Mark Cuban: Big Insurance and PBMs Control Healthcare Costs

Ladies and gentlemen, let me tell you something: the healthcare industry is a mess, and it's all because of the big insurance companies and Pharmacy Benefit Managers (PBMs). Mark Cuban, the billionaire entrepreneur and co-founder of Cost Plus Drugs, has been shouting from the rooftops about this for years. And he's right! These guys are the gatekeepers for trillions of dollars of healthcare spending, and they're making a fortune off of it. It's time to wake up and smell the coffee, folks. The healthcare industry is a David-and-Goliath fight, and the good guys are the physicians. The bad guys? The insurance companies and PBMs.

Cuban has been particularly vocal about PBMs, which act as go-betweens for drug manufacturers, pharmacies, and insurers. In a post for Drug Channels, he laid out five key ways PBMs are making the healthcare system worse:

1. Lack of Transparency: PBMs often keep their pricing and contracts hidden, making it hard for consumers to shop around and compare prices.
2. Inflated Specialty Drug Prices: PBMs label certain medications as "specialty drugs" and then drastically increase the prices. However, Cuban wrote that there's "nothing special about most of these drugs."
3. Rebate Distortion: PBMs negotiate rebates with drug manufacturers, but the savings don't necessarily reach the consumer. Instead, they can lead to higher costs for patients in need of expensive medications.
4. Formulary Restrictions: PBMs decide which drugs are covered based on their own financial incentives rather than medical necessity, limiting treatment options for patients.
5. "Sh–ing on" Independent Pharmacies: "S———ing is the appropriate word to describe the financial abuse that we've heard about from non-captive pharmacies," Cuban wrote. Small, independent pharmacies often can't compete with PBMs, which charge them unpredictable fees and can conduct audits at will, sometimes driving them out of business.

Cuban's solution? Transparency and direct-to-consumer pricing. He co-founded Cost Plus Drug Company, which cuts out PBMs entirely, offering consumers a chance to buy medications at a transparent price. Cost Plus Drugs charges a fixed 15% markup on the wholesale price, along with a small pharmacy and shipping fee. In a conversation at the University of Pennsylvania, Cuban pointed out how much trust has been lost in the healthcare system. He says that transparency could be the key to winning that trust back. That's why his company is committed to showing consumers exactly what they're paying for—something that most drug pricing models don't do.

But it's not just about transparency. Cuban also has some big ideas for reforming the healthcare system. He suggests making medical school free and rethinking residency slots to bolster the physician workforce. He also encourages physicians to innovate independently and avoid health systems that don't value their contributions. And he's not afraid to call out the bad guys. "Insurance companies are the worst of the worst," he said. "If they design a high-deductible plan that someone with a take-home pay of $25,000 can’t afford, you’re stuck with the financial risk."

So, what does this mean for investors? Well, it's a no-brainer. The potential disruption of traditional PBMs and insurance models presents both significant investment opportunities and risks. Investors should carefully evaluate the market dynamics and regulatory environment to make informed decisions. But one thing is for sure: the healthcare industry is changing, and those who don't adapt will be left behind. So, do your homework, stay informed, and don't be afraid to take a chance on the next big thing. Because in the world of healthcare, the only constant is change. And change, my friends, is where the money is.