Example: Imatinib is listed anywhere between $3k and $19k retail depending on the store you buy it (source: GoodRX). With insurance, you would never pay this amount. Without insurance you can use a coupon provider like GoodRX to reduce the retail price to as low as $120. I am told, but have no proof, that if you have no insurance and no coupon, the store will provide a “cash purchase value” that matches or is very close to the coupon price.
In: 7
Here are the 4 parties involved in delivering generic pharmaceuticals to consumers:
1. The Manufacturer
2. The Wholesaler
3. The Pharmacy
4. The Insurance Company
Before I explain how these parties interact – remember this is a pre-Internet system.
The manufacturer makes pharmaceuticals. Demand for pharmaceuticals is much different than consumer good production. A wholesaler solves this problem by guaranteeing minimum orders, which gives the manufacturer enough liquid cash to fund the production of pharmaceuticals (labor, manufacturing overhead, and regulatory costs which are significant for a pharmaceutical company).
The Wholesaler acts as a logistics agent. Once upon a time, pharmacies were mostly independent and it required both logistics (think shipping) and business-to-business marketing to ensure that every corner pharmacy could have adequate supply. The manufacturer had neither the liquid cash to fund this type operation or logistics to deliver the pharmaceuticals.
The Pharmacy interacts with the consumer and adjusts the price on the specific script and also the contact it has with the insurer. Each insurer negotiates different end prices based on the needs of its members.
At each step, various terms and contracts between each party govern the price the each party pays. These are called chargeback , volume discounts, and rebates.
The last 2 are are the same as consumer volume discounts (buy more, pay less) and coupons / rebates (coupon = pay less). A Chargeback is when wholesaler accepts and refund unused inventory from the pharmacy. This makes sense because the wholesaler can bring it to another pharmacy.
This is why the price is opaque. Depending on the manufacturer, the wholesaler delivering to your pharmacy, the pharmacy, and your insurance, the price can vary wildly. Also consider most of the time a drug isn’t optional. You *have* to (or really should) fill the script.
Now why you ask – Mark Cuban launched, technically, a wholesaler that will sell directly to the customer. The business intends to remove 1) logistic costs with the internet and 2) insurance negotiations by drastically undercutting insurance costs.
This is a key distinction because Cuban intends that most people will purchase pharmaceuticals with cash (most likely HSA $) and so, the company won’t need to interact with insurance at all.
Second, he can negotiate directly with manufacturers and remove the administrative burden of negotiating and tracking the settlement price that pharmacies and insurance may have.
Third, as internet only “pharmacy”, it has no overhead like CVS or Walgreens (leading to cheaper prices).
Essentially, his strategy is to remove as many parties as possible from the transaction and reduce price.
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