Curing the Trust Problem with Mark Cuban

0:00You trust your doctor, hopefully, but after that there is nobody in the supply chain or care chain that financial chain that you trust and nor should you. If you were just to walk in and didn't have insurance or high deductible insurance and you walked into one of the big three retailers, pharmacy retailers, you might pay $2 ,000 a month. Our price is depending on its grant, $14 to $61 a month. It's just insane the discrepancy. In the crazier part, the pharmacist who's ringing it up after having gotten the prescription, they don't know what they're going to be charging you until it appears. There's all these things that are designed only to get revenue from the insurance companies.

0:42That's it. Here at the A16C podcast, we have covered the American health care system a lot recently. And for good reason. If you miss those episodes, we covered how FinTech in particular may be playing its role in healthcare disruption. So go ahead and listen to those two episodes we'll link them in the show notes. But today we have one very familiar founder. You may have heard of him, Mark Cuban, who's also got his eye on the same industry through his company Cost Plus Drugs. This conversation covers a ton of ground, but in particular it touches on this idea this really important concept of inefficient markets.

1:23And inefficient markets don't just exist in healthcare so I think there's a lot of learnings here for founders in other industries. This is also a crossover episode from our sister podcast BioWheets World and I recently got a sneak peek into some of the guests they have coming on and there are some really big names just like Mark Cuban so make sure to go subscribe to BioWheets World where every you get your podcasts. Alright, Olivia, Vijay, Mark, take it away.

1:56Hello and welcome to BioWheets World, a podcast at the intersection of bio, healthcare and tech. I'm Olivia Webb.

2:09Today's episode is with Mark Cuban, founder of multiple businesses, owner of the Dallas as Mavericks, one of the sharks on Shark Tank, and co -founder of the Mark Cuban Cosplus Drug Company. He is joined by Vijay Pandey, founding partner of A16Z Bio and Health. Together, they talk market forces in healthcare, the importance of trust to patients, and Mark's ideas to tackle the Gordian knot that is American healthcare. Let's get started.

2:36Mark, thank you so much for joining us. Thanks for having me, Vijay. A lot of people would really be curious to hear about your arc as a founder and as a businessman. And in particular, I was really struck with the fact that you started early. Like you started business when you were 12. Yeah, like I love to hear your take on that and like what drove you to be thinking about business and startups and entrepreneurs and all behavior and stuff of young age? Necessity. You know, and in our household, if you wanted something, you had to earn it. And you mentioned being 12. I went to one of my dad's poker games.

3:11He had at the house with his buddies, and they were drinking and yucking it up. And I went in there asking him for a new pair of basketball shoes. I was a basketball junkie all the way back then. And he was like, you looked at my feet, he goes, those shoes look like their work. When you have your own job and you can afford it, you can buy your own. I'm like, that I'm 12, how can I get a job? And one of his buddies at the poker table was like, hey, I've got these boxes of garbage bags and you can go sell them throughout the neighborhood. And so I did put them in my little wagon, right? And I would literally walk around and you'd be, Hi, my name is Mark.

3:46Do you use garbage bags? You know, and here's to say no to a 12 year old version of this space. And so I learned to sell, which was the most important feature because once you know how to sell in your confident in talking to people and making an offer and being rejected, then it's just a question of picking up other skills. And then from there, I saw magazines door to door, But then like I was 15, 16 and I was looking at happy to pay for my own college. And so I started buying and selling stamps. I would go to stamp shows and stamps at that time in particular in coins were the least efficient market on the planet.

4:22And so literally I could go, I did this. I would go to one dealer in one part of the show. I picked something up. I think it was with 50 cents. When Overt said, look, based off of this catalog, this is this stamp, which is $50, I'll sell it to for 25 and sold it for $25 and I just kept on ramping that up and ramping that up and that helped me pay for a bunch of stuff and sold it in Indiana. And then when I got to Indiana, it was just every hustle all the way to earning a bar and you know, and so it just all just kept on going. And I think that the underpinning of it was if you can sell, if you can recognize where there's inefficiencies, if you're curious, if you can learn and those were kind of the because I learned that I could know more about this little stamp market as a 16 year old than the people who were doing the selling.

5:12There's so many inefficient markets and we'll get to it with healthcare that once you understand that, the opportunities are everywhere. But along the way too, you've also had to build teams, whether we're talking about the maps, we're talking about companies along the way. I'm curious if you have lessons for current entrepreneurs and training for sort of taking, especially a bunch of really high performing people, but how do you get them to work together? When you have a vision and you have a goal and you can align everybody towards that, it's really not hard to get gifted people to come along, even maybe take less than market wages if you give them equity opportunities.

5:48And I think that's really where I was able to really succeed with a lot of the companies I was in. Every company I've ever started, as opposed to took over, I've given everybody equity. You know my first company micro solutions we sold for six million a million of that went to employees We had 80 employees and so there were a lot of really happy people at the time You know broadcast audio net turned into broadcast comm and when we sold it for stock the Yahoo out of 330 employees 300 became a millionaires at least on paper at the time when we kind of told them to the hedge everything and It just went off from there HD net the same thing when we sold that and so when everybody's a participant that everybody is aligned and you can get people personal goals to align with your vision as an organization, it tends to work.

6:33Now, where things get off the rails sometimes is people, you know, bring on their own agendas. But that's one of the values or the benefits, I think, being in the middle of the country here in Texas. Technology is not the industry of Dallas, Texas. We get a lot of great smart kids and from University of Texas, that's from you and other great schools. and we get employees from TI and other great technology companies, but they're not always looking over your shoulder to the next founder or startup that they're going to create. And that makes it a lot easier to have a culture that's geared towards the success of your organization and everybody's participating in that upside.

7:12Yeah, the cultural part seems like a huge deal. How much do you feel like that comes from what you build versus geography versus how you pick the people? How do you build it? I think geography has a lot to do with it. Just the right guys, the mindset here in Dallas, the night and day different than New York, LA, you know, San Francisco, the Bay Area, just totally different. Whereas when I'd go into the Bay Area and the Valley, it was always, hey, we're the smartest. You know, we're dealing with you, where we've got an edge. And that's just, when you're dealing with that, and I've invested in companies there, but you know, talking to founders there, they have a completely different approach in mind that because their employees have a completely different approach in mindset.

7:53Wherever you are, wherever you're headquartered, wherever your bases are for however many offices, geography will have an impact on your culture. It's just a reality. Yeah, that makes total sense. So one last question on sort of the founder, or what advice would you give to your younger self? Like, what do you wish someone told you? I know there's often not a civil bullet, but I'm sure you've thought about it. I would say, don't screw it up. But you know, the interesting thing is there's two questions there. When you're just getting started, I would tell you that curiosity, willingness and excitement to learn, ability to sell, and ability to be nice.

8:32Those four elements, I think, I wish tell me would have told me to be nicer, because I was always go, go, go, go, go, go, go, go, ready fire aim. Let's go. Let's go faster, faster, right? And sometimes it took my partner Todd telling me, Look, you're scaring some people. You're going awful this, then. They're typically going to go and you can't get mad, or if you have, you know, I would get mad if I thought people didn't use my version of common sense. And so you can't do that, right? Because people are not going to be happy with that. And I think the other thing I would add that I think I did right, I was always geared towards profitability, not geared towards just getting my next rate.

9:11When raising money was a necessity, it was a necessity. But I've always tried to teach entrepreneurs that raising money or borrowing money is not an accomplishment It's an obligation and particularly still right now in this market and so gearing towards profitability I think is a message along with you know being curious learning selling etc What brought you that healthcare like right out here of all the things you know you could be doing I started about five six years ago when the Republicans took the White House having friends that were part of that here in Dallas for better or worse, there was the desire to overturn the D .A .C .A.

9:47And so I was like, okay, that's great. What are you gonna replace it with? You know, we started having these conversations that were just intellectual conversations. What would we do if we were gonna change all this and that got me into it and then about 20 late 2018, I think it was maybe early 2019. I got a cold email from a doctor, Alice Ashmeyancy He was a radiologist by training who was super smart and he was starting a compounding pharmacy in Denver. And the goal was to be able to take generic drugs that were in particular on a shortage list, shockingly enough, there are generics that go on shortage lists, you know, and are hard to come by.

10:22And selling them at a reasonable price, knowing because they're in shortage, that there was demand. And as we started going back and forth and I'm peppering with questions, this was also right around the time and the farmer broke, I thrown in jail or the conversation was loud. And I was like, look, if he can jack up the price of the dare print by 75 % that's an inefficient market. And if he can jack it up by 75 % there must be an opportunity to cut it by some amount as well to be able to sell. And then as we started digging into it more, you look, the tech industry has a ton of acronyms, right?

10:55TCPIP, SPACs, they're... Have you made them? Why in different languages? it is nothing compared to the pharmaceutical industry. The pharmaceutical industry has 50 different acronyms for a price, you know? And so the other thing that came to the forefront very quickly was our competitive edge could be transparency. Just showing people what we're doing would create such a differentiation and it would overcome what I think is the number one missing element in healthcare, which is trust. No, you trust your doctor, hopefully, but after that, there is nobody in the supply chain or care chain, that financial chain that you trust, and nor should you.

11:39And so, because of that, that's really was the genesis of CosplusDrugs .com. And it took us several years to get all the licenses, get all the agreements, get all the software done, and the software was just basic stuff, right? API stuff and website stuff. But it took us a while, and then it took us time to get everybody to believe that we were real. So we weren't just the next company making big claims and that's why I put my name on it. If the only company I put my name on it as Mark Cuban Cosplus Drugs. But once we got started, we launched on January 19th of 2022 with our website. So if you go to CosplusDrugs .com, you can look up to see or if your medication is any of the 1100 plus we carry.

12:17And since then, it's just blown up. It's been insane. Well, what do you think about the concept of market forces in healthcare? It's hard to have market forces when there's no transparency and people don't even know what the price of it is. You know, if you think about the process of getting a prescription, the doctor says you need this medication. And the next question isn't what is a clause with the best way. Next question is what pharmacy do you use? And then you go to the pharmacy and you hope your healthcare insurance covers everything that it needs to cover. If you're a big company, you all probably already know.

12:49If you're a middle -sized company, you may not know if you're a small company or a nonchipinor or individual market in Rolly, you're terrified. You have no idea what's going to cost. In the crazier part is the pharmacist who's ringing it up after having gotten the prescription, they don't know what they're going to be charging you unless it until it appears. And so there's all these inconsistent things in this completely opaque industry. And so it was ripe for disruption. And the business model was very simple. We buy drugs. We sell drugs. And when you go to CosplusDrucks .com, you put in the name of the drug.

13:24One drug that we have a huge discount compared to every bail, is a chemotherapy drug called a matknip. And if you were just to walk in and didn't have insurance or high deductible insurance, and you walked into one of the big three retailers, pharmacy retailers, you might pay $2 ,000 a month. Our price is depending on strength, 14 to $61 a month. It's just insane the discrepancy, but when you go to costplusdrugs .com and you put in a mat number or any of our medications, you see our cost. You know exactly what we pay for it. You see our markup, 15%, you can decide if that's fair or not. You see our pharmacy fee, right now it's $3.

14:03It's probably going to go to $5 here in the summer just because our costs are escalating, pharmacy costs are escalating, and then $5 for shipping. And so you know exactly what you're going to pay and why. And that's accomplished two things. It's built trust because people realize we're not stealing, We're not jacking things up, compare them to other sources, or they can compare them to what they've paid, or their companies have paid. And the other thing is, it's created a benchmark. What we didn't expect that's happening now is there's re - there's like Harvard went and took a bunch of our medications early on and compared them to what Medicare was paying and realized that for just a limited number of generic medications, we could save the taxpayers $3 .6 billion a year.

14:47A couple of urologists at Vanderbilt did the same thing for I think seven -year -rology drugs, and it was $1 .2 billion a year. Our government officials at Medicare, CMS, et cetera, just really never had reference pricing that was legit that they could use. And by providing that, again, in Genders Trust, and opens people's eyes that were the real deal. Originally, it seemed like this was going to be about generics, but you recently signed a deal for two non -generics. What does that look like, and where you keep on going? What's the future look like? Fundamentally, there are a couple problems that pharmaceutical manufacturers have.

15:24And it's easier for generic manufacturers to deal with them because typically, not always, but typically for a generic medication, there's competition. So we could go in there and, you know, even at lower volumes, at least find one of the competitors and have the opportunity to sell it. So the generics were the low -hanging fruit for us to get started. But they also, when you talk to generic manufacturers, they feel demonized as well. Brand manufacturers definitely feel demonized because when anybody talks about the price of medications in this country, oh, it's the pharmaceutical industry. It's the manufacturers that are the bad people that are jacking up the price.

16:01Look at insulin without realizing, well, the retail price of a violence that may have been $300 some dollars, but the net revenue to Lily, and it's clear in their courier on this conference call, as they talk about it, was in the 20s. And so initially by working with generic manufacturers, that kind of proves a concept, allowed us to gain a base of customers and talking to the brand name manufacturers, they hate the system. They absolutely hated their demise. And they don't like the game of having to kiss up to the PBMs, the big three PBMs. And the influence they have on pricing and patient satisfaction, information access, all the above.

16:40And so we talked to Janssen, part of J &J, and we've been working on this for invocana and the most the variations of it for over a year now. And just the contractual side of it is the difficulty. It's not the desire by the brands to work with us. It's just dealing with all the contracts because the big three PBMs don't want this to happen. What's the grandest vision of this? Like do you become a PBM? No. Well, in essence, we could become a PBM, but we'll work with any PBM that doesn't do rebates. So, Imsana and there's other ones that you can see on the Cosplus drugs .com website that we partnered with.

17:16We'll work with anybody that doesn't support rebates or any kind of ancillary cost additions. That's what creates the distortions in pricing. And then you get a misalignment of incentives because when people don't realize there's a lot of talk now about the bad side of PBMs. But what they're not discussing is the fact that the PBMs either own or are owned by big insurance companies. And they also own the big three pharmacy retailers. And so when we looked into it, our basic evaluation was these PBMs have at least 200 of not 250 different subsidiaries. And so what's happening now, they know because as long as they keep the pricing opaque and the supply chains opaque that they can left pocket, right pocket all the revenue.

18:05So if regulation comes across where the PBMs can't do rebates or they have to modify their rebates, reduce their rebates, they'll get it out of a copay aggregator or they'll charge at the retail level and the patients will pay it there or they'll come up with some other type of play that allows them to accrue more revenue because the one thing we haven't heard, despite all this discussion of regulation and the regulations we've seen, You don't hear any of those big three companies talking about declining earnings or revenues. We started our chat by talking about these arbitrage possibilities, you know, that you can go businesses on and in a sense, this is kind of an arbitrage possibility that people are charging things and you can do better.

18:45But like, people's lives are kind of a different thing than buying a car or buying soap or something like that. Because there's no alignments between patient outcomes and healthcare companies profitability. And there's a lot of discussion about accountable care organizations and value -based pricing. They've already failed. And the reason why they've already failed is because the benchmarks they used to create value is relative. It's like there's a thing called MedPAC that sets the baseline prices of Medicare. And the baseline benchmark for that was from 1993. And it's never been, you know, it gets adjusted, but it's never been rethought.

19:20Is that the right way to do it? When you go, you talk about market forces, you know, this is too much information, but But I decided this colonoscopy to get a CT colonoscopy, okay? And so instead of the rotor rotor kind, and so I went to local hospitals and looked at all the priceless which are online. And it's insane. So the biggest insurance companies for a CT colonoscopy and they show all the different deals and everything. Each insurance company got multiple deals with that same hospital when they're all different prices. and the cash price, 25 % of it. Now, if there were market forces at play, the bigger player should have been able to get better pricing.

20:03There shouldn't have been five different prices for each insurance company for the hospital and their network, but there's not an alignment with market forces or for profitability with the patient. It is now. You need to fail. Insurance has failed. And I'm not here to tell you I'm for a single pair. I'm not. What I am here to tell you is that insurance companies as much as they do a lot of talking about better patient outcomes and they do some things that do help, you cannot be the driver of 30 to 40 % of hospital and healthcare costs or a provider to deal with the administration and revenue collection and revenue identification and call it, you know, a market force able industry.

20:51You just can't. Yeah, aligning in senses of profit and patience are well -being makes a ton of sense. A healthcare operating system that reflects the current operations of healthcare is doomed to fail because you're taking a broken model and replicating it and adding efficiencies on the margin. You know, I tried to get involved with the hospital here recently and they went follow through that I saw that they were for sale was small in in North Texas, and all I asked for were the absolute cost and variable costs. I don't want to know about administration, how you code. I don't want to know about, you know, revenue enhancement cycles.

21:27I just want to know what their nut was that they had to hit every month. So that I can figure out a different way to create revenue. They wouldn't do it. They couldn't do it. I tried to pay for a study that asked the foes of major hospitals what the cost accounting they do. None would participate. Yeah, and so you're speaking to like the bigger problem of like misaligned incentives, lack of transparency, but I agree with you about the limits of single payer, but then what we have left, like what's the way forward? If you go to the origins of pharmacies, in the 1950s, pharmacies, bot medications, they sold medications, they gave you advice, right, on what not to mix and match.

22:09And we went right back to that. The origins of hospital health care insurance was they went to the local communities and they went to individuals and they went to businesses and they went to unions and they said, you know, here's our, here's the amount of revenue we need to break even and make a little bit of money. If you all contribute that, we'll provide all the services that we're allowed to provide and maybe we'll even be a dowel to pull in some crypto term. Well, we'll let the community decide what services retain and what services to add in the cost associated with it. That's what's going to need to happen.

22:44Now, think about what happens when you do that. You guys are familiar with healthcare. There's medical coding, right? There's MCR, Medicare, cost reports. There's all these things that are designed only to get revenue from the insurance companies. That's it. Coding isn't about better healthcare, even though you use it. Medicare, cost reports can be used for analysis, et cetera. But the reality is, it's just a cost associated with generating revenue from the insurance companies. And those insurance companies change those contracts every year, they change the networks that you need even more in the registration.

23:17So you've just got to say slice those out completely. You're describing like help gear driven by consumer forces and like where consumers are the customer we're instead of basically the payers being the customer. But it's got to be more of a Netflix model. You know, it's tell us more, what do you mean in my Netflix model? Meaning that you know, whatever Netflix has in their library, you get for what price? Yeah. It doesn't say I can give you every movie anytime, anywhere, every show, but whatever, especially whatever value we can create from a, you know, a content perspective, you get for this price during this period of time.

23:52And it's a silly analogy at some levels, but it's true that if a hospital has X number of doctors for X specialties and they can offer it, and this is what the community feels it needs to support itself, then the community knows, let's just say pick a number out of the year. It's $100 million a year for fixed overhead and estimated variable costs. So we have to generate $100 million this year, $110 million next year, just break even, right? And we'll play to break even. Now all of a sudden you can go to the community, go to the city, state, county, you know, local businesses, local people, and say, okay, how do we create $110 million to support this community?

24:30And once you extract all the other mischegos, right, all the overhead that's associated, that's designed to hide and deflect and everything else, now you can start looking at a market -based model that truly works. And it stays market -based because, well, let me have one thing. It's got to be 100 % transparent. It's got to be a system where your general ledger is open and available 24x7 on a read -only basis to anybody who wants to see it. Think about what happens then. We're already in a world where people are talking about more transparency for salaried and earnings. So maybe some doctors might not feel comfortable with that or nurses or janitors might not feel comfortable with it.