Why Healthcare Costs So Much . . .
Having been a part of supply chain for decades, it was left to me to understand more than distribution. knowing the actual cost provides a foundation to negotiate. I would cost-model components right down to the materials. Having such detail and understanding the other costs allows you to have a basis to negotiate. And yes, you may be off a bit.
Elon Musk Wants to Know Why Healthcare Costs So Much — Mark Cuban Gives Him the Reasons Why CEOs Like Him Are Making It Worse, Benzinga
When Musk posted on X in December questioning why Americans pay so much for healthcare without seeing real value, he echoed a frustration shared by millions. Citing the fact that the U.S. has the highest healthcare administrative costs among Organization for Economic Co-operation and Development countries, an account called The Rabbit Hole pointed out the disparity.
Musk responded bluntly: “Shouldn’t the American people be getting their money’s worth?”
Cuban fired back in response to the post, and he didn’t just blame the government. Instead, he put the heat on CEOs of self-insured companies, including Musk, for signing contracts that make drug prices worse.
“The key is the contracts CEOs of self-insured companies sign. The PBM contracts YOU have signed for Tesla, SpaceX, and X have more impact on healthcare costs than anything you can do with DOGE.”
PBMs, or pharmacy benefit managers, are intermediaries between insurers, pharmacies, and drug manufacturers that negotiate lower drug prices and manage prescription drug benefits.
Mark Cuban’s 7-Point Reality Check for CEOs Like Musk
- Where company CEOs screw up . . . Cuban laid out seven ways those contracts are keeping drug prices high and hurting employees. His exact list stated they:
- Don’t control their claims data.
- Don’t control their formulary.
- Pay more for “Specialty Drugs” that have nothing special about them.
- Get rebates that are paid for by your sickest and oldest employees, resulting in higher deductibles and co-pays impacting the wellness of your workers and their families.
- Cause independent pharmacies to be reimbursed for less than their costs for brand drug scripts for your employees and families, causing them to go out of business.
- Can’t talk to manufacturers to put together wellness programs for things like GLP1s, and
- Signed a PBM contract with an NDA which prevents you from publicly discussing your PBM contract, resulting in an opaque, inefficient market, which leads to higher prices and lower quality of care for the entire country.
“All of this allows the big PBMs to continue to distort the pharmacy market for literally EVERYONE,” he wrote.
Cuban’s Plan or Way to Fix the Seven Issues.
Cuban is not just pointing fingers. His company, Cost Plus Drugs, is working to cut PBMs out of the equation entirely and sell drugs at transparent, low-cost prices directly to consumers.
Here is how Cuban makes it work:
- Direct Negotiation: Instead of going through PBMs, Cost Plus buys directly from manufacturers and passes the savings on.
- Transparent Pricing: They show the actual cost of the drug, add a 15 percent markup, and charge a flat three-dollar pharmacy fee and five-dollar shipping.
- Manufacturing Their Own Generics: Cuban is building a drug manufacturing plant in Texas so Cost Plus can produce generics at rock-bottom prices, especially for life-saving medications that PBMs drive up.
Will CEOs Like Musk Step Up?
Cuban’s argument is simple. CEOs have more power than they realize.
Whether Musk and other CEOs take action is uncertain, but PBMs are facing more scrutiny than ever. With rising frustration over healthcare costs, more companies may start questioning the contracts they sign and looking for better ways to manage prescription drug expenses.
“Transcript for EP418: Mark Cuban with Some Advice for CEOs and CFOs of Self-insured Employers, With Mark Cuban and Ferrin Williams, PharmD, MBA, From Scripta | A Scrupulously Fair Assessment of What is Wrong and Right about American Healthcare,” A Healthcare Industry Podcast
Knowing your business goes a long way in being successful. Even the smallest buyer of a product or materials can achieve concessions in purchasing product or materials. You have to know your costs, demand, and the market in which you are competing. Too many upper-level managers do not take the time to understand the business and leave such decisions to the lower levels who may not have a broader view.
There were things like MRPII and ERP which allowed the planning of a business from the top to the bottom and the bottom to the top. This is what Cuban is touting. Know your business.
Knowing the business as a customer makes things easier for suppliers, and they’ll often pass some of the savings on to you. A friend of mine was a specialist in poured concrete projects and she always had her form work and site ready on time. It took a little while, but the concrete suppliers started to recognize this and, more important, appreciate this. Apparently, they had never before dealt with a customer who would give them a date and then have everything ready on time. There’s an old saying that one doesn’t have to be different to be good. Being good is different enough.
There are a lot of reasons why healthcare costs so much in the United States. The reasons mentioned are relatively minor since pharmaceutical costs are only 11% of healthcare spending. That doesn’t mean that they shouldn’t be addressed since pharmaceutical costs are growing from 7% in the ’90s to 11% in 2022.
To really address the cost issue would take a radical restructuring of the healthcare system that would piss off conservatives and liberals alike, not to mention stockholders of healthcare companies (insurance companies, healthcare provider companies, pharmaceutical companies, doctors) and patients.
The basic problem is that the consumers of healthcare have no skin in the game. They either have insurance and their treatment is paid for or they don’t have insurance and they won’t pay. Either way they are price insensitive consumers. It is difficult to solve because there are many people with no (or little) money that do need healthcare. As we saw with student loans, when someone else pays (or payment is deferred in the case of student loans) demand (students) increases and so does costs (tuition, etc.) but results (real college level employment and salaries) are not improved. The easiest good way to change (as opposed to the best way to change) would be to have preventative and acute care be basically free (public insurance) but non-palliative chronic care (like cardiac artery bypasses, etc.) be covered by private insurance. This is done in Australia and they only spend around 10% of gdp on healthcare and they have much better results than in the United State.
@Pre,
All the other industrialized nations on the planet manage to insure all their citizens for half the cost of US healthcare. How does your “skin in the game” hypothesis explain that?
Pre:
How much is one dose of Rituxan? This is a cancer treatment and it is also used for treatment of other issues. Maybe IVIG also? Pick one. Both have been around a while.