launched a low-cost online drug company.

- The goal is to (beep) up the pharmacy industry,

and I'm sorry for my language, right?

Our business model's very, very simple.

Our goal first that drives everything

is to be the low-cost providers

for medications to patients.

- [Narrator] The company sells over 200 generic drugs

in partnership with a digital pharmacy.

Prescription drug prices remain out

of reach for many Americans

who pay among the highest prices in the world.

So more private market players are stepping in.

This leukemia medication

goes for about $2,000 at many pharmacies.

Cuban's company sells it for as lot as $17.10.

- Patients want the medication they need

at the lowest possible price.

Period, end of story.

That's not what

these vertically integrated companies are providing.

They may say so but that's not what's happening.

- [Narrator] Still, the Mark Cuban CostPlus Drug Company,

or CostPlus, faces challenges in a consolidated drug market.

It also remains limited in the medications it can offer.

So how is Cuban's company able

to offer such steep discounts?

Which patients will benefit the most?

And could businesses

like his actually disrupt the healthcare industry?

There's usually not a straight line

between the list price a drug maker charges

and the price patients pay at the pharmacy counter.

The drug supply chain can be complicated,

containing multiple parties

who all negotiate to purchase,

sell and provide rebates for drugs.

Cuban's business model works in large part

by circumventing this drug pricing model.

- America, unlike other rich countries,

doesn't really give the government a role

in negotiating prices on behalf of its citizens.

It is a much more fragmented market.

So you have all of these individual players trying

to negotiate prices on behalf of other employers,

and no real sort of insight

into how much the other guy is paying.

- [Narrator] One way CostPlus is able

to lower the price of prescription medication

is by removing insurance plans

and healthcare industry middlemen,

known as pharmacy benefit managers or PBMs.

Nearly 80% of US prescriptions are managed

by three PBMs.

PBMs manage prescription drug benefits

on behalf of health insurers and large employers.

They use their purchasing power

to negotiate rebates and discounts from drug manufacturers

but they don't always pass along the savings to consumers.

- And so what they'll do is they'll go to say a Pfizer

and say you charge X amount of dollars for this drug

but we would like to get a 15% rebate

that you'll pay us back off of the drug

as a discount and which we will then pass along

to our clients.

One of the criticisms that they've received

is that PBMs also tend to keep a percentage

of the rebates that they negotiate from manufacturers.

The higher the drug prices go,

the larger the rebates that they'll receive

and that they'll negotiate,

and hence, the more money that they'll get to keep

at the end of the day.

- [Narrator] The Pharmaceutical Care Management Association

represents pharmacy benefit managers.

In a statement, its spokesperson said,

"PBMs pass the vast amount of rebates negotiated

from drug manufacturers along to employers,

health plans and others sponsoring health insurance."

To get around these inflated drug costs,

CostPlus cuts out third-party PBMs

by making it a cash-only pharmacy,

meaning no health insurance plans are allowed.

But for some drugs,

like the leukemia pill we showed you earlier,

it can be cheaper to pay out of pocket

at Cuban's pharmacy than going through an insurance plan.

- Insurance companies want you to work

within their world.

So their logic is look, if you want access

to all of our customers,

you're gonna have to play the game,

which is what other companies

that have tried to do the same thing we're doing have faced.

And so we're just saying nope,

we're not gonna play that game.

- [Narrator] So how exactly are CostPlus drugs priced?

The company sets it rates by negotiating directly

with the drug manufacturer

and then adding a 15% markup,

a $3 fee for pharmacy labor

and a $5 shipping cost.

- The goal is to be very transparent

and that's exactly what we do

and that transparency we think

is our most effective marketing.

- [Narrator] Some CostPlus medications

are more than 10 times cheaper

than those sold elsewhere.

Because CostPlus doesn't accept insurance,

uninsured or underinsured individuals

may benefit the most from the low-cost options.

- For people who don't have insurance,

oftentimes, they get charged the highest prices

because they don't have anybody negotiating

on their behalf like insurance companies do

and like PBMs do.

- [Narrator] Still, there are limitations

to the CostPlus business model.

- Right now, they're really targeting people

who don't have insurance for generic drugs

and that's a relatively small part

of the overall market.

Also, generic drugs typically

aren't the biggest cost problems for people.

It's really brand name drugs

that don't have any competition.

- [Narrator] At the same time,

CostPlus faces challenges in adding new medications

to its website.

- You have to do the deals with all the manufacturers

and there are manufacturers who are afraid

to work with us

because they're afraid they'll lose

those big pharmacy benefit managers

who are doing a lot of business with them.

So we have to overcome that hurdle.

- [Narrator] To expand its offerings,

CostPlus is launching its own pharmacy-benefit manager.

Once operational, its PBM could allow the company

to offer more low-priced medications

and eventually provide their services

to those with health insurance plans.

- We're not gonna distort retail or wholesale prices.

We're not gonna ask for rebates.

To be a pharmacy benefit manager,

you have to carry enough drugs

and right now, we don't have enough drugs

to be a full-service pharmacy benefit manager.

We hope by the end of the year to be past 1,000.

- [Narrator] The company is also planning

to become an all-in-one pharmaceutical supplier,

combining manufacturing, wholesale distribution

and pharmacy services all under one roof.

Right now, CostPlus is building a facility

in Dallas, Texas to manufacture certain drugs.

Meanwhile, the Biden administration's Social Spending

and Climate Bill, currently stalled in Congress,

includes several provisions meant

to rein in drug makers' pricing power.

- The Build Back Better Plan included a number

of provisions around drug prices.

Probably the most significant of which

included things like allowing Medicare

to negotiate prices for certain medicines

and that would have been a real watershed

because that hasn't ever existed before

and as of now, we haven't seen a big push to try

to get those drug pricing provisions passed.

- [Narrator] While there is still no long-term solution

to the problem of high drug costs in the US,

Cuban's business could offer consumers more choices

in a fragmented market.

- I think it's too soon to say or really to know

whether or not the Cuban pharmacy's having an impact.

A big thing will be whether they can expand

into brand name drugs,

which they can't manufacture or buy

through multi-source manufacturers.

I think the question is is whether they can keep going

for the long haul and gain more market share,

and as they do that, that will give them more opportunity

to disrupt the market.

(pensive music)