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JPMorganChase sponsors Texas Business Hall of Fame
We're proud to sponsor the Texas Business Hall of Fame's Creator Series, celebrating Texas's current and future business leaders. Discover trailblazers, Co-Founder Cost Plus Drugs and Entrepreneur, and John Arnold, founder of Arnold Ventures LLC.
Good morning. My name is Elaine Agather. And on behalf of JPMorgan Chase, I am delighted to be here and help sponsor. This is the second Texas Business Hall of Fame's Creators 2025 series. Different from the dinner. As a former Texas Business Hall of Fame Chairman, I'm especially excited to be here. I think entrepreneur-- I think the whole idea of helping business through entrepreneurship and creating.
So I have a quick funny story, because Mark Cuban and John Arnold are here. And I called up Mark, as bankers do, trying to invite him to things. And I was very proud that I was part of the Fort Worth Rodeo, and I knew he'd want to go. And I called him up. I said, Mark, how about going to the rodeo with me? He said, I hate rodeo.
[LAUGHTER]
So I waited a few months. We have--
Oh, I know where you're going. Oh.
We have great tickets to the tennis tournament in New York. And I said, how about the US Open? And he said, I hate golf.
[LAUGHTER]
Oh my goodness. My wife loves tennis, loves tennis.
And then I kind of was doubting myself. And I said, well, I think it's tennis. He said, I hate tennis.
[LAUGHTER]
I called his wife. She likes tennis.
Next you're going to say, how about going to Luka game, right?
But what I realized, I finally asked him at another point and I said, what are you passionate about besides basketball? We know that. We're not talking about that. He said health care. And as a bank, we understand this. We tried to start a health care company, and it was too hard. The topic today, I think, is one of the most interesting, challenging topics we have in our country. And so I'm thrilled everybody's here today to discuss this.
Now I want to introduce our moderator, Dr. Vivian Ho. She's a James A. Baker III Institute Chair in Health Economics at Rice University and is also a professor at Baylor College of Medicine. Her research on economic incentives and regulations in health care has been widely published and funded by leading institutions, including the NIH, the American Cancer Society, and Arnold Ventures. In 2020, Dr. Ho was elected to the National Academy of Medicine, a testament to her significant contributions to the field.
She is a founding board member of the American Society for Health Economists, and serves on the community advisory board at Blue Cross Blue Shield of Texas. Dr. Ho earned her AB in economics from Harvard University, a graduate diploma in economics from the Australian National University, and a PhD in economics from Stanford University. Surely you can help us figure it out. Thank you very much. Please enjoy our program.
[APPLAUSE]
Well, thank you for that warm introduction, Elaine, for getting us started. So today we are fortunate to have two distinguished leaders talking to us, John Arnold and Mark Cuban. And you've known these individuals have had a tremendous impact on multiple different industries in the United States, but today we're here to focus on health care.
So with that, John Arnold and his wife Laura founded Arnold Ventures. And their work, they focus on identifying evidence based policy solutions to address everything having to do with affordability of health care, access, and transparency. And their philanthropy is driving an impact on all sorts of things, including drug pricing, Medicare policy, and the general health care landscape.
Mark Cuban, through his company that you've heard of, Cost Plus Drugs, is disrupting the pharmaceutical industry with a radically transparent approach to pricing drugs. And that work is making lifesaving drugs available to many millions of Americans who previously have been having trouble affording these medications or even getting access to them.
So these two individuals, they're not just business leaders, and that's how we know them, but they're also problem solvers, and they are focused on making health care better for all Americans. So with that, I'm looking forward to a terrific discussion with both of you. So if we can welcome them both.
[APPLAUSE]
So John, I'd like to start with you. How is it that oil and gas and then you get interested in health care policy?
Yeah. So my first 17 years of career was in oil and gas industry. And at that time, I started getting interested in philanthropy, started in K-12, moved into some criminal justice work, some public finance work. And we stepped back and said, OK, what are we doing here? What ties these together? And it was really this notion of public policy. And said, we're interested in the rules and incentives of systems and the big systems where the government's interacting with people.
And if that's what our focus is going to be, well, here's this huge thing called health care, which is just an obvious thing for us to get into. It's the largest industry in the United States, 18% of GDP, and it has almost every market failure you could imagine. And it's highly regulated. The government pays about 50% of total health care through Medicare and Medicaid. Government employees, as well as tax advantages on employer health care. And most people who are showing up in the discussions on health care policy were those who had a financial interest in the system.
And so we thought as kind of an independent third party, a philanthropic entity, can we help translate the research to policymakers, do so in an independent fashion with no financial incentive in the system and also try to combat some of the special interests who want more and more and more? And so our approach is there's a lot of people who are trying to get more money, more of everything in the health care system, and there's value in that and more access, more innovation. Those all have value. But there's not enough people looking at the cost of health care.
And the cost is just driving everything. Again, 18% of GDP going up to 20%. The federal government is essentially a military, a retirement organization, and a health insurer. And the health insurance is the one that's the biggest unknown and escalating the quickest. So that drives federal debt and deficit for states who are paying a lot of Medicaid, as well as their state employees. It is a trade off. They have to balance their budget. And so do we put a dollar into health care, or do we put a dollar into K-12 or into transportation or into housing, whatever? And at the individual level, that's obvious. It's literally a matter of life and death.
And then for employers, it acts as a huge tax. And so it's hidden because the employers are paying for it. People are like, it's kind of free, don't really understand how this is reducing wages, how this is reducing economic activity, reducing employment, but it is.
Yeah. So Mark, I know you're also tremendously interested in policy, but in a way, could you give us your story about how you got interested in, it seems to be, through your own employees as well, if you could include that in your--
Sure. Well, probably 2017, folks here in Texas were coming to me and saying, that was right around the time Trump one was looking at overturning the ACA. And they were like, look, they want to overturn it, but they have nothing to replace it. You like to look at things like this. Can you take a look? So I just started digging in, and it turned out that I found it interesting.
And not much later, I got a cold email from Dr. Alex Oshmyansky. And he wanted to create a compounding pharmacy in Denver, Colorado to make generic injectable drugs that were in short supply. Believe it or not, there are literally pediatric cancer drugs that save kids' lives that go on short supply, which made no sense to me at all. So I was interested.
And it was right around the time that as I was digging in that the pharma bro, Martin Shkreli, was going to jail. And so that was out front of a lot of people. I was like, how can he take this drug, this generic drug, Daraprim, and basically reprice it at 750% of where it was selling or something along that line?
And as I started digging in, it was like, OK, it's obvious that this is an inefficient market by definition. But it was even more interesting to me that there was 0 transparency. When you look at it, for those of us who have gotten prescriptions, the doctor says, OK, you need this medication. And the next question always is what pharmacy do you use? That's it. And no consideration for cost, no consideration for affordability to you.
And so I started digging in and talking to Alex was like, great, making sterile injectables is great. And we do that now. But let's create this company called costplusdrugs.com. We called it that because we got the URL, the domain name. But we're going to do it a little bit differently. When you go to costplusdrogs.com and you put in the name of the medication-- and we don't have them all. We carry about 2,500. We'll show you.
It comes up, and we'll show you our actual cost. So whatever the medication is, we show you specifically what we pay for it, and then we show you our markup, which is 15% always. If our cost goes down, your cost goes down. But the 15% is there. And if you buy it via mail order, then it's $5 for a pharmacist to review and $5 for shipping and handling, where now you can pick it up from a local pharmacy through an affiliated network.
And that was it. And so I started going out there and talking about it. And as it turns out, again, with the goal by these companies called pharmacy benefit managers to obfuscate and make this industry as opaque as possible, that was groundbreaking. There was never a place where you could just go and look and see the cost that somebody offers it. And for a wide range of drugs, including these things they call specialty drugs, for most of them, there's nothing special about them. It's just a pill. Whether it's a cancer drug or whatever.
And as it turns out, a drug like imatinib, which is for cancer, if you just walked into a big captive pharmacy like CVS and just ask, today with a prescription for it, they might charge you anywhere from $200 to $2,000. If you go to costplusdrugs.com, depending on the strength, it will be $25, $26. And then that led to people emailing me, friends and businesses.
I've got a friend that emailed me and said, look, Mark, I lost my insurance and I need to go on this drug called [? dropadosa. ?] I had no idea what it was. I was like, OK, let me see if we can get it. He was having to pay $10,000 every quarter, every three months. Our price was $63 a month.
And so when you start seeing these things, then all of a sudden we published our price list, which led to researchers and even a lot of the work that John is doing for on the policy side, looking at our prices and saying, wait, something's wrong here. For these nine oncology drugs, Medicare could have saved $1.2 billion. For these 11 urology drugs, they could have saved $800 million a year. And then the list just keeps on growing.
And so what it led me to realize is that health care is a really simple business. I mean, it is one of the easiest businesses ever. On the pharmacy side, you go to the doctor. And if you need a prescription, the doctor tells you what you need. And there's only two questions. How much are they going to charge you and how do you pay for it? If you go to the doctor on the health care side, if you need some sort of care at a hospital or at the clinic or whatever, there's only two questions. How much are they going to charge you and how do you pay for it?
And so as an entrepreneur, I was like, OK, this is really interesting because I don't need to go ask for a special this, this, or this. I just have to be transparent and we can change an industry by simplifying it. And so that's how we got where we are today, having helped millions of people. And I get emails weekly, if not daily, from someone--
Literally I got one last week where it was like, I decided that I wasn't going to take my medication because I couldn't afford it, and I didn't want to burden my wife. And so I knew I was going to die sooner and maybe soon. But then someone told me about Cost Plus Drugs. I looked it up and it's $93 a month and now we're good. So thank you. And I mean, if that's not motivation, I don't know what is. But that's what has pushed us forward and pushes us forward is to keep on growing and extending what we offer.
Yeah. So with the sector being so large, it's fascinating that you two took different approaches and still have had, and you're having, tremendous impacts on affordability and accessibility. So I'm going to ask, John, I'm going to ask you if you want to talk about one or two policy solutions that you think are going to be-- would be the most impactful that you're working on now. And then, Mark I'd like to ask you from the perspective, what do you think CEOs one or two actions they should take. So John, go ahead.
Yeah, so I think we start with the notion that the US health care system, if you were starting from scratch, would never be designed this way. Mark was saying it's a simple business at its heart, and we've made it super complicated. Now, we actually don't think that it's going to be transformatively reformed. There's a lot of books written about it. The biggest health care reform in recent decades was the ACA, and its main attribute was increasing the number of people eligible for Medicaid. It took an existing system, turned the dial.
And so we think very much about the incremental reforms in the system. And there's a great health care economist, Uwe Reinhardt, called this, he kind of had the same realization, and called this the 1% problems. There's a lot of 1% on the health care system.
And so even when you're talking about drugs, you can think about it on three axes. One is branded versus generic. One is competitive versus non-competitive. And you can have non-competitive generic drugs. Mark was talking about that earlier. And then the payers. And so Medicare Part B, Medicare Part D, Medicaid, the VA, cash payers, private insurance, et cetera. And each one of those boxes is its own issue. And so the way that VA pays for competitive branded drugs is very, very different from what you do with uncompetitive generic drugs.
And so within that, there's no silver bullet to the US health care system. But how do you improve each of those buckets, if you will. So you asked about one or two. I'll talk about some of the big ones that we're working on now. So one is called site neutral payments. So Medicare decided that hospitals have higher cost structures than doctors offices in the community. And so they set higher reimbursement rates for this same procedure in the hospital than at the doctor's office. The hospital has to be open 24/7. It has to be able to treat anything at any time. And doctor's office gets to be 9:00 to 5:00 and choose a specialty.
So the hospitals kind figured out, hey, if we buy those community doctors' offices, put them under our billing code, we can bill at the higher rate. We can bill at our rate, and Medicare won't know the difference. And technically, they're not doing anything wrong. And we're going to use our billing ID number such that the private insurance companies can't figure out where this is coming, and they're going to pay the higher rate too. And so you've seen this massive consolidation that's happened as hospital systems are buying more and more of these community clinics and billing the same service at a much higher rate, even if it's in the same building.
So there was this great story. The former head of the Texas Medical Association wrote an op ed in the Dallas Morning News telling his story. He's a cardiologist, and he's in the same building as one of the hospital clinics. And for an echocardiogram, he was getting about $130 for that echocardiogram. The exact same service, two floors down, because it was owned by the hospital system, was getting $525 reimbursements.
And so this obviously wasn't the intent of the system. It's a loophole. It needs to be closed. Depending on how you craft it, it can save up to $150 billion over 10 years. And there's a great need for savings in the federal government right now. So there's a lot of interest in site neutral, bipartisan.
I'd say a second issue is this issue of consolidation that's happened, kind of related to the first. You may have heard of this group, US Anesthesia Partners. It is very much in Dallas. It's Welsh Carson private equity firm decided they're going to come in, buy an anesthesia practice in Dallas, and then start consolidating the market. And through that, get enough market share that they can start raising prices. And this got so bad that the FTC filed a claim against them for anti-competitive behavior.
There was a research study that came out this week, actually, looking at what happens whenever financial sponsors like private equity come in and buy a practice. And what it showed was the first time they come in and they buy one practice on the market, prices don't change. For the next two years, prices are stable. They're not doing anything that can lower costs. They're not raising costs, because they don't have enough market power.
But then each successive consolidation, each successive practice that they buy, you start seeing prices go up. And as they consolidate, they raise prices 25% to 30% after two years. And so again, same service. And you're just getting higher prices because you have a financial sponsor that's figured out how they can game the system and get higher profits.
And so there's a question. What do you do on this? I think there has to be much stricter review of consolidation within these individual markets. You might know that the FTC requires any merger more than 120 or so million dollars to be pre-filed with the FTC. You have to notify the FTC. The FTC gets to say, hey, we're going to look at this or not. But any merger below that, you don't have to notify the government. And so a lot of these local mergers that are happening in places like Dallas are below that figure. And so a lot of this consolidation is happening without regulators even knowing it's happening. And so regulators at the state level need to be much better about trying to figure out and prevent those mergers.
And then second is we need price caps. We have this market that is just consolidation of giants. You have a handful of insurers, a handful of hospital systems at most, if you're in a big city, a handful of PBMs. Doctor's practices are now very concentrated. Everybody is these giants. And many times, one of them has market power. And so there has to be price caps in this market, because there is benefits to scale. There are efficiencies to be gained. But if that benefit solely goes to the owner of it through higher prices, that's a huge problem.
And so just to extend from what John was talking about, the government, the big payers, so when there's consolidation and the prices go up, someone's writing the check. The question becomes who. And John mentioned earlier, the government is the big payer. Consumers who buy their plans on the ACA are big payers. But for 100 plus million lives, it's CEOs who are making the decisions for their self-insured companies. Does anybody here run a self-insured company by chance? No? OK, boomer. I was going to yell at you.
[LAUGHTER]
Because the reality is, it's the CEOs making decisions about the lives, employees and their families, that they cover that are enabling these things. And look, I get it. For my companies, the Mavs still, to a certain extent, other companies, I had the arena, I used to use my guy who was a broker slash consultant. My guy would come in every year when we were looking at our new plans and say, look, everybody else, their price is going up 7%. But I'm taking care of you. You're only going up 4%
Then when we started Cost Plus Drugs and I started understanding the industry more and I looked at the details of what my guy was offering me, just as an example, I just took generic drugs that the Mavs used over an 18 month period, and we were charged $169,000. The price on Cost Plus was $19,000. Needless to say, he's not my guy anymore. Haven't seen him since.
But as a CEO and as an investor, it wasn't my core competency to understand my health care benefits. And that's the challenge for CEOs right now. They really don't understand. And the PBMs, and more importantly, the insurance companies, the big insurance companies, know that they're dealing with customers who are undereducated. The head of benefits might understand how things are going, but the head of benefits or HR reports to the CFO who reports to the CEO, who in their mind has got usually bigger things to deal with.
And so what I've been out there doing quite a bit of is trying to help CEOs understand that, for the reasons John mentioned and 100 others, they're getting ripped off. And you, as someone who's covered by an employer's insurance plan, particularly if you work with a company that has 500 or more employees, you're getting ripped off. And that rip off in this, that crime, if you will, extends into so many different areas.
I'll give you a simple example that what my guy had me sign was helping to put small pharmacies out of business. Because you may have noticed, smaller pharmacies are disappearing left and right, and we're getting more and more health care deserts. And the bigger chains are taking over a lot of respects. So if any of you have a prescription right now for a branded medication and you go to an independent pharmacy, not CVS, and even Walgreens to a certain extent, and hand them your prescription, they give you the prescription, you pay your co-pay. Which, by the way, is probably too high. You should check Cost Plus Drugs. We're probably cheaper than your co-pay, but I digress.
Guess what? That pharmacist doesn't get fully reimbursed for their cost for that brand medication. They get underreimbursed. And the big insurance companies and their PBMs basically say, screw them, I don't care. Let them make it up in Coke and toilet paper. Not my problem.
And so as a result, and again, I'll sit in CEOs offices and they'll have no idea. I sat in front of a big CEO and said you have thousands of branches. I'm not going to mention any names. And said, because of this deal you signed, there are, especially where you have branches in smaller communities, those pharmacies are going out of business because of the deal, the big CEO sign. And they had no idea. And so there are so many downstream impacts.
I'll give you another example. Now, Elaine's boss didn't make this mistake, which is good, so they get a check. But unless you're the biggest of the big right now, you don't own your own claims data. And so if you're trying to make a decision for your company on whether to support GLP-1s, not only can you not just ask for all your claims, well, you can ask for them, but they're not going to just give them to you. When we were transitioning to Cost Plus, I asked my guy if we can get our claims data so we can do these price comparisons. I had to wait six months and pay thousands of dollars to get our data. And that's what's happening.
So when companies that you work for or you work with or you support are trying to make decisions, look, GLP-1s are miracle drugs. Should we support them for the lives we cover, our employees and their families? You would think you want to look at the claims data to see what illnesses we already have. What's the wellness status of our employees? You're going to have to fight to get that data. That's part one.
Part two, you're not going to know the cost associated with the drugs for those claims. Put aside the patient information. But here's the other thing. All the contracts all across health care that John's talking about with insurance companies and PBMs, they're just like Fight Club. The number one rule of a health care contract is you can't talk about the health care contract. It's against the contract. There's confidentiality aspects to it. And they will sue you and they will kick you off their plans if you violate that contract. But that also means you can't talk to the manufacturers of GLP-1s or other medications.
So I'll go talk to Lily and Novo and the like. The crazy part is, not only can you not talk to them, and not only is it very difficult, if not impossible, for you to get your claims so you could say to them, can we work together to put together a wellness program? You can't do it. The crazier part of it, they don't even have claims data. Think about that.
So when you hear these stories, like I work with an audiologist, and they were telling me that they've had more and more people coming in to their practice that take GLP-1s and were having hearing issues. And I said, let me connect you with somebody at Lily and someone at Novo. And I talked to both of those companies. They don't know this. They have no data available for them to know this.
And I say all this because I'm not as big on the price caps and all that, but I like that John is going for it, simply because I think there's so much control in the hands of CEOs that they're just not using. If you make the decisions yourselves or go to your bosses or go to whoever, your portfolio companies and say, if you're doing business with the biggest six PBMs, you're getting ripped off. I will guarantee it. Just tell them you want to do an audit and they'll laugh at you. Tell them you want your own claims data and they'll laugh at you. That's why we're in such a mess from a health care perspective.
And in terms of policy, the thing I've tried to push when I've talked to folks is transparency, not just in pricing, because we see pricing on hospital procedures and the like, but hospital procedures are never as simple as they look on a piece of paper. There's all these different things. If you're in the hospital for three days inpatient and you don't have surgery, then you're multiplier on the fourth day is this. So I've pushed for actual contracts to be published, and that's part of what we're doing at Cost Plus.
On the health care side, we've created Cost Plus Wellness, which we're calling an open source health care company, where I'm negotiating direct contracts and we're going to publish them all. And so I say all this. Talk to your employers. Talk to anybody you know that makes health care decisions, and tell them to get their act together.
So I've got huge respect for Mark, because he saw these problems and decided to get in, focus on it, and try to disrupt the current players. Playing within the system is almost impossible. And we heard earlier about-- let me ask, how many people have heard of Haven Health?
[LAUGHS]
A few. Haven Health is this great idea. JPMorgan, Berkshire Hathaway, Amazon got together and said, each of us alone, although we're huge companies, we don't think we alone have the skill to change the system. We're going to combine, become 1.2 million employees under those three. Started in 2018, recruited superstar CEO Atul Gawande, kind of famous in the health policy circles. And they said, one focus. How do we maintain quality and decrease costs?
Many of you don't know about Haven Health because in 2021, they shut it down. They could not figure out how to do this. 1.2 million people is a lot of people. And if you're working in a company, you're paying the highest rates to the providers. And 1.2 million people is still small. Now, Mark is amazing, because everybody in this town is scared to say no to him.
I wish. Not the Lakers.
And so he's like--
[LAUGHTER]
But it is an enormously challenging problem for the market to solve, for the payers to solve on their own. And that's why I think there's this recognition that there has to be tools, regulatory tools, government tools like price caps that as a capitalist, which I am, you're kind of like, price caps. I don't like that. Government regulation. I don't like that.
Government is already so involved in this industry. There are so many problems with it that I think you have to do it. And so you're seeing places like Oregon that set a price cap of 200% of Medicare for their state employees. Colorado is thinking about this now. Oregon, of course, is a blue state. Colorado kind of purplish blue state. North Carolina is considering it right now. A purple state. South Carolina is doing it. Red state. You're seeing it across the political spectrum. Everybody is saying, this market is so busted, we have to do things.
I just call that reference pricing. I just don't call them price caps. Because, I mean, prices have been set with Medicare.
Medicare's already set them. Yeah.
Right. And so for all the different codes that you've heard about or seen on bills or whatever, the prices are there. It's just a question-- now there's two issues. How much are you going to pay? What do you negotiate? And what's the reality of what hospitals can afford? And what do they make money on?
I was telling John earlier, I tried to do a survey where I hired this firm to go out to the CFOs of bigger hospital networks and only ask them how they did their cost accounting. Nobody would respond. I talk to groups all the time of hospital CFOs. I just met with 20 of them last week in Phoenix. And I started asking them, do they know their actual costs?
And they say they know their consumables cost and they know the attributable cost of the health care professionals associated with it. But they still got to take that piano in the lobby and the incense that they burn on every floor and attribute all the incremental stuff and all the buildings that they're adding. All that adds up to the fundamental cost. And to them, that means they can't afford Medicare. Well, Medicare pricing,
I'm like, no, you got to take the responsibility. Take it from the CEO's pay for that piano. Because once we can get to the point where we understand the costing. So while I agree with John that we can do reference pricing and even states are capping it, to me, the more important thing from a legislative perspective would be trying, I don't think we could do it, to get actual costs. If you show us a general ledger with all the line items and all the posts to the general ledger, the whole world will know whether or not you can afford to take patients at Medicare or even Medicaid or less.
Because one of the things I did do was I paid for a study. Now, it's a little bit outdated, but in 2020. And I worked on a basic premise. I said, Toronto, Canada. Real estate is more expensive than Manhattan. More expensive real estate. Cost of doctors, even accommodating currency changes, about the same. A little bit more expensive in Canada. Nurses a little bit more expensive. Consumables definitely more expensive. Things like hip replacements, more expensive. Everything is more expensive. Why is it in their system that they can charge less than Medicare rates?
Now, there's some reasons. One of the reasons is they pay for malpractice insurance. And the other reason is they limit the scope of a lot of the things they get. You don't see every hospital in Toronto or anywhere in Canada adding a new oncology center, adding a new mental health center. They limit that because buildings eat. You've got to keep on paying for them.
But if you're able to limit scope as opposed to just buying things up and trying to site neutralize the payments, you can get to the point where we can do all these things for a lot less money. But the only way to know that path is through transparency, not just on the pricing. Because I think right now, there's a big push for consumerism in health care. Consumerism doesn't work in health care because you care more about the quality of your doctor. Or if it's an emergency, you just want to get something done.
You're not here to say, hey, ChatGPT, let me compare my output from Anthropic to ChatGPT to Gemini to see where the best doctor-- no, it's not going to work. Think of what I just said about CEOs and their health care benefits. They don't even put in the time. So it's hard to think that people are going to be good consumers like they're shopping for eggs. And so that was meant to be a joke. Sorry.
But you get the point. Until we know the cost to truly understand how we're going to change the health care side of the health care system, you have to know the cost. And we learned it from Cost Plus Drugs that once we published our costs, the other tangential benefit is trust. Because if you see our costs and you see our markup is 15%, OK, I'll trust these people aren't trying to take me to the cleaners. Like the example that John gave just multiple floors apart for the heart doctor.
So that's where we're also trying to go. Let's just get as much published as we possibly can on the cost side and the price side and the actual contract details, because then people and companies can start making more informed decisions, as can consumers.
We're ready for the second question.
[LAUGHTER]
We will go on for days. No.
This has been so illuminating, and I could go on forever and ever.
So could we. Yeah.
Which is great. Makes my job easier. So just a follow up. So Arnold Ventures actually funds the National Academy for State Health Policy, which takes the Medicare cost reports and puts them in a format that you can tell their profit rates how much are they making money on Medicare, are they making money on Medicaid and on their commercial prices. Now, it's not as good as the accounting forms you're asking for.
Right, because the MCRs are just filed at the end of the year.
Yeah. But those forms are used by Medicare. So the hospitals are happy to have CMS use them to determine their Medicare reimbursement rates. So there's got to be some truth in them. And that date is actually a lot of employer purchases are using it to say, look, you're actually making a profit on Medicare and Medicaid patients. The consolidated systems, not the smaller types of systems.
I don't know if we should open it up for questions or do I have time to ask one? I'm just going to ask a really quick follow up question to both of you. So John, regarding the consolidation, I've done some research showing that over the last 10 years, the CEOs that enjoyed the greatest increase in compensation were the ones that increased their profits and expanded their bed size the most, which means we're incentivizing hospital executives to consolidate. Is that something nonprofit boards can address?
You want a quick answer?
[LAUGHTER]
Look at the board of a typical nonprofit system. You get roughly 40 people that are donors slash very distinguished within their community who are trying to provide governance on one of the most complicated activities that we have. And there's just kind of a limit to what they can do. It looks very, very different from the governance of a for profit hospital system, which is a dozen people, most of which have some expertise in the industry.
The direct incentives as to what they're going for are different, but they end up at the same place. The for profit wants higher stock price. They get that through more earnings. The nonprofit system generally wants more prestige. How do they get that? They get it through growth, more research dollars, being ranked number one in the US News and World Report, et cetera, et cetera. How do they get that? Money.
And so if you sit in one of these board meetings for a nonprofit system, they talk about what's their profit margin. They talk about what's the growth. They talk about what the research that they're funding. And so you have nonprofit, for profit. They're both going for and both incentivized by how can we make more cash flow. And so that leads to this kind of bigger, bigger, bigger. And we talked about the land of giants that you have to be big in order to survive in this system. Otherwise, the other people are going to eat you for lunch.
And I think because of that, you end up with for profits, not for profits look very similar in their business practices. And if the non-for-profits, don't mimic the for profits, they will lose market share, they will lose money, they lose prestige, et cetera, and it starts to spiral down. And so there's very little distinction between them. There's a whole question about whether operating businesses like hospitals should even exist in a not profit system or a nonprofit entity. Should they not have to pay taxes? I think that's a big question. I try to live in political reality, so I don't think Congress is going to do that.
But a state like Indiana that has one of the highest hospital costs and has a system in Northeast Indiana not for profit that has taken very significant anti-competitive practices in that region. And Indiana is fed up, and they're looking at it. Again, red state. And there's a proposal now in the state legislature that says any nonprofit system, in order to maintain that designation, you have to price it 200% of Medicare or less. Reference pricing, we'll call it.
Reference pricing.
And so again, we're just seeing these battles, because states are giving up and they're saying we can't control it. We can't control the giants.
Yeah. Very interesting. OK, really quickly, Mark. You referred briefly to brokers, which I refer to as consultants. In other sectors of the economy, I think usually the consultants maybe provide good advice to the company. Is that system broken in health care?
It is so broken, it can't even see. Yeah. There's some brokers just that get paid $7 for every prescription that is filled by your company. That's insane. There are other brokers, I just got into an argument with one via email yesterday about-- not my guy. I haven't talked to him. About this same topic, because they were complaining that commissions were getting cut. And if commissions are cut, who's going to sell the right policy to the right people?
And it's almost a no win situation until CEOs, HR start better educating themselves so they can make those decisions. And really for bigger companies, not even bigger companies, 100, 200 employees. You should have a health care CEO. Because your second largest expense after payroll is your benefits. And instead of using your guy, you can probably afford, given all the back end commissions and everything, you can probably save money and get better wellness, fewer missed days, less cost, if you bring it all in-house and hire somebody to focus on it.
Yeah. Thank you. So we're going to open it up to questions now. So if you have a question, please raise your hand, because there's someone who will bring you a mic. And I ask that you limit your questions to addressing health care.
Is that for Mark or for me?
Yeah, both.
[LAUGHTER]
So I guess the question of the day. With the lack of transparency, is there anything that's on the horizon, let's talk AI, that can help provide data transparency?
I mean, AI is no good unless the data going into it is good. And so it's not really able to guess just by working on the outside. That said, you can use AI to start asking better questions. I mean, so I talk about having a health care CEO. ChatGPT can be your health care CEO if you're just getting started, or you're a smaller company.
And the more of your information that you feed into it, the better the decisions and the better the output it'll give to you. So yeah, AI is a game changer for sure. And I think even in how you consume benefits, it can make you smarter. And as a patient, obviously we've all used it or searched whatever, to oh, this hurts. What's going on? But yeah, it can't make us smarter.
I agree. I think it's going to help with clinical care and outcomes. One of the issues Mark was talking about earlier, just about transparency to clinical records and the value if you could aggregate all those records and what you could study and know. But one of the reasons that systems don't allow that is that they view that information as proprietary and that they can monetize this at some point.
And there's a competitive edge by having all that information. And so why would they share it with everybody else? And so I think that's one of the limitations and also kind of one of the market failures that the society would be better with this information, but everybody is trying to keep it wrapped up.
There was a question over here.
Hi. When I was looking on your website, Mark, Cost Plus Drugs, is there a way for ordinary people to get involved?
In what way? I mean, you can buy all your prescriptions from us.
[LAUGHTER]
No, but if we wanted to help speed up your process, like, whatever your process is for getting new drugs on the site. If we want-- call for you or whatever.
Please, let me just tell you why we don't have every drug. We only have a few brand drugs. And I'll tell you exactly why. So the biggest brand manufacturers, we go to them and say, please sell it to us. And when I say sell to us, there's these things called rebates that are used to buy down the price. And they won't sell. They won't offer us rebates that they offer the biggest pharmacy benefit managers or the biggest outlets.
And the reason why they won't is the pharmacy benefit managers, to John's point earlier, control so many lives. 80% of the market, hundreds of millions of lives. And those lives are customers for the pharma manufacturers. And they are terrified that if they work with us, that they'll lose presence on formularies, which is the list of drugs that all these lives have access to.
So call them up. And call your representatives too and say, why is it that any manufacturer of brand drugs, pick any one, is not selling to Cost Plus Drugs? Because let me just tell you, a drug like Eliquis, I'll just give you an example. Eliquis is $600. They call it [INAUDIBLE]. It's the retail price. And if I just buy it from a distributor, just to make the numbers easy, let's just say there's a 10% discount. So now it's $540. No big deal. But our markup, 15%, takes us higher basically than the retail price.
If CVS, as an example, or other big pharmacies are doing it, they get rebates back through their controlled PBM. Those rebates on that drug are probably 80%. And so that's off of the list price. So now 20% of 600 is $120. And so that's their cost. They know that if I get it, let's just say not 120, let's just say 200, and I mark it up 15%, then I'm selling it for $230. And that just destroys their business and puts them out of business. That's why they're not selling it.
There was a question in the back.
This is really informative. And as someone who works in health care and thinks I know what's going on, not really. I'll be sending out an email to my employees today about Cost Plus Drugs. But my question for you is this.
Thank you.
So we just are in the process of changing over our insurance company, because our company we've used for the last three years has decided to raise our cost 25%. And we take on the majority of the cost for the employees. But obviously, whether we take it all on or they have to take on some, it would have been prohibitive because of our claims data. So we're switching to another large carrier who can only see our prescriptions, not the claims data. And so we feel good.
You're stuck, right, that that's how they try to keep you, by not sharing the data first. And this is for anybody. My email is mark@costplusdrugs.com. And so email me what's going on and I'm happy to help you all we can, if we can.
Thank you. I appreciate it. Because now we'll be OK for this year. What's going to happen the next year?
And they'll do things like for a generic drug that we might sell for $11, 15 with shipping and handling, they'll charge you a $25 copay. It's ridiculous. And that's why we get a lot of Medicare business, Medicare Advantage business, from people who have those plans, corporate plans, because we're cheaper than the co-pay or the coinsurance. The coinsurance is a racket. Oh my God. And so yeah, those are some of the things we're working on. I'm happy to help anybody.
Yeah, and if it gets too confusing, Mark did a terrific interview on Relentless Health Value Podcast, which goes into a lot of detail on this. So much it made my head hurt.
Sorry.
[LAUGHTER]
I think we have time for one more question.
Hello. Yeah, thank you, Mark and John. I actually drove from Houston at 3:00 AM because I couldn't miss an event with both of you on it. So this has been really insightful. My personal passion is in building what I call homes of the future. That's my dream. And the cornerstones of it is building homes so that they're energy independent with their own microgrid and wellness centered.
My question around the wellness aspect of it is, how much do you think, given that we spend a lot more time at home post COVID, how much do you think homes can play in keeping us well and giving us the preventative care that could minimize the amount of drugs and hospitals we can go to?
I mean, I have no idea. [INAUDIBLE]
Yeah, I'm not sure I have a great answer either. Sorry.
One more?
I think we need to--
We have five minutes.
Oh, five more minutes.
Five minutes. Cool.
Oh, OK. So we can take more questions.
So thank you guys. There's a ton of headlines, obviously, on where do you cut spending in health care right now, Medicaid being at the top of at least the list. I mean, there's site neutrality that's on the list. Why isn't PBM getting more push to drive some of that? I mean, Mark, you mentioned big numbers.
Because they spend as much--
It's kind of on the radar, but it seems to continue to slide under the radar versus access.
I will say this. I've talked to people in the administration and doing my best to educate them. And so there are people there that know that it's an issue and know that-- and I've told them what I just mentioned. If we were able to get brand drugs and price them to Medicare and some other for ACA, I mean, you're talking hundreds of billions of savings. And so they know it's an issue.
But then I just talked to somebody in the industry who met with people in the White House yesterday, and they're saying that we don't know if we're going to pursue the PBM side. So I don't know how it'll all play out. But there's certainly a lot of savings for the federal government. And to John's point, states. States are actually becoming a lot more aggressive in trying to tamp down PBMs and starting to see those savings from Kentucky to Ohio. I mean, saving 160 million a year, 200 million a year. So hopefully I'll do a good enough job educating those folks so they can win that battle. Because you're right, there's a lot of money to be saved there.
Yeah, look, the PBM is enormously complicated industry. And I think it's important to step back and figure out why are we here and what role do they provide? Because payers could go directly to the manufacturers if they want. PBMs do provide a service. One of the services they provide is they aggregate demand. So again, this is the battle of giants. The more lives you can manage, the cheaper prices you can get.
Second is it's a very technical nature about what drugs, first line, second line, third line, what are comparable drugs, where can you substitute, et cetera. And so they provide both the services. The issue with PBMs is rebates. One of the issues with PBMs is rebates. How did we get to this rebate situation?
Imagine you're a business going to contract with a PBM and you say, I want you to deliver the drugs for me for the next five years. That PBM doesn't know what costs the manufacturer is going to be charging over the next five years. You can't tell it how many of each drug you're going to buy. You don't know what new drugs are going to come onto the market over the next five years.
So what the original thing was decades ago was, hey, I'm the PBM. I will do your buying for you. Anything that I can get off list price, we're going to share some of those savings. I'm going to be incentivized to go try to get the lowest cost possible and to negotiate with them. And my payment is savings off this price. And the payers said, OK, it sounds great.
And then what happens next? PBMs realize, oh, if I'm getting 40% of the savings of the discount, what if I go to the manufacturer and say, I will give you more volume if you raise your list price and give me a bigger discount. And so the payers kind of figured that out and said, you're making too much money. We're cutting that to 30%. But it kept happening. 20%. And so one of the big problems with PBMs now is this whole notion that the way that they're compensated creates an incentive to have higher list prices and bigger rebates.
And the problem, as Mark was saying with the coinsurance models, the patient is the one that suffers, because they're paying more for it, because they're paying on the list price. Because nobody wants to make transparent what the actual cost is. That's nobody in the industry's incentive. And so the question is, where do we go from here?
And I think the payers have gotten more sophisticated over the years, have figured out the game, and have started going to a per prescription model. And that's kind of what's been proposed at the federal government. You don't want to handicap or kneecap the PBMs, because they do provide this function of aggregating lives and negotiating against--
What I would tell you, that's not even a function anymore, because they're owned, for the most part, by insurance companies, or they own the insurance companies. So it used to be you're exactly right. Now I've sat in industry scenarios and I'll ask the question, what's the one thing that's unique or advantaged about working with any of the bigger PBMs? Is there one thing? Nobody's ever raised their hand. There's no software. There's nothing that they do that really creates a better scenario. Because the insurance companies already aggregate those lives. And the manufacturers, it's only because of the process, the way it is.
And so I think the real approach and what I'm hoping we can get the feds to do is disintermediate the PBMs and the insurance companies. Because part of what the PBMs do is negotiate and aggregate lives. The second thing they do is they process claims as they go through the pharmacy. You bring your prescription. They say, what health care plan are you on? And it goes through that whole process. Then they underpay the pharmacy for brand names.
Well, there are companies called claims processors, TPAs, that do that stuff. And if you disintermediate and separate all these things, then there's the formulary. Well, if you're CMS, you're setting the formulary for the most part anyways. And if you're a big company, you should be able to set the formulary. And I'll give you a perfect reason why.
Now there's these things called biosimilars that are coming out. And there's a drug Humira that was $8,000 a month, and now there's biosimilars that came out that, to John's point, the PBMs are using a high list price biosimilar that's $8,000. And then they have a second of the same drug with a different list price. And so we came out and did a deal with the company for a biosimilar called Yusimry. Not $8,000 a month, not 3,000, not 2,000, $594 a month.
And we went to some companies and we said, ours is cheaper. And they said, there's no way, because we're a big company. We are cheaper. And so we said, why don't you just add Cost Plus Drugs to your network and add Yusimry to your formulary? Every single company that we went to, their PBM slash insurance company said they would raise all their prices for everything else if they just added Cost Plus Drugs to the network. That's the way the system works right now.
And so I'm pushing transparency. A lot of the things that John's mentioned right on. But to disintermediate each one of those processes, whether you're a state, whether you're a CMS, whether you're a company. What I'm doing for my companies, work with somebody who does each of those things and realize that all this information now is so public as it comes to each drug. You don't need help with your formulary.
You need help determining what you'll pay for necessarily. Are you going to pay for GLP-1s or not? But which drugs are pretty straightforward these days. And so there are ways to deal with it. But PBMs, the biggest PBMs, are not your friend. The biggest insurance companies are not your friend. They're not the solution. They're the problem.
Let me have one minute and we can wrap up, because I think this is a really important issue. And the PBMs, it's the most complicated part of the health care industry. They used to be part of the insurers. The insurers spun them out and said we'll make them third party so that they can have other payers. They can get other business that's not just ours. And so you saw the rise of these huge PBMs. But this contracting issue between the PBM and the insurer is very difficult, because how do you incentivize the PBM to do everything it can to get the lowest prices? And that's where the rebates came in. But the rebates create this horrible incentive.
So they brought him back in because the contracting between the PBM and the insurance company was so complicated, so difficult to do in a manner that created the right incentives for everybody. Now they're back in and Mark's made the right point. OK, that creates other problems. And as proposals have been made to go 0 rebates that these contracts have to be just on a per prescription, then the risk is the PBMs aren't going to invest as much money on getting the lowest rate. And if I'm only-- how do I know at the end of the five years whether my PBM did a good job or not?
You go to Cost Plugs Drugs and you look at the price. Yeah, because it's got even worse now. It's got even worse now. Now they have these subsidiaries called rebate GPOs, multiple of which are based offshore. And what they do, because they're doing contracts now, the PBMs are doing contracts through their guys, to all these corporations that say we're going to pass through 100% of our rebates. We're doing such a good job of aggregating rebates, and we're going to pass them through, because you're our guy.
But what they don't tell you, they have these GPO rebate aggregators that are actually the companies that contract with the manufacturers. And they may get an 80% rebate and they'll keep 5% for negotiation purposes and then pass through 75% to the PBM, who then has the ability to go to the payer, in this case, companies more often than not, and say, we're giving you 100% of the rebates that we get. They are bad guys. The biggest ones.
Now, there's like 24, 25 pass through PBMs. All these things that I said were bad about PBMs, they don't do. And one by one by one, they're adding Tyson Foods, 7-Eleven here in Dallas. Did a deal with them. One by one. Now they're up to about 22 million lives. If we can get them up to 60 million lives, then that's the tilting point. And so if you get the opportunity to work with a pass through PBM who will disaggregate all these things and disintermediate all these things, take that path. If you get to set as part of your new health care plan and pick the PBM, that's what you want to do.
Wow.
Good stuff.
[APPLAUSE]
So I'm Amanda Brock. Very irrelevant here, but chair of this year's Texas Business Hall of Fame. And thank you to everyone being here. We were extremely worried about this. We were very worried about the topic. We were very worried about our speakers, that they would actually come out of their shells and share their wisdom with us.
At this point, we understand why they are legends and have been so successful in their own businesses, and we are grateful to them for taking on what appears to be an incredibly complicated topic. But to see their passion and to see them giving back, this is what makes Texas so grand. To have people like our legends who every day make the state a better place, but also, in this case, dealing with health care. And I never knew, John, that it was 18% of GDP.
We're all going home a little more educated, a little more depressed, and feeling inspired is something I meant to say. Yes, we're inspired. Inspired by continuing to encourage the two of you to do what you are doing. So first of all, a huge thank you to JPMorgan Chase, our sponsor, and to the marvelous Elaine, for doing these series that we are doing across the state and for their support. To you, Vivian, and to the Baker Institute for moderating, and getting a word in occasionally to drive the conversation. You've been a great partner for this event.
John and Mark, just don't know what to say. Thank you for sharing your insights, your vision, your opinions. I'm all about going back to my head of benefits and saying, our brokers are bad guys.
[LAUGHTER]
And then being asked why, and that's where I'm going to falter and I'm going to be able to say, because Mark Cuban said they are bad guys.
Bad guys.
To all of you here, our guests, scholars, legends who've joined us, to everybody who wants to make a difference, thank you for being here. Thank you for your time, your attention, and your passion, because that's what makes our mission here at the Texas Business Hall of Fame work.
And then before we close, I'm thrilled to let you know that next week, the Texas Business Hall of Fame will be announcing the class of 2025 Hall of Fame inductees. These year's honorees are, as prior years, an exceptional group of visionary, inspiring, game changing Texans who absolutely instill in us pride, but also want us to make ourselves better. So we can't wait to celebrate their achievements and who they are next week. So stay tuned.
Thank you again. Thank you to our speakers today. It has been a fabulous event. Be safe and have a great rest of your day.
[APPLAUSE]
(DESCRIPTION)
Text: Texas Business Hall of Fame 2025, Sponsored by JP MorganChase Dallas. From left to right, three people, Dr. Vivian Ho, Mark Cuban, and John Arnold, sit in chairs on a stage with small side tables next to them before a large audience in a hall with intricate woodwork. Elaine Agather stands at a lectern.
(SPEECH)
Good morning. My name is Elaine Agather. And on behalf of JPMorgan Chase, I am delighted to be here and help sponsor. This is the second Texas Business Hall of Fame's Creators 2025 series. Different from the dinner. As a former Texas Business Hall of Fame Chairman, I'm especially excited to be here. I think entrepreneur-- I think the whole idea of helping business through entrepreneurship and creating.
So I have a quick funny story, because Mark Cuban and John Arnold are here. And I called up Mark, as bankers do, trying to invite him to things. And I was very proud that I was part of the Fort Worth Rodeo, and I knew he'd want to go. And I called him up. I said, Mark, how about going to the rodeo with me? He said, I hate rodeo.
[LAUGHTER]
So I waited a few months. We have--
Oh, I know where you're going. Oh.
We have great tickets to the tennis tournament in New York. And I said, how about the US Open? And he said, I hate golf.
[LAUGHTER]
Oh my goodness. My wife loves tennis, loves tennis.
And then I kind of was doubting myself. And I said, well, I think it's tennis. He said, I hate tennis.
[LAUGHTER]
I called his wife. She likes tennis.
Next you're going to say, how about going to Luka game, right?
But what I realized, I finally asked him at another point and I said, what are you passionate about besides basketball? We know that. We're not talking about that. He said health care. And as a bank, we understand this. We tried to start a health care company, and it was too hard. The topic today, I think, is one of the most interesting, challenging topics we have in our country. And so I'm thrilled everybody's here today to discuss this.
Now I want to introduce our moderator, Dr. Vivian Ho. She's a James A. Baker III Institute Chair in Health Economics at Rice University and is also a professor at Baylor College of Medicine. Her research on economic incentives and regulations in health care has been widely published and funded by leading institutions, including the NIH, the American Cancer Society, and Arnold Ventures. In 2020, Dr. Ho was elected to the National Academy of Medicine, a testament to her significant contributions to the field.
She is a founding board member of the American Society for Health Economists, and serves on the community advisory board at Blue Cross Blue Shield of Texas. Dr. Ho earned her AB in economics from Harvard University, a graduate diploma in economics from the Australian National University, and a PhD in economics from Stanford University. Surely you can help us figure it out. Thank you very much. Please enjoy our program.
[APPLAUSE]
(DESCRIPTION)
Elaine steps down, and an assistant moves the lectern back. Two large banners sit on the stage behind Vivian, Mark and John with pictures of silver stars and text: Texas Business Hall of Fame, Enterprise, Community, Excellence. texasbusiness.org. Between large marble pillars, a panel with carved woodwork is behind the panelists, showing two women in Ancient Greek-style dresses holding up a wreath together, with one of the women holding a flag pole of the United States flag, which billows behind her, a sword standing next to her, while the other woman holds a cornucopia in her other hand.
(SPEECH)
Well, thank you for that warm introduction, Elaine, for getting us started. So today we are fortunate to have two distinguished leaders talking to us, John Arnold and Mark Cuban. And you've known these individuals have had a tremendous impact on multiple different industries in the United States, but today we're here to focus on health care.
So with that, John Arnold and his wife Laura founded Arnold Ventures. And their work, they focus on identifying evidence based policy solutions to address everything having to do with affordability of health care, access, and transparency. And their philanthropy is driving an impact on all sorts of things, including drug pricing, Medicare policy, and the general health care landscape.
Mark Cuban, through his company that you've heard of, Cost Plus Drugs, is disrupting the pharmaceutical industry with a radically transparent approach to pricing drugs. And that work is making lifesaving drugs available to many millions of Americans who previously have been having trouble affording these medications or even getting access to them.
So these two individuals, they're not just business leaders, and that's how we know them, but they're also problem solvers, and they are focused on making health care better for all Americans. So with that, I'm looking forward to a terrific discussion with both of you. So if we can welcome them both.
[APPLAUSE]
So John, I'd like to start with you. How is it that oil and gas and then you get interested in health care policy?
Yeah. So my first 17 years of career was in oil and gas industry. And at that time, I started getting interested in philanthropy, started in K-12, moved into some criminal justice work, some public finance work. And we stepped back and said, OK, what are we doing here? What ties these together? And it was really this notion of public policy. And said, we're interested in the rules and incentives of systems and the big systems where the government's interacting with people.
And if that's what our focus is going to be, well, here's this huge thing called health care, which is just an obvious thing for us to get into. It's the largest industry in the United States, 18% of GDP, and it has almost every market failure you could imagine. And it's highly regulated. The government pays about 50% of total health care through Medicare and Medicaid. Government employees, as well as tax advantages on employer health care. And most people who are showing up in the discussions on health care policy were those who had a financial interest in the system.
And so we thought as kind of an independent third party, a philanthropic entity, can we help translate the research to policymakers, do so in an independent fashion with no financial incentive in the system and also try to combat some of the special interests who want more and more and more? And so our approach is there's a lot of people who are trying to get more money, more of everything in the health care system, and there's value in that and more access, more innovation. Those all have value. But there's not enough people looking at the cost of health care.
And the cost is just driving everything. Again, 18% of GDP going up to 20%. The federal government is essentially a military, a retirement organization, and a health insurer. And the health insurance is the one that's the biggest unknown and escalating the quickest. So that drives federal debt and deficit for states who are paying a lot of Medicaid, as well as their state employees. It is a trade off. They have to balance their budget. And so do we put a dollar into health care, or do we put a dollar into K-12 or into transportation or into housing, whatever? And at the individual level, that's obvious. It's literally a matter of life and death.
And then for employers, it acts as a huge tax. And so it's hidden because the employers are paying for it. People are like, it's kind of free, don't really understand how this is reducing wages, how this is reducing economic activity, reducing employment, but it is.
Yeah. So Mark, I know you're also tremendously interested in policy, but in a way, could you give us your story about how you got interested in, it seems to be, through your own employees as well, if you could include that in your--
Sure. Well, probably 2017, folks here in Texas were coming to me and saying, that was right around the time Trump one was looking at overturning the ACA. And they were like, look, they want to overturn it, but they have nothing to replace it. You like to look at things like this. Can you take a look? So I just started digging in, and it turned out that I found it interesting.
And not much later, I got a cold email from Dr. Alex Oshmyansky. And he wanted to create a compounding pharmacy in Denver, Colorado to make generic injectable drugs that were in short supply. Believe it or not, there are literally pediatric cancer drugs that save kids' lives that go on short supply, which made no sense to me at all. So I was interested.
And it was right around the time that as I was digging in that the pharma bro, Martin Shkreli, was going to jail. And so that was out front of a lot of people. I was like, how can he take this drug, this generic drug, Daraprim, and basically reprice it at 750% of where it was selling or something along that line?
And as I started digging in, it was like, OK, it's obvious that this is an inefficient market by definition. But it was even more interesting to me that there was 0 transparency. When you look at it, for those of us who have gotten prescriptions, the doctor says, OK, you need this medication. And the next question always is what pharmacy do you use? That's it. And no consideration for cost, no consideration for affordability to you.
And so I started digging in and talking to Alex was like, great, making sterile injectables is great. And we do that now. But let's create this company called costplusdrugs.com. We called it that because we got the URL, the domain name. But we're going to do it a little bit differently. When you go to costplusdrogs.com and you put in the name of the medication-- and we don't have them all. We carry about 2,500. We'll show you.
It comes up, and we'll show you our actual cost. So whatever the medication is, we show you specifically what we pay for it, and then we show you our markup, which is 15% always. If our cost goes down, your cost goes down. But the 15% is there. And if you buy it via mail order, then it's $5 for a pharmacist to review and $5 for shipping and handling, where now you can pick it up from a local pharmacy through an affiliated network.
And that was it. And so I started going out there and talking about it. And as it turns out, again, with the goal by these companies called pharmacy benefit managers to obfuscate and make this industry as opaque as possible, that was groundbreaking. There was never a place where you could just go and look and see the cost that somebody offers it. And for a wide range of drugs, including these things they call specialty drugs, for most of them, there's nothing special about them. It's just a pill. Whether it's a cancer drug or whatever.
And as it turns out, a drug like imatinib, which is for cancer, if you just walked into a big captive pharmacy like CVS and just ask, today with a prescription for it, they might charge you anywhere from $200 to $2,000. If you go to costplusdrugs.com, depending on the strength, it will be $25, $26. And then that led to people emailing me, friends and businesses.
I've got a friend that emailed me and said, look, Mark, I lost my insurance and I need to go on this drug called [? dropadosa. ?] I had no idea what it was. I was like, OK, let me see if we can get it. He was having to pay $10,000 every quarter, every three months. Our price was $63 a month.
And so when you start seeing these things, then all of a sudden we published our price list, which led to researchers and even a lot of the work that John is doing for on the policy side, looking at our prices and saying, wait, something's wrong here. For these nine oncology drugs, Medicare could have saved $1.2 billion. For these 11 urology drugs, they could have saved $800 million a year. And then the list just keeps on growing.
And so what it led me to realize is that health care is a really simple business. I mean, it is one of the easiest businesses ever. On the pharmacy side, you go to the doctor. And if you need a prescription, the doctor tells you what you need. And there's only two questions. How much are they going to charge you and how do you pay for it? If you go to the doctor on the health care side, if you need some sort of care at a hospital or at the clinic or whatever, there's only two questions. How much are they going to charge you and how do you pay for it?
And so as an entrepreneur, I was like, OK, this is really interesting because I don't need to go ask for a special this, this, or this. I just have to be transparent and we can change an industry by simplifying it. And so that's how we got where we are today, having helped millions of people. And I get emails weekly, if not daily, from someone--
Literally I got one last week where it was like, I decided that I wasn't going to take my medication because I couldn't afford it, and I didn't want to burden my wife. And so I knew I was going to die sooner and maybe soon. But then someone told me about Cost Plus Drugs. I looked it up and it's $93 a month and now we're good. So thank you. And I mean, if that's not motivation, I don't know what is. But that's what has pushed us forward and pushes us forward is to keep on growing and extending what we offer.
Yeah. So with the sector being so large, it's fascinating that you two took different approaches and still have had, and you're having, tremendous impacts on affordability and accessibility. So I'm going to ask, John, I'm going to ask you if you want to talk about one or two policy solutions that you think are going to be-- would be the most impactful that you're working on now. And then, Mark I'd like to ask you from the perspective, what do you think CEOs one or two actions they should take. So John, go ahead.
Yeah, so I think we start with the notion that the US health care system, if you were starting from scratch, would never be designed this way. Mark was saying it's a simple business at its heart, and we've made it super complicated. Now, we actually don't think that it's going to be transformatively reformed. There's a lot of books written about it. The biggest health care reform in recent decades was the ACA, and its main attribute was increasing the number of people eligible for Medicaid. It took an existing system, turned the dial.
And so we think very much about the incremental reforms in the system. And there's a great health care economist, Uwe Reinhardt, called this, he kind of had the same realization, and called this the 1% problems. There's a lot of 1% on the health care system.
And so even when you're talking about drugs, you can think about it on three axes. One is branded versus generic. One is competitive versus non-competitive. And you can have non-competitive generic drugs. Mark was talking about that earlier. And then the payers. And so Medicare Part B, Medicare Part D, Medicaid, the VA, cash payers, private insurance, et cetera. And each one of those boxes is its own issue. And so the way that VA pays for competitive branded drugs is very, very different from what you do with uncompetitive generic drugs.
And so within that, there's no silver bullet to the US health care system. But how do you improve each of those buckets, if you will. So you asked about one or two. I'll talk about some of the big ones that we're working on now. So one is called site neutral payments. So Medicare decided that hospitals have higher cost structures than doctors offices in the community. And so they set higher reimbursement rates for this same procedure in the hospital than at the doctor's office. The hospital has to be open 24/7. It has to be able to treat anything at any time. And doctor's office gets to be 9:00 to 5:00 and choose a specialty.
So the hospitals kind figured out, hey, if we buy those community doctors' offices, put them under our billing code, we can bill at the higher rate. We can bill at our rate, and Medicare won't know the difference. And technically, they're not doing anything wrong. And we're going to use our billing ID number such that the private insurance companies can't figure out where this is coming, and they're going to pay the higher rate too. And so you've seen this massive consolidation that's happened as hospital systems are buying more and more of these community clinics and billing the same service at a much higher rate, even if it's in the same building.
So there was this great story. The former head of the Texas Medical Association wrote an op ed in the Dallas Morning News telling his story. He's a cardiologist, and he's in the same building as one of the hospital clinics. And for an echocardiogram, he was getting about $130 for that echocardiogram. The exact same service, two floors down, because it was owned by the hospital system, was getting $525 reimbursements.
And so this obviously wasn't the intent of the system. It's a loophole. It needs to be closed. Depending on how you craft it, it can save up to $150 billion over 10 years. And there's a great need for savings in the federal government right now. So there's a lot of interest in site neutral, bipartisan.
I'd say a second issue is this issue of consolidation that's happened, kind of related to the first. You may have heard of this group, US Anesthesia Partners. It is very much in Dallas. It's Welsh Carson private equity firm decided they're going to come in, buy an anesthesia practice in Dallas, and then start consolidating the market. And through that, get enough market share that they can start raising prices. And this got so bad that the FTC filed a claim against them for anti-competitive behavior.
There was a research study that came out this week, actually, looking at what happens whenever financial sponsors like private equity come in and buy a practice. And what it showed was the first time they come in and they buy one practice on the market, prices don't change. For the next two years, prices are stable. They're not doing anything that can lower costs. They're not raising costs, because they don't have enough market power.
But then each successive consolidation, each successive practice that they buy, you start seeing prices go up. And as they consolidate, they raise prices 25% to 30% after two years. And so again, same service. And you're just getting higher prices because you have a financial sponsor that's figured out how they can game the system and get higher profits.
And so there's a question. What do you do on this? I think there has to be much stricter review of consolidation within these individual markets. You might know that the FTC requires any merger more than 120 or so million dollars to be pre-filed with the FTC. You have to notify the FTC. The FTC gets to say, hey, we're going to look at this or not. But any merger below that, you don't have to notify the government. And so a lot of these local mergers that are happening in places like Dallas are below that figure. And so a lot of this consolidation is happening without regulators even knowing it's happening. And so regulators at the state level need to be much better about trying to figure out and prevent those mergers.
And then second is we need price caps. We have this market that is just consolidation of giants. You have a handful of insurers, a handful of hospital systems at most, if you're in a big city, a handful of PBMs. Doctor's practices are now very concentrated. Everybody is these giants. And many times, one of them has market power. And so there has to be price caps in this market, because there is benefits to scale. There are efficiencies to be gained. But if that benefit solely goes to the owner of it through higher prices, that's a huge problem.
And so just to extend from what John was talking about, the government, the big payers, so when there's consolidation and the prices go up, someone's writing the check. The question becomes who. And John mentioned earlier, the government is the big payer. Consumers who buy their plans on the ACA are big payers. But for 100 plus million lives, it's CEOs who are making the decisions for their self-insured companies. Does anybody here run a self-insured company by chance? No? OK, boomer. I was going to yell at you.
[LAUGHTER]
Because the reality is, it's the CEOs making decisions about the lives, employees and their families, that they cover that are enabling these things. And look, I get it. For my companies, the Mavs still, to a certain extent, other companies, I had the arena, I used to use my guy who was a broker slash consultant. My guy would come in every year when we were looking at our new plans and say, look, everybody else, their price is going up 7%. But I'm taking care of you. You're only going up 4%
Then when we started Cost Plus Drugs and I started understanding the industry more and I looked at the details of what my guy was offering me, just as an example, I just took generic drugs that the Mavs used over an 18 month period, and we were charged $169,000. The price on Cost Plus was $19,000. Needless to say, he's not my guy anymore. Haven't seen him since.
But as a CEO and as an investor, it wasn't my core competency to understand my health care benefits. And that's the challenge for CEOs right now. They really don't understand. And the PBMs, and more importantly, the insurance companies, the big insurance companies, know that they're dealing with customers who are undereducated. The head of benefits might understand how things are going, but the head of benefits or HR reports to the CFO who reports to the CEO, who in their mind has got usually bigger things to deal with.
And so what I've been out there doing quite a bit of is trying to help CEOs understand that, for the reasons John mentioned and 100 others, they're getting ripped off. And you, as someone who's covered by an employer's insurance plan, particularly if you work with a company that has 500 or more employees, you're getting ripped off. And that rip off in this, that crime, if you will, extends into so many different areas.
I'll give you a simple example that what my guy had me sign was helping to put small pharmacies out of business. Because you may have noticed, smaller pharmacies are disappearing left and right, and we're getting more and more health care deserts. And the bigger chains are taking over a lot of respects. So if any of you have a prescription right now for a branded medication and you go to an independent pharmacy, not CVS, and even Walgreens to a certain extent, and hand them your prescription, they give you the prescription, you pay your co-pay. Which, by the way, is probably too high. You should check Cost Plus Drugs. We're probably cheaper than your co-pay, but I digress.
Guess what? That pharmacist doesn't get fully reimbursed for their cost for that brand medication. They get underreimbursed. And the big insurance companies and their PBMs basically say, screw them, I don't care. Let them make it up in Coke and toilet paper. Not my problem.
And so as a result, and again, I'll sit in CEOs offices and they'll have no idea. I sat in front of a big CEO and said you have thousands of branches. I'm not going to mention any names. And said, because of this deal you signed, there are, especially where you have branches in smaller communities, those pharmacies are going out of business because of the deal, the big CEO sign. And they had no idea. And so there are so many downstream impacts.
I'll give you another example. Now, Elaine's boss didn't make this mistake, which is good, so they get a check. But unless you're the biggest of the big right now, you don't own your own claims data. And so if you're trying to make a decision for your company on whether to support GLP-1s, not only can you not just ask for all your claims, well, you can ask for them, but they're not going to just give them to you. When we were transitioning to Cost Plus, I asked my guy if we can get our claims data so we can do these price comparisons. I had to wait six months and pay thousands of dollars to get our data. And that's what's happening.
So when companies that you work for or you work with or you support are trying to make decisions, look, GLP-1s are miracle drugs. Should we support them for the lives we cover, our employees and their families? You would think you want to look at the claims data to see what illnesses we already have. What's the wellness status of our employees? You're going to have to fight to get that data. That's part one.
Part two, you're not going to know the cost associated with the drugs for those claims. Put aside the patient information. But here's the other thing. All the contracts all across health care that John's talking about with insurance companies and PBMs, they're just like Fight Club. The number one rule of a health care contract is you can't talk about the health care contract. It's against the contract. There's confidentiality aspects to it. And they will sue you and they will kick you off their plans if you violate that contract. But that also means you can't talk to the manufacturers of GLP-1s or other medications.
So I'll go talk to Lily and Novo and the like. The crazy part is, not only can you not talk to them, and not only is it very difficult, if not impossible, for you to get your claims so you could say to them, can we work together to put together a wellness program? You can't do it. The crazier part of it, they don't even have claims data. Think about that.
So when you hear these stories, like I work with an audiologist, and they were telling me that they've had more and more people coming in to their practice that take GLP-1s and were having hearing issues. And I said, let me connect you with somebody at Lily and someone at Novo. And I talked to both of those companies. They don't know this. They have no data available for them to know this.
And I say all this because I'm not as big on the price caps and all that, but I like that John is going for it, simply because I think there's so much control in the hands of CEOs that they're just not using. If you make the decisions yourselves or go to your bosses or go to whoever, your portfolio companies and say, if you're doing business with the biggest six PBMs, you're getting ripped off. I will guarantee it. Just tell them you want to do an audit and they'll laugh at you. Tell them you want your own claims data and they'll laugh at you. That's why we're in such a mess from a health care perspective.
And in terms of policy, the thing I've tried to push when I've talked to folks is transparency, not just in pricing, because we see pricing on hospital procedures and the like, but hospital procedures are never as simple as they look on a piece of paper. There's all these different things. If you're in the hospital for three days inpatient and you don't have surgery, then you're multiplier on the fourth day is this. So I've pushed for actual contracts to be published, and that's part of what we're doing at Cost Plus.
On the health care side, we've created Cost Plus Wellness, which we're calling an open source health care company, where I'm negotiating direct contracts and we're going to publish them all. And so I say all this. Talk to your employers. Talk to anybody you know that makes health care decisions, and tell them to get their act together.
So I've got huge respect for Mark, because he saw these problems and decided to get in, focus on it, and try to disrupt the current players. Playing within the system is almost impossible. And we heard earlier about-- let me ask, how many people have heard of Haven Health?
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Mark and Vivian raise their hands.
(SPEECH)
[LAUGHS]
A few. Haven Health is this great idea. JPMorgan, Berkshire Hathaway, Amazon got together and said, each of us alone, although we're huge companies, we don't think we alone have the skill to change the system. We're going to combine, become 1.2 million employees under those three. Started in 2018, recruited superstar CEO Atul Gawande, kind of famous in the health policy circles. And they said, one focus. How do we maintain quality and decrease costs?
Many of you don't know about Haven Health because in 2021, they shut it down. They could not figure out how to do this. 1.2 million people is a lot of people. And if you're working in a company, you're paying the highest rates to the providers. And 1.2 million people is still small. Now, Mark is amazing, because everybody in this town is scared to say no to him.
I wish. Not the Lakers.
And so he's like--
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Mark and Vivian laugh.
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[LAUGHTER]
But it is an enormously challenging problem for the market to solve, for the payers to solve on their own. And that's why I think there's this recognition that there has to be tools, regulatory tools, government tools like price caps that as a capitalist, which I am, you're kind of like, price caps. I don't like that. Government regulation. I don't like that.
Government is already so involved in this industry. There are so many problems with it that I think you have to do it. And so you're seeing places like Oregon that set a price cap of 200% of Medicare for their state employees. Colorado is thinking about this now. Oregon, of course, is a blue state. Colorado kind of purplish blue state. North Carolina is considering it right now. A purple state. South Carolina is doing it. Red state. You're seeing it across the political spectrum. Everybody is saying, this market is so busted, we have to do things.
I just call that reference pricing. I just don't call them price caps. Because, I mean, prices have been set with Medicare.
Medicare's already set them. Yeah.
Right. And so for all the different codes that you've heard about or seen on bills or whatever, the prices are there. It's just a question-- now there's two issues. How much are you going to pay? What do you negotiate? And what's the reality of what hospitals can afford? And what do they make money on?
I was telling John earlier, I tried to do a survey where I hired this firm to go out to the CFOs of bigger hospital networks and only ask them how they did their cost accounting. Nobody would respond. I talk to groups all the time of hospital CFOs. I just met with 20 of them last week in Phoenix. And I started asking them, do they know their actual costs?
And they say they know their consumables cost and they know the attributable cost of the health care professionals associated with it. But they still got to take that piano in the lobby and the incense that they burn on every floor and attribute all the incremental stuff and all the buildings that they're adding. All that adds up to the fundamental cost. And to them, that means they can't afford Medicare. Well, Medicare pricing,
I'm like, no, you got to take the responsibility. Take it from the CEO's pay for that piano. Because once we can get to the point where we understand the costing. So while I agree with John that we can do reference pricing and even states are capping it, to me, the more important thing from a legislative perspective would be trying, I don't think we could do it, to get actual costs. If you show us a general ledger with all the line items and all the posts to the general ledger, the whole world will know whether or not you can afford to take patients at Medicare or even Medicaid or less.
Because one of the things I did do was I paid for a study. Now, it's a little bit outdated, but in 2020. And I worked on a basic premise. I said, Toronto, Canada. Real estate is more expensive than Manhattan. More expensive real estate. Cost of doctors, even accommodating currency changes, about the same. A little bit more expensive in Canada. Nurses a little bit more expensive. Consumables definitely more expensive. Things like hip replacements, more expensive. Everything is more expensive. Why is it in their system that they can charge less than Medicare rates?
Now, there's some reasons. One of the reasons is they pay for malpractice insurance. And the other reason is they limit the scope of a lot of the things they get. You don't see every hospital in Toronto or anywhere in Canada adding a new oncology center, adding a new mental health center. They limit that because buildings eat. You've got to keep on paying for them.
But if you're able to limit scope as opposed to just buying things up and trying to site neutralize the payments, you can get to the point where we can do all these things for a lot less money. But the only way to know that path is through transparency, not just on the pricing. Because I think right now, there's a big push for consumerism in health care. Consumerism doesn't work in health care because you care more about the quality of your doctor. Or if it's an emergency, you just want to get something done.
You're not here to say, hey, ChatGPT, let me compare my output from Anthropic to ChatGPT to Gemini to see where the best doctor-- no, it's not going to work. Think of what I just said about CEOs and their health care benefits. They don't even put in the time. So it's hard to think that people are going to be good consumers like they're shopping for eggs. And so that was meant to be a joke. Sorry.
But you get the point. Until we know the cost to truly understand how we're going to change the health care side of the health care system, you have to know the cost. And we learned it from Cost Plus Drugs that once we published our costs, the other tangential benefit is trust. Because if you see our costs and you see our markup is 15%, OK, I'll trust these people aren't trying to take me to the cleaners. Like the example that John gave just multiple floors apart for the heart doctor.
So that's where we're also trying to go. Let's just get as much published as we possibly can on the cost side and the price side and the actual contract details, because then people and companies can start making more informed decisions, as can consumers.
We're ready for the second question.
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Mark points to Vivian, and they both laugh.
(SPEECH)
[LAUGHTER]
We will go on for days. No.
This has been so illuminating, and I could go on forever and ever.
So could we. Yeah.
Which is great. Makes my job easier. So just a follow up. So Arnold Ventures actually funds the National Academy for State Health Policy, which takes the Medicare cost reports and puts them in a format that you can tell their profit rates how much are they making money on Medicare, are they making money on Medicaid and on their commercial prices. Now, it's not as good as the accounting forms you're asking for.
Right, because the MCRs are just filed at the end of the year.
Yeah. But those forms are used by Medicare. So the hospitals are happy to have CMS use them to determine their Medicare reimbursement rates. So there's got to be some truth in them. And that date is actually a lot of employer purchases are using it to say, look, you're actually making a profit on Medicare and Medicaid patients. The consolidated systems, not the smaller types of systems.
I don't know if we should open it up for questions or do I have time to ask one? I'm just going to ask a really quick follow up question to both of you. So John, regarding the consolidation, I've done some research showing that over the last 10 years, the CEOs that enjoyed the greatest increase in compensation were the ones that increased their profits and expanded their bed size the most, which means we're incentivizing hospital executives to consolidate. Is that something nonprofit boards can address?
You want a quick answer?
[LAUGHTER]
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Vivian shrugs.
(SPEECH)
Look at the board of a typical nonprofit system. You get roughly 40 people that are donors slash very distinguished within their community who are trying to provide governance on one of the most complicated activities that we have. And there's just kind of a limit to what they can do. It looks very, very different from the governance of a for profit hospital system, which is a dozen people, most of which have some expertise in the industry.
The direct incentives as to what they're going for are different, but they end up at the same place. The for profit wants higher stock price. They get that through more earnings. The nonprofit system generally wants more prestige. How do they get that? They get it through growth, more research dollars, being ranked number one in the US News and World Report, et cetera, et cetera. How do they get that? Money.
And so if you sit in one of these board meetings for a nonprofit system, they talk about what's their profit margin. They talk about what's the growth. They talk about what the research that they're funding. And so you have nonprofit, for profit. They're both going for and both incentivized by how can we make more cash flow. And so that leads to this kind of bigger, bigger, bigger. And we talked about the land of giants that you have to be big in order to survive in this system. Otherwise, the other people are going to eat you for lunch.
And I think because of that, you end up with for profits, not for profits look very similar in their business practices. And if the non-for-profits, don't mimic the for profits, they will lose market share, they will lose money, they lose prestige, et cetera, and it starts to spiral down. And so there's very little distinction between them. There's a whole question about whether operating businesses like hospitals should even exist in a not profit system or a nonprofit entity. Should they not have to pay taxes? I think that's a big question. I try to live in political reality, so I don't think Congress is going to do that.
But a state like Indiana that has one of the highest hospital costs and has a system in Northeast Indiana not for profit that has taken very significant anti-competitive practices in that region. And Indiana is fed up, and they're looking at it. Again, red state. And there's a proposal now in the state legislature that says any nonprofit system, in order to maintain that designation, you have to price it 200% of Medicare or less. Reference pricing, we'll call it.
Reference pricing.
And so again, we're just seeing these battles, because states are giving up and they're saying we can't control it. We can't control the giants.
Yeah. Very interesting. OK, really quickly, Mark. You referred briefly to brokers, which I refer to as consultants. In other sectors of the economy, I think usually the consultants maybe provide good advice to the company. Is that system broken in health care?
It is so broken, it can't even see. Yeah. There's some brokers just that get paid $7 for every prescription that is filled by your company. That's insane. There are other brokers, I just got into an argument with one via email yesterday about-- not my guy. I haven't talked to him. About this same topic, because they were complaining that commissions were getting cut. And if commissions are cut, who's going to sell the right policy to the right people?
And it's almost a no win situation until CEOs, HR start better educating themselves so they can make those decisions. And really for bigger companies, not even bigger companies, 100, 200 employees. You should have a health care CEO. Because your second largest expense after payroll is your benefits. And instead of using your guy, you can probably afford, given all the back end commissions and everything, you can probably save money and get better wellness, fewer missed days, less cost, if you bring it all in-house and hire somebody to focus on it.
Yeah. Thank you. So we're going to open it up to questions now. So if you have a question, please raise your hand, because there's someone who will bring you a mic. And I ask that you limit your questions to addressing health care.
Is that for Mark or for me?
Yeah, both.
[LAUGHTER]
(DESCRIPTION)
An assistant walks with a mac and hands it to an audience member.
(SPEECH)
So I guess the question of the day. With the lack of transparency, is there anything that's on the horizon, let's talk AI, that can help provide data transparency?
I mean, AI is no good unless the data going into it is good. And so it's not really able to guess just by working on the outside. That said, you can use AI to start asking better questions. I mean, so I talk about having a health care CEO. ChatGPT can be your health care CEO if you're just getting started, or you're a smaller company.
And the more of your information that you feed into it, the better the decisions and the better the output it'll give to you. So yeah, AI is a game changer for sure. And I think even in how you consume benefits, it can make you smarter. And as a patient, obviously we've all used it or searched whatever, to oh, this hurts. What's going on? But yeah, it can't make us smarter.
I agree. I think it's going to help with clinical care and outcomes. One of the issues Mark was talking about earlier, just about transparency to clinical records and the value if you could aggregate all those records and what you could study and know. But one of the reasons that systems don't allow that is that they view that information as proprietary and that they can monetize this at some point.
And there's a competitive edge by having all that information. And so why would they share it with everybody else? And so I think that's one of the limitations and also kind of one of the market failures that the society would be better with this information, but everybody is trying to keep it wrapped up.
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Vivian points to her right.
(SPEECH)
There was a question over here.
Hi. When I was looking on your website, Mark, Cost Plus Drugs, is there a way for ordinary people to get involved?
In what way? I mean, you can buy all your prescriptions from us.
[LAUGHTER]
No, but if we wanted to help speed up your process, like, whatever your process is for getting new drugs on the site. If we want-- call for you or whatever.
Please, let me just tell you why we don't have every drug. We only have a few brand drugs. And I'll tell you exactly why. So the biggest brand manufacturers, we go to them and say, please sell it to us. And when I say sell to us, there's these things called rebates that are used to buy down the price. And they won't sell. They won't offer us rebates that they offer the biggest pharmacy benefit managers or the biggest outlets.
And the reason why they won't is the pharmacy benefit managers, to John's point earlier, control so many lives. 80% of the market, hundreds of millions of lives. And those lives are customers for the pharma manufacturers. And they are terrified that if they work with us, that they'll lose presence on formularies, which is the list of drugs that all these lives have access to.
So call them up. And call your representatives too and say, why is it that any manufacturer of brand drugs, pick any one, is not selling to Cost Plus Drugs? Because let me just tell you, a drug like Eliquis, I'll just give you an example. Eliquis is $600. They call it [INAUDIBLE]. It's the retail price. And if I just buy it from a distributor, just to make the numbers easy, let's just say there's a 10% discount. So now it's $540. No big deal. But our markup, 15%, takes us higher basically than the retail price.
If CVS, as an example, or other big pharmacies are doing it, they get rebates back through their controlled PBM. Those rebates on that drug are probably 80%. And so that's off of the list price. So now 20% of 600 is $120. And so that's their cost. They know that if I get it, let's just say not 120, let's just say 200, and I mark it up 15%, then I'm selling it for $230. And that just destroys their business and puts them out of business. That's why they're not selling it.
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Vivian nods, then points to her right. The audience looks over.
(SPEECH)
There was a question in the back.
This is really informative. And as someone who works in health care and thinks I know what's going on, not really. I'll be sending out an email to my employees today about Cost Plus Drugs. But my question for you is this.
Thank you.
So we just are in the process of changing over our insurance company, because our company we've used for the last three years has decided to raise our cost 25%. And we take on the majority of the cost for the employees. But obviously, whether we take it all on or they have to take on some, it would have been prohibitive because of our claims data. So we're switching to another large carrier who can only see our prescriptions, not the claims data. And so we feel good.
You're stuck, right, that that's how they try to keep you, by not sharing the data first. And this is for anybody. My email is mark@costplusdrugs.com. And so email me what's going on and I'm happy to help you all we can, if we can.
Thank you. I appreciate it. Because now we'll be OK for this year. What's going to happen the next year?
And they'll do things like for a generic drug that we might sell for $11, 15 with shipping and handling, they'll charge you a $25 copay. It's ridiculous. And that's why we get a lot of Medicare business, Medicare Advantage business, from people who have those plans, corporate plans, because we're cheaper than the co-pay or the coinsurance. The coinsurance is a racket. Oh my God. And so yeah, those are some of the things we're working on. I'm happy to help anybody.
Yeah, and if it gets too confusing, Mark did a terrific interview on Relentless Health Value Podcast, which goes into a lot of detail on this. So much it made my head hurt.
Sorry.
[LAUGHTER]
I think we have time for one more question.
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Vivian points to her left, and the audience looks over.
(SPEECH)
Hello. Yeah, thank you, Mark and John. I actually drove from Houston at 3:00 AM because I couldn't miss an event with both of you on it. So this has been really insightful. My personal passion is in building what I call homes of the future. That's my dream. And the cornerstones of it is building homes so that they're energy independent with their own microgrid and wellness centered.
My question around the wellness aspect of it is, how much do you think, given that we spend a lot more time at home post COVID, how much do you think homes can play in keeping us well and giving us the preventative care that could minimize the amount of drugs and hospitals we can go to?
I mean, I have no idea. [INAUDIBLE]
Yeah, I'm not sure I have a great answer either. Sorry.
One more?
(DESCRIPTION)
Vivian gestures to a woman in the audience, who stands up, then walks close to the lectern and stands.
(SPEECH)
I think we need to--
We have five minutes.
Oh, five more minutes.
Five minutes. Cool.
Oh, OK. So we can take more questions.
So thank you guys. There's a ton of headlines, obviously, on where do you cut spending in health care right now, Medicaid being at the top of at least the list. I mean, there's site neutrality that's on the list. Why isn't PBM getting more push to drive some of that? I mean, Mark, you mentioned big numbers.
Because they spend as much--
It's kind of on the radar, but it seems to continue to slide under the radar versus access.
I will say this. I've talked to people in the administration and doing my best to educate them. And so there are people there that know that it's an issue and know that-- and I've told them what I just mentioned. If we were able to get brand drugs and price them to Medicare and some other for ACA, I mean, you're talking hundreds of billions of savings. And so they know it's an issue.
But then I just talked to somebody in the industry who met with people in the White House yesterday, and they're saying that we don't know if we're going to pursue the PBM side. So I don't know how it'll all play out. But there's certainly a lot of savings for the federal government. And to John's point, states. States are actually becoming a lot more aggressive in trying to tamp down PBMs and starting to see those savings from Kentucky to Ohio. I mean, saving 160 million a year, 200 million a year. So hopefully I'll do a good enough job educating those folks so they can win that battle. Because you're right, there's a lot of money to be saved there.
Yeah, look, the PBM is enormously complicated industry. And I think it's important to step back and figure out why are we here and what role do they provide? Because payers could go directly to the manufacturers if they want. PBMs do provide a service. One of the services they provide is they aggregate demand. So again, this is the battle of giants. The more lives you can manage, the cheaper prices you can get.
Second is it's a very technical nature about what drugs, first line, second line, third line, what are comparable drugs, where can you substitute, et cetera. And so they provide both the services. The issue with PBMs is rebates. One of the issues with PBMs is rebates. How did we get to this rebate situation?
Imagine you're a business going to contract with a PBM and you say, I want you to deliver the drugs for me for the next five years. That PBM doesn't know what costs the manufacturer is going to be charging over the next five years. You can't tell it how many of each drug you're going to buy. You don't know what new drugs are going to come onto the market over the next five years.
So what the original thing was decades ago was, hey, I'm the PBM. I will do your buying for you. Anything that I can get off list price, we're going to share some of those savings. I'm going to be incentivized to go try to get the lowest cost possible and to negotiate with them. And my payment is savings off this price. And the payers said, OK, it sounds great.
And then what happens next? PBMs realize, oh, if I'm getting 40% of the savings of the discount, what if I go to the manufacturer and say, I will give you more volume if you raise your list price and give me a bigger discount. And so the payers kind of figured that out and said, you're making too much money. We're cutting that to 30%. But it kept happening. 20%. And so one of the big problems with PBMs now is this whole notion that the way that they're compensated creates an incentive to have higher list prices and bigger rebates.
And the problem, as Mark was saying with the coinsurance models, the patient is the one that suffers, because they're paying more for it, because they're paying on the list price. Because nobody wants to make transparent what the actual cost is. That's nobody in the industry's incentive. And so the question is, where do we go from here?
And I think the payers have gotten more sophisticated over the years, have figured out the game, and have started going to a per prescription model. And that's kind of what's been proposed at the federal government. You don't want to handicap or kneecap the PBMs, because they do provide this function of aggregating lives and negotiating against--
What I would tell you, that's not even a function anymore, because they're owned, for the most part, by insurance companies, or they own the insurance companies. So it used to be you're exactly right. Now I've sat in industry scenarios and I'll ask the question, what's the one thing that's unique or advantaged about working with any of the bigger PBMs? Is there one thing? Nobody's ever raised their hand. There's no software. There's nothing that they do that really creates a better scenario. Because the insurance companies already aggregate those lives. And the manufacturers, it's only because of the process, the way it is.
And so I think the real approach and what I'm hoping we can get the feds to do is disintermediate the PBMs and the insurance companies. Because part of what the PBMs do is negotiate and aggregate lives. The second thing they do is they process claims as they go through the pharmacy. You bring your prescription. They say, what health care plan are you on? And it goes through that whole process. Then they underpay the pharmacy for brand names.
Well, there are companies called claims processors, TPAs, that do that stuff. And if you disintermediate and separate all these things, then there's the formulary. Well, if you're CMS, you're setting the formulary for the most part anyways. And if you're a big company, you should be able to set the formulary. And I'll give you a perfect reason why.
Now there's these things called biosimilars that are coming out. And there's a drug Humira that was $8,000 a month, and now there's biosimilars that came out that, to John's point, the PBMs are using a high list price biosimilar that's $8,000. And then they have a second of the same drug with a different list price. And so we came out and did a deal with the company for a biosimilar called Yusimry. Not $8,000 a month, not 3,000, not 2,000, $594 a month.
And we went to some companies and we said, ours is cheaper. And they said, there's no way, because we're a big company. We are cheaper. And so we said, why don't you just add Cost Plus Drugs to your network and add Yusimry to your formulary? Every single company that we went to, their PBM slash insurance company said they would raise all their prices for everything else if they just added Cost Plus Drugs to the network. That's the way the system works right now.
And so I'm pushing transparency. A lot of the things that John's mentioned right on. But to disintermediate each one of those processes, whether you're a state, whether you're a CMS, whether you're a company. What I'm doing for my companies, work with somebody who does each of those things and realize that all this information now is so public as it comes to each drug. You don't need help with your formulary.
You need help determining what you'll pay for necessarily. Are you going to pay for GLP-1s or not? But which drugs are pretty straightforward these days. And so there are ways to deal with it. But PBMs, the biggest PBMs, are not your friend. The biggest insurance companies are not your friend. They're not the solution. They're the problem.
Let me have one minute and we can wrap up, because I think this is a really important issue. And the PBMs, it's the most complicated part of the health care industry. They used to be part of the insurers. The insurers spun them out and said we'll make them third party so that they can have other payers. They can get other business that's not just ours. And so you saw the rise of these huge PBMs. But this contracting issue between the PBM and the insurer is very difficult, because how do you incentivize the PBM to do everything it can to get the lowest prices? And that's where the rebates came in. But the rebates create this horrible incentive.
So they brought him back in because the contracting between the PBM and the insurance company was so complicated, so difficult to do in a manner that created the right incentives for everybody. Now they're back in and Mark's made the right point. OK, that creates other problems. And as proposals have been made to go 0 rebates that these contracts have to be just on a per prescription, then the risk is the PBMs aren't going to invest as much money on getting the lowest rate. And if I'm only-- how do I know at the end of the five years whether my PBM did a good job or not?
You go to Cost Plugs Drugs and you look at the price. Yeah, because it's got even worse now. It's got even worse now. Now they have these subsidiaries called rebate GPOs, multiple of which are based offshore. And what they do, because they're doing contracts now, the PBMs are doing contracts through their guys, to all these corporations that say we're going to pass through 100% of our rebates. We're doing such a good job of aggregating rebates, and we're going to pass them through, because you're our guy.
But what they don't tell you, they have these GPO rebate aggregators that are actually the companies that contract with the manufacturers. And they may get an 80% rebate and they'll keep 5% for negotiation purposes and then pass through 75% to the PBM, who then has the ability to go to the payer, in this case, companies more often than not, and say, we're giving you 100% of the rebates that we get. They are bad guys. The biggest ones.
Now, there's like 24, 25 pass through PBMs. All these things that I said were bad about PBMs, they don't do. And one by one by one, they're adding Tyson Foods, 7-Eleven here in Dallas. Did a deal with them. One by one. Now they're up to about 22 million lives. If we can get them up to 60 million lives, then that's the tilting point. And so if you get the opportunity to work with a pass through PBM who will disaggregate all these things and disintermediate all these things, take that path. If you get to set as part of your new health care plan and pick the PBM, that's what you want to do.
(DESCRIPTION)
The woman who stood up before stands at the lectern and speaks.
(SPEECH)
Wow.
(DESCRIPTION)
Mark and John fistbump.
(SPEECH)
Good stuff.
[APPLAUSE]
So I'm Amanda Brock. Very irrelevant here, but chair of this year's Texas Business Hall of Fame. And thank you to everyone being here. We were extremely worried about this. We were very worried about the topic. We were very worried about our speakers, that they would actually come out of their shells and share their wisdom with us.
At this point, we understand why they are legends and have been so successful in their own businesses, and we are grateful to them for taking on what appears to be an incredibly complicated topic. But to see their passion and to see them giving back, this is what makes Texas so grand. To have people like our legends who every day make the state a better place, but also, in this case, dealing with health care. And I never knew, John, that it was 18% of GDP.
We're all going home a little more educated, a little more depressed, and feeling inspired is something I meant to say. Yes, we're inspired. Inspired by continuing to encourage the two of you to do what you are doing. So first of all, a huge thank you to JPMorgan Chase, our sponsor, and to the marvelous Elaine, for doing these series that we are doing across the state and for their support. To you, Vivian, and to the Baker Institute for moderating, and getting a word in occasionally to drive the conversation. You've been a great partner for this event.
John and Mark, just don't know what to say. Thank you for sharing your insights, your vision, your opinions. I'm all about going back to my head of benefits and saying, our brokers are bad guys.
[LAUGHTER]
And then being asked why, and that's where I'm going to falter and I'm going to be able to say, because Mark Cuban said they are bad guys.
Bad guys.
To all of you here, our guests, scholars, legends who've joined us, to everybody who wants to make a difference, thank you for being here. Thank you for your time, your attention, and your passion, because that's what makes our mission here at the Texas Business Hall of Fame work.
And then before we close, I'm thrilled to let you know that next week, the Texas Business Hall of Fame will be announcing the class of 2025 Hall of Fame inductees. These year's honorees are, as prior years, an exceptional group of visionary, inspiring, game changing Texans who absolutely instill in us pride, but also want us to make ourselves better. So we can't wait to celebrate their achievements and who they are next week. So stay tuned.
Thank you again. Thank you to our speakers today. It has been a fabulous event. Be safe and have a great rest of your day.
[APPLAUSE]
(DESCRIPTION)
Text: JP MorganChase. JPMorgan Chase Bank, N.A., and its affiliates (collectively "JPMCB") offer investment products, which may include bank-managed investment accounts and custody, as part of its trust and fiduciary services. Other investment products and services, such as brokerage and advisory accounts, are offered through J.P. Morgan Securities LLC ("JPMS"), a member of FINRA and SIPC. Insurance products are made available through Chase Insurance Agency, Inc, (CIA), a licensed insurance agency, doing business as Chase Insurance Agency Services, Inc., in Florida. JPMCB, JPMS and CIA are affiliated companies under the common control of JPM. Products not available in all states. Copyright 2025 JPMorgan Chase & Co. All rights reserved.
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