You’ve probably heard of Mark Cuban, billionaire co-owner of the Dallas Mavericks, serial entrepreneur and investor, and one of the faces on the reality TV series Shark Tank. He’s added another business to his stable: prescription drugs.
His Mark Cuban CostPlus Drug Company has an interesting business model. The company buys drugs, all generics it would seem, from various sources, marks up the price by 15%, and then adds $3 for pharmacy labor and $5 for shipping and handling. Also, it claims transparency around pricing and noting what list prices typically are:
“Shockingly, in the USA, it’s not unusual for disadvantaged populations to suffer from rampant outbreaks of hookworm. Normally the drug prescribed for hookworm, Albendazole, can cost as much as $500 per course, making the drug out of reach for many in need.”
But is the $500 number realistic? A couple of phone calls made it clear. A CVS in Miami cited the cash price for a course of two 200 mg albendazole pills—that’s a generic—at $429. Then a Duane Reed (a chain owned by Walgreens
If you have reasonable health insurance with a decent prescription drug plan, will you pay that much? Obviously not. Maybe it’s $15 or $25 or $45, depending on the plan, but it’s a fraction of common cash prices at pharmacies. Medicines are available at much lower costs from other countries.
If you think this is an anomaly, talk to a pharmacist and find out how much higher cash prices are. They can be astronomical, and the kicker is that many common drugs in generic form are manufactured in other countries. But the prices are incredibly high in the U.S.
American drug companies will push on the idea that these might not be safe, but really. Is Canada, for example, going to be a source of dangerous drugs? Perhaps it’s useful to remember that major U.S. drug store chains like CVS in the past have been caught buying drugs, which turned out to be counterfeit, on secondary markets.
So, what is the reason? What else? Profits. Aswath Damodaran, a professor of finance at the Stern School of Business at New York University, has a useful webpage with his calculations of general industry profit margins. Here are some examples of industries and after-tax unadjusted operating margins using data from January 2022:
· Food processing—12.05%
· Food wholesalers—1.77%
· Oil/Gas Distribution—14.87%
· Retail (Automotive)—6.04%
· Total Market—10.96%
As for pharmaceutical drugs, 24.17%. That’s not the industry with the highest after-tax operating margins. Tobacco is at 44.25%. Railroad transportation, 41.95%. Entertainment software, 31.12%. Pharma is in spot number ten. But, still, that’s a lot of money left after the costs of goods and taxes.
The industry bemoans the amount it spends on developing new drugs. Billions and billions, crying poor. It also gets major tax credits for research and development and typically spends equally high sums for marketing, and still makes a killing.
Or, as a 2016 study in the Journal of the American Medical Association noted:
“High drug prices are the result of the approach the United States has taken to granting government-protected monopolies to drug manufacturers, combined with coverage requirements imposed on government-funded drug benefits. The most realistic short-term strategies to address high prices include enforcing more stringent requirements for the award and extension of exclusivity rights; enhancing competition by ensuring timely generic drug availability; providing greater opportunities for meaningful price negotiation by governmental payers; generating more evidence about comparative cost-effectiveness of therapeutic alternatives; and more effectively educating patients, prescribers, payers, and policy makers about these choices.”
As the study pointed out, “Per capita prescription drug spending in the United States exceeds that in all other countries, largely driven by brand-name drug prices that have been increasing in recent years at rates far beyond the consumer price index.”
A potential deduction is that high prices in the U.S. allow drug companies to maintain their margins because no other country in the world puts up with what people here do.
Cuban’s new company isn’t the only one that brings generic drugs in from other countries, he’s just getting some significant attention online at the moment. Congress doesn’t seem to be in a rush to do anything about drug prices. Heck, they won’t even let Medicare, probably the single largest U.S. customer of drug companies, negotiate prices down. That’s unlike almost any other area of government procurement, in which, under law, companies have to provide the federal government with their best prices or face potential heavy sanctions.
Could it be that the millions poured into campaign contributions, lobbying, and dark money might have an effect? Just asking.
As elected representatives won’t do what’s necessary, this is one of those cases where markets well. If you need to order medicines, shop wisely and protect your wallet.