- [Narrator] In January,
billionaire investor Mark Cuban launched a low-cost online drug company. - The goal is to (beep)
up the pharmacy industry, and I'm sorry for my language, right? Our business model's very, very simple. Our goal first that drives everything is to be the low-cost providers for medications to patients. - [Narrator] The company
sells over 200 generic drugs in partnership with a digital pharmacy. Prescription drug prices remain out of reach for many Americans who pay among the highest
prices in the world. So more private market
players are stepping in. This leukemia medication goes for about $2,000 at many pharmacies. Cuban's company sells
it for as lot as $17.10. - Patients want the medication they need at the lowest possible price. Period, end of story. That's not what these vertically integrated
companies are providing. They may say so but that's
not what's happening. - [Narrator] Still, the Mark
Cuban CostPlus Drug Company, or CostPlus, faces challenges
in a consolidated drug market. It also remains limited in
the medications it can offer. So how is Cuban's company able to offer such steep discounts? Which patients will benefit the most? And could businesses like his actually disrupt
the healthcare industry? There's usually not a straight line between the list price
a drug maker charges and the price patients pay
at the pharmacy counter. The drug supply chain can be complicated, containing multiple parties who all negotiate to purchase, sell and provide rebates for drugs. Cuban's business model works in large part by circumventing this drug pricing model. - America, unlike other rich countries, doesn't really give the government a role in negotiating prices on
behalf of its citizens. It is a much more fragmented market. So you have all of these
individual players trying to negotiate prices on
behalf of other employers, and no real sort of insight into how much the other guy is paying. - [Narrator] One way CostPlus is able to lower the price of
prescription medication is by removing insurance plans and healthcare industry middlemen, known as pharmacy
benefit managers or PBMs. Nearly 80% of US prescriptions are managed by three PBMs. PBMs manage prescription drug benefits on behalf of health insurers
and large employers. They use their purchasing power to negotiate rebates and
discounts from drug manufacturers but they don't always pass
along the savings to consumers. - And so what they'll do is
they'll go to say a Pfizer and say you charge X amount
of dollars for this drug but we would like to get a 15% rebate that you'll pay us back off of the drug as a discount and which
we will then pass along to our clients. One of the criticisms
that they've received is that PBMs also tend
to keep a percentage of the rebates that they
negotiate from manufacturers. The higher the drug prices go, the larger the rebates
that they'll receive and that they'll negotiate, and hence, the more money
that they'll get to keep at the end of the day. - [Narrator] The Pharmaceutical
Care Management Association represents pharmacy benefit managers. In a statement, its spokesperson said, "PBMs pass the vast amount
of rebates negotiated from drug manufacturers
along to employers, health plans and others
sponsoring health insurance." To get around these inflated drug costs, CostPlus cuts out third-party PBMs by making it a cash-only pharmacy, meaning no health insurance
plans are allowed. But for some drugs, like the leukemia pill
we showed you earlier, it can be cheaper to pay out of pocket at Cuban's pharmacy than going
through an insurance plan. - Insurance companies want you to work within their world. So their logic is look, if you want access to all of our customers, you're gonna have to play the game, which is what other companies that have tried to do the same
thing we're doing have faced. And so we're just saying nope, we're not gonna play that game. - [Narrator] So how exactly
are CostPlus drugs priced? The company sets it rates
by negotiating directly with the drug manufacturer and then adding a 15% markup, a $3 fee for pharmacy labor and a $5 shipping cost. - The goal is to be very transparent and that's exactly what we do and that transparency we think is our most effective marketing. - [Narrator] Some CostPlus medications are more than 10 times cheaper than those sold elsewhere. Because CostPlus doesn't accept insurance, uninsured or underinsured individuals may benefit the most from
the low-cost options. - For people who don't have insurance, oftentimes, they get
charged the highest prices because they don't have
anybody negotiating on their behalf like
insurance companies do and like PBMs do. - [Narrator] Still, there are limitations to the CostPlus business model. - Right now, they're
really targeting people who don't have insurance for generic drugs and that's a relatively small part of the overall market. Also, generic drugs typically aren't the biggest cost
problems for people. It's really brand name drugs that don't have any competition. - [Narrator] At the same time, CostPlus faces challenges
in adding new medications to its website. - 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. - [Narrator] To expand its offerings, CostPlus is launching its
own pharmacy-benefit manager. Once operational, its PBM
could allow the company to offer more low-priced medications and eventually provide their services to those with health insurance plans. - We're not gonna distort
retail or wholesale prices. We're not gonna ask for rebates. To be a pharmacy benefit manager, you have to carry enough drugs and right now, we don't have enough drugs to be a full-service
pharmacy benefit manager. We hope by the end of the
year to be past 1,000. - [Narrator] The company is also planning to become an all-in-one
pharmaceutical supplier, combining manufacturing,
wholesale distribution and pharmacy services all under one roof. Right now, CostPlus is building a facility in Dallas, Texas to
manufacture certain drugs. Meanwhile, the Biden
administration's Social Spending and Climate Bill, currently
stalled in Congress, includes several provisions meant to rein in drug makers' pricing power. - The Build Back Better
Plan included a number of provisions around drug prices. Probably the most significant of which included things like allowing Medicare to negotiate prices for certain medicines and that would have been a real watershed because that hasn't ever existed before and as of now, we haven't
seen a big push to try to get those drug pricing
provisions passed. - [Narrator] While there is
still no long-term solution to the problem of high
drug costs in the US, Cuban's business could
offer consumers more choices in a fragmented market. - I think it's too soon
to say or really to know whether or not the Cuban
pharmacy's having an impact. A big thing will be
whether they can expand into brand name drugs, which they can't manufacture or buy through multi-source manufacturers. I think the question is is
whether they can keep going for the long haul and
gain more market share, and as they do that, that will
give them more opportunity to disrupt the market. (pensive music)
