How to save hundreds on prescription drugs

Rick Bates makes a good business finding consumers the best deals on his drugs. But now billionaire Mark Cuban is elbowing his way.

For William BaldwinSenior Contributor

Drug prices are insane.

A prescription for attention deficit treatment that costs $106 if you say you don’t have insurance has an out-of-pocket cost of $326 if you use insurance. A month’s supply of a prostate cancer drug is as high as $123 at some stores, but at discount Costco it’s priced at $2,548. A life-saving leukemia treatment costs $68 a month at Walgreens, but has a posted price of $8,203 at Rite Aid.

Coming to the rescue of the confused and overwhelmed: Richard Bates, founder and CEO of RxSense. This Boston-based company is dedicated to providing price transparency in pharmaceutical products. Last year, he says, he saved 11 million patients an average of $76 per script by directing them to low prices. For its business clients, it provides insight into a chaotic market, collecting 35 million data points per day on wholesale and retail prices.

RxSenses’ original product, called SingleCare, works like a Groupon for prescriptions. Type in the name of a drug and see if there is a good discount coupon at a pharmacy near you. If the number is less than what you will pay with your insurance, throw away the insurance and pay from your wallet.

Consider lisdexamfetamine, the attention deficit disorder drug. Let’s say you’re in a Medicare Part D insurance plan sold by Centene and administered by Express Scripts. You will be asked to pay $326 for a 30-day supply of 50-milligram capsules at CVS. But if you tell CVS you’re skipping insurance and want the SingleCare price, you pay just $106, and CVS will hand over an undisclosed referral fee to RxSense.

If you take the low price, you will be penalized for buying the price; the $326 counts toward an annual deductible, but the $106 does not. And if you pay the high price, you’ll be left wondering who’s pocketing the extra $220. A hundred, maybe? CVS? Maybe Express Scripts, which is a pharmacy benefit manager. PBMs are apparently in business to negotiate great prices on behalf of patients and employers, but transparency is low on their side of the business.

RxSense is in a treacherous line of work. Its main competitor in drug coupons, GoodRx, has struggled to turn a profit, and its stock is trading at 87% of its peak. Bates says it took $20 million of his own money and two outsiders to get privately held RxSense off the ground, and that he was personally saddled with debt incurred in the early years. I have a great appetite for risk, he says.

Bates, 54, started the company in 2015, after a career as a health insurance executive that ended with a PBM presidency. The bet seems to have paid off. RxSense doesn’t disclose revenue or net income, but Bates says that, excluding a quarter when the company incurred expenses to raise venture capital money in the venture capital market, it has been consistently in the black for five years.

GoodRx and RxSense now have a new competitive threat: Mark Cuban Cost Plus Drug Company. With this two-year-old suit, the billionaire aims to cut out all the middlemen, insurers and PBMs coupon dispensers by selling directly to consumers who either don’t have insurance or have deductibles so high they’re better off without insurance. Amazon is also getting into the game with deals on generic drugs.

In today’s drug free-for-all prices, insurance companies don’t cover themselves with glory. Try searching for the generic version of the leukemia drug Gleevec while using this Centene insurance for Part D. You’ll be told that a 30-day supply of 400-milligram pills costs $3,000, but since you’re covered you’ll only have to pay $1,159. . some bargain With a SingleCare coupon, you can get it for $68 at Walgreens. Mark Cuban will mail it to you for $41.

Express Scripts is owned by Cigna, an insurance company. It is one of the three giants of the PBM industry, the other two being owned by UnitedHealthcare, another insurer, and CVS, both an insurer and a drug retailer. Conflicting roles, it seems. (CVS says, in reference to buy lisdexamfetamine with insurance, that the price in this situation is dictated by Express Scripts, but would not say who gets the extra $220. Centene, Costco and Rite Aid did not respond to questions about the price of medicines.)

Cuban has no patience with any of the PBMs. You either work with the big three PBMs or you don’t. No, he says in an emailed response to questions. Add: We don’t make you run from one pharmacy to another to find the best price.

How has Bates managed this competition? With diversification. Consumer-facing work accounts for 30% of its revenue, with the rest coming from software and data that help health-related companies run their businesses. It’s arming all the combatants on the battlefield: pharmacies, small PBMs, small coupon distributors, large employers who self-insure their workforces. Cuban Cost Plus is one of their clients.

Let’s try to be Switzerland, says Bates. I think Mark Cubans business is here to stay. He doesn’t have any bad words for PBMs, either—they create tremendous value for the vast majority of their customers.

Do PBMs create value? That’s a surprise, given the strange price discrepancies that drive the original RxSenses line of work. But Bates points out that the most expensive 1 percent of drug prescriptions account for half of drug spending. These are drugs, such as Wegovy for weight loss and Lantus for controlled-release insulin, still under patent. It’s entirely rational for manufacturers to try to recoup their billion-dollar development costs by charging whatever they can squeeze out of anxious patients, and it’s helpful for PBMs to haggle on behalf of those patients.

Pharmaceutical retailing is evolving rapidly. Pretty soon, Bates predicts, insurance won’t apply to off-patent drugs; You’ll buy them the same way you buy aspirin, and more and more of the volume will go to mail order.

At the same time, the healthcare market will become more complicated. Bates has 200 employees, a little more than half of its workforce, in technical roles, including two PhDs in artificial intelligence. A big part of what we offer today is data management and business intelligence, he says. There’s growth there, even if there’s not much in the way of retail drug sales.

Did you get caught?

Airline seats, hotel rooms, and new drugs all have one thing in common: high fixed costs, low marginal costs. The consequence is that you may end up paying more than the next customer for the same thing. You might feel ripped off.

The rational strategy for a producer is to cut a market into segments and charge each as much as it can bear. This means that a hotel will get a high price for the majority of its rooms, but will reduce offers through Priceline for rooms that would otherwise be empty. It means an airline will create restrictions such as a Saturday night layover requirement in order to keep business travelers out of cheap seats. It explains why a patented drug will have a price in the US and a much lower price in another country, or a price for insured patients and a much lower price, through seemingly altruistic discount offers, for uninsured patients.

Price discrimination provides plenty of fodder for politicians. So we have the federal government planning to negotiate prices for Medicare participants while Florida makes a show of importing drugs from Canada. However, price discrimination can benefit customers, even those who pay high prices.

Assume that a drug costs $5 billion to develop and almost nothing to manufacture, and that, over the life of the patent, 5 million prescriptions will be required per month. To recoup its investment, the drug company must average at least $1,000 over a month’s supply.

Let’s say half of the patients can afford $1,600 a month and the other half only $600. If the market can be segmented, revenue averages $1,100 and every patient wins. If it can’t be, the revenue potential is $3 billion at the low price or $4 billion at the high price. The drug company won’t invest the $5 billion and every patient loses access.

RxSenses Rick Bates predicts that eventually consumers will not have insurance for off-brand drugs and will buy them the way they do for headache remedies. But the market for new remedies will remain a place for the art of the deal.


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