AMAC Exclusive – By Andrew Abbott
Following the passage of the misleadingly titled “Inflation Reduction Act,” Democrats have touted that the legislation will bring down prescription drug costs and reduce out-of-pocket expenses for patients. But while the bill may help slightly reduce costs for some medications for some Americans, entrepreneurs like Mark Cuban are showing that the most effective and expedient path to lowering drug costs is through the free market.
Cuban, a self-made billionaire, owner of the NBA’s Dallas Mavericks, and investor on ABC’s Shark Tank, has in recent months turned his attention to addressing the issue of skyrocketing prescription drug costs. But rather than advocating for more government regulations and involvement in the market, which is sure to hamper innovation and slow down progress, Cuban has instead created his own online prescription drug retailer, the Mark Cuban Cost Plus Drugs Company (CPDC), to sell generic medications to consumers at a fraction of name-brand costs.
Cuban’s model has shocked the pharmaceutical industry for both its simplicity and price transparency. While backroom deals between insurance companies and drug manufacturers often artificially increase prices, CPDC tells consumers up front that prices for drugs are determined by the cost of the drug from the manufacturer plus a 15% markup and a $3 pharmacist fee.
CPDC doesn’t accept insurance, which allows them to avoid unnecessary and expensive layers of bureaucracy. As a result, many of the more than 700 medications offered by the company are far cheaper than they would be with insurance. For example, the cancer drug Gleevac, when purchased through insurance, costs more than $2,500. But CPDC sells the generic version of the drug, Imatinib, for just $14. Another medication used to treat HIV is more than $1,000 cheaper than usual for a month’s supply on CPDC’s website. A psychiatric drug used to treat schizophrenia and bipolar disorder costs $6 instead of $678.
Thus far, Cuban’s model has succeeded and is even being emulated by retailers like Costco, Walmart, and Amazon. However, CPDC only sells generic drugs, which make up just 20% of prescription drug expenditures. The other 80% are brand-name drugs. The creators of these drugs still have government-granted monopolies on these products as they are the ones who researched and created them.
This is where a tremendous challenge in the medical Industry presents itself. While greedy middlemen and Big Pharma executives undoubtedly bear a large amount of blame for out-of-control drug prices, it is also true that the research and development of new drugs is a costly and time-intensive process—one in which there is no guarantee of success. According to the Congressional Budget Office, only about 12% of drugs entering clinical trials will ultimately approved by the FDA. The total cost from research to market introduction for a single drug can be as high as $2 billion and take as long as a decade. Thus, drug manufacturers incur extraordinary losses unless and until the drug becomes commercially available.
For this reason, the federal government permits short-term monopolies on new medications to incentivize and encourage drug makers to continue researching and innovating new treatments for patients. If the government were to simply allow manufacturers to copy pharmaceutical breakthroughs, companies would have less incentive to research and develop new treatments.
Cuban has expressed optimism that, in the years ahead, he will be able to balance the need for both innovation and lower costs. He believes that CPDC will be able to add as many as 1,200 new drugs by the end of the year, including several brand-name drugs. In a recent interview, he asserted, “the branded name manufacturers that we’re starting to work with see us as really an opportunity to regain control of pricing.” He’s even working on having insulin and EpiPens available for purchase (insulin manufacturers are notorious for adjusting formulas slightly right before patents expire to keep prices high).
One outlet covering the success of CPDC recently noted that the genius of Cuban’s solution lies in “approaching it as a business problem to tackle and less so as a political issue.” That’s good news for every American. As we have seen countless times, it’s always the vision of entrepreneurs and innovators – not the government – that deliver real progress for our nation and the world.
Andrew Abbott is the pen name of a writer and public affairs consultant with over a decade of experience in DC at the intersection of politics and culture.
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