san francisco Mark Cuban feels like a kind of Robin Hood. Even a billionaire, owner of the Dallas Mavericks, venture capitalist and “Shark Tank” investor (the US version of “The Lion’s Den”), he wants to save millions of ordinary Americans from insane drug prices. To do this, he takes on an opponent against whom every attack from politics and business has fizzled out in vain: the US pharmaceutical industry. Cuban wants to set up an internet pharmacy with rock-bottom prices for medicines.
The American pharmaceutical industry has already had other calibers than Mark Cuban. Most recently, the former US President Donald Trump, who, despite full-bodied promises, was unable to move anything on drug prices during his term of office.
Joe Biden also failed completely with a cost-cutting initiative. A key reform of his $3.5 trillion US recovery program was to allow Medicare to negotiate drug prices. Today, the largest single customer in the pharmaceutical industry has to pay whatever the industry dictates without any argument. According to studies by the Democratic Party, such a step would have saved “hundreds of billions of dollars” over a ten-year period.
Drug prices are a constant upset in the US. They are rising well above inflation rates, are considered by far the highest in the industrialized world, and have also surged during the pandemic. The four most expensive products, each costing more than $40,000 a month, have increased in price, as have the top ten most prescribed products.
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Abbvie’s rheumatism and arthritis drug Humira, for example, brings in $17 billion a year for the company and has risen another 15 percent since the pandemic began in 2020. According to a study by the Democratic Congressional faction, there are even more extreme outliers. The list price for HP Acthar, for example, for the treatment of multiple sclerosis and rheumatism, has been increased by more than 100,000 percent since 2001, from 40 to 40,000 dollars by the manufacturer Mallinckrodt.
In Canada there is a comparable remedy for around 30 dollars. But Mallinckrodt simply bought the distribution rights for the US – and now does not offer the drug.
The large drug dealers in particular benefit from the system
There is a system. Health insurance companies, companies and pharmacies are allowed to negotiate prices. This is where the hour of the “PBMs”, the “Pharmacy Benefit Managers” comes in. These wholesalers sit like spiders in a web between manufacturers and pharmacies, corporate customers, government organizations or hospitals. They promise cheaper prices than the list prices and manufacturers stable sales volumes.
The trick is to buy so cheaply that a decent margin remains after it is passed on to the network. Alex Oshmyansky, CEO of New Pharmacist Cuban: “There are many dishonest players in the drug supply business. They prevent people from getting affordable medicines.”
And it works like this: With “split pricing”, the intermediary as a service provider is given the task of organizing the procurement and transfer of the medicines. He charges a fee for this. But he also negotiates what the health insurance company has to pay him for a drug, and on the other hand he negotiates the conditions with the pharmacies.
There is no state price control, the wholesaler does not have to disclose the conditions to anyone. The difference is its “spread”, the profit of the PBM.
Suppose the list price of a drug is $1000. The wholesaler trades this down to 500 dollars with the combined buying power of his customers behind him. The insurance has to pay for that. However, the PBM only pays a pharmacy $200 for a prescription that is brought in. $300 stays with the PBM.
An insured patient sees none of this. You only have to pay an “own contribution”. The pharmacy does not calculate this from the “real” price, which the insured person does not know, but from the list price. In the example, ten percent of $1,000.
The big drugstore chains like CVS and Walgreens make big profits from the drug business.
(Photo: AP)
Sounds adventurous? But it is not. For imatinib, a leukemia drug with a list price of $9,657 per month, Cuban’s pharmacy, which has its own wholesale license, says it charges a whopping $47 per month. The reason: Cuban refuses to pay split prices at all, bypassing the wholesale system. So far, however, only a few drug manufacturers have agreed to the deal.
But that could change, because for many pharmaceutical companies the power of the wholesalers goes too far. A study by the Californian USC Schaeffer Center for Health Policy & Economics has shown that in 2014, insulin manufacturers received 70 euros for every 100 dollars in sales and 30 dollars went to middlemen and insurance companies. In 2018, the middlemen, especially PBMs like those from CVS, Cigna or United Health, had already secured $53 out of $100.
Walmart also wants to overturn the system
“We hate PBMs. That’s why we founded our own,” Cuban said. The “P for pharmacy” is replaced by “P for patient”. Mark Cuban’s PBM is primarily intended to attract large US companies with their own health insurance companies as customers. Cuban’s internal PBM promises to add only a fixed 15 percent margin to the purchase price and a “small” pharmacy fee. The young guns in the industry see flat-rate offers instead of non-transparent, multi-level billing as a decisive advantage.
In the meantime, the retail giant Walmart has also discovered the model for itself. The latest coup is a vial of his private label insulin for around $73, which corresponds to savings of 58 to 75 percent compared to other branded products. The purchase is made directly from the Norwegian manufacturer Novo Nordisk, bypassing the entire US value chain.
With its network of 470 “supercenters”, Walmart is a force that is attacking even Walgreen, CVS and Amazon’s pharmaceutical activities head-on and need not fear Cuban. Rather vice versa. 90 percent of US citizens live within 10 miles of a Walmart store.
The competition is correspondingly angry with Walmart and Mark Cuban’s “Cost Plus Drug Company”. Lucia Mueller from Pharmacy Checkers sees no benefit in the new offers: “There are only discounts for some generic drugs,” she says, “buyers of branded drugs are still left out in the rain. They are nowhere to be found on Cuban.”
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