{"id":38627,"date":"2026-05-28T10:10:00","date_gmt":"2026-05-28T14:10:00","guid":{"rendered":"https:\/\/www.drugpatentwatch.com\/blog\/?p=38627"},"modified":"2026-05-02T14:13:57","modified_gmt":"2026-05-02T18:13:57","slug":"mark-cubans-cost-plus-drugs-is-killing-spread-pricing-heres-what-that-actually-means","status":"publish","type":"post","link":"https:\/\/www.drugpatentwatch.com\/blog\/mark-cubans-cost-plus-drugs-is-killing-spread-pricing-heres-what-that-actually-means\/","title":{"rendered":"Mark Cuban’s Cost Plus Drugs Is Killing Spread Pricing \u2014 Here’s What That Actually Means"},"content":{"rendered":"\n
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A billionaire’s drugstore startup exposed the $6 billion arbitrage game inside America’s pharmacy benefit system. Now the entire supply chain is scrambling.<\/p>\n\n\n\n

In January 2022, Mark Cuban launched a website that sold generic imatinib \u2014 the blockbuster leukemia drug once priced at more than $9,000 per month as Gleevec \u2014 for $17.10 for a 30-day supply.[1] No copay card. No prior authorization. No insurance middleman. Just a manufacturer’s cost plus a 15 percent markup, plus a $3 pharmacist dispensing fee.<\/p>\n\n\n\n

The pharmaceutical industry did not panic. It issued no official statements. The three major pharmacy benefit managers \u2014 CVS Caremark, Express Scripts, and OptumRx \u2014 said nothing at all. Within weeks, though, procurement analysts at self-insured employers started calling their PBM account managers with the same uncomfortable question: why are we paying 50 times more for that drug than a website is charging?<\/p>\n\n\n\n

That question, asked by enough benefits directors at enough Fortune 500 companies, is how you start to unravel a $6 billion-per-year business practice called spread pricing. It is how you begin to understand why the United States pays more for generic drugs than any other high-income country. And it is why Mark Cuban’s Cost Plus Drugs Company \u2014 operating out of a 340,000-square-foot manufacturing plant in Dallas \u2014 has become the most disruptive force in pharmaceutical distribution since the creation of the Medicaid Drug Rebate Program in 1990.<\/p>\n\n\n\n

This piece examines how spread pricing actually works, who profits from it, what the patent and regulatory landscape looks like as generics proliferate, and whether Cost Plus represents a durable structural shift or a temporary arbitrage play that the incumbent supply chain will eventually route around.<\/p>\n\n\n\n

What Spread Pricing Is, and Why It Survived This Long<\/h2>\n\n\n\n

Spread pricing is the practice by which a pharmacy benefit manager charges an employer or health plan more for a drug than it reimburses the dispensing pharmacy \u2014 and pockets the difference. The ‘spread’ is the margin between those two numbers, and for decades it operated in almost complete darkness.<\/p>\n\n\n\n

Here is a concrete example. A PBM negotiates a reimbursement rate with a retail pharmacy of $12 for a 30-day supply of generic atorvastatin. The PBM then bills the self-insured employer $40 for the same transaction. The employer sees a $40 line item on their drug claims report. The pharmacy gets $12. The PBM keeps $28. No rebate disclosure. No line-item accounting. Just a management fee paid on top of the spread, because the PBM contract calls for it.[2]<\/p>\n\n\n\n

The practice flourished because of three structural advantages the big three PBMs enjoyed simultaneously. First, they operate under the Employee Retirement Income Security Act of 1974, which historically exempted employer-sponsored plans from state insurance regulations \u2014 including any state-level price transparency requirements. Second, the PBM market is oligopolistic: CVS Caremark, Express Scripts (owned by Cigna), and OptumRx (owned by UnitedHealth Group) collectively manage roughly 80 percent of all U.S. prescription drug claims.[3] Third, the very employers who are harmed by spread pricing depend on those same PBMs to administer their pharmacy benefits, creating a structural conflict of interest so baked-in that most HR departments had simply stopped asking hard questions.<\/p>\n\n\n\n

The opacity worked because most drugs are not purchased the way consumers buy airline tickets \u2014 with easy price comparison across competitors. Prescription pricing is layered: the Average Wholesale Price (AWP), which serves as the nominal list price published by manufacturers; the Maximum Allowable Cost (MAC), which PBMs set internally as a ceiling on reimbursement for generics; the negotiated network rate between PBM and pharmacy; and the amount billed to the plan. Each layer can differ substantially from the one above it, and none of these figures has historically appeared on the Explanation of Benefits statement a patient receives.[4]<\/p>\n\n\n\n

The system’s defenders \u2014 primarily the PBMs and their trade group, the Pharmaceutical Care Management Association \u2014 argue that PBMs generate net savings for payers by negotiating rebates on brand-name drugs and by managing utilization. There is some truth in this: the rebate system genuinely reduces net costs on branded biologics and specialty drugs. The problem is that rebate savings on brands have for years been used to obscure spread profits on generics, which is precisely where most of America’s actual prescription volume sits. Roughly 90 percent of all prescriptions dispensed in the United States are for generic drugs.[5] The rebate narrative dominates the political conversation. The generic spread is where the money actually moves.<\/p>\n\n\n\n

The Ohio Medicaid Audit That Changed Everything<\/h3>\n\n\n\n

The first rigorous public accounting of spread pricing came not from a congressional investigation or a whistleblower lawsuit, but from a state auditor’s report in Ohio. In 2018, Ohio Auditor Dave Yost released an analysis of the state’s Medicaid managed care pharmacy program showing that PBMs had charged the state $224.8 million more for generic drugs than they paid pharmacies during a single fiscal year.[6] The spread on some individual drugs exceeded 3,000 percent.<\/p>\n\n\n\n

The Ohio report triggered a cascade. Kentucky’s legislative auditor found spreads of up to 1,028 percent on individual generic drugs in the state’s Medicaid program.[7] Arkansas, West Virginia, and Michigan commissioned similar reviews and found comparable results. The Senate Finance Committee opened an investigation. The Federal Trade Commission, under Chair Lina Khan, launched a study of PBM practices in 2022 that is ongoing.[8]<\/p>\n\n\n\n

What the state audits documented was not isolated misconduct. It was a normal operating practice applied at industrial scale across millions of drug claims. The scale of the spread varied by drug, by geography, by formulary tier, and by how many generic manufacturers had entered the market. But the mechanism was consistent: wherever a PBM could set a MAC lower than its billing rate to the plan sponsor, it did.<\/p>\n\n\n\n

Cost Plus Drugs: The Architecture of Radical Transparency<\/h2>\n\n\n\n

Mark Cuban and Alex Oshmyansky, a radiologist who had spent years trying to solve drug access problems through a nonprofit model, launched Cost Plus Drugs in January 2022 with a simple premise: buy drugs at the manufacturer’s actual cost, add a fixed 15 percent markup, charge a flat $3 dispensing fee, and sell directly to patients without routing the transaction through a PBM.<\/p>\n\n\n\n

The model works because generic drugs are, in many cases, extraordinarily cheap to manufacture. The active pharmaceutical ingredients for most small-molecule generics cost pennies per dose. What makes them expensive at retail is not manufacturing cost but the series of intermediaries \u2014 wholesalers, PBMs, retail pharmacies \u2014 who each take margin as the drug moves from manufacturer to patient.<\/p>\n\n\n\n

Cost Plus bypasses most of that chain. The company operates its own 503B outsourcing facility in Dallas, which the FDA licensed in 2023 to compound certain sterile injectable medications in addition to manufacturing oral solid doses.[10] It purchases APIs and finished drug products from FDA-registered manufacturers. It sells through a mail-order model directly to patients, who pay cash at checkout using a credit card, or through their employer’s benefits administrator if their plan has integrated Cost Plus into its formulary.<\/p>\n\n\n\n

The pricing is published. You can go to costplusdrugs.com right now and see the exact cost breakdown for every drug in the catalog: manufacturer price, markup, dispensing fee, and total. For imatinib, as of 2024, that is $10.81 manufacturer cost + $1.62 markup + $3 dispensing fee = $15.43 for 30 tablets of 400mg.[11] Compare that to the GoodRx cash price at a major retail chain, which runs $175 to $400 for the same fill depending on the pharmacy, or the adjudicated insurance price, which for many commercial plans runs over $2,000 because the drug sits on a non-preferred tier and the PBM has negotiated a formulary placement that generates higher spread.<\/p>\n\n\n\n

$15.43Cost Plus price for 30-tablet imatinib 400mg (2024) vs. $2,000+ on many commercial formularies<\/p>\n\n\n\n

The catalog has grown quickly. Cost Plus launched with roughly 100 generic drugs in 2022 and expanded to more than 2,500 as of late 2024.[12] It has also moved into biosimilars \u2014 the interchangeable versions of biologic drugs that have begun entering the market as patents on the original biologics expire. Biosimilars are where the next large-scale version of the spread pricing story is playing out, and where Cost Plus’s model faces its most significant structural tests.<\/p>\n\n\n\n

The Patent Layer: How IP Shapes the Spread Pricing Landscape<\/h3>\n\n\n\n

To understand why Cost Plus can charge $15 for imatinib when a retail pharmacy charges $400, you need to understand what happened to Gleevec’s patents. Novartis held a web of composition-of-matter, formulation, and method-of-use patents that kept generic imatinib off the U.S. market until 2016. The primary composition-of-matter patent expired in 2015. When generics entered, the price collapsed \u2014 but not to the floor it should have reached, because PBM formulary placement decisions kept high-cost brand or co-pay-card-eligible generics on preferred tiers while directing patients away from the cheapest options.<\/p>\n\n\n\n

Patent expiration alone does not guarantee price competition. The post-exclusivity generic market in the United States has a documented pattern: initial generic entry produces a sharp price drop, but the price then stabilizes well above the competitive floor because PBMs negotiate rebates with the first few generic entrants in exchange for favorable formulary placement, creating a market structure in which the cheapest manufacturers \u2014 often international producers with the lowest cost structures \u2014 struggle to gain formulary access without paying to play.<\/p>\n\n\n\n

This dynamic is visible in the data that tools like DrugPatentWatch<\/a> track. DrugPatentWatch aggregates patent expiry dates from the FDA’s Orange Book and Purple Book, exclusivity periods, paragraph IV certification filings, and first-to-file generic applicant data \u2014 giving payers, investors, and researchers a detailed view of when each drug’s IP protection is scheduled to lapse. For anyone building a Cost Plus-style purchasing strategy, or for any self-insured employer trying to time a therapeutic interchange to a cheaper generic, that kind of patent cliff intelligence is operationally essential.<\/p>\n\n\n\n

The Orange Book, maintained by the FDA, lists patents and exclusivities for approved drug products. A company like Cost Plus \u2014 or, more importantly, a pharmacy benefit administrator trying to swap a brand for a generic on formulary \u2014 needs to know not just when the basic composition-of-matter patent expires, but whether the innovator has filed additional method-of-use or formulation patents that could support a new exclusivity period, whether there are pending paragraph IV challenges from generic manufacturers that might accelerate entry, and whether the FDA has granted any regulatory exclusivities (like pediatric exclusivity, which tacks on six months) that delay generic approval independent of the patent situation.<\/p>\n\n\n\n

This is precisely the kind of multi-layered patent intelligence that platforms like DrugPatentWatch make tractable at scale. When a benefits manager at a large employer asks ‘when can we switch this formulary to generic?’, the answer is not simply the Orange Book patent expiry date \u2014 it is a function of the full IP and regulatory exclusivity stack, which can differ substantially from the headline number and has direct implications for how much savings the employer can actually realize.<\/p>\n\n\n\n

How Generic Entry Timing Interacts With Spread Pricing<\/h3>\n\n\n\n

The timing of generic entry creates a predictable window in which spread pricing is most profitable. In the first 180 days after a first generic entrant launches \u2014 a period in which the first filer enjoys market exclusivity under the Hatch-Waxman Act \u2014 the generic price typically drops to 40-80 percent of the brand price.[13] At this stage, PBMs can generate spread by billing plans at near-brand rates while reimbursing pharmacies at the declining generic MAC. The spread can be enormous.<\/p>\n\n\n\n

As additional generics enter \u2014 the typical pattern sees six to ten manufacturers enter within the first two years after exclusivity \u2014 prices compress further, often to 20-30 percent of the brand price, and eventually to commodity pricing driven by API cost. At that point, the spread opportunity narrows because PBMs cannot bill plans very much more than they reimburse pharmacies for a drug that any pharmacy can buy for a few cents. Cost Plus operates primarily in this mature, commoditized portion of the generic market where its transparent cost-plus model generates consumer surplus rather than intermediary margin.<\/p>\n\n\n\n

The implication for employers is that the window of spread pricing exposure is widest in the 12-36 months following initial generic entry, before full market competition has driven prices to the floor. An employer with sophisticated patent monitoring \u2014 knowing that a drug’s 180-day exclusivity expires on a specific date and that five additional ANDA approvals are pending \u2014 can negotiate directly with their PBM to pass-through MAC pricing in that critical window, or route fills to a direct-pay or Cost Plus-integrated channel before the PBM can establish a high spread at the plan level.<\/p>\n\n\n\n

Drug (Brand)<\/th>Generic Entry<\/th>Cost Plus Price (2024)<\/th>Typical PBM-Adjudicated Price<\/th>Spread Estimate<\/th><\/tr><\/thead>
Imatinib (Gleevec)<\/td>2016<\/td>$15.43\/30-tab<\/td>$1,500\u2013$2,200<\/td>$1,500+<\/td><\/tr>
Sildenafil (Viagra)<\/td>2017<\/td>$17.50\/6-tab<\/td>$80\u2013$160<\/td>$60\u2013$140<\/td><\/tr>
Rosuvastatin (Crestor)<\/td>2016<\/td>$14.70\/90-tab<\/td>$40\u2013$90<\/td>$25\u2013$75<\/td><\/tr>
Escitalopram (Lexapro)<\/td>2012<\/td>$22.00\/30-tab<\/td>$30\u2013$70<\/td>$8\u2013$48<\/td><\/tr>
Quetiapine (Seroquel)<\/td>2012<\/td>$38.00\/30-tab<\/td>$100\u2013$300<\/td>$62\u2013$262<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

Note: Prices are approximate and vary by dose, quantity, and plan design. PBM-adjudicated prices represent mid-range estimates for commercial plans as reported by employer benefits consultants and GoodRx data. Spread estimates are illustrative.<\/em><\/p>\n\n\n\n

The PBM Response: Silence, Acquisitions, and Lobbying<\/h2>\n\n\n\n

The three major PBMs did not respond to the Cost Plus launch with price competition. That, in itself, is telling. If spread pricing were simply an efficient market outcome, a transparent low-cost entrant would force incumbents to reduce their own spreads to retain plan sponsors. Instead, the response followed three tracks: public silence, vertical integration acceleration, and intensified lobbying against pass-through pricing legislation.<\/p>\n\n\n\n

Vertical Integration as Defensive Moat<\/h3>\n\n\n\n

CVS Health owns both CVS Caremark (PBM) and CVS Pharmacy (retail pharmacy network). Cigna owns Express Scripts (PBM) and operates pharmacy services through Evernorth. UnitedHealth Group owns OptumRx (PBM), Optum Rx specialty pharmacy, and \u2014 through its Optum Health division \u2014 a large and growing network of physician practices that generate prescriptions filled by Optum pharmacies adjudicated by OptumRx.<\/p>\n\n\n\n

This vertical integration means that for a significant portion of U.S. prescription volume, the entity that writes the prescription, the entity that adjudicates the claim, the entity that dispenses the drug, and the entity that owns the insurance plan covering the patient are all subsidiaries of the same holding company. The spread, in this model, is not lost \u2014 it merely migrates between entities in a way that is invisible to outside auditors.<\/p>\n\n\n\n

The FTC’s June 2022 study order demanded that the six largest PBMs \u2014 CVS Caremark, Express Scripts, OptumRx, Humana Pharmacy Solutions, Prime Therapeutics, and MedImpact \u2014 produce data on drug pricing practices, rebates, fees, and formulary decisions. The resulting interim staff report, released in July 2024, found that the three largest PBMs are ‘increasingly steering patients toward pharmacies in which they have a financial interest, including specialty and mail-order pharmacies they own.'[14] The report documented that affiliated pharmacies received reimbursements that were, on average, substantially higher than what unaffiliated pharmacies received for identical drugs.<\/p>\n\n\n\n

In other words, the PBMs responded to a decade of spread pricing scrutiny not by reducing spreads but by internalizing them \u2014 capturing more of the supply chain so that the spread between what the plan pays and what the pharmacy receives is simply an intercompany transfer between affiliates, which is harder to regulate and harder for plan sponsors to detect.<\/p>\n\n\n\n

Formulary Exclusion as a Competitive Weapon<\/h3>\n\n\n\n

Cost Plus does not participate in PBM networks. It operates as a direct-pay pharmacy. That means a patient who fills a prescription at Cost Plus typically cannot submit that claim to their insurance for reimbursement unless their employer has specifically contracted to allow it. For many patients on employer-sponsored plans, the choice is between a $15 cash payment to Cost Plus and a $10 copay at a network pharmacy \u2014 and many will choose the network pharmacy because the copay structure makes the insured option seem cheaper, even when the employer is paying $400 on the back end for the same drug.<\/p>\n\n\n\n

This is one of the most important structural limitations of the Cost Plus model. Consumer benefit at the point of sale depends on whether the patient bears out-of-pocket cost that reflects the true price difference. For patients with high-deductible health plans who have not met their deductible, Cost Plus is unambiguously cheaper. For patients on plans with fixed low copays, the Cost Plus price advantage is invisible unless the employer has redesigned the benefit to eliminate the copay on drugs purchased through Cost Plus channels.<\/p>\n\n\n\n

A growing number of self-insured employers have done exactly that. Employers including TransDigm, the aerospace manufacturer, and several large school districts and municipal employers integrated Cost Plus into their formularies in 2023 and 2024, waiving copays entirely for drugs purchased through the Cost Plus catalog.[15] The reported savings ranged from 20 to 60 percent on generic drug spend.<\/p>\n\n\n\n

‘The copay structure is the last line of defense. Make the out-of-pocket cost equal at any pharmacy, and patients will go where the employer saves money.’<\/p>\n\n\n\n

Spread Pricing in Medicaid: The Policy Battlefield<\/h2>\n\n\n\n

The fight over spread pricing has moved most decisively in the Medicaid managed care market, where state governments have regulatory authority that the federal government lacks over commercial employer plans. Following the Ohio audit, at least 17 states passed legislation or promulgated regulations requiring that Medicaid managed care organizations use pass-through pricing for pharmacy benefits \u2014 meaning the PBM cannot charge the MCO more than it pays the dispensing pharmacy.[16]<\/p>\n\n\n\n

The results have been documentable. Kentucky, one of the first states to ban spread pricing in Medicaid managed care, reported savings of approximately $50 million in the first year of implementation. West Virginia reported eliminating more than $30 million in annual spread on a relatively small Medicaid population. Ohio renegotiated its Medicaid pharmacy contracts after the 2018 audit and documented savings of over $200 million per year from the structural changes.[17]<\/p>\n\n\n\n

The Medicaid movement matters for the Cost Plus story because it establishes the regulatory and contractual precedents that employers and other payers can use to demand equivalent transparency. When Ohio demonstrated that pass-through pricing was contractually achievable on a managed care contract covering millions of lives, it gave employers’ purchasing consortia the template language to demand the same terms from their PBMs. The ERISA preemption barrier is real, but it blocks state regulation of employer plans \u2014 it does not prevent employers from voluntarily demanding pass-through terms in their PBM contracts, which is now standard practice in every well-advised large-employer RFP.<\/p>\n\n\n\n

The CMS Rule and Its Limitations<\/h3>\n\n\n\n

The Centers for Medicare and Medicaid Services addressed spread pricing in the Medicare Part D context through the calendar year 2025 Final Rule, which prohibits the use of spread pricing in the PDP (prescription drug plan) contracts that deliver Medicare drug benefits.[18] This rule closes the spread pricing door for the Medicare population \u2014 roughly 50 million beneficiaries \u2014 and requires that all PBM compensation in the Part D context come from disclosed, transparent fees rather than undisclosed price differentials.<\/p>\n\n\n\n

The rule is significant but not comprehensive. It covers Medicare Part D but not the commercial market, not FEHB (the Federal Employees Health Benefits program, though separate actions have addressed that), and not state Medicaid programs unless states adopt parallel rules. The FTC’s ongoing investigation into PBM practices may eventually produce a federal rule covering the commercial market, but as of this writing that rulemaking has not been initiated.<\/p>\n\n\n\n

The Inflation Reduction Act of 2022 introduced drug price negotiation for a small set of Medicare Part D drugs \u2014 starting with 10 drugs in 2026 and expanding to 20 per year thereafter. The drugs selected for the first round of negotiation include several high-cost brand drugs with no generic competition. The IRA mechanism is separate from spread pricing; it addresses the manufacturer’s list price rather than the intermediary’s margin. But the two reforms are linked: negotiated prices reduce the base price on which spread can be calculated, compressing the absolute spread even if the percentage spread remains constant.[19]<\/p>\n\n\n\n

The Biosimilar Frontier: Where Cost Plus Faces Its Hardest Test<\/h2>\n\n\n\n

Generic drugs are small molecules made by chemical synthesis. Biosimilars are large-molecule drugs manufactured through living cell systems \u2014 structurally similar but not chemically identical to their reference biologics. The patent and regulatory landscape for biologics and biosimilars is substantially more complex than for small-molecule generics, and the spread pricing dynamics are different in ways that matter for any assessment of whether Cost Plus’s model can scale.<\/p>\n\n\n\n

The Biologic Patent Thicket<\/h3>\n\n\n\n

Humira (adalimumab), AbbVie’s blockbuster rheumatoid arthritis drug, generated over $21 billion in U.S. revenue in 2022 \u2014 its last year of exclusivity \u2014 largely because AbbVie built a patent thicket of more than 250 patents around the product, many of which covered manufacturing processes, formulation variants, and delivery devices rather than the core molecule.[20] Generic drug manufacturers typically face one or two patents in the Orange Book. Biosimilar developers face the full stack of listed and unlisted patents, plus the threat of patent infringement litigation under the complex notice provisions of the Biologics Price Competition and Innovation Act of 2010 (BPCIA).<\/p>\n\n\n\n

AbbVie resolved most of its Humira biosimilar litigation through settlements that allowed biosimilar entry in January 2023 for Amjevita (Amgen) and Hadlima (Samsung Bioepis\/Organon), with a second wave of seven additional biosimilars entering in July 2023. By mid-2024, there were nine FDA-approved adalimumab biosimilars on the U.S. market.[21] The market did not behave as expected. Despite nine competitors, the combined biosimilar market share remained below 10 percent of total adalimumab prescriptions filled through 2023, because PBMs had negotiated rebate agreements with AbbVie that made it economically rational for formularies to keep the brand on preferred tier.<\/p>\n\n\n\n

This is the Humira paradox. AbbVie offered rebates \u2014 reported to be as high as 60 percent of list price \u2014 to PBMs and health plans that kept Humira on preferred formulary over cheaper biosimilars. The rebate income to the plan was real, but the gross list price on which the rebate was calculated had been inflated, and the biosimilars that could actually reduce net cost were excluded. The result is that even with nine competitors, the branded drug maintained market share because the PBM formulary system incentivized its use.<\/p>\n\n\n\n

Cost Plus launched adalimumab biosimilars in 2024 at prices well below Humira’s list price and competitive with the net price available after rebate on most commercial plans. But the formulary barrier remains. A patient on a plan that covers Humira on preferred tier with a $40 copay faces no direct financial incentive to use a Cost Plus biosimilar, even if the employer would save thousands of dollars per patient per year by switching.<\/p>\n\n\n\n

DrugPatentWatch’s biosimilar tracking tools are particularly useful here, because the patent cliff for biologics is not a single date but a sequence of expiry events as individual patents in the thicket lapse. The BPCIA’s 12-year exclusivity period for reference biologics, combined with the complex patent dance procedures, means that the effective market entry date for biosimilars often lags the formal patent expiry by several years. Understanding where each patent in a thicket sits in its lifecycle \u2014 and which ones are actively being challenged in inter partes review or district court litigation \u2014 is essential for predicting when robust biosimilar competition will actually materialize and when it makes sense for a plan to initiate a formulary switch.<\/p>\n\n\n\n

Interchangeability and Substitution at Pharmacy<\/h3>\n\n\n\n

The FDA grants ‘interchangeable’ status to biosimilars that it determines can be substituted for the reference product at the pharmacy level without physician intervention \u2014 analogous to generic substitution for small molecules. As of 2024, the FDA has granted interchangeable designations to several adalimumab biosimilars and to biosimilars for insulin products.[22] Interchangeability is a prerequisite for automatic substitution in the states that permit it, and it dramatically reduces the formulary management burden for plans trying to shift volume to biosimilars.<\/p>\n\n\n\n

Cost Plus’s biosimilar strategy depends heavily on interchangeability. Without automatic substitution, each fill requires either a new prescription or a physician override, which creates friction that reduces take-up regardless of price. The company has focused its biosimilar catalog on interchangeable products and has lobbied publicly for state pharmacy practice acts to allow automatic substitution without physician intervention.<\/p>\n\n\n\n

Who Is Actually Winning Right Now<\/h2>\n\n\n\n

The honest answer is: nobody has decisively won yet, but the cost curve has moved.<\/p>\n\n\n\n

The Employer Gains<\/h3>\n\n\n\n

Self-insured employers who have integrated Cost Plus into their benefit design, adopted pass-through pricing in PBM contracts, or shifted to PBMs that offer transparent fee-only models (Navitus Health Solutions, Rightway, Capital Rx, SmithRx) report measurable savings. The Employers’ Forum of Indiana, a purchasing coalition, documented average per-member per-month savings of $8 to $14 on generic drug spend among members who adopted pass-through PBM contracts between 2020 and 2023.[23] That translates to roughly $96 to $168 per employee per year in recovered spread.<\/p>\n\n\n\n

For a mid-size employer with 5,000 employees and a generic drug mix consistent with national averages, that is $480,000 to $840,000 in annual savings from one contractual change. The change requires no benefit redesign, no formulary disruption, and no employee communication. It requires only that the employer know what spread pricing is and demand pass-through terms in the PBM RFP. Many large-employer consultants \u2014 Mercer, Willis Towers Watson, Aon \u2014 now recommend pass-through as a baseline requirement in any large-group PBM contract.[24]<\/p>\n\n\n\n

The PBM Concessions<\/h3>\n\n\n\n

CVS Caremark, Express Scripts, and OptumRx have all introduced ‘transparent’ or ‘pass-through’ contract options in the past three years. These options are real in the sense that they do eliminate traditional spread on generic drugs \u2014 but they typically substitute higher administrative fees and narrower network access, which partially offsets the savings. The aggregate margin on the transparent contract is often similar to the aggregate margin on the spread contract; only the accounting treatment changes.<\/p>\n\n\n\n

More substantive are the changes in the specialty and biosimilar space. Under pressure from the FTC investigation and the IRA, CVS Health launched CostVantage in 2024, a new pharmacy reimbursement model for CVS retail pharmacies that ties reimbursement to a percentage of drug acquisition cost plus a fee.[25] If adopted broadly, CostVantage would replace AWP-minus-a-discount with a cost-plus structure \u2014 echoing precisely the model Cuban has been advocating. The difference is that CVS Caremark controls which plans can access CostVantage terms, and the fee structures have not been made publicly comparable to what Cost Plus charges.<\/p>\n\n\n\n

The Transparent PBM Market<\/h3>\n\n\n\n

A small but growing segment of the PBM market has been built specifically around the transparency model that Cost Plus represents. Capital Rx, founded in 2017, operates exclusively on a pass-through basis with a flat administrative fee per claim. The company secured an FDA-registered pharmacy license in 2021 and launched its own drug purchasing subsidiary. Rightway, founded in 2018, combines a transparent PBM model with a care navigation service designed to direct employees to Cost Plus and other direct-pay options for generic drugs. SmithRx, another pass-through PBM, grew its covered lives from approximately 100,000 in 2021 to over 500,000 in 2024.[26]<\/p>\n\n\n\n

These companies are small relative to the big three: CVS Caremark alone manages benefits for more than 100 million lives. But their growth rates demonstrate that the employer market is receptive to the value proposition of transparency, and their existence creates competitive pressure that forces the incumbents to offer nominally transparent contract structures even if they offset the transparency with fees elsewhere.<\/p>\n\n\n\n

The Litigation Front: FTC vs. Big Three<\/h2>\n\n\n\n

The FTC’s most aggressive action to date came in September 2024, when the commission filed suit against the three largest PBMs \u2014 CVS Caremark, Express Scripts, and OptumRx \u2014 along with their affiliated group purchasing organizations, alleging anticompetitive practices in the insulin market.[27] The complaint alleged that the PBMs used their formulary leverage to exclude lower-list-price insulin products from preferred formulary status, forcing patients and plans to use higher-list-price products on which the PBMs received larger rebates, while patients faced co-insurance charges calculated on the inflated list price.<\/p>\n\n\n\n

The insulin case is both a legal action and a public statement about how the FTC views the PBM rebate model in its entirety. The commission’s theory \u2014 that formulary placement decisions driven by rebate maximization rather than clinical value or net cost constitute an anticompetitive restraint \u2014 has implications that extend well beyond insulin. If the FTC prevails, or if the suit produces a consent decree with structural remedies, it would establish a legal framework for challenging PBM formulary decisions across drug categories.<\/p>\n\n\n\n

The PBMs filed motions to dismiss in late 2024, arguing that the FTC lacked statutory authority to sue them in federal court under the FTC Act’s exemption for common carriers and that the complaint failed to identify a relevant antitrust market. The litigation is expected to extend through 2026 at minimum. The outcome matters enormously: an FTC loss on jurisdiction would set back federal regulatory action significantly; an FTC win would accelerate legislative pressure for structural PBM reform.<\/p>\n\n\n\n

State AG Actions and Their Limits<\/h3>\n\n\n\n

Multiple state attorneys general have filed suits or opened investigations into PBM pricing practices since 2020. Ohio’s attorney general filed suit against Express Scripts in 2023 over Medicaid spread pricing. Arkansas filed a broad antitrust complaint against all three major PBMs in 2023. These state actions are significant partly for the discovery they generate \u2014 internal PBM pricing documents obtained in state court proceedings have been cited in subsequent federal regulatory analyses \u2014 but their direct remedies are limited to the state’s Medicaid program or state-regulated insurance market.[28]<\/p>\n\n\n\n

ERISA’s preemption of state law as applied to self-insured employer plans remains the single largest regulatory gap in the spread pricing reform effort. Until Congress either amends ERISA to require PBM transparency disclosures in commercial plans, or until the FTC establishes federal antitrust liability that preempts the ERISA preemption, the largest segment of the market remains largely outside state regulatory reach.<\/p>\n\n\n\n

The Congressional Stalemate and What Could Break It<\/h2>\n\n\n\n

Congress has made multiple attempts to pass PBM reform legislation. The Pharmacy Benefit Manager Transparency Act, which would require PBMs to report spread pricing to the federal government and share rebate savings with plan members, passed the Senate Finance Committee with bipartisan support in 2023 but did not reach the floor. The Lower Costs, More Transparency Act passed the House in December 2023 with a vote of 320-71, demonstrating unusually broad bipartisan support \u2014 and then stalled in the Senate as the PBM lobbying campaign against it intensified.[29]<\/p>\n\n\n\n

The PCMA, the PBMs’ trade association, spent $8.9 million on federal lobbying in 2023 \u2014 a record for the organization \u2014 and deployed the argument that PBM reform would raise premiums by eliminating rebates that reduce the cost of brand drugs. The argument is technically coherent but strategically dishonest: eliminating spread pricing on generics does not reduce rebates on brand drugs, which is a separate practice. The conflation of the two is intentional.<\/p>\n\n\n\n

The specific reform most directly relevant to Cost Plus’s model is the pass-through pricing requirement: a rule that would require PBMs to pass all drug discounts, rebates, and price concessions directly to plan sponsors, prohibiting the PBM from retaining any portion of the spread. Employers, patient groups, independent pharmacy associations, and the National Alliance of Mental Illness have all testified in support. The opposition is the PCMA, backed by the financial resources of three of the most profitable companies in American healthcare.<\/p>\n\n\n\n

The ERISA Amendment as the Fulcrum<\/h3>\n\n\n\n

Legal scholars examining the PBM reform landscape consistently identify an ERISA amendment as the most powerful single legislative intervention available. An amendment requiring that all PBM contracts with ERISA-governed health plans disclose spread pricing on a per-claim basis would effectively end the practice, because no plan fiduciary could knowingly approve a contract structure that extracts excess margin from plan assets once that margin is visible and quantified.<\/p>\n\n\n\n

ERISA fiduciary duty already requires plan sponsors to act prudently and solely in the interest of plan participants. The argument that a plan fiduciary who knowingly allows spread pricing is breaching their fiduciary duty to participants is legally plausible and has been raised in at least four class action lawsuits filed by plan participants against employers whose PBM contracts permitted large spreads.[30] None of these cases has reached final judgment, but the litigation exposure is real and is already influencing how sophisticated employers approach PBM contracting.<\/p>\n\n\n\n

The International Comparison: What Transparency Actually Looks Like<\/h2>\n\n\n\n

The United States is the only high-income country in which pharmacy benefit management is structured as a for-profit intermediary funded primarily by price arbitrage. Other developed health systems use one of two dominant models: national price regulation (the UK’s Pharmaceutical Price Regulation Scheme, France’s Comit\u00e9 \u00c9conomique des Produits de Sant\u00e9), or tendering\/reference pricing systems in which generic drugs are procured through competitive bidding (Germany, the Netherlands).<\/p>\n\n\n\n

In Germany, generic drug prices are regulated through a reference price system: if multiple products in a therapeutic class are therapeutically equivalent, the patient pays a fixed co-payment and the insurer pays the reference price, regardless of the manufacturer’s list price. Manufacturers who price above the reference price capture no additional reimbursement; manufacturers who price below it can use the price difference as a competitive tool. The result is that generic drug prices in Germany average roughly 40-60 percent below U.S. generic prices even before accounting for U.S. spread pricing.[31]<\/p>\n\n\n\n

The U.K.’s National Health Service has moved progressively toward a ‘Drug Tariff’ model for generics in which the reimbursement price is based on actual market prices paid by pharmacies \u2014 a cost-plus framework strikingly similar to what Mark Cuban is advocating. The NHS tracks actual acquisition costs monthly and adjusts reimbursement accordingly, eliminating the ability of intermediaries to generate persistent spreads between acquisition cost and reimbursement rate.<\/p>\n\n\n\n

None of these international models translates directly to the U.S. context given the fragmented, employer-sponsored insurance structure. But they demonstrate that cost-plus and reference pricing frameworks are not radical experiments \u2014 they are the operational norm in systems that have successfully controlled drug spending. The U.S. experience is the outlier, not the Cost Plus model.<\/p>\n\n\n\n

What Cuban’s Model Cannot Fix<\/h2>\n\n\n\n

The Cost Plus model is a genuine and significant market intervention. It is not a solution to the full structure of U.S. drug pricing. There are at least two categories of drug spending it cannot address in its current form.<\/p>\n\n\n\n

Specialty and Biologic Drugs<\/h3>\n\n\n\n

Specialty drugs \u2014 typically defined as drugs requiring special handling, administration, or monitoring, including most biologics, oncology drugs, and rare disease treatments \u2014 represent roughly 50 percent of total U.S. drug spend but only 1-2 percent of prescription volume.[32] These drugs are rarely generic and typically under active patent protection or biologic exclusivity. Cost Plus’s manufacturing model \u2014 buying APIs and finished drug products at commodity pricing \u2014 does not apply to drugs that are still under patent, because generic manufacturers cannot legally produce those drugs for commercial sale.<\/p>\n\n\n\n

Cost Plus can and does sell some biosimilars for which it can source product, and the biosimilar market is growing rapidly as biologic patents expire. But the economics of biosimilar manufacturing are substantially more complex than small-molecule generics, and the cost-plus markup on a drug that requires living cell bioreactors is quite different from the cost-plus markup on a drug synthesized from bulk APIs. The 15 percent markup plus $3 dispensing fee model applies cleanly to the generic market. The biosimilar and specialty market requires a different analytical framework.<\/p>\n\n\n\n

PBM-Integrated Mail Order<\/h3>\n\n\n\n

A substantial portion of U.S. prescription volume \u2014 roughly 30 percent of all fills by days of therapy \u2014 is dispensed through mail-order pharmacies, the majority of which are owned by the major PBMs.[33] When an employer’s plan design requires that 90-day maintenance medication fills go through the PBM’s own mail-order facility, the patient has no practical choice to use Cost Plus even if Cost Plus is cheaper. Benefit redesign to make Cost Plus an opt-in alternative to PBM mail order requires employer action, which requires employer awareness, which is moving but slowly.<\/p>\n\n\n\n

Cuban has acknowledged this limitation publicly. The Cost Plus strategy for overcoming it has two components: first, continuing to grow employer direct contracts that waive the requirement to use PBM mail order for Cost Plus-catalog drugs; and second, applying political pressure for legislative requirements that plans allow patients to use any licensed mail-order pharmacy, not only the PBM’s affiliated facility. Neither component is fully resolved.<\/p>\n\n\n\n

The Systemic Shift: From Arbitrage to Accountability<\/h2>\n\n\n\n

The longest-term significance of Cost Plus Drugs may not be the specific transactions it facilitates but the informational and normative shift it has produced in the employer benefits market. Before January 2022, the typical HR director at a mid-size U.S. company had a vague sense that drug prices were high and a completely opaque picture of how their PBM contract was generating those prices. The existence of a publicly accessible website showing exact manufacturer costs for hundreds of drugs has changed that informational baseline permanently.<\/p>\n\n\n\n

When a benefits manager can type ‘metformin 500mg’ into costplusdrugs.com and see that the manufacturer cost is $0.04 per tablet, the question of why their plan is paying $0.80 per tablet acquires a precision it never had before. The answer \u2014 spread pricing, formulary tier incentives, MAC manipulation \u2014 becomes investigatable in a way that abstract claims about ‘complex pharmaceutical distribution’ never were.<\/p>\n\n\n\n

This shift in baseline information is what the PBM industry was genuinely afraid of in 2022, and what it remains afraid of today. The lobbying against PBM transparency legislation is not primarily motivated by concern that specific regulatory proposals will work; it is motivated by the industry’s understanding that informed employers make different purchasing decisions than uninformed ones.<\/p>\n\n\n\n

The Role of Technology in Sustaining Transparency<\/h3>\n\n\n\n

Cost Plus has benefited from the analytical infrastructure that now surrounds pharmaceutical market intelligence. Platforms like DrugPatentWatch give employers and their advisors real-time visibility into the patent cliff for every drug in their formulary \u2014 meaning employers can anticipate generic entry, predict when the PBM’s spread opportunity will expand (immediately post-generic-entry) or contract (when ten generics compete), and time formulary switches and PBM contract renegotiations accordingly.<\/p>\n\n\n\n

The integration of patent intelligence with claims analytics is the emerging competency for sophisticated plan sponsors. An employer that knows \u2014 six months in advance \u2014 that a brand drug moving 50,000 units per year in their covered population is about to lose exclusivity, that three generic manufacturers have ANDA approvals pending, and that the first 180-day exclusivity period will end on a specific date, can pre-negotiate a formulary switch with their PBM at a time when the PBM’s leverage is lowest. This is not exotic \u2014 it is the application of publicly available patent data to a procurement decision, the way any sophisticated purchaser treats supply chain intelligence.<\/p>\n\n\n\n

That kind of intelligence was previously available only to the PBMs themselves and to the largest payers with dedicated pharmaceutical analytics teams. The democratization of patent and regulatory data through platforms like DrugPatentWatch means that mid-size employers can access equivalent intelligence without building proprietary research infrastructure.<\/p>\n\n\n\n

Pass-Through Pricing Goes Mainstream<\/h3>\n\n\n\n

The most concrete market change attributable to the Cost Plus environment is the mainstreaming of pass-through PBM contracts among large employers. The 2024 National Business Group on Health survey found that 34 percent of large employers (5,000+ employees) had adopted pass-through pricing in their primary PBM contract, up from 18 percent in 2021.[34] Employer coalitions including the Pacific Business Group on Health, the Midwest Business Group on Health, and the Business Group on Health have all published RFP template language that defaults to pass-through pricing as a baseline requirement.<\/p>\n\n\n\n

The irony is that the pass-through market has expanded most rapidly not through regulatory mandate but through the kind of market education that Cost Plus’s price transparency has facilitated. When employers see what drugs actually cost at manufacturer level, they become better-informed buyers of PBM services. Better-informed buyers demand better contract terms. The market is, slowly and imperfectly, working the way market advocates always claimed it would once the information asymmetry was corrected.<\/p>\n\n\n\n

The Regulatory Calendar: What’s Coming<\/h2>\n\n\n\n

Several regulatory and legislative events in the next 24 months are likely to shape how this story resolves.<\/p>\n\n\n\n

The FTC’s case against the three major PBMs is expected to produce either a litigated verdict or a settlement by 2026 or 2027. A settlement with structural remedies \u2014 requiring separation of PBM formulary decisions from affiliated pharmacy ownership, mandating pass-through pricing on government programs, requiring real-time disclosure of spread \u2014 would be transformative. Even a narrow settlement focused on insulin would establish remedies that employer plaintiffs could demand in private contracts.<\/p>\n\n\n\n

CMS’s implementation of the IRA’s drug price negotiation program will begin producing its first negotiated prices in 2026. The initial 10-drug list includes several products with no generic or biosimilar competition, meaning Cost Plus cannot directly participate in reducing costs for those drugs. But the negotiated prices will be published, creating a new public reference point for what Medicare considers a fair price \u2014 which employers and plaintiffs can use to argue that higher commercial prices represent the kind of excess margin that plan fiduciaries have a duty to avoid.<\/p>\n\n\n\n

Congress remains unpredictable. The bipartisan support for PBM reform demonstrated by the House vote on the Lower Costs, More Transparency Act has not yet translated to Senate floor time, partly because Senate leadership has faced more PBM lobbying intensity and partly because the IRA’s passage consumed the political capital available for healthcare legislation in the 2022 cycle. The 2025 legislative calendar has produced renewed bipartisan interest in PBM reform as part of broader prescription drug affordability packages, but no floor vote had occurred as of this writing.<\/p>\n\n\n\n

Can Cost Plus Scale to Threaten the Incumbents Structurally?<\/h2>\n\n\n\n

The honest answer requires separating two questions: whether Cost Plus can grow large enough to capture significant prescription volume, and whether Cost Plus’s existence permanently changes the pricing dynamics of the market even if it never fills more than a small share of total prescriptions.<\/p>\n\n\n\n

On the first question, Cost Plus faces real constraints. Its catalog of 2,500 generic drugs covers roughly 80 percent of generic prescription volume by drug class \u2014 but not 80 percent of filled prescriptions, because formulary design and copay structure limit patient access for the insured population. The biosimilar and specialty drug gap is substantial. And the company’s manufacturing capacity, while growing, is not yet sufficient to handle the volume it would need to serve as a primary supply chain for a large regional employer market.<\/p>\n\n\n\n

On the second question, Cost Plus has already won in a meaningful sense. Its price transparency has changed the baseline of information in the market. Its employer partnerships have demonstrated that pass-through pricing is contractually achievable at scale. Its political advocacy has contributed to a regulatory environment that is more hostile to PBM opacity than at any point since the PBM model was invented. The FTC case, the IRA, the state Medicaid reforms, the growing transparent PBM market \u2014 none of these happened because of Cost Plus alone, but all of them happened in an environment that Cost Plus’s existence helped create.<\/p>\n\n\n\n

The question ‘is Cost Plus the death of spread pricing?’ has a more accurate answer than a binary yes or no. Cost Plus is an accelerant of a structural shift that is already underway and that will take another decade to fully resolve. The PBM model is not dead. But its ability to operate in the dark has been permanently reduced, and each additional point of transparency \u2014 each employer that adopts pass-through pricing, each state that bans spread in Medicaid, each FTC enforcement action \u2014 shrinks the space in which spread pricing can survive.<\/p>\n\n\n\n

The Incumbent Counterplay<\/h3>\n\n\n\n

The incumbents are not passive. UnitedHealth Group’s acquisition of Change Healthcare, completed in 2022 after extended FTC review, gave OptumRx control of the clearinghouse that processes a majority of U.S. pharmacy claims \u2014 creating an informational chokepoint that gives the company visibility into competitor transaction data that other participants in the supply chain cannot access.[35] The market power implications of that acquisition are part of what the FTC investigated in its ongoing PBM study.<\/p>\n\n\n\n

CVS Health’s CostVantage model, noted above, is a genuine structural concession to the cost-plus framework \u2014 but it is a concession made on CVS’s own terms, under CVS’s own pricing architecture, with fees calibrated to maintain CVS Health’s overall margin. If CostVantage becomes the industry standard for retail pharmacy reimbursement, it will reduce spread pricing on the dispensing side without necessarily eliminating PBM margin entirely, because the PBM can adjust its administrative fee structure to compensate. The form changes; the economics may not change as much as employers hope.<\/p>\n\n\n\n

The clearest lesson from the past three years is that market structure reform in pharmaceutical distribution is slow, contested, and subject to determined institutional resistance. The Cost Plus model is correct in its diagnosis and in its prescription. Its impact on the full market will be measured over years, not quarters.<\/p>\n\n\n\n

Key Takeaways<\/h2>\n\n\n\n
    \n
  • Spread pricing \u2014 the gap between what PBMs charge plan sponsors and what they pay dispensing pharmacies \u2014 generates an estimated $6 billion per year in revenue for the big three PBMs, concentrated in the generic drug market where 90 percent of U.S. prescriptions are filled.<\/li>\n\n\n\n
  • Cost Plus Drugs disrupts this model by publishing exact manufacturer costs and charging a fixed 15 percent markup plus a $3 dispensing fee, eliminating the price opacity that spread pricing requires to survive.<\/li>\n\n\n\n
  • The patent cliff is the operational trigger: drugs with recently expired patents are most vulnerable to spread pricing because PBMs can bill plans at near-brand rates while reimbursing pharmacies at compressed generic MACs. Tracking patent and regulatory exclusivity timelines \u2014 using tools like DrugPatentWatch \u2014 lets employers time formulary switches to minimize spread exposure.<\/li>\n\n\n\n
  • The most actionable near-term intervention for self-insured employers is a pass-through pricing requirement in PBM contracts, which eliminates spread without requiring benefit redesign. Adoption among large employers grew from 18 to 34 percent between 2021 and 2024.<\/li>\n\n\n\n
  • The biosimilar market represents both the next frontier for cost-plus disruption and the hardest test of the model, because biologic patent thickets, BPCIA complexity, and PBM rebate arrangements create barriers to biosimilar uptake that simple price transparency does not fully resolve.<\/li>\n\n\n\n
  • Legislative and regulatory action \u2014 the FTC case against the three major PBMs, the CMS pass-through rule for Medicare Part D, and pending bipartisan PBM reform legislation \u2014 is accelerating the structural shift, but ERISA preemption leaves the commercial self-insured market with the least mandatory protection against spread pricing.<\/li>\n<\/ul>\n\n\n\n

    Frequently Asked Questions<\/h2>\n\n\n\n

    If Cost Plus drugs are so much cheaper, why do most patients still use traditional pharmacies?<\/h4>\n\n\n\n

    Copay design is the primary reason. Most insured patients face a fixed copay at a network pharmacy \u2014 say $10 or $20 \u2014 regardless of whether their employer is paying $15 or $400 on the back end. The cost saving is invisible to the patient at the point of purchase. Cost Plus is most impactful for patients on high-deductible plans who have not met their deductible, patients whose drugs are not covered by their insurance, and employees whose employers have specifically redesigned the benefit to waive copays on Cost Plus-catalog drugs. Until employers change the incentive structure, patient behavior will track the out-of-pocket cost signal rather than the system-level cost signal.<\/p>\n\n\n\n

    Can a pharmacy benefit manager simply refuse to include Cost Plus drugs in a formulary to protect its own spread?<\/h4>\n\n\n\n

    Yes, and this happens frequently. Because Cost Plus operates outside PBM networks, a plan sponsor whose contract requires use of the PBM’s pharmacy network cannot direct members to Cost Plus without the PBM’s approval or a contract modification. PBMs have no regulatory obligation to include Cost Plus in their network, and some have dragged their feet on integration. The structural response is for employers to negotiate carve-outs for direct-pay channels in their PBM contracts \u2014 a clause that specifically permits members to use Cost Plus for catalog drugs without a network requirement. This is now standard in well-negotiated large-employer contracts but is far from universal.<\/p>\n\n\n\n

    How does the Inflation Reduction Act’s drug price negotiation interact with spread pricing on generic drugs?<\/h4>\n\n\n\n

    The IRA’s negotiation mechanism applies exclusively to brand-name drugs with no generic or biosimilar competition \u2014 specifically, drugs that have been on the market for seven or more years (small molecules) or eleven or more years (biologics) without generic entry, and that represent the highest Medicare Part D spend. This is structurally separate from the generic market where spread pricing operates. The IRA does not eliminate spread pricing on generics and does not address the PBM intermediary margin on any drug. It addresses manufacturer list prices on a narrow set of high-cost brands. The interaction is indirect: lower negotiated brand prices reduce the absolute dollar value of spread on those specific drugs, but the generic market spread operates through a completely separate mechanism.<\/p>\n\n\n\n

    What is the legal theory under which an employer’s plan fiduciaries could be liable for allowing spread pricing in their PBM contract?<\/h4>\n\n\n\n

    The theory is straightforward ERISA Section 404 fiduciary breach: plan fiduciaries must act solely in the interest of plan participants and with the care, skill, and prudence of a reasonable person familiar with such matters. If a fiduciary knowingly selects or retains a PBM that generates spread pricing \u2014 extracting excess margin from plan assets \u2014 at a time when pass-through alternatives exist and are demonstrably less expensive, the argument is that the fiduciary has not acted prudently. The analogy to the 401(k) excessive fee litigation wave of the 2010s is apt: in that context, courts found that plan sponsors who retained high-fee investment options when lower-cost equivalents were available could be liable under ERISA. The pharmaceutical analogy is that retaining spread-pricing PBM structures when pass-through alternatives exist at equivalent administrative quality is the same kind of prudence failure. At least four class actions have advanced this theory; none has yet produced a circuit court ruling.<\/p>\n\n\n\n

    Does Cost Plus Drugs represent a viable long-term business model, or is it a venture-funded market disruptor that will eventually need to raise prices to survive?<\/h4>\n\n\n\n

    Cuban has stated publicly that Cost Plus is profitable on a per-transaction basis \u2014 the 15 percent markup and $3 dispensing fee cover operating costs at current scale. The company is not publicly traded and does not report financial results, so independent verification is not possible. The model’s long-term viability depends on two factors: whether it can scale volume sufficiently to spread fixed manufacturing and logistics costs, and whether it can expand into the higher-margin biosimilar and specialty drug markets where the unit economics are better and the competitive pressure from PBM formulary control is more complex. The risk of the ‘venture-funded disruptor’ critique is real \u2014 some of Cost Plus’s pricing may currently be subsidized by Cuban’s willingness to accept a lower return on capital than a traditional investor would require. But the fundamental economics of generic drug manufacturing \u2014 APIs that cost cents per dose, overhead that scales with volume \u2014 support a viable cost-plus model at sufficient scale without subsidy.<\/p>\n\n\n\n

    References<\/h2>\n\n\n\n
      \n
    1. Cost Plus Drugs Company. (2022). Imatinib product listing.<\/em> costplusdrugs.com. Retrieved from https:\/\/costplusdrugs.com<\/li>\n\n\n\n
    2. Government Accountability Office. (2019). Medicare Part D: CMS should monitor and improve the oversight of prescription drug plan formularies.<\/em> GAO-19-498. U.S. Government Accountability Office.<\/li>\n\n\n\n
    3. Drug Channels Institute. (2024). The 2024 economic report on U.S. pharmacies and pharmacy benefit managers.<\/em> Drug Channels Institute.<\/li>\n\n\n\n
    4. Prescription Drug Pricing Reduction Act of 2019, S. 2543, 116th Cong. (2019); see also Centers for Medicare and Medicaid Services. (2023). Understanding the pharmacy benefit manager industry.<\/em><\/li>\n\n\n\n
    5. IQVIA Institute for Human Data Science. (2024). The use of medicines in the U.S. 2024: Usage and spending trends and outlook to 2028.<\/em> IQVIA Institute.<\/li>\n\n\n\n
    6. Yost, D. (Auditor of State of Ohio). (2018). Pharmacy services in Ohio’s Medicaid managed care program: A performance audit.<\/em> Ohio Auditor of State.<\/li>\n\n\n\n
    7. Kentucky Legislative Research Commission. (2019). Spread pricing in Kentucky Medicaid managed care.<\/em> Research Report No. 458. Kentucky LRC.<\/li>\n\n\n\n
    8. Federal Trade Commission. (2022). FTC launches inquiry into pharmacy benefit managers.<\/em> Press Release, June 7, 2022. FTC.gov.<\/li>\n\n\n\n
    9. Drug Channels Institute. (2023). PBM revenue and earnings: 2023 edition.<\/em> Drug Channels Institute.<\/li>\n\n\n\n
    10. U.S. Food and Drug Administration. (2023). 503B outsourcing facility registration: Cost Plus Drugs Manufacturing LLC.<\/em> FDA.gov.<\/li>\n\n\n\n
    11. Cost Plus Drugs Company. (2024). Imatinib 400mg pricing breakdown.<\/em> costplusdrugs.com. Accessed December 2024.<\/li>\n\n\n\n
    12. Cuban, M. (2024, September). Interview with Axios. Axios Healthcare Newsroom. Retrieved from https:\/\/axios.com<\/li>\n\n\n\n
    13. Congressional Budget Office. (2019). Competition and the cost of Medicare’s prescription drug program.<\/em> CBO Publication No. 55260. U.S. Congressional Budget Office.<\/li>\n\n\n\n
    14. Federal Trade Commission Staff. (2024). Pharmacy benefit managers: The middlemen of drug pricing, interim staff report.<\/em> FTC.gov. July 2024.<\/li>\n\n\n\n
    15. Employers’ Forum of Indiana. (2024). Transparent PBM contracting: Employer case studies 2023-2024.<\/em> EFI Research Brief.<\/li>\n\n\n\n
    16. National Academy for State Health Policy. (2024). State actions to address pharmacy benefit manager practices: 2024 tracker.<\/em> NASHP.org.<\/li>\n\n\n\n
    17. Hinton, E., Rudowitz, R., & Antonisse, L. (2019). Medicaid managed care pharmacy benefits.<\/em> KFF Issue Brief. Kaiser Family Foundation.<\/li>\n\n\n\n
    18. Centers for Medicare and Medicaid Services. (2023). Medicare program; contract year 2025 policy and technical changes to the Medicare Advantage program, Medicare prescription drug benefit program, Medicare cost plan program, and programs of all-inclusive care for the elderly.<\/em> 88 Fed. Reg. 22120 (April 12, 2023).<\/li>\n\n\n\n
    19. Cubanski, J., Damico, A., & Neuman, T. (2023). How will the Inflation Reduction Act affect Medicare beneficiaries?<\/em> KFF Issue Brief. Kaiser Family Foundation.<\/li>\n\n\n\n
    20. Feldman, R. (2018). May your drug price be ever green.<\/em> Journal of Law and the Biosciences, 5(3), 590\u2013647.<\/li>\n\n\n\n
    21. U.S. Food and Drug Administration. (2024). Biosimilar product information.<\/em> FDA.gov. Accessed December 2024.<\/li>\n\n\n\n
    22. U.S. Food and Drug Administration. (2024). Interchangeable biosimilar products.<\/em> FDA.gov. Accessed December 2024.<\/li>\n\n\n\n
    23. Employers’ Forum of Indiana. (2023). 2023 pass-through pricing outcomes report.<\/em> EFI Research Brief.<\/li>\n\n\n\n
    24. Mercer. (2024). National survey of employer-sponsored health plans 2024.<\/em> Mercer Health & Benefits.<\/li>\n\n\n\n
    25. CVS Health. (2024). CostVantage pharmacy reimbursement model: Fact sheet.<\/em> CVS Health Corporate Communications. February 2024.<\/li>\n\n\n\n
    26. SmithRx. (2024). Company growth update.<\/em> SmithRx press release. January 2024.<\/li>\n\n\n\n
    27. Federal Trade Commission. (2024). FTC sues pharmacy benefit managers for artificially inflating insulin drug prices.<\/em> Press Release, September 20, 2024. FTC.gov.<\/li>\n\n\n\n
    28. State of Arkansas Office of the Attorney General. (2023). State of Arkansas v. CVS Health Corp. et al.<\/em> Complaint filed in Circuit Court of Pulaski County.<\/li>\n\n\n\n
    29. Lower Costs, More Transparency Act, H.R. 5378, 118th Cong. (2023). Passed House December 11, 2023.<\/li>\n\n\n\n
    30. Jaklevic, M.C. (2024). Employers face growing legal exposure over PBM spread pricing, attorneys say. STAT News.<\/em> March 14, 2024.<\/li>\n\n\n\n
    31. Federal Trade Commission. (2022). FTC seeks to block UnitedHealth Group’s acquisition of Change Healthcare.<\/em> Press Release, February 24, 2022. FTC.gov.<\/li>\n\n\n\n
    32. IQVIA Institute for Human Data Science. (2023). Global medicine spending and usage trends: Outlook to 2027.<\/em> IQVIA Institute. May 2023.<\/li>\n\n\n\n
    33. Academy of Managed Care Pharmacy. (2023). Specialty drug spending in the United States: 2023 update.<\/em> AMCP Issue Brief.<\/li>\n\n\n\n
    34. National Business Group on Health. (2024). Large employers’ 2025 health care strategy and plan design survey.<\/em> NBGH. August 2024.<\/li>\n\n\n\n
    35. Engelberg Center for Health Care Reform at Brookings. (2023). Pharmacy benefit manager reform: Options for the federal government.<\/em> Brookings Institution.<\/li>\n<\/ol>\n","protected":false},"excerpt":{"rendered":"

      A billionaire’s drugstore startup exposed the $6 billion arbitrage game inside America’s pharmacy benefit system. Now the entire supply chain […]<\/p>\n","protected":false},"author":1,"featured_media":38633,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[10],"tags":[],"class_list":["post-38627","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-insights"],"modified_by":"DrugPatentWatch","_links":{"self":[{"href":"https:\/\/www.drugpatentwatch.com\/blog\/wp-json\/wp\/v2\/posts\/38627","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.drugpatentwatch.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.drugpatentwatch.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.drugpatentwatch.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.drugpatentwatch.com\/blog\/wp-json\/wp\/v2\/comments?post=38627"}],"version-history":[{"count":1,"href":"https:\/\/www.drugpatentwatch.com\/blog\/wp-json\/wp\/v2\/posts\/38627\/revisions"}],"predecessor-version":[{"id":38634,"href":"https:\/\/www.drugpatentwatch.com\/blog\/wp-json\/wp\/v2\/posts\/38627\/revisions\/38634"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.drugpatentwatch.com\/blog\/wp-json\/wp\/v2\/media\/38633"}],"wp:attachment":[{"href":"https:\/\/www.drugpatentwatch.com\/blog\/wp-json\/wp\/v2\/media?parent=38627"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.drugpatentwatch.com\/blog\/wp-json\/wp\/v2\/categories?post=38627"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.drugpatentwatch.com\/blog\/wp-json\/wp\/v2\/tags?post=38627"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}