A new study combined with an innovation pressure test shows how the entrepreneur's company could disrupt the Medicare Part D value network for private payers.
New analysis shows that the Mark Cuban Cost Plus Drug Company (Cost Plus) could not only save Medicare billions, but it may also qualify as a disruptive solution that could "transform the entire value network of Medicare Part D coverage." These latest findings are based on the Christensen Institute’s six-question test that determines whether innovations are truly disruptive compared to existing offerings.
Study shows significant savings
As HealthLeaders reported in June, an Annals of Internal Medicine (AIM) study found that Medicare could have saved $3.6 billion on a subset of generic drugs if purchased from Cost Plus versus private payers — the Medicare Part D market currently dominated by UnitedHealth, Humana, and CVS Health. This 37% savings would be generated from 77 drugs bought at maximum quantities. Purchasing minimum quantities of 42 drugs would also have reduced spending, by $1.7 billion or 18%.
As noted by Christensen Institute research associate Jessica Plante, MPH, this new data shows that "the cost-savings for Cuban’s pharmacy go beyond the individual and have the potential to impact larger-scale payers."
Six-question innovation test suggests further disruption
The Institute makes clear that disruptive innovations "are not breakthrough technologies that make good products better. Rather, they are simple, affordable innovations that replace expensive, complex systems and products, thereby increasing accessibility and affordability for all."
The Institute identifies potential disruptive innovators by applying the following six questions, quoted from its website. Paired with these are the Institute's answers as applied to Cuban's company:
- Does it [the product or service] target nonconsumers or people who are overserved by an incumbent's existing offering in a market?
Yes. The Institute notes that Cost Plus targets nonconsumers, specifically the nearly 30% of Americans who don't take their medications as prescribed because they are too expensive.
- Is the offering not as good as an incumbent's existing offering as judged by historical measures of performance?
Yes. The Institute assesses that Cost Plus is "not as good" because brand-name drugs "often carry more reputational weight [than generics] … despite being far more expensive." An offering viewed this way, however, has disruptive potential because it deviates from historical standards.
- Is the innovation simpler to use, more convenient, or more affordable than an incumbent's existing offering?
Yes. Not only can Cost Plus medications be ordered online, but its costs are also transparent to a degree that is unheard of. The previously cited AIM study notes that Cuban's generic drug costs are based on " the cost of ingredients and manufacturing plus 15% margin, $3 pharmacy dispensing fee, and $5 shipping fee."
- Does the offering have a technology enabler that allows it to improve and capture a larger market over time?
No. The Institute notes that while the company could offer more generics in future, "there is nothing unique about Cost's Plus's [digital pharmacy]" and that its "real disruptive potential" is its value network.
- Is the technology paired with a business model innovation that allows it to be sustainable?
Yes. Cost Plus is a pharmacy, pharmacy benefits manager, and online retailer all in one "with just enough markup to keep the company running."
- Are existing providers motivated to ignore the new innovation and not [be] threatened at the outset?
Maybe. While originally noting that Cost Plus could be potentially be ignored because other startups reduce drug costs (e.g., GoodRx), the Institute writes: "Cuban’s pharmacy holds disruptive potential relative to not only bricks and mortar pharmacies, but also PBMs and private payers more broadly.
Noting that the AIM study "quantifies potential savings, which could incentivize Medicare and other large-scale payers to change how they cover prescriptions," the Institute adds: "Instead of continuing to work with myriad individual health insurers, Medicare could choose to contract directly with Cost Plus Drug Company for all generics. This would transform the entire value network of Medicare Part D coverage."
Laura Beerman is a contributing writer for HealthLeaders.
KEY TAKEAWAYS
Mark Cuban Cost Plus Drug Company could have saved Medicare $3.6 billion on select Part D generics.
This new data combined with the company's potential impact on brick-and-mortar pharmacies suggests an even deeper disruptive potential.
New analysis from the Christensen Institute highlights this potential and its impact for private payers.