Mark Cuban Cost Plus Drug Co. clients see promising early returns

Providers, insurers, employers and patients grappling with steep drug costs are testing an unconventional model to rein in spending, and early signs indicate it may be working.

The Mark Cuban Cost Plus Drug Co., named after its billionaire co-founder and also known as Cost Plus Drugs, has taken on the roles of online pharmacy, pharmaceutical manufacturer and drug wholesaler in a bid to disrupt the healthcare industry. In just three years, the startup has inked more than a dozen partnerships with health systems, insurers and pharmacy benefit managers desperate to reduce expenses.

Related: Where smaller PBMs are headed this year

“Drug costs, just every year, that's quite frankly where I feel like I have had the least amount of levers to pull,” said Coreen Dicus-Johnson, president and CEO of Network Health, an insurer owned by Froedtert ThedaCare Health, a Milwaukee and Neenah, Wisconsin-based nonprofit health system.

Pharmaceutical spending is hitting insurers’ bottom lines, pressuring employer health plans and straining health system finances. This year, employers are bracing for a 7.8% increase in healthcare expenditures driven by prescription medicines, and health systems expect drug prices to rise 3.8%.

For some, the problem is more acute. MultiCare Health System’s drug spending has increased by as much as 5.5% some years, said Tyson Frodin, assistant vice president of pharmacy supply chain at the Tacoma, Washington-based nonprofit health system. MultiCare signed on with Cost Plus Drugs as a secondary wholesaler last March to procure lower-cost generic medications and boost inventory, he said.

Cost Plus Drugs mostly focuses on generic oral and topical medicines, which it sells at cost, plus a 15% markup and a labor and shipping fee, as the company's name suggests. As Cost Plus Drugs expands more deeply into brand-name pharmaceuticals and injectable drugs, its customers say they expect greater savings opportunities.

“There's visibility, there's price transparency, as well as new lines of accessibility, especially when we're seeing all-time high shortages across the pharmacy industry,” Frodin said.

Not all medications sold through Cost Plus Drugs are cheaper than drugs dispensed by other pharmacies or sourced from other drug wholesalers, so insurers are helping members make the most cost-effective decisions and hospitals are being strategic about what they buy.

Network Health, which made Cost Plus Drugs available to members in November, is banking on about $1 million in savings this year, Dicus-Johnson said. Per prescription, the insurer expects it will save $400 and members will save $100, on average, she said.

Some medications generate bigger savings than others. Cost Plus Drugs sells a monthly supply of the generic blood thinner warfarin for about $6.70 while the retail drugstore price is $13.50. More strikingly, a month's worth of the generic cancer medication imatinib costs $34.50 at Cost Plus Drugs versus more than $9,500 at other pharmacies.

Purchasing through Cost Plus Drugs can yield noticeable savings for patients in high-deductible health plans, said Scott Musial, chief commercial officer at Rightway, a PBM that started using the company's online pharmacy in 2022.

“The first $1,500, $2,000 or $2,500 in a year is all out of the member’s pocketbook, so they're thinking, ‘I can go to Cuban, and this is $40, versus I go someplace else, and it's $4,000,’” Musial said. “There's some dramatic differences in how Cuban prices versus others that you have to take advantage of if you're paying cash.”

Providers using Cost Plus Drugs as a secondary wholesaler have to make sure they’re spending a certain amount of money buying medications from their primary partner to stay in compliance with existing contracts.

“That's one of the things we're always observant of: How much spend are we pulling away from our primary wholesaler and putting in other buckets? We want to make sure the money we do pull away, we get the most bang for our buck,” Frodin said.

MultiCare is purchasing about 150 types of medications from Cost Plus Drugs, which it dispenses at its 12 retail pharmacies. The health system has saved $1.5 million since working with Cost Plus Drugs less than a year ago, Frodin said. “We're then able to take that savings and reinvest it into MultiCare to offer new service lines, new technology and automation, and be able to increase access to care,” he said.

ScionHealth primarily uses Cost Plus Drugs for medicines used in inpatient care, including drugs that treat seizures, respiratory illnesses, metabolic disorders and infections, said Derek Szesny, vice president of pharmacy and clinical supply utilization at the Louisville, Kentucky-based for-profit health system.

“There's a lot of spend, frankly, especially in our long-term acute care hospitals in that generic space,” he said. “There's a tremendous medication burden in that space because of all their comorbid conditions, so we need to make sure we can identify novel solutions to help control those expenses.”

Cost Plus Drugs is pushing the biggest health insurers to adopt similar pricing models, but the newer entrant isn’t going to transform the industry by itself. For Network Health, Cost Plus Drugs is just one lever it’s pulling to rein in costs. While generics make up 80% of drugs its members use, they only account for a fraction of spending.

“I'm tackling about 20% of my spend, and I've got some significant savings,” Dicus-Johnson said. “It's a big number, but it's not going to bend the curve as much as I would like.” Network Health is also looking to expand access to biosimilars to bring down costs, she said.

MultiCare is also hoping to do more and may move more business to Cost Plus Drugs or negotiate lower prices from its primary wholesaler to drive greater savings, Frodin said.

“If you don't look at some of these disruptive models, you never really know what you might be missing out on,” Szesny said.