Lowering Patient Costs Through Drug Industry Disruption: Mark Cuban, Serial Entrepreneur and Co-Founder of CostPlus Drugs


“I'm in a part of my life where I like to have an impact that disrupts an industry,” says famed entrepreneur Mark Cuban, and his new online pharmacy CostPlus Drugs is already showing signs of creating a major disruption, indeed. Here’s just one example of what his no-frills operation is making possible: a 30-day supply of the cancer-fighting drug Gleevec is usually $2,500, but on CostPlusDrugs.com the same medication is $17.10 for a month’s supply. You probably have the same question as host Shiv Gaglani: how is this possible? Cuban says CostPlus Drugs sidesteps insurance companies and Pharmacy Benefit Managers to deal directly with manufacturers. There’s a standard 15% markup to cover operational costs, a $3 pharmacy fee and a $5 shipping fee. “That's it, period, end of the story.” Word of mouth over the last two months has pushed sales to levels not expected for two years. Cuban is quick to credit co-founder Alex Oshmyansky and his team, but obviously the business acumen he’s displayed for years on the TV show Shark Tank plays a big role, as does his motivation to do something about a bedeviling problem. “The fact that people are having to choose between rent, food, or medication in this country is wrong in every which way.” Check out this fascinating analysis of the healthcare industry spiced with valuable advice for budding healthcare entrepreneurs, and find out what Cuban thinks the healthcare industry can learn from the NBA.





Shiv Gaglani: Hi, I'm Shiv Gaglani. Today on Raise the Line, I'm honored to welcome Mark Cuban, who probably needs no introduction but I'll do a brief one anyway to try to capture the amazing diversity of his interests and activity. He's established himself as one of the best known and most successful entrepreneurs in the U.S., originally making his mark creating and selling two startups in computer networking and early applications of the internet. That success allowed him to venture into professional sports as the owner of the Dallas Mavericks, and involvement in television and film production, among many other endeavors. If you missed his turn on Dancing with the Stars, you almost surely have seen him as a longtime panelist on Shark Tank. 

He's now tackling the high cost of prescriptions through his new online pharmacy, The Mark Cuban Cost Plus Drug Company, which is the main reason we wanted to bring him on the show given that our audience is mostly made up of health professionals, students, and early career clinicians. So, Mark, thanks so much for taking the time to be with us today.

Mark Cuban: Thanks for having me on.

Shiv: So, I'm going to kick off with a recent tweet you retweeted and received from DC in Ohio who said, "Previously I'm unable to get diclofenac sodium 3% for osteoarthritis because my insurance plan would not cover it. Without a coupon, it was almost $1,000. Even with a coupon, it was nearly $300. It's $51 with Cost Plus. I'm grateful."  There are a bunch of other examples. On your website, you list Gleevec, which is normally $2,500 for a month's supply, and you are charging only $17.10. Having gone to med school at Johns Hopkins, we don't learn a lot about health policy. Can you give us an idea of how this is even possible?

Mark: Look, the only reason this is possible is because of the distortions in pricing that are created by the industry. As most people in the industry know, it's been very consolidated, and that consolidation has gotten to the point where a single company will include a major insurance company, will include a major retailer -- sometimes a worldwide retail pharmacy chain -- and also providers to hospitals and clinics. Then also Pharmacy Benefit Managers (PBMs) who, because they do the buying of drugs for the hospital chains and provider chains and retail chains, they're pretty much able to dictate the pricing to manufacturers and distributors and in doing so they've created a lot of distortions in pricing. So, you may see one price at Walgreens for something, and it may be $2,500 at one Walgreens, $87 with a card at another Walgreens, and $243 with a different card two blocks away at a different Walgreens or CVS. 

The distortions have just become mind-numbing. So, what we said with Cost Plus Drugs was that we're gonna keep this very simple. We're not going to participate with the other PBMs. We'll create our own. We're not going to work with insurance companies at all, because that's part of the distortion. We're gonna buy from manufacturers and distributors, we're gonna mark it up 15% and sell it online at costplusdrugs.com, and then we'll add a $3 pharmacy fill fee and a $5 shipping fee. That's it, period, end of the story. 

We have one single mission: to be the low-cost drug provider. You're not going to see any types of bells and whistles. There's not going to be a telehealth option. There's not going to be a world-famous doctor writing a blog post answering questions. None of those things. Just a singular mission. And by not participating with the big players -- in particular, the top three -- we're able to avoid that distortion and sell for what typically ends up being, for 99% of our patients, lower than the copay that they have with their insurance company.

Shiv: That's really alarming, and I know from previous guests the system is very discouraging to providers, so having this solution makes a lot of sense. You only launched recently, earlier this year. How have things been going?

Mark: Sure. So, it's four years in the making for us to launch two months ago on January 19, because we had to build all the relationships and develop trust. This is the only company I've put my name on and one of the reasons was so that manufacturers and distributors would trust that it's fully supported by me. In terms of how it's going, I can't give you specifics, but I can tell you that we're two months in, and based off our plans in our budgets and our forecasts, we are at two years. The response has been amazing. 

We don't spend any money on PR. We don't spend any money on marketing. We're able to use my platform. But our perspective was that each disease has its own community. You know, if you have diabetes, if you have leukemia, if you have some specific form of cancer, if you're taking drugs for mental illness...all of us, no matter which disease we suffer from, we are part of a group. And all the groups communicate with each other online. So, the attitude was if you're able to get generic Synthroid for $6 -- I take Synthroid or the generic equivalent now -- instead of $26, you're going to tell everybody else that you know in the same circumstances, and that's exactly what's happened. So, by word of mouth, we've grown considerably. 

You saw some of the posts that are online, on Twitter, and in other places. That's another way that we communicate and we just continue to grow and take orders every single day. Right now, I think we're at 115 drugs. We'll add another 60 this week, and our goal is to have more than 1,000 -- and hopefully as many as 2,000 -- by the end of the year.

Shiv: That's amazing. Yeah, I saw that tweet about 1,000 by the end of the year. You're hiring aggressively for Cost Plus Drugs. Some of the people in our audience may be interested in positions. What types of people are you looking forward to joining the company?

Mark: You know, I'm the wrong person to ask for that. Our CEO, Alex Oshmyansky, he's the guy who runs the day-to-day side of it. I deal more in the marketing and the strategy and with Alex and Ryan Kline on the decision-making. If you just go to costplusdrugs.com, everything's there. I actually tweeted some of the positions that were open. If you go to my Twitter feed, @mcuban, you can see some of the positions that are open. Same in our LinkedIn feed, under costplusdrugs.com, you'll see the positions that are available as well.

Shiv: Awesome. I actually recently connected with Alex on LinkedIn as well, and there's a whole story about how you and he connected. Several years ago, you were tweeting about Martin Shkreli and how he was raising drug prices exorbitantly. Alex sent you a cold email. Can you talk to us a bit about that?

Mark: Yeah. I get cold pitches all the time, and with 99.99% of them, I hit the delete key within 30 seconds. But when Alex started talking about ways to reduce costs for drugs, and what he was doing with the compound pharmacy, I was all-in about hearing more. I started peppering him with questions, and he's an incredibly smart guy.  I mean, a radiologist, a mathematician, you name it. He's the definition of a rocket scientist. He was just able to respond to everything I threw at him, and then some. So, I was like, "Okay, why don't we work together on this," and that started our partnership, probably four years ago. 

From there, he basically took on all the challenges of the regulation and licensing and everything that needs to be done federally, within each state, all that stuff. He's just been a superstar putting it all together, developing relationships with the manufacturers and distributors that we need to get the drugs, organizing the build of our manufacturing plant that we're building in Dallas now because we want to get our costs even lower. So, he's just been an incredible superstar along with Ryan Kline. Everybody that works at Cost Plus has been incredible.

Shiv: That's amazing. So, fully vertically integrated...actually didn't know about this Dallas manufacturing plant. You know, cutting out the middleman makes a lot of sense. Pharma companies, when they first release drugs, tend to mark them up and they get patent protection and their argument is they need a high markup to fund the R&D efforts. Are you still supportive of that?

Mark: Yeah, look, it's all relative, right? Every company's a little bit different. You saw what happened with Sackler. I mean, that's just...they deserve to go to jail, right? They deserve to be shut down. So, there's not one standard course. Look at some of the insulin companies.  Eli Lilly put out a release saying that the price they offer to PBMs has gone down over the last few years, but the price to patients has gone up considerably. It's skyrocketed. In many cases, the manufacturers are positioned to be the bad guy out of all this when they're not. 

There are instances where the manufacturing costs have gone down, the net cost to the PBM has gone down, but the prices to the patients have gone up. So, you've got to kind of pick who the villain is in those circumstances. Then there's other cases where the actual research and development was done by the NIH or other federal funding, and the government did an awful job of licensing to pharma companies. We don't do a very good job there, and then there's a whole separate discussion on margin rights and whether or not there's an opportunity to claw back some of those things and redo some of those contracts. 

So, it really depends. I'm not an expert in each and every drug by a longshot, but it really depends on the individual circumstances. There are some manufacturers that are trying to do the right thing and there's others, like the Sacklers, who are not.

Shiv: I love that there's nuance. People paint with too broad strokes, I think, and there's a nuance there that you guys really appreciate. So, you've been asked a number of times to run for president or higher office.

Mark: No!

Shiv: (laughs). There's always a question about that. But, I've been following all your healthcare tweets for a long time and back in 2017, I remember you challenged politicians and said, "Dear politicians, let me ask a question. If every person in our country had health insurance, would we be any healthier?" Then that created a whole bunch of dialogue about different policies that would make people actually healthier.  With Cost Plus Drugs, you're actively tackling the drug pricing issue. What are some of the other kinds of policy changes that if you could snap your fingers you would want to change right now in the U.S. healthcare system?

Mark: I think a lot of it starts within the provider base, particularly with hospitals just being open and transparent about costs. The hospitals are supposed to put their actual pricing by contract on their website, but they don't all do it. When you go in there and look at the pricing, it's stunning to see what you see, right? Pick an injury, or a process, or a CT scan -- whatever -- and you'll see one price for one insurance company, another price for another insurance company, a different price for cash pay. It's just mind-boggling the way it works. I've gone to healthcare conferences and I've asked hospital CEOs, "What's your cost on A, B, or C, because you tell people that at Medicare pricing, you lose 8% or 9%. (that's pre-COVID).  I don't believe it. 

I tried to fund a study that went to hospitals and asked their CFOs or CEOs, what type of accounting process they use for cost accounting. No one would participate. I've tried to fund all these different studies just to satisfy my own curiosity. Another study that I'm in the process of working with is based on a premise that in Canada, each province determines their healthcare budget. Toronto has the same real estate costs as New York. Toronto pays doctors, the primary doctors, the same as they get paid in New York. Toronto actually pays their nurses a little bit more pre-COVID than nurses got paid in New York. Band-aids are about the same, wheelchairs are about the same, real estate is the same. Why is it that hospitals in Toronto can offer the top 35 services at Medicare prices, or much lower in a lot of respects, and hospitals in New York all claim to lose money at Medicare pricing?

Now, there are some nuances that are completely different between Toronto and what we do here in terms of malpractice and charitable care and other things. But even when you normalize those, the chasm in pricing is enormous for the top 35 offerings from both hospitals, and that shouldn't exist. So, I wanted to try to find out why. We're still doing the study. But I think part of the problem is, there's a never-ending search for growth by U.S. hospitals, as opposed to service. And the interests that are aligned are not "payer, provider and patient -- the three Ps. They're not aligned in the United States, where they are in Canada. 

Look at the U.S. The ACA has a 15% medical loss ratio (MLR) that says insurance companies have to spend 85% on medical claims and only 15% on administration. Well, the higher the rates that you have, and the higher your revenues, the higher the net return will be after the MLR to the insurance company and the provider, and that is not aligned with the interest of the patient. There's nothing that says we will reward you for lowering the cost to the patient. So, you get these misalignments of interest that create enormous problems for the healthcare industry.  There are some hospitals where the companies just basically have Medicare and Medicaid as their only customers and source of patients, and they make money. 

There's that old joke that if you walk into the office of a CEO of a hospital, all you see are blueprints. The CEO keeps on getting paid. The more revenue they generate, the more money they raise, and if you're going to be raising money, you got to spend it somewhere. Buildings take up a lot of money and they also add new services. So, you might have a new cardiac unit, you might have a new orthopedic unit, but in a big city like Dallas or New York or LA, there might be five competitors. That is not in the best interest of every patient, because they're loss leaders, when you start adding them.  

The new buildings and services build up the brand, potentially, of the hospital -- 'we're known for this, or we are the ultimate surgery center for that’ -- but they're loss leaders at least for some period of time until they build that business. It's a zero-sum game in many respects where there's three hospitals competing to do your hip replacement and they're not growing the number of hip replacements that are being done. So, there's all this incongruity in terms of value to the patient that provides value and earnings and wealth to the provider business and the payer business, but at the expense of patients.

Shiv: Absolutely. You've nailed it. We had on a previous hospital CEO who you probably know, Vivian Lee. She wrote the book The Long Fix and now runs Verily for Google. We had her on the podcast a year ago talking about value-based medicine, and one of the silver linings of COVID seems to be this acceleration of these trends.  There seems to be a lot more value-based medicine, a lot of success stories like ChenMed and Iora Health. You know, in the education sector, aligning incentives to income share agreements. The median debt of a med student graduate is $200,000. It's just crazy.

Mark: It's crazy. I mean, look, it's cheaper just to make med school free. 

Shiv: Yeah (laughs).

Mark: And why don't we open up more residency slots. Actually, I worked with U.S. Senator Chuck Schumer because he introduced a bill that would have increased the number of residences because just creating residencies at hospitals is a challenge. People don't realize there's only, I think, 800,000 practicing physicians in the United States, and that number is declining quickly. You could easily exchange free med school in exchange for filling a need in a healthcare desert. There's been some programs like that, but just not enough.

I'll go back to one other thing I should have commented on and left out. One of the biggest expenses in healthcare, with providers in particular, is administration. We've all seen the study where it's 21% of healthcare costs in this country. One simple move would simplify that. In the NBA, we have a standard player contract. There's a couple of little things I can change here or there -- the amount, the term, maybe this incentive or that incentive. We need standardized insurance contracts so that hospitals don't have to redo contracts each and every year and they don't need 300 people just to deal with the complexities of the fact that each contract is renewed each year. Because that plays to the benefit of the insurer, and to a certain extent, the benefit of the provider because the more complexity there is, the harder it is for anybody to understand, the harder it is to question anything. So, if you create standards for insurance contracts -- maybe make them a minimum of two years and have a government-approved, standard contract -- your administration costs are going to drop like a rock.

Shiv: We need an NBA commissioner for hospitals, basically. (laughs)

Mark: Right? Exactly!

Shiv: A funny side story: the person who introduced us, Jamie Patricof, is the son of a board member and advisor Alan Patricof. We're having breakfast in two days here in New York. He and former NBA Commissioner David Stern -- who obviously you knew well before he unfortunately passed away from a stroke --  were the two people in the room who voted for Greycroft to invest in my company Osmosis back in the day. So, definitely the parallel between the NBA and the health system is really interesting.

Mark: See? I mean, David...may he rest in peace. I love David Stern and he always was trying to find ways to make things better. I give him a lot of credit. He had a lot of people's interests at heart.

Shiv: Well, like you, he was in a different field but learned so much about these companies through investing, as you do. One overarching question I have is, you just go deep and know so much about these different industries such as blockchain and healthcare. How do you learn so quickly? Are you just reading books all the time and just talking to people?

Mark: Pretty much. I don't have a regular job that I’ve got to show up for 9 to 5, so it's a little bit easier for me than most people. When you're rich people work to your schedule, so I have a big advantage. That's what I like to do. I love to learn. Steve Jobs once said, "everything's a remix." It's interesting how once you have a basic understanding of how accounting and finance and marketing and strategy works, and then you add to that technology, to expand to blockchain isn't a big stretch. 

Really, healthcare is really, really simple. The hard part is just all the distortions that are created by the incumbents and the participants that they use to their advantage. Having looked at the process in so many different businesses -- whether it's an investment or a company I ran or started or whatever -- it's pretty straightforward for me to go, "That's wrong, that's wrong, that's wrong. Let me dig in."  Like I do on Shark Tank, right? Let me just dig in and get to the heart of what this company is all about, and hospitals are very simple businesses. Being a provider is a very simple business. Being an insurer is a very simple business.  Manufacturing and selling drugs is a very simple business. You want to make people healthier and make a little bit of money doing it. Simple. You want to insure people from risk from those catastrophic moments so that they don't go into obscene debt or bankruptcy. Simple business. It's very math driven. 

But what happens is when incumbents are a public company, or they get bought and everything's about maximizing the return, it's easy to pick up on that as well because the traits of companies that just try to squeeze out every dollar are the exact same in every industry. So, I like to just learn. The more technology I can learn, or the more industry-specific things I can learn, just gives me the little nuance things to be able to dig right in and find the issues I need to address or that create opportunity for me.

Shiv: I love that...pattern recognition across different fields. On your site -- the Mark Cuban Companies website -- you have several key categories, and healthcare's right under Shark Tank, which shows how important health care is to you. What's your personal interest in this? I mean, obviously it's a huge industry and a huge problem. Like everyone, you care about your own healthcare and that of your family and loved ones. But, why is health care so high up there when you could pick education, finance, other industries?

Mark: Oh, because it's the most impactful. You know, that's where the greatest amount of inequities occur. The fact that people are having to choose between rent, food or medication in this country is just insane. It's just wrong in every which way. 

To me, to be able to have that impact...I've done a lot of things. I've had a lot of successes. I've reached goals.  I'm in a part of my life where I like to have an impact that disrupts an industry because that's the most fun thing business-wise that I can do. Whether it was messing with David Stern and getting fined all the time by trying to disrupt the NBA calendar; saying that NBA stands for "nothing but attorneys," you know, and then just do it having fun there? Starting the streaming industry; starting the first all high-definition TV network...just all these things. Those are the things that are fun for me and costplusdrugs.com was one way to do that. If we're able to be successful there, I'll look to find other ways in healthcare to do the same thing.

Shiv: I love that. I was just reviewing your portfolio of health care companies, like Sonara. You mentioned the Sacklers and the opioid problem and Sonara is doing telehealth treatment programs. What are some of the healthcare companies -- whether it's in Shark Tank or they're on your site -- that you're currently invested with?

Mark: Oh, god, I gotta go look because there's so many. There's Ready, Set, Food! which is for allergies for newborns. They've got a response that allows new parents to give this formula to a newborn to train them so that they don't get peanut allergies. Kids today, for whatever reason, seem to have more allergies than prior generations. So that's been the biggest issue. 

There's Mahmee that helps with newborn care and infant care for disadvantaged moms no matter where they may be. There's another one, Eon, that helps with the identification and parameter care for lung cancer, I think it is. 

Another one is Genetesis. I didn't know this until they came along, but every organ in our body emits an electrical pulse and there are scanners that can capture that electrical pulse, including for the heart. What they do is they scan your heart -- they can do it in an MRI like device -- take the output of that, and you create a WAV sound file and then run it through machine learning, which now has tens of thousands of examples in the model. 

Mostly men, but a lot of people, have gotten to that point where they feel something in their chest, and they don't know what it is. It's really hard to identify. You recognize it's not a heart attack, you don't know if it's a stroke, but you're having chest pains.  So, with Genetesis, when you go to an emergency room you can sit in the scanner and they're gonna be able to give you some level of accuracy on what's going on. They're just now getting approvals and rolling it out.

Those are the types of things where it's a little bit of a breakthrough or it's taking some scenario where there's an inequity -- like Mahmee or Ready, Set, Food!  -- where we can help kids.  You know, Ready, Set, Food! was a Shark Tankdeal, and part of my deal with them was that they had to distribute the product for free to underserved and underprivileged parents with newborns.

Shiv: That's wonderful. I would say that, on that cardiac one, there's a quote I love, which is "the future is already here, it's just not evenly distributed." So it's great that you're focusing on distribution and getting into zip codes that don't typically get this kind of help.

Mark: Exactly. Exactly. Because it's just a straight business idea, right? It's not like, "Okay, I've got this great heart." It's just smart business because where there's inequities, where there's less information, where there's less knowledge, where there's less support, that's where your greatest costs are because things go too far, or people are uninformed, or they don't know how to deal with their own health. So, it saves taxpayers money, it saves lives and it creates a better foundation for their children -- who are our children -- which, in turn, helps this country. It just makes good business to do the right thing.

Shiv: Awesome. What our audience really cares about is making an impact in healthcare and society. What advice would you give them right now?

Mark: You don't need to be perfect. You just paid a whole lot of money and borrowed a whole lot of money to learn, right? Now you're about to get paid to learn. So, go someplace where you can experience as many different things as possible. Doctors that I've talked to tend to make a choice: “I want it simple, or I want to be in the mix, or I want to make the most money, or I want to give back." Everybody has these choices that they feel are ingrained inside of them, but like all of us -- no matter what your field -- as you get involved in the field, you learn things you didn't know. You don't know what you don't know when you're making those decisions. So, get out there and just experience as many things as you can and try as many things as you can. 

The only thing I really would ask is...too often I talk to doctors who decided they don't want to practice medicine, they want to be entrepreneurs. Practice medicine, because that's where we really need you. The best entrepreneurs have not been the ones who skipped practicing. Those are the worst MD entrepreneurs I've ever dealt with. The ones that come straight out of med school, are ready to go, don't want to practice, have no hands-on experience, or did it for a year or two, are always the worst entrepreneurs. The ones that have spent the time dealing with patients are able to identify improvements in process or needs or understand the industry better and make far better entrepreneurs, if that's your ultimate goal.

Shiv: That's really good advice. It's consistent with a lot of advice I've been receiving. If you want to improve patient care, actually practice.

Mark: You have to. It's like anything else. Like, it's hard for me to train entrepreneurs without having been an entrepreneur. I couldn't tell you about the fear of a doctor in an emergency room dealing with the fear that their patient could die. That's foreign to me. I can't imagine anybody being able to recognize that without having gone through it. 

Just like being an entrepreneur, and being down to your last penny, not knowing how you're going to eat or how you're going to pay your bills or if your company will survive. That pain is the greatest knowledge you will ever have as you build a company.

Shiv: I love that. Any last words that you want people to know before we let you go?

Mark: Yes. All of you that dispense prescriptions, please have your patients check costplusdrugs.com. Have them sign up. If we don't offer their drug, have them put in which drug they'd like to see us carry and we'll work on it. I promise you, promise you, promise you we will save your patients' money.

Shiv: I love it, Mark. Thanks so much for all you do to improve healthcare.

Mark: Thanks, Shiv. I appreciate it. Thanks for the conversation, it was fun.

Shiv: Likewise. And with that, I'm Shiv Gaglani. Thanks to our audience for checking out today's show, and remember to do your part to raise the line and flatten the curve. We're all in this together. Take care.