate good prices, cost plus model excels. [00:13:37][7.3]

Sascha: [00:13:38] So essentially you're saying the manufacturer has to be part of this equation. They have to play ball. And in both of those instances and for some of the most in-demand drugs or as you said, those that are still patented, the manufacturer just doesn't have that incentive to play ball or reduce their prices. [00:13:55][17.0]

Alec: [00:13:55] Yeah, that's exactly right. When the price is high because of all the middlemen, the insurance companies, the pharmaceutical benefits managers, Cuban's model cuts the middleman out, reduces cost. But when the drug prices high because of the manufacturer, because they have IP protection, because they have no competition, there's not a lot you can do to reduce the price in the long term. Mark Cuban's cost plus drugs. I know we said we'd stop saying it, but they're also looking to build their own manufacturing facilities in Texas so then they can introduce competition into markets where there perhaps isn't some at the moment, but that's further down the line right now. This is about working with the manufacturers rather than competing against them. [00:14:38][42.2]

Sascha: [00:14:38] Okay. So it sounds like there is a long term vision there and we've recognised that there's some shortcomings in the short term to two that together. But let's revisit my question from the break. Why hasn't this happened before? [00:14:51][13.6]

Alec: [00:14:52] It has in some ways, in different forms. Cost plus isn't alone in trying to fix America's health care problems with an entrepreneurial spirit rather than a political spirit. [00:15:03][10.5]

Audio clip: [00:15:03] It basically it has been tried before, but typically what happens, entrepreneurs like myself will build up the companies the equivalent of a cost, plus Drugstore.com, and then the big PBM, the big pharmacy benefit managers or the big insurance companies, they'll buy them. But I've been incredibly blessed in that my next dollar is not going to change my life. [00:15:24][20.9]

Alec: [00:15:25] There are other companies. Start ups are not for profits working on this problem at the moment. Companies like Good R, X and Single Care are some of the bigger names in America at the moment. There's a not for profit civica Arthrex that does essentially the same thing for hospitals rather than for patients. They sell to about 1400 hospitals and give an average saving of about 30%. So there are other businesses, other start ups, other not for profits, employing a similar model, cutting out the middleman. But the presence of Mark Cuban on Mark Cuban cost plus drugs certainly gets the media attention. And it has very quickly become the biggest name in this space. [00:16:04][39.4]

Sascha: [00:16:05] So let's go back to what I said earlier. We know there's a long term vision there. What could it look like in a couple of years? [00:16:11][6.1]

Alec: [00:16:11] Yes. So a recent study from the Harvard Medical School found that Medicare, which is America's. A mental health care provider could have saved over three and a half billion dollars in 2020 alone by mirroring the pricing strategy that cost plus is using. The study found that the government Medicare is essentially overpaying for many generic drugs and could save billions if they just went to cost plus's website now $3.5 billion. Hard to contextualise. It would have saved over a third of the government's budget for drugs. 37% saving on the $9.6 billion budget to buy medication. Cuban, always the entrepreneur tweeted out to Joe Biden, said, Have your people call my people and let's get it done. I don't know if Biden's going to make that call. [00:17:02][50.4]

Sascha: [00:17:03] I'm not sure how much time Biden spends on Twitter. Like I'm sure he has people who are monitoring his social channels for him. But really, if cost plus drugs was buying drugs on behalf of the government, the ultimate question is why doesn't America just follow most other developed nations and have the government negotiate directly their prices with the drug makers and have the government buy them, rather than have the government buy them from Mark Cuban's cost plus drugs. We honestly have to stop saying that name. [00:17:31][28.3]

Alec: [00:17:32] We do, but we've almost made it to the end of the episode, so let's just keep saying it. Look, I think it is the ultimate point. Almost every day nation has some form of government negotiation or government price control or government subsidy. Will the Americans do it? That's not a question for us. We're not wading into that debate. Mark Cuban isn't wading into that debate at least until he runs for president in a few years. I think this is a great step in the right direction. But as we've covered Sascha, it's not the final step on this journey of sorting out American health care costs. Meanwhile, more content in the future. [00:18:08][36.5]

Sascha: [00:18:09] Absolutely. And I think the takeaway for me here is sometimes the capitalist problem has a capitalist solution. [00:18:14][5.0]

Alec: [00:18:15] I love that. [00:18:15][0.3]

Sascha: [00:18:15] Yeah. All right. Well, let's leave it on that note. Thanks so much for joining us for today's edition of The Dive. If there's a story that you want us to talk about, then contact us at the dive at Equity Mates dot com or follow us on any of the social media channels. A huge shout out to the fact that we've got a new Instagram. Alec, what's the handle. 

Alec: [00:18:33] @thedive.businessnews

Sascha: [00:18:36] Awesome. So we'll also link that in the show notes and also remember to write and review us and your favourite podcast app. I've seen a few great reviews come through. Warmed the cockles of my cold heart, but we're always welcoming more. Scroll down to the bottom. Give us five stars and write some notes there and subscribe. So every time there's a new episode, it's right there for you the moment it drops. Thanks so much for joining me today, Alec. Great topic. 

Alec: [00:19:00] Thanks, Sascha.