By Yatharth Sharma
With its launch earlier this year, billionaire Mark Cuban’s Cost Plus Drug Company has attracted widespread attention. Some researchers have claimed that the startup could save Medicare, the government insurance program mainly targeting the elderly, billions of dollars per year.1 In its current state, the United States drug market holds many drugs that are unaffordable to consumers.2 Many critical, life-saving drugs for illnesses like diabetes are sold at outrageously high prices due mainly to patents that large drug manufacturers hold over their drug’s production process.3 The extremely inelastic nature of those drugs’ demands ensures that those manufacturers make a hefty profit at the expense of the consumers, many of whom are either uninsured or under high deductible insurance plans.3 The Cost Plus Drug Company seeks to solve this problem of exorbitantly high out-of-pocket costs for consumers by eliminating excess marginal costs, cutting profits, and selling the drugs at more affordable prices.1
Selling a drug normally priced in the hundreds of dollars to something under fifty dollars requires the company to cut costs creatively. To start, unlike many other private corporations, the venture has not spent any money towards advertising, using the saved money towards keeping the cost of their drugs low.6 The lack of advertising comes with consequences, with the company relying heavily on word of mouth and personal testimonials on social media, hindering its outreach to many, especially those in underserved areas. Furthermore, the company sells the generic version of many types of medications, which are much cheaper and chemically the same as their branded counterparts.5 According to the US Food and Drug Administration, generic drugs are about eighty percent cheaper than the brand name versions. Currently, Cost Plus is selling more than 700 generic drugs across a span of illnesses.4
The pricing scheme of Cost Plus is fairly straightforward and aims to limit the nuances that often result in increased prices. For all drugs sold, the company charges the cost to manufacture the drug plus a fixed fifteen percent to compensate for company costs and then any pharmacy fee.6 In contrast, pricing for drugs has historically been incredibly intricate, with consumers having little knowledge of how companies decide cost.3 For instance, pharmacy benefit managers, an intermediary between the consumer and the drug manufacturer, with their rebate system, contribute to increased drug prices for consumers.3 In working to be transparent in their pursuit to lower costs, Cost Plus’s example is a jarring juxtaposition to the otherwise convoluted practices of the drug industry.
The American drug industry with all its outrageous price hikes and monopolistic characteristics has provoked the private sector to take charge in correcting the shortcomings in the quintessential American way: a competitive market. While Cost Plus is unlikely to suddenly give all Americans access to necessary, life-saving drugs at an affordable price, it is widely seen as a step in the right direction as it may disrupt the United States drug pricing by inspiring more private ventures to enter the market, allowing Americans to purchase necessary drugs at affordable prices.
- Macnaughton, S., & Jones, C. (2018, December 3). Insulin quest: When lifesaving drugs are out of reach. The Wall Street Journal. Retrieved December 30, 2022, from https://www.wsj.com/articles/insulin-quest-when-lifesaving-drugs-are-out-of-reach-1543833037
- Hahn, J. D. (2022, June 23). Billionaire Mark Cuban reacts to praise for cheap online pharmacy: ‘we are just getting started’. People. Retrieved December 30, 2022, from https://people.com/human-interest/billionaire-mark-cuban-reacts-to-praise-for-cheap-online-pharmacy-we-are-just-getting-started/
- Ravisetti, M. (2022, November 21). Mark Cuban’s cost plus drugs offers prescription medications at huge discounts. CNET. Retrieved December 30, 2022, from https://www.cnet.com/science/biology/mark-cubans-cost-plus-drugs-offers-prescription-medications-at-a-huge-discount/
- Kim, A. (2022, August 23). Mark Cuban’s pharmacy startup is actually making drugs less expensive. it’s still working on solving the real problem. CNBC. Retrieved December 30, 2022, from https://www.cnbc.com/2022/07/28/mark-cuban-pharmacy-cost-plus-drugs-struggling-with-brand-name-drugs.html
- Alter, C. (2022, November 17). Mark Cuban on starting new online Pharmacy Cost Plus Drugs. Time. Retrieved December 30, 2022, from https://time.com/6234570/mark-cuban-interview-cost-plus-drugs/
- Mark Cuban Cost Plus Drug Company, PBC. (2022, January). Mark Cuban Cost Plus Drug Company. Retrieved December 30, 2022, from https://www.markcubancostplusdrugcompany.com/