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CVS is shaking up drug pricing. You can thank Mark Cuban

Editor’s Note: A version of this story appeared in CNN Business’ Nightcap newsletter. To get it in your inbox, sign up for free, here.

The way drug prices are set in the United States is … kind of a mystery.

You might assume that when you go to the pharmacy and hand over money for your meds, the price is what the drug itself costs, minus what your insurance covers, plus some fees that keeps the pharmacy staff paid.

It’s a sensible idea. But you’d be mistaken. Instead, the process is super complex and largely hidden from public view.

The price you pay at the counter is largely determined by middlemen known as pharmacy benefit managers, or PBM’s. Although the PBM’s negotiate discounts between the pharmaceutical industry and insurers, they do so in secret, making them a frequent scapegoat for everything that’s wrong with drug pricing in America, A,K.A. the country that pays the most for prescription drugs, to the tune of about $1,200 a year on average, according to the Organization for Economic Co-operation and Development.

On Tuesday, however, a simpler model got a major boost that could upend the way we buy drugs. And you can thank Mark Cuban for that.

Here’s the deal: CVS, the largest retail pharmacy chain in the country, is ditching the opaque formulas that currently determine drug prices. Under its new model, CVS pharmacies will be reimbursed by the PBM’s based on the the cost of the drug, plus a set markup and a fee to cover operations.

The model bears a striking resemblance to one championed by Mark Cuban, the billionaire entrepreneur, via his online pharmacy (aptly named Mark Cuban Cost Plus Drug Company).

Cuban’s company buys generic drugs directly from pharmaceutical companies and sells them to patients. The pitch is that cutting out the middlemen and having a transparent pricing model leads to lower costs for consumers.

“I could make a fortune from this,” Cuban says on the company’s website. “But I won’t. I’ve got enough money. I’d rather f**k up the drug industry in every way possible.”

He appears to be all-in on the startup, which has ambitions to make its own drugs at a facility that’s now under construction in Dallas. Cuban is selling his majority stake in the NBA’s Dallas Mavericks, and he plans to leave ABC’s “Shark Tank” in 2025, fueling speculation that he may be eyeing a third-party presidential run. But Cuban told reporters last week he has no plans for a White House bid.

The bottom line

CVS is seeing the writing on the wall. Over the summer, Blue Shield of California dropped CVS Caremark as its PBM in favor of Cuban’s Cost Plus, among others. Meanwhile, Congress is weighing several bills designed to force more transparency.

It’s not yet clear which meds will get cheaper, or by how much, though CVS executives told CNN that more drugs should see costs go down than up.

“At a minimum, the goal for CVS and others should be to shine a light on the way drugs are priced, any discounts that are negotiated and overhead that comes from a variety of sources,” said Nick Fabrizio, senior lecturer in health policy at Cornell University. “Americans would be surprised at the hidden costs that are passed on to them by a variety of third parties. These extra or hidden costs make prescriptions more expensive.”

Cuban’s company, Fabrizio said, is “forcing pharmacies to change their model to remain competitive.”

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