The Real Price of Healthcare with Mark Cuban

0:00When you look at healthcare, the first thing you think is we hate it. The second thing you think is no one can figure it out. The third is it's opaque. You know how much you spend on healthcare, but you have no idea what you're spending it on. You have no idea why it costs, what it costs. You know how much we've spent on marketing and advertising? Zero. Because transparency is the best salesperson ever. Of all the businesses I've ever started in my entire life, This has been the easiest. If you are an avid listener of the A16Z podcast, you'll know that we had Mark Cuban on last July, to discuss the opaque healthcare industry and what he's doing to change it with his company, cost, plus trucks.

0:43But since then, a lot of headway has been made, so we decided to bring Mark back on. In this episode, recorded at our A16Z American Dynamism Summit back in January, Mark Brakesdown precisely why things are so complex and how much money is being left on the table Like how a drug that literally cost $10 ,000 could be brought down to 50 or even how he recommends companies have their very own healthcare CFOs Together with A16Z General Partner David Yulovich, Mark also touches on other major topics that our country is facing from education to ensuring widespread entrepreneurship across the nation Given that healthcare is one of the biggest industries in America at over $4 trillion and roughly 20 % of the country's GDP, it should be no surprise that it's also one of the most important challenges we're solving.

1:33This is not one to miss. As a reminder, the content here is for informational purposes only. Should not be taken as legal, business, tax, or investment advice, or be used to evaluate any investment or security, and is not directed at any investors or potential investors in any A16Z fund. Please note that A16Z and its affiliates may also maintain investments in the company's disgust in this podcast. For more details including a link to our investments, please see A16Z .com slash Disclosures.

2:07Well, first of all, I want to thank you for being here. You've been an inspiration to countless entrepreneurs throughout the country and around the world. You've been a great entrepreneur yourself. And I think we all know you, in addition to the Dallas Madras, but from Shark Tank, but you have a new mission, and you have done something and tackled something that I think a lot of people feel like is this opaque and penanceable industry, which is the healthcare industry, and everyone knows it's broken, everyone knows it's got problems. I think a lot of people have no idea how it works. You have G -Syfer, at least a part of the code.

2:39Tell us what you were doing with Cosplus drugs. It was funny, I got a cold email from a radiologist, Dr. Alex Asmiansky, and he was like, like look I've got this compounding pharmacy in Denver I want to build where we're going to take generic drugs that are in short supply, manufacture them there and sell them. I'm like you're thinking too small. I'm like let me look at this industry and see if there's an opportunity that I think that can be bigger. And when you look at healthcare the first thing you think is we hate it. The second thing you think is no one can figure it out. The third is it's opaque and definitely not transparent.

3:08So it was a really simple leap to say what if we created a company, costplusdrugs .com. Once we got that URL, that was the name. And we published our costs. We published our markup, and we published our price list. So now when you go to costplusdrugs .com, write that down, costplusdrugs .com. It's a good name. And you put in the name of your medication. We've got about 2 ,450 right now. That number's growing every day. The drug will come up, and you'll see our cost. You'll see that our markup is 15%. You'll see that if you buy it mail order from us, you'll pay $10 for shipping and a pharmacy fill fee We also have a retail network with building right now if you buy there.

3:52It's $9 but the same price and by doing that That's changing everything Because think about what happens when you get a medication prescribed you the doctor says okay, you need to stroke What's the next question what pharmacy do you use? It's not, here's some options, it's not what is it cost or can you afford it? It's always just, here's the pharmacy. So now all of a sudden, people started coming to us and realizing that they were getting ripped off. I mean, I can tell you story after story after story, a friend of mine who was in a horrific car accident, needed a drug called Drakshodopa. I had no idea what that was.

4:30And so I'm like, Landon, let me look it up. He goes, I'm going to have to pay $10 ,000 every three months. I just lost my insurance. Can you help? I'm like, okay, let me look to see if we can carry it. Okay, we can carry it landed. Let me find out the price. Those three months, it'll cost you $50 a month. Crazy. And how can they get away with it as a question? Well, if nobody knows any pricing, nobody knows any better. And by publishing our price list, now researchers from Harvard and Vanderbilt and other research organizations are taking our price list and comparing it and saying, Look, here are three urology drugs that if CMS would have purchased through CosPlus instead of current sources Would have saved the government $3 .6 billion or here at nine heart medications whatever it may be and so just transparency Is a game changer in this industry?

5:19So are you only selling the consumers right now? Or can you also sell to a government buyer or I'm glad you asked that we just started CosPlus wholesale because what was happening is we had hospitals and others who couldn't buy at our pricing, at our retail pricing. And so now we're selling to them. So explain a little bit to folks how, because it's kind of crazy that something could cost $10 ,000 previously and you're selling it for 50 bucks. How did the system get to this point of opacity where different hospitals pay for different prices for different drugs? Most people just think that when the drug makers sell a drug, it just costs one price.

5:54How did they get to be this system where all the price variability, even within a metro a region is different. How did we get there? You guys talk a lot about regulatory capture, right? Where we say there's also something called scale capture. Think about for all of you who are entrepreneurs, if any of you self -insure, or if you're CEO, CFO, and self -insure, you know how much you spend on healthcare, but you have no idea what you're spending it on. You have no idea why it costs, what it costs, right? And the PBMs and the big insurance companies, they know that. They know that they're big and you don't truly understand the nature of your cost of your health care.

6:34And look, I was just as stupid. Literally, like for my companies, we have about a thousand lives that we cover since I just sold a big part of one of them. And for those thousand, 700 employees, I was paying $30 a month per employee to an employee benefits manager. I'm like, what do you do for me? And I've been working with this guy for 20 years. What do you actually do for me? Well, everybody else gets a 5 % increase. We kept you to a 3 % increase. I'm like, but what do you actually do for me? Nothing. Nothing. Bam, cut him out. I think I had an office space that moves the paper from over here to over here.

7:08Pretty much, right? So that's $2 million gone. I guarantee you, if all you just cut out your employee benefits managers, you would save millions, and that'd be your best fundraiser you've ever done. Then I looked at my insurance companies, and I said, well, I sell for sure. And then right around that same time, my son had something happen. He's 14 and he was going to the hospital and my wife's like, okay, I'll just get the insurance card and we'll go take him. I'm like, no, no. Don't use the insurance card. Take the credit card and when you get there, ask for the cash price. Because I'd already looked it up.

7:40The insurance cost that they were going to charge me. My insurance company, that my employee benefits person, supposedly, had just negotiated a great rate, only a small increase, right? was going to charge me $2 ,200 by paying with a credit card. It was $475. And I'm serious, just for your own companies, if you self -insure, if you gave your company like, what is it, Brez, or whatever, build .com card, and just let them use that, you will save money. So we looked at our insurance and said, my cost for a family of five for a year was $26 to $29 ,000 a year, which is kind of typical. And we paid the whole thing or employees didn't pay anything.

8:15I'm like, I'm prepain this to the insurance company and premiums, and they can't even negotiate a good enough price for me just walking in with a credit card. So what did I do? I'm kicking to the curb. So now all of a sudden, I've got all this money and premiums that I'm not having to pay out. So we go to the local hospitals, provider networks, primary care, telehealth, everybody, and we say, look, one of the challenges you have is you have to deal with pre -authorizations. We only have 700 employees a thousand lives. We're going to trust you because if we can't trust you, we're not going to do business with you We're going to audit you after a year Number two, right?

8:54A big part of your losses and your expenses and your overhead is A you have to have all these administrative people to deal with all these different networks that you have with the big insurance companies And B you're responsible for the finances of the copays of all of your employees here So if any of your employees have a copay and they go to the hospital the hospital takes the AR risk, not you, they do. And we said to them, okay, we'll pay cash up front, just like the whole credit card cash thing. What's our price gonna be? Now the typical network price negotiated by the big insurance companies is 250 to 275 % of Medicare rates.

9:32Price we're negotiating right now? 80 to 100 % of Medicare. Now that 250 to 75, I was paying out of pocket as a self -insurance, so were you. So now we've walked in, and now we're direct contracting across the board. And we were able to do this. And the third and most important thing of all of this is we're telling all the provider networks that we're working with, we're transparent. That's what we do. We're publishing every contract with every price and every detail so that every small to medium or large business can copy exactly what we're doing. and we've filled millions of scripts and we think we have 17 % at cost plus, 17 % of the cash, miller to market.

10:13And you know how much we've spent on marketing and advertising? Zero. Because transparency is the best salesperson ever. When we start publishing all these contracts that we negotiated, your business is going to blow up. So now we're in the process of finishing all those negotiations and what we've done to the pharmacy side will do to the healthcare side as well. And for each and every one of you out there looking to raise money quickly, cut your pharmacy benefits manager. Cut your big insurance company if yourself insure. If you use a big three PBM, you're getting ripped off. So you asked the question, David, why are these prices so disparate?

10:52Because the big PBM, can you explain what a PBM is? On pharmacy benefit manager? Okay, because I think that's a term that most people don't know. It's part of that opaque middle man environment. Which is crazy, right? Because all of your drug spend goes through a pharmacy benefit manager of PBM and there are three of them that dominate the industry with 80, 90 % market share. And you know what unique services they offer? None. More of the office space paper moving. More, right? And initially when they came in the bean they went to companies and said, look we're gonna negotiate the formula because you don't want someone selling you drugs, you don't want.

11:29Okay, back then maybe that was worthwhile. But now they use that to say, we don't carry that truck. So there's a bio similar for Humira, which is the highest revenue generating drug, called You Simri that we sell. Humira is about $68 ,000 a month. You Simri is about $700 a month. But they won't add You Simri to their formulas because they don't want to use the revenue in the margin. So what do they do instead? They take a chunk of that delta that they're keeping and they get rebates from the manufacturer and they put part of it in their pocket and part of it in your pocket. And so a lot of you in here at your CFOs get this check from the PBMs thinking, oh see, I negotiated a good deal.

12:13Now, because that money should be coming direct back to you, but it gets even worse. The rebates that those of you are getting take, You know who pays for those rebates? Your oldest and sickest employees. Because they're the ones that have the copays, and they're the ones that have the most chronic illnesses, and they're the ones that are subsidizing all those rebates. So here you are, if you're self -insured like I did, and these are all things I went through to figure out from my own companies, right? If you're using employee benefit manager, you're making a mistake. If you're using one of the big three insurance companies, you're making a mistake.

12:51If you're using a big 3 pbm, you're making a mistake. One other thing I'll suggest, historically, healthcare costs have gone through HR and a little bit of CFO. Now's the time for each and every company with over, let's just say 100 employees to bring in a healthcare CFO. That's dedicated specifically. So the $200, $300 ,000 you pay that person depending where you are, We'll be able to do all these things I've just talked about. Because after your payroll, your biggest expense is probably healthcare. And an end -getting cheaper. And so by paying attention to the details of these things, you will save so much money and more importantly, you will change the entire healthcare industry.

13:38So when we all talk about changing the healthcare industry, how messed up it is, and how it's awful, and everybody hates it. You know who's responsible for it being a mess? We are. Not the government, not the big insurance companies, not the big PBMs. It's starting with me, my ignorance, your ignorance that keeps this business in business. If five of the Fortune 50 companies walked away from the big three insurance companies in the big three PBMs, they'd have to change their business models and then immediately, immediately the entire healthcare system would change. By having all those contracts that you sign, the first line in the contract says, you You cannot share this, you signed an NDA, do not show it to anybody.

14:19If you strike those and publish those contracts, you immediately change the entire industry. And you know what will happen as a result? Costs will go down, not slowly, quickly. So we all can take responsibility for changing the healthcare industry, and it's not a complicated industry. Of all the businesses I've ever started in my entire life, this has been the easiest. That's crazy. because it does seem very opaque. And I think listening to you, first of all, super messed up about that most vulnerable, the oldest patients being the ones bearing the brunt of the cost to get passed on as rebates, that's just messed up.

14:55It's crazy. Think about it. There is a Wall Street Journal reporter or CDMBC reporter sitting here somewhere and if you're a big company, CEO or CEO or CEO, they're staring at you right now. Yeah, well, you've made every CEO in this room who has, you know, a hundred or two thousand employees feel pretty dumb now about just paying that broker. Well, I felt dumb. I mean, yeah. I mean, like I sat there and I said, okay, but now they have a path forward. Higher healthcare CFO. Yep. And dig into the details. Because it's hard, your core competency as a CEO is not your healthcare business. But if you self insure healthcare is your business.

15:27So you say, like this is not that complicated of a business, I think that you're not giving yourself enough credit. I think it is a complicated, it's a very opaque business. It may not be complicated. That's what's simplified. Very opaque business. You just find all these people in the middle taking all this money and marking things up and making the pricing as non -transparent as possible. But is there a role in the government, I did a bunch of reading leading up to this, it does seem like there are a few very large PBMs, they've verticalized, you just talked about, you have kind of a scale mode, but is that something where the government should play a role and say, hey, wait a minute, two hospitals right next year are there, they should have the same price for the drugs or things like that.

16:02What role does the government play in all this? I just think the big PBMs and big insurance companies, they often own each other or faster smarter, and that the more you try to legislate it, the more influence they'll have, and the more capture they'll have. That said, probably the only place that I would dig in and consider pushing for legislation is to protect independent pharmacies. If you do business with any of the big three B .M.'s or insurance companies, you are putting independent pharmacies out of business. Your grandma, your grandpa, your aunts, your uncles, right, that go to that same pharmacist for 20 years, that same pharmacist is struggling, struggling to stay in business.

16:44And so if you're dealing with one of those big three pBMs, it costs an independent pharmacy, probably $12 give or take on the location to fill a script. They're paying them 50 cents, but it gets worse, right? For Medicare fills, Medicare Advantage fills, there's these thing called direct DIR fees, right? and they're charging them these fees up front so that your wagovie or your eloquist, they're losing 10, $15, $20, $30 every time they fill it. And so they're trying to send them to the CVSs and the Walgreens and the world so they don't have to fill it. And you guys are helping them put them out of business.

17:22So from a legislative perspective, I would be fine with saying the minimum paid by any big 3PBM that has more than X percent of market share is $12. Do you think that you talk about this healthcare CFO? Is it really reasonable for a CEO of a thousand person company to really say, I'm going to start calling the local hospitals in my area and negotiating my own rates? Is that really the model forward? Or is a new model going to emerge? What is the real recommendation for a CEO? And then what about someone's in a horrific car accident? They need long -term care. I mean, insurance still has a role to play there.

17:55So you're going to have re -insurance or catastrophic insurance for that, right? And you'll set the parameters to deal with those situations. And in terms of can you make it a core business effectively going on, we'll be publishing everything we do. And so you'll be able to copy what we do and use the same networks, et cetera. And there are companies that already put together networks. There's a company called BevCap that's in the Beer Distribution business. And they put together their own network and we basically are working with them and borrowing their network. You can hire third party administrators, independent, let it charge you per transaction, completely transparent.

18:30I mean, just to show you how stupid we all are. Call your benefits. There's a lot of smart people in the room. No, we're stupid, right? When it comes to healthcare, me first, right? Flunking out right here. Call your benefits consultant or your PBM or your insurance company and say, I want copies of all my claims for the last month. Your employees declaim so you can see your costs. You know what? They won't give them to you. And if you really scream and yell, they'll charge you. And then they say it's really hard for us to put together. It might take a couple months. Because they know the minute you see the cost and pricing for your medication or health care claims, you're going to know you're getting ripped off.

19:19And you can go somewhere else. Then when that happens, then a company comes to cost plus drugs and say, cost plus, can you work with this big 3 p .m. We're like sure, but they won't work with us. So when it comes to dealing with the details, there are ways to get through there. And that's why pay two three hundred thousand dollars for a healthcare CFO. They will pay for themselves a hundred times over. Excellent. You were a billionaire who started cost plus drugs. But do you have to be a billionaire to start a company like cost plus drugs? Yes. Yeah. Okay. So that I kind of thought That might be the case.

19:53And we look at SpaceX, it was started by Elon, and he had to pour all his money into it before it became SpaceX. There are some of these businesses that are very hard to finance at the get -go, unless you come in with a big ban. Sure. Are there other businesses that you've looked at or that you've thought of, you're just like, hey look, it'd be great if another billionaire in the room maybe built that kind of company. Education comes to my first. I mean, you have a plan for education. I've got to deal with this first, but the whole idea of accreditation at colleges is being the driver of starting or not starting school is ridiculous.

20:24Because do we really pay attention to that anymore? I mean, we're not even necessarily requiring degrees any longer. We care about soft skills and actual knowledge. I gave a talk one time, and I asked people, it was a Republican fundraiser thing. I said, how many of you have donated money to your alma mater and have a building in your name? Pretty much everybody's hand went up. I'm like, you're why tuition is going up. because that's what colleges do. And those buildings have to eat, eat, eat, eat, eat, eat, eat, every year and then have to get replaced. And why do you need a sociology building and a business school building, and a psychology school building?

21:01They're just ridiculous shit, right? And so, I mean, they're just as ripe to be disrupted as anybody. Totally agree. I know we as a firm totally agree with that. And I remember reading the average GPA at Harvard has gone up a full grade point. And like the last 15 years, and you know those kids aren't any smarter. No, for sure. For sure. No offense to the Harvard Alums. At least the recent ones. Does anybody hire people from Harvard anymore? Yeah. I don't. Yeah, they're on the do not hire. Give me Texas Tech and... You see, and people that do real work. Indiana, right? Yep. Yep. Okay. I want to switch gears here.

21:34We got a few minutes left. You've historically been, I like, oh, there's like some Harvard people being like, oh, it's actually a good school. I promise. The good news is they haven't been in the news at all, and they'll have to pay an attention to. Yeah, yeah, yeah, it's not not total free fall there. Oh, heck, black men. So like you've hosted Shark Tank for 16 years. 15. 15. This is the 16th year? This is the 15th. Oh, 15th year. Okay. Wikipedia had something wrong. Yeah, Wikipedia. Rob? Shocking. I didn't know things were wrong on the internet. It's one of the most important shows in America.

22:05It's an iconic show. It's an inspiring show for entrepreneurs. A couple of questions. What's one of your favorite moments from Shark Tank? And the second part is if you could change anything about the show, what would you change? My favorite moments are whenever somebody from the middle of nowhere comes in with an idea that just makes me think why didn't I think of that and really want to invest and you just change someone's life and The millions of people who are watching it originally and then in all the ten zillion replace they're getting inspired That always makes me feel good and that's why I do the show and then there's the fact that that episode is going to be played in thousands of schools every week that inspires me as well.

22:44In terms of what I change, when someone walks in the door and says, hi, we're from Harvard, I can guarantee you. Is that the producer? So do you do that? Yeah, we don't know who they are. We know nothing about them. We don't know who gets picked for the show. When they walk onto the carpet in front of us, they just tell us their name and that's all we know. But when someone from at Harvard or MIT or Stanford, they're always are just there for the commercial. So we've got this business and da da da da da. and we want $6 million for one -tenth of one percent of our company. Oh no, we're really here to negotiate.

23:17We'll give you 0 .0016 if you give us more cash. That's the stuff that we have to change because that just dilutes the show. Yeah, there's not too much of that, thankfully. It's what they've learned, right? Harvard and get up. I like this. I like this constantly looking on Harvard. Okay, so when you look at everything around the world, Shark Tank to me is a truly American phenomenon. I actually saw that they tried to replicate it in other countries, didn't work out that well. It works out okay in Canada. Other places, they try to do it, but really easy in other places. But America's really a special place.

23:52What are the things that you'd love to see, whether it's in the government side, or with individuals, or with corporations, where you'd really like to see America step up and lead, and make sure that we continue to be the hobbit of innovation and entrepreneurship? I think one thing that's truly missing from our administration and previous administrations is that we don't celebrate entrepreneurship enough. There's programs from the small business administration that are fine, but there's nobody saying, look, what's the one thing that makes this country different than every other country? And that's the American dream.

24:24I've never talked to somebody who not had them say at some level, and obviously it's a little bit because it's me, but that, hey, I had this idea. Every single person in this country at some point thinks to themselves, hey, I've got this idea and they say to a friend, what do you think? Then they Google it, oh, nobody else is doing it. And then most people stop. But it's the people in this room that say, fuck it, let's go. Right? And those are what makes this country different. I think we really need to celebrate them more. And I think we're starting to see more growth in Middle America for that and more celebration there.