Medicare’s drug program could have saved up to $3.6 billion in 2020 by mirroring the pricing strategy of entrepreneur and Shark Tank judge Mark Cuban’s online pharmacy, according to a new study.
Cuban’s Cost Plus Drug Co. offers a selection of generic drugs at the cost of manufacturing them plus a flat 15% markup, $3 pharmacy handling fee, and $5 shipping fee, according to the company website. The direct-to-consumer pharmacy does not accept insurance.
Though Cost Plus Drug Co. did not launch until the start of this year, the study’s authors suggest that Medicare is overpaying for many generic drugs and could save billions a year if it purchased them directly from Cuban’s online pharmacy.
“The lower prices from a direct-to-consumer model highlight inefficiencies in the existing generic pharmaceutical distribution and reimbursement system, which includes wholesalers, pharmacy benefit managers, pharmacies, and insurers,” wrote researchers at Brigham and Women’s Hospital and Harvard Medical School in a brief published Tuesday in the journal Annals of Internal Medicine.
Benjamin Rome, one of the researchers and a physician at Boston’s Brigham and Women’s Hospital, told Fortune that Cuban and his pharmacy did not fund or have any involvement in the study.
On Monday, Cuban retweeted the study to President Biden and several members of Congress: “have your people call my people and let’s get this done.”
Cuban told Fortune on Tuesday that he has not heard back from any of the officials he tweeted at.
Cost Plus Drug Co. says it engages in price negotiations with drugmakers. Medicare’s drug program, Part D, however, prohibits the government from directly negotiating pharmaceutical prices with manufacturers.
Researchers compared 2020 Medicare spending for a total of 89 drugs, adjusted for changes in drug costs since then, to their prices at Cost Plus Drug Co. in February. They estimate that Medicare overpaid for 77 generic drugs, spending $8.1 billion compared with $4.5 billion if the federal agency had purchased at the same prices as Cost Plus Drug Co. charges. Twelve of the drugs did not offer any savings.
That means that, theoretically, Medicare could have slashed 37% of its $9.6 billion budget for the drugs. The researchers assume that the federal health care program would have purchased drugs in bulk, buying the maximum quantity that Cost Plus Drug Co. offers for each prescription.
But researchers maintain that even though they calculate Medicare missed out on nearly $4 billion worth of savings, that estimate is on the conservative side. When Cost Plus Drug Co. offered different versions of a drug by prescription strength, they chose the most expensive option for comparison.
The Centers for Medicare & Medicaid Services did not respond to Fortune’s request for comment on the study’s findings.
But even among expensive drugs, some stand out more than others. The study found that Medicare overpaid the most for, by around $290 million, esomeprazole, which is used to treat symptoms of acid reflux disease. At Cost Plus Drug Co., 90 capsules of the medication cost $17, while Medicare spent $160 in today’s dollars for the same quantity.
Among the study’s limitations was that researchers could only compare prices for the generic drugs sold by Cost Plus Drug Co., which represents just 25% of the approximately $38 billion that Medicare spent on generic drugs in 2020. It also could not account for whether the cheaper drugs would mean lower out-of-pocket costs for Medicare enrollees.
