Sharks Never Stop Swimming: A Conversation with Mark Cuban

From judging inventions on “Shark Tank” to reshaping the image of NBA ownership, Mark Cuban is known for many things. In this chat with CFI General Partner David Ulevitch from the second CFI American Dynamism Summit, Cuban discusses the importance of entrepreneurship for maintaining America’s status as the most innovative place on the planet. This includes making big bets, like he’s doing with Cost Plus Drugs, his latest venture that seeks to upend the prescription drug markets.

Here is a transcript of their conversation:

David Ulevitch: Well, 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 we all know you from the Dallas Mavericks [and] from “Shark Tank.” 

But you have a new mission and you have done something and tackled something that a lot of people feel is like this opaque, impenetrable 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 deciphered at least a part of the code. Tell us what you were doing with Cost Plus Drugs.

Mark Cuban: So, we created a company… it was funny, I got a cold email — let me start there — from a radiologist, Dr. Alex Oshmyansky. And he was 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. 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. So, 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, and 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 a mail order from us, you’ll pay $10 for shipping and a pharmacy fee.

We also have a retail network we’re building right now. If you buy there, it’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 to you. The doctor says, okay, you need this drug. What’s the next question? What pharmacy do you use? It’s not, here’s some options. It’s not, what does 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. 

You know, a friend of mine who was in a horrific car accident needed a drug called Droxidopa. I had no idea what that was, and so I’m like, Landon, let me look it up. He goes, I’m gonna 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, Landon. Let me find out the price. Those three months, it’ll cost you 50 bucks a month. 

David: Crazy. 

Mark: And then how can they get away with it, is the 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 Cost Plus instead of current sources, would have saved the government, you know, $3.6 billion. Or here are nine heart medications, whatever it may be. And so just transparency is a game changer in this industry. 

David: So, are you only selling to consumers right now, or can you also sell to a government buyer? 

Mark: I’m glad you asked that. We just started Cost Plus 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. 

David: So, explain a little bit to folks how you do that, because this is a very open… 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. How did there get to be this system where all the price variability, even within a metro region, is so different? How did we get there? 

Mark: 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 is self-insured. Or if you’re a CEO or CFO and self-insured. You know how much you spend on health care, 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. And 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 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? 

David: Nothing. 

Mark: Nothing. Bam. Cut them out. 

David: Like the guy in “Office Space” that moves the paper from over here to over there. 

Mark: Pretty 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 fundraise you’ve ever done.

David: So what’s the alternative? You don’t go…

Mark: I’m not done yet. I’m not done yet. Right? But wait, there’s more. Right? Then I looked at my insurance companies. And I said, well, I self-insure. 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, the 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, Brex or whatever, one, you know, bill.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 $26,000 to $29,000 a year, which is kind of typical.

And we paid the whole thing. Our employees didn’t pay anything. I’m like, I’m prepaying this to the insurance company in 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 them to the curb. 

So now, all of a sudden, I’ve got all this money in premiums that I’m not having to pay out. So we go to the local hospitals, provider networks, you know, primary care, telehealth, everybody and we say, look, one of the challenges you have is you have to deal with preauthorizations. We only have 700 employees and 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, and we’re going to audit you after a year.

Number two. A 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 co-pays of all of your employees here.

So, if any of your employees have a co-pay, and they go to the hospital, the hospital takes the AR risk. Not you, they do. And we’re saying, we said to them, we’ll pay cash upfront. Just like the whole credit card cash thing. What’s our price going to be? Now the typical network price negotiated by the big insurance companies is 275%, 250 to 275% of Medicare, Medicare rates.

Price we’re negotiating right now, 80-100% of Medicare. Now that 250, 275, I was paying outta pocket as a self-insured, 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 just like we’ve, you know, filled millions of scripts and we think we have 17% at Cost Plus, 17% of the cash, mail order market. And 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 prices, 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 we’ll do to the healthcare side as well. Because 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 you self-insure. If you use a big three PBM, you’re getting ripped off. That’s why… so you asked the question, David, why are these prices so disparate? Because the big PBMs… 

David: Can you explain what a PBM is?

Mark: A pharmacy benefit manager. 

David: Okay, because I think that’s a term that most people don’t know. It’s part of that opaque middleman environment.

Mark: Which is crazy, right? Because all of your drug spend goes through a Pharmacy Benefit Manager, a 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. 

David: More of the “Office Space” paper moving. 

Mark: More, right? And initially when they came into being, they went to companies and said, look, we’re going to negotiate the formulary, because you don’t want someone selling you drugs you don’t want.

Okay, back then maybe that was worthwhile. But now they use that to say, we don’t carry that drug. There’s a biosimilar for Humira, which is the highest revenue-generating drug called Yusimry that we sell. Humira is about $8,000 a month, $6,000 to $8,000 a month. Yusimry is about $700 a month. But they won’t add Yusimry to their formularies 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 or your CFOs get this check from the PBMs thinking, Oh, see, I negotiated a good deal.

Nah. Because that money should be coming direct back to you, but it gets even worse. The rebates that those of you who are getting take, you know who pays for those rebates? Your oldest and sickest employees. Because they’re the ones that have the co-pays, 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 self-insure like I did, and these are all things I went through to figure out for my own companies. Right? If you’re using an Employee Benefit Manager, you’re making a mistake. If you’re using one of the big three insurance companies, you’re making a mistake. If you’re using a big three 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, you know, let’s just say 100 employees, to bring in a healthcare CFO that’s dedicated specifically So the $200 to $300,000 you pay that person depending on where you are will be able to do all these things I’ve just talked about.

Because probably, after your payroll, your biggest expense is probably healthcare. And it ain’t 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. So 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 our… 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 and the big three PBMs, they’d have to change their business models and immediately, immediately the entire healthcare system would change. By having all those contracts that you signed, the first line in the contract says, you cannot share this, you signed an NDA, do not show it to anybody. If 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. 

David: That’s crazy. Because it does seem very opaque, and I think, listening to you, first of all, super messed up about the most vulnerable, the oldest patients being the ones bearing the brunt of the costs that get passed on as rebates. That’s just messed up.

Mark: It’s crazy. And think about it, there is a Wall Street Journal reporter or CNBC reporter sitting here somewhere and if you’re a big company, CEO or CFO, they’re staring at you right now. 

David: Yeah. Well, you’ve made every CEO in this room who has like, you know, 100 to 1,000 employees feel pretty dumb now about just paying that broker.

Mark: Well, I felt dumb. I mean, like I sat there and I said, okay…

David: But now they have a path forward. 

Mark: You know, hire a healthcare CFO. And go dig into the details because it’s hard. Your core competency as a CEO is not your healthcare business. But if you self-insure, health care is your business. 

David: Do you think that the government… So you say, look, 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. 

Mark: That’s what simplified very right. 

David: It’s 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? You know, 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 a kind of a scale moat. But is that something where the government should play a role in saying, hey, wait a minute. Two hospitals right next to each other, they should have the same price for the drugs or things like that. What role does government play in all this? 

Mark: I just think the big PBMs and big insurance companies, they often own each other, are faster, smarter, you know, 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 PBMs 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 to stay in business. 

And so, you know, there are, 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 $0.50 cents, but it gets worse, right? For Medicare fills, right, and Medicare Advantage fills, there’s this thing called, direct DIR fees, right?

And they’re charging them these fees up front so that your Wigovi 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 of the world so they don’t have to fill it. And you guys are helping to put them out of business.

So, from a legislative perspective, I would be fine with saying the minimum paid by any big three PBM that has more than X percent of market share is $12.  

David: 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 people that need, if someone’s in a horrific car accident, they need long-term care. I mean insurance still has a role to play there. 

Mark: So, you’re going to have reinsurance 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, we’ll be publishing everything we do. And so, you’ll be able to copy what we do and use the same networks, etc. 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 and there’s, you can hire third-party administrators, independent, that’ll charge you per transaction, completely transparent.

I mean, just to show you how stupid we all are. 

David: There’s a lot of smart people in the room. 

Mark: No, we’re stupid, right? When it comes to healthcare, me first, right? You know, 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, the claims, 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’ll 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 healthcare claims, they know you’re gonna know you’re getting ripped off. And you can go somewhere else. 

So then, when that happens, and a company comes to Cost Plus Drugs and say, Cost Plus, can you work with this big three PBMs? 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 you pay $200 to $300,000 for a healthcare CFO, they will pay for themselves a hundred times over.

David: Excellent. You are a billionaire who started Cost Plus Drugs. But do you have to be a billionaire to start a company like Cost Plus Drugs? 

Mark: Yes. 

David: Yeah, okay. I kind of thought that might be the case. And, you know, we look at SpaceX, it was started by Elon, you know, 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 bankroll. 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 did that business or built that kind of company.

Mark: Education comes to mind first. I mean… 

David: Do you have a plan for education? 

Mark: I’ve got to deal with this first, but the whole idea of accreditation at colleges being the driver of starting or not starting school is ridiculous. Because you know, 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. 

And so… 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 every year and then have to get replaced and you have a, why do you need a sociology building and a business school building and a psychology school building? It’s just ridiculous shit, right? And so, they’re just as ripe to be disrupted as anybody. 

David: 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 in like the last 15 years and you know, those kids aren’t any smarter. 

Mark: No, no, for sure, for sure. 

David: No offense to the Harvard alums, at least the recent ones.

Mark: Does anybody hire people from Harvard anymore? 

David: No. No. I think they’re on the do not hire. 

Mark: I don’t. 

David: Yeah. They’re on the do-not-hire list. 

Mark: Give me Texas Tech and…

David: People that do real work. 

Mark: Indiana, right? 

David: Yep. Yep. Okay. I want to switch gears here. We got a few minutes left. You’ve historically been… there’s some Harvard people being like, Oh, it’s actually a good school, I promise.

Mark: The good news is they haven’t been in the news at all and nobody’s paying attention to them. 

David: Yeah, yeah, it’s not, not total free fall there.

Mark: Oh, hey, Bill Ackman. 

David: Absolutely. So, look, you’ve hosted “Shark Tank” for 16 years. 

Mark: This is the 15th. 

David: Oh, 15th year. Okay. Wikipedia had something wrong. It’s incredible.

Mark: Yeah. Wikipedia wrong. It’s shocking.

David: I didn’t know things were wrong on the internet. It’s one of the most important shows in America. It’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?

Mark: 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 know you just changed someone’s life. And you know that the millions and millions of people who are watching it originally and then in all the ten zillion replays, 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’s gonna be played in thousands of schools every week. You know, that inspires me as well. In terms of what I’d change? When someone walks in the door and says, Hi, we’re from Harvard, I can guarantee you… 

David: Is that the producers who do that?

Mark: Yeah, the producers, we don’t know who they are when they walk [in]. 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, Harvard or MIT or Stanford, they always are just there for the commercial.

You know? So, we’ve got this business and da da da da da, and we want $6 million for one-tenth of 1% of our company. Oh, no, we’re really here to negotiate. We’ll give you 0.0016 if you give us more cash. That the stuff that we have to change because that just dilutes the show.

David: Yeah. There’s not too much of that, thankfully. 

Mark: Well, they’ve learned, right? Harvard, eh, get out. 

David: I like this. I like this, like, constant ripping on Harvard. Okay, so when you look at everything going on in the world, you know, and “Shark Tank” to me is a truly American phenomenon. I actually saw that they’ve tried to replicate it in other countries. It doesn’t work out that well. It works out okay in Canada, other places, they try to do it. 

Mark: It’s crazy in other places, yeah. 

David: But America’s really a special place. What 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?

Mark: I think one thing that’s truly missing from our administration, and previous administrations, is that we don’t celebrate entrepreneurship enough. You know, 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 that when you talk, you know, I’ve never not talked, I’ve never talked to somebody and 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, 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. 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, but I think that really… And it’s not even about, okay, let’s just find more money for them because I’m a big believer that the best equity is sweat equity and that you don’t have to start big. You can start small. And by learning that whole process as a small entrepreneur, you can figure out how to become a bigger entrepreneur at the bigger company.

David: Okay, let’s go. 

Mark: Let’s go. Awesome. 

David: Thank you, Mark Cuban.

Mark: Thank you to everyone.