Mark Cuban’s Cost Plus Drug Company represents a significant shift in the pharmaceutical landscape, aiming to make medicines more accessible and affordable. This model has stirred the industry, impacting patients, payors, and pharmaceutical companies. This week, that influence grew as industry giant Cigna adopted a similar pricing strategy.
Impact on Patients
Cost Plus Drugs offers a transparent pricing model, selling more than 1,000 generic drugs priced at manufacturing costs plus a 15% markup and a $3 pharmacy fee. This approach, particularly beneficial for those without health insurance or with high deductibles, dramatically reduces drug costs. For instance, a cancer treatment drug imatinib is offered for just $47, significantly lower than the average market price. However, it’s crucial to note that Cost Plus Drugs’s focus on generic drugs means that the savings are limited to these drugs, and patients requiring brand-name or specialty medications may not benefit as much. This is because generic drugs, though comprising 84% of the prescription medications sold in the U.S., account for only 12% of spending.
Impact on Payors
For payors, Cost Plus Drugs’s model bypasses traditional pharmacy benefit managers (PBMs), reducing costs. Typically, PBMs negotiate rebates for insurers but retain a substantial margin. By eliminating these middlemen, Cost Plus Drugs offers lower prices, potentially leading to savings for payors. However, the cost benefits might not be universal, as Cigna noted that their new network, inspired by Cost Plus Drugs, may save money for some employers and health plans while others may get better deals from existing plans.
Impact on Pharmaceutical Companies
Cost Plus Drugs challenges the traditional pharmaceutical pricing model, promoting a more transparent and potentially more ethical approach. This model puts pressure on other pharmaceutical companies to justify their pricing strategies, especially those involved in producing generics. The company’s plan to manufacture its generics further intensifies this impact. However, Cost Plus Drugs’s current scale and focus on generics mean that the broader pharmaceutical market, particularly concerning brand-name drugs, remains largely unaffected in the short term.
Cigna’s New Pricing Plan
Cigna, through its subsidiary Express Scripts, just announced plans to offer a pricing model similar to Cost Plus Drugs’s, where employers and health plans can pay pharmacies up to 15% above their wholesale costs, plus a dispensing fee. This model, which aims to be more expansive than Cost Plus Drugs’, will be available for all types of prescriptions, including brand and generic. This move by a dominant industry player like Cigna, with over 98 million pharmacy customers, signals a significant shift in the pharmacy benefits management sector, responding to pressure from innovative competitors like Cost Plus Drugs.
Limitations and Future Directions
Cost Plus Drugs’s approach, while innovative, has its limitations. It currently offers only about 1,000 medications, compared to the tens of thousands available in the market. Furthermore, it doesn’t accept insurance, meaning the cost of drugs won’t count towards deductibles, which could impact patients’ overall coverage. Despite these limitations, Cost Plus Drugs is a disruptive force in the pharmaceutical industry, challenging long-standing pricing practices and paving the way for future reforms and innovations.
Cigna’s dramatic entry into the “cost plus” model represents a pivotal moment in the pharmaceutical industry. These developments hold the promise of increased accessibility and affordability of medications, challenging the status quo and potentially leading to broader changes in drug pricing and healthcare delivery.