How to launch a PBM, Mark Cuban style

A formulary is in the works, and potential clients have a "very strong interest" in a pharmacy benefit manager from Mark Cuban's generic drug company, Cost Plus Drug Co.

"We are open to conversations with all stakeholders, whether manufacturer, distributor, insurer, etc. that furthers our goal of being the low-cost provider," Mr. Cuban told Becker's.

Though no launch date for the PBM has been publicly announced, Cost Plus CEO Alex Oshmyansky, MD, PhD, told The Wall Street Journal in October that 2023 is the goal. Once the formulary is where they "need it to be," the new company will be able to begin sharing drug costs, markups and pass-through fees, with the ultimate goal of creating more savings for consumers, according to Mr. Cuban.

"The supply chain for distributing pharmaceuticals to patients is so cumbersome and broken," Dr. Oshmyansky told the Journal. "We decided the only way to get our drugs to the people who need them is to build a parallel supply chain where we have control of all the intermediary players and ensure the same level of transparency at every level." 

Cost Plus launched in January 2021 with the objective of producing affordable versions of expensive generic drugs, and transparency around the costs to manufacture, distribute and market those drugs to pharmacies. With no middlemen or rebates for payers, the company adds a 15 percent margin for wholesale prices and overall profit.

"Our sole mission is to be the low-cost drug provider for as many drugs as we can possibly offer," Mr. Cuban told Becker's on Feb. 21. "That is counter to most business interests, particularly over a long period of time."

With about 100 drugs in its arsenal from launch, the drug company has since upgraded to sell more than 700 medications, ranging from pain relief and allergy pills to heart health and cancer drugs, according to its website. 

A recent study found that if Medicare employed the same prices as Cost Plus for generic medications, the program could have saved Medicare recipients up to $3.6 billion in 2020 alone. Mr. Cuban tweeted the results and told President Joe Biden to "have your people call my people and let's get this done."

But for Cost Plus to take a bigger step into the industry, it needs a PBM that isn't structured like those owned by major payers, which Mr. Cuban likens to club bouncers. 

"They're the ones who say, 'Hey, I'm controlling access to all the big insurance companies. If you want this insurance company to sell your drug, you've got to pay the cover charge,'" he told NPR in February. "All these drugs pay the cover charge to these PBMs through rebates, and because they're paying the cover charges, the prices are jacked up. We said we're going to create our own PBM, we're going to work directly with the manufacturers, and we're not going to charge the cover charge."

Though nearly 80 percent of the nation's PBM market is controlled by just three payers — and 97 percent by the largest six — Mr. Cuban said his PBM can compete and be profitable, all while sharing operating cost details and passing on 100 percent of rebates to clients.

"With his name, brand and reputation, it has created a lot of interest and appropriately put a brighter light on the challenges and the issues with this marketplace," Chris Blackley told Becker's. "The market is very dysfunctional and it needs the scrutiny."

Mr. Blackley is CEO of Prescryptive, a Redmond, Wash.-based PBM that was founded in 2017 around the goal of drug price transparency. He says there are a few main reasons why Cost Plus would be interested in starting its own PBM: to sell high-cost specialty medications and to reach retail settings, which is where the majority of consumers access prescription drugs.

"If you make money on drugs, you're in conflict with the intrinsic interest of the patient," Mr. Blackley said. "Things that should come out of new market entrants like ourselves or Mark Cuban's is the competition, the education of the market and the recognition by employers and health plans that there are alternatives that can meet their needs."

It's a conflict that has garnered a lot of national attention as of late. Since May, bipartisan legislation has been introduced in Congress to create more regulations around the drug middlemen, which is currently awaiting a vote on the Senate floor. The Federal Trade Commission also launched an inquiry into the six largest PBMs and has put the industry "on notice" about a new enforcement policy against illegal bribes and rebate schemes. 

In 2021 alone, 18 state legislatures passed or had legislation become effective that involves PBM licensing or registration requirements.

But starting alternative PBMs is challenging. It can take at least a year to build a national pharmacy network that offers both ample geographic coverage and an enticing value proposition for pharmacies, according to Mr. Blackley. 

At a minimum, that network should consist of one national pharmacy to anchor the network (such as CVS or Walgreens), one grocery or regional chain, and independent pharmacies, which make up a third of the U.S. pharmacy market.

As for developing a formulary, Mr. Blackley says there should be a focus on three things: patient safety, medication efficacy and drug costs, in that order.

Although Mr. Cuban was tight-lipped about when his PBM will become operational or which clients he's in talks with, he said transparency is the top priority for his venture into the industry. 

"Our goal is to be the low-cost provider of all medications we are able to sell," Mr. Cuban said. "Hopefully in doing so we will have an impact on affordability for patients."

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