On February 16, 2022, medical student Jared Dashevsky shared his perspective on Mark Cuban’s new business endeavor, the Cost Plus Drug Company. As part of MedPage Today‘s review of the past year’s top events, Dashevsky follows up with his thoughts on how the company is doing nearly 1 year post-launch and where it may be heading in 2023.
Nearly a year since its launch, Mark Cuban’s Cost Plus Drug Company (Cost Plus Drugs) has appeared to reap nothing but success.
I’m not at all surprised.
As soon as I clicked “publish” on the first article I wrote about Cost Plus Drugs in January 2022, I knew the company would gain tremendous traction: its innovative yet simple, low-cost generic drugs model is disruptive.
Since I published that first article, Cost Plus Drugs has reached about 1 million customers, added over 1,000 low-cost generic drugs to its platform, and formed several strategic partnerships. So, as the company enters 2023 on a high note, it’s only fitting to reflect on the progress made and predict what’s in store for the upcoming year.
How Cost Plus Drugs Offers Low-Cost Drugs
Cost Plus Drugs puts the whole drug supply chain under one roof, allowing it to control costs by removing the traditional players.
The traditional drug supply chain is unnecessarily complex, with multiple stakeholders negotiating with one another to purchase, sell, and provide rebates for drugs. As seen in the graphic below, there’s a wholesaler that purchases drug supplies from the manufacturer, that then sells the drug supplies to pharmacies. The drug manufacturer also negotiates with pharmacy benefit managers (PBM) to place its drugs on insurance companies’ formularies — because what’s the point of manufacturing drugs if no insurance company will cover them? As such, the PBM negotiates with the insurer to fulfill the drug manufacturer’s wishes. The PBM will also negotiate with the pharmacy to dispense the manufacturer’s drugs. Throughout this process, money flows back and forth in opaque ways, raising drug prices.
Cost Plus Drugs places the entire supply chain under one roof. It’s that simple. Yet, no other company has executed such a strategy to lower drug prices at scale for patients. Its radical transparency separates Cost Plus Drugs from every other healthcare company.
Again, since the supply chain is all under one roof, Cost Plus Drugs can control prices. Here’s how the company determines the price of its drugs:
- Manufacturing costs (relatively inexpensive)
- $3 pharmacy labor fee
- 15% markup
- $5 shipping
While Cost Plus Drugs initially intended to place the whole drug supply chain under their own roof — like creating their own PBM — they’ve deviated slightly over the year, allowing them to scale more efficiently and effectively.
Cost Plus Drugs 2022: A Year in Review
Within 1 year since its inception, Cost Plus Drugs has quickly scaled its customer base through organic growth and strategic partnerships.
In September, Cost Plus Drugs reportedly surpassed $25 million in sales and 1 million customers (10% week-over-week growth) within the first 9 months of operations. Here’s the kicker: customer growth has been largely through word-of-mouth, which Cuban’s massive following has certainly facilitated.
Cost Plus Drugs decided to form a strategic partnership with care navigator and PBM company Rightway Healthcare instead of creating their own in-house PBM as initially planned. The in-house PBM would have served to eliminate the traditional PBM model by essentially integrating its wholesaler and pharmacy so customers would have access to wholesale pricing. But Rightway aligns with Cost Plus Drugs’ values: there are no rebates and no cost spreading, two traditional PBM strategies that raise drug prices and that Cost Plus Drugs aims to avoid. Therefore, Rightway is the perfect PBM partner to integrate into Cost Plus Drugs’ supply chain, and is a more efficient and effective solution than creating a PBM from scratch.
This year, Cost Plus Drugs also partnered with its first health plan Capital Blue Cross. This partnership will allow Capital’s beneficiaries to use their insurance cards to purchase Cost Plus Drugs’ cheap generic drugs. Again, this is a slight deviation from what appeared to be Cost Plus Drugs’ initial strategy of focusing solely on consumers. This partnership adds payers to Cost Plus Drugs’ customer base.
Similarly, Cost Plus Drugs recently announced a partnership with another PBM, EmsanaRx, which targets self-insured employers and their employees. Like Rightway, EmsanaRx aligns with Cost Plus Drugs’ vision to help beneficiaries find discounts and low-cost medications through its supplement to employers’ existing drug benefits. EmsanaRx launched its standalone EmsanaRx Plus platform, which serves as a supplemental drug discount pipeline directly to Cost Plus Drugs. Transparency is the name of the game, and EmsanaRx will collect a 1.5% flat fee for each insurance claim and pass all rebates through.
Cost Plus Drugs 2023: The Outlook for Year Two
Coming off a successful first year of operations, Cost Plus Drugs appears destined to experience rapid customer and revenue growth through new strategic partnerships and more cheap generic medications.
The year 2022 showed us that Cost Plus Drugs is expanding its direct-to-consumer strategy by focusing on business-to-business partnerships with health plans and self-insured employers. I envision large payers, even as large as Medicare, engaging in partnership discussions with Cost Plus Drugs. After all, a study in the Annals of Internal Medicine demonstrated significant cost savings ($3.3 billion) for Medicare Part D if beneficiaries were to have used Cost Plus Drugs to purchase their medications.
Additionally, with the opening of a new manufacturing facility, the company can offer drugs like injectables that experience frequent shortages. Offering such drugs, including insulin, will attract even more customers.
Lastly, increased competition from old players, such as GoodRx and Civica Rx, and new players, such as Transcarent/Prescryptive Health, may further expedite the pace at which Cost Plus Drugs scales. This increased pace may come from adding a marketing budget (again, until now, Cost Plus Drugs’ growth has mainly been word-of-mouth), forming more partnerships with health plans and insurers, and working to lower drug prices even further to remain competitive.
Cost Plus Drugs has experienced significant success within its first year of operations, as evidenced by its customer and revenue growth and strategic partnerships. For Cost Plus Drugs, 2023 is destined to be as exciting a year as 2022, especially with the expectations to turn a profit.
Jared Dashevsky is a fourth-year medical student at the Icahn School of Medicine at Mount Sinai in New York City, and co-founder and content creator at Healthcare Huddle, a healthcare media company focused on simplifying industry news. He is a member of MedPage Today‘s “The Lab.”
The author has no affiliation with or relevant disclosures related to Cost Plus Drugs.