Billionaire entrepreneur and investor Mark Cuban believes America’s healthcare industry is broken and he is very clear about why. He stated that no one looks at the financial side of healthcare and believes it works correctly. When you go to the doctor and get a prescription, you have no idea what the cost will be or if you can even afford it.
Cuban, the former host of “Shark Tank” and minority owner of the Dallas Mavericks, explained that the root of the problem is that most drug prices are set by pharmacy benefit managers, or PBMs, which are third parties that manage prescription drug programs. He said drug prices are opaque by design.
This is precisely why he launched Cost Plus Drugs in 2022. His goal is to pull back the curtain on drug pricing, bring down costs for the average consumer, and disrupt the traditional pharmacy industry. The company’s strategy is simple: they price based on cost, not the market. The difference can be shocking. For example, a generic chemotherapy drug that might cost thousands at a traditional pharmacy could cost just $21 from Cost Plus Drugs.
The Cost Plus Drugs model is vastly different from traditional drug pricing in the U.S. As the name suggests, the company sells medications directly to consumers at a transparent price. This price is the manufacturer’s cost, plus a 15 percent markup, plus a $5 pharmacy fee, plus shipping. Cuban also added that they are working on adding the ability to pick up orders at a local pharmacy.
To understand why this model is disruptive, it helps to know why drugs cost so much in the first place. The industry defends overcharging for medication in the U.S., one of the only high-income countries whose government does not set or negotiate drug prices, by arguing that high profits are necessary to incentivize companies to invest the billions required to bring new drugs to market.
However, critics argue that prices are set to maximize profit and are not directly tied to research and development costs. A 2021 study found that revenue from the top twenty best-selling drugs alone was enough for companies to cover their R&D costs with billions of dollars left over.
Cuban also pointed to artificial shortages as another reason drug prices skyrocket. He stated that drugs like pediatric cancer medications, Pitocin, and sterile water go into short supply because manufacturers want them to, as it is a way to jack up the price. While there is limited direct evidence of intentional profiteering, it is true that prices rise significantly during shortages.
Cuban’s answer to this problem is to build his own factory. He has a manufacturing plant in Dallas that is entirely robotics-driven. This factory can turn over a new drug in four hours and ship it out to hospitals, which is how he is starting to attack those shortages.
While shipping drugs directly to patients has very thin margins, other aspects of Cost Plus Drugs, like drug manufacturing, are more profitable and help the business work toward overall profitability. Manufacturing is also another way to challenge the established drug supply chain.
Cuban’s strategy goes beyond just offering cheaper drugs. He says he is refusing to play by the industry’s rules entirely. He recalls everyone telling him he could not fight the big insurance carriers and PBMs. His response was that he simply would not work with them because that model is not what is best for patients.
He noted that even Amazon fell into this trap by partnering with PBMs through Amazon Pharmacy, which puts the tech giant at a disadvantage because it is still beholden to those same middlemen.
His advice to founders trying to take down large incumbents is to not be dependent on them. He reflects that if he were twenty-five and starting this business, he probably would have worked through the pharmacy benefit managers because that is where the money is. He describes healthcare as an arbitrage where everyone is trying to get a small percentage of a massive market.
Cuban shared a piece of advice he received when he started out: when you run with the elephants, there are the quick and the dead. You have to be quick, lean, and mean. You have to be able to adapt, zig, and zag, and always look for ways to do better. He points to the Innovator’s Dilemma, explaining that large incumbents have to protect their legacy businesses and cannot move or react as quickly, which always gives a founder an edge.