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Editor’s note: T1D Exchange has no active partnership with Cost Plus Drugs at the time of publication. T1D Exchange does not endorse any specific source of prescription medications. Please consult your healthcare team with further questions regarding your prescription medications.
“I was in my radiology residency, working with a pulmonologist,” Dr. Alexander Oshmyansky, founder and CEO of Mark Cuban’s Cost Plus Drugs, told T1D Exchange. “He came in on a Monday morning and he was so angry because two of his patients had died over the weekend.”
Their deaths were largely preventable had they been able to get a drug that cost nearly $10,000 for a 1-month supply.
“To afford the drug, the patients were expected to apply for financial support through a non-profit and go through this tedious system while they were also very sick,” explains Oshmyansky. “They couldn’t get the drug because of this system.”
Cost Plus Drugs was inspired by anger
Fast-forward a few years, Oshmyansky watched the infamous “Pharma Bro” take appalling advantage of people with AIDs by raising the price of a medication from $13.50 to $750 per pill.
“I was really upset by that Pharma Bro guy,” recalls Oshmyansky. “I got together with some colleagues of mine and said, ‘Let’s start a company’.”
This fueled the founding of “Osh’s Affordable Medications” which eventually became Mark Cuban’s Cost Plus Drugs when entrepreneur and billionaire, Mark Cuban, became a partner and investor.
Cost Plus Drugs is an online pharmacy dedicated to removing the middleman from the pharmaceutical industry. That “middleman” is the role of the pharmaceutical benefit managers (PBMs) who Oshmyansky says are largely responsible for what he refers to as “fake prices” for the drugs we depend on to stay alive.
Today, Cost Plus Drugs is disrupting the pharmaceutical system with one goal: to help people get the medicine they need, when they need it, at the most affordable price possible — with total transparency, too.
But first, did you know Oshmyansky is kind of a genius?
During his first few years of grade school, Oshmyansky was in classes for students with special needs. His fourth-grade teacher, however, wondered if the real struggle was simply that this boy grew up with Russian parents and had never fully learned to read or write in English. His teacher was right.
After getting caught up with the English language, the evidence of Oshmyansky’s intelligence was impossible to ignore. By age 13, he was teaching himself trigonometry and calculus while taking college-level courses.
He graduated college at 18 years old — just one year after graduating high school — with a degree in biochemistry from the University of Colorado at Boulder. Then he earned his MD at the Duke University School of Medicine, followed by a PhD at Oxford University in Mathematics. Then he completed a surgical internship at Brigham and Women’s Hospital / Harvard Medical School.
Next, he did his residency in diagnostic radiology and a fellowship in pediatric radiology at Johns Hopkins Hospital. He was also an adjunct faculty member at Stanford University School of Medicine. He founded his first company, Altitude Medical, which focuses on reducing a patient’s risk of acquiring new infections during a hospital stay.
He was also diagnosed with type 2 diabetes on his 30th birthday, about eight years ago. But that didn’t stop him. Let’s get back to the trouble Oshmyansky and Mark Cuban are creating for PBMs.
The role of Pharmacy Benefit Managers
The price of insulin made headlines most recently when Lilly announced immediate (and dramatic) price cuts on their insulin on March 1, 2023. Sanofi and Novo Nordisk played catch-up, announcing similar price cuts within the following weeks that won’t take place until early 2024.
“The big three pharma companies stood up to the PBMs and basically said, ‘We’re getting all the blame but we’re not making hundreds of dollars per vial here’,” explains Oshmyansky.
“It’s easy to blame the pharmaceutical companies,” says Oshmyansky, “because we understand what they are and what they do. And the pharmaceutical companies are not innocent, but people fall asleep when you say, ‘pharmaceutical benefit manager’, and most doctors don’t even understand a PBM is.”
In a nutshell, a PBM negotiates between your health insurance company and the drug manufacturer to determine what drugs will be covered by your insurance plan, and how much you’ll pay for those drugs. Oshmyansky says PBMs once served a useful purpose many years ago as payment processors who filed claims, etc., but they began abusing their role by demanding more money. They had too much power by controlling which drugs would be covered by which plan.
“The PBMs basically said ‘We need an incentive, we won’t charge a fee, instead we’ll take a portion of the rebate’. In the 1980s, they served a purpose, but now their incentives are horribly misaligned.”
PBMs control 80 to 90% of the market
“The prices you’re paying for many different medications are just made up — they’re fake prices,” says Oshmyansky, pointing to drugs like Imatinib. Imatinib is a very expensive chemotherapy drug, but 99% of its sticker price goes directly to the PBMs. Another example, he adds, is Invokana — a drug for type 2 diabetes — and 60% of its sticker price goes to the PBMs.
“We, as Americans, pay 2.5 times more for pharmaceuticals than any other developed country. Why don’t we negotiate those drug prices down? We have 350 million citizens? Actually, we do have negotiators — it’s the PMBs — and they control 80 to 90% of the market.”
Using insulin as a clear example, Oshmyansky explains: “The average list price for a vial of insulin is $400, but the pharmaceutical company only gets about $20 per vial. A large portion of the rest goes to the PBMs. And your $80 copay isn’t going to the pharmacist or the pharmaceutical company, it’s going to the PBM.”
While the PBMs may be driving the skyrocketing prices, great responsibility still falls on the manufacturers to help change the system — and they’re starting to, finally.
Dropping the price of insulin means the drug manufacturers risk being removed from the drug formularies offered in your health insurance plan, but it was a risk they could’ve taken long ago to force change.
“When they all dropped their prices, they basically just made the PBMs really mad because they pulled back the curtain on insulin prices,” says Oshmyansky.
Cost Plus Drugs worked to increase insulin access and affordability
Cost Plus Drugs recently ran a relatively quiet test program to provide Insulin Lispro, a generic version of rapid-acting Humalog for $35 per month’s supply. The company also recently partnered with Roche to distribute transparently-priced glucose meters, test strips, and lancets.
For some, that’s likely a huge discount compared to the price at the pharmaceutical counter with or without health insurance coverage.
But with the recent price cuts from all three insulin manufacturers and the price caps from Medicaid and Medicare, Cost Plus Drugs realizes it may soon be a moot point.
“We were very gung-ho on providing affordable insulin, but at this point, we’re not adding any value because of expensive cold-packing shipping fees we have to charge,” says Oshmyansky.
Cost Plus Drugs is continuing to work with drug manufacturers to reduce prices for diabetes medications and supplies further while increasing access and convenience for individuals with diabetes. Most recently, Cost Plus Drugs launched Invokana for $243.92 per month’s supply.
Behind-the-scenes: selling affordable medications
“Transparency is very important to us,” explains Oshmyansky. “We have a %15 markup on everything we sell. We will tell you exactly what the real price of the drug is. We don’t price gouge and we never will.”
They’re also making the drugs nobody else wants to — because the profit margins aren’t high enough even though there is a crucial demand for them.
“The mortality rate in pediatric cancer has gone up,” explains Oshmyansky, “because the profit margin for the most commonly used chemotherapy drug is so low, nobody wants to make it.”
Other medications and critical healthcare products fall in this category, too.
“There is often a nationwide shortage on things like lidocaine, saline, certain chemotherapy drugs, basic electrolyte solutions, and medications used in the intensive care unit of every hospital,” explains Oshmyansky, “and it’s all because a dozen companies will jump on board to start manufacturing them. To keep the manufacturing cost low and profit margins high, they cut corners in the process. Eventually, the FDA shuts them down, then there’s a shortage and prices skyrocket again.”
The cycle repeats itself over and over, creating life-threatening chaos for those who depend on these medications to stay alive.
While Cost Plus Drugs does not manufacture any drugs as of April 2023, that is changing soon — they’re in the early stages of building a sterile manufacturing plant. They hope to provide a stable, affordable source of several critical drugs and products that frequently experience shortages and price gouging.
For now, they are the wholesaler.
“One of our first hurdles was getting the manufacturers to let us display the real prices on the drugs we’re offering at Cost Plus Drugs, to show you what you’re paying for — including our 15% markup.”
Oddly, Oshmyansky says Cost Plus Drugs is paying the manufacturers more than the Goliath drug companies pay because the larger companies have more negotiating power and are buying larger quantities.
“We’re new and small, but we pay more, so the manufacturers make more money when they work with us. We’re doing our best to break down those artificial barriers, reveal the true prices, and expose the fake prices,” says Oshmyansky.
Working 80 to 100-hour weeks to get the company underway did eventually take its toll on Oshmyansky. His HbA1c gradually rose to 13% last year. He began taking tirzepatide (Mounjaro) — a once-weekly injectable medication with a very hefty price tag — and it helped him get his A1c and blood glucose levels back into his target range.
“I really let my health fall apart while building this, so I had to stop and focus on that for a bit,” he explains. “I have every conceivable advantage when it comes to managing diabetes — I’m a physician and I spend my days figuring out how to get people medication. If I’m struggling to manage my diabetes, imagine how hard it must be for the average person.”
Cost Plus Drugs currently offers more than 350 different drugs for dozens of different health conditions — some of which are thousands of dollars less than what you’d pay through the traditional route.
“We’re gradually adding more brand name and generic drugs to our portfolio,” says Oshmyansky. “With these ultra-high-cost drugs, we can make a big difference.”
Actually, Cost Plus Drugs is just getting started
Despite how many medications Cost Plus Drugs already offers in its portfolio, they are truly just getting started in its mission to change the pharmaceutical system.
“We’ve got big plans for the future,” explains Oshmyansky. Mark Cuban recently announced their new pharmacy network — partnering directly with local grocery store pharmacies — and new partnerships with companies like Zocalo Health, a digital healthcare provider specifically for Latinos.
“I usually like to think of the world as a complicated place with a lot of nuances, but there’s no nuance in our country’s current pharmaceutical system. It’s a scam,” says Oshmyansky. “Patients with cancer are being asked to pay $30,000 for something that should cost $30. You’re taking advantage of the weakest and most vulnerable members of society.”
With total price transparency and zero price gouging, we look forward to seeing the impact of Cost Plus Drugs in the coming years.
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Total Transparency: How Cost Plus Drugs Sells Affordable Medications
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