What if we could cut out the medicine middle man and save billions in drug costs? Here’s a doc who partnered with Mark Cuban to do just that.
Check out the Mark Cuban Cost Plus Drug Company here. (note: we are NOT sponsored by Mark Cuban…yet, lol)
Full Transcript Below:
Dr. Z: What’s up everyone. I have Dr. Alex Oshmyansky, who is the CEO of the Mark Cuban Cost Plus Drug Company. That’s a mouthful. And it’s also amazing because that means I’m one degree of separation from Mark Cuban just being in the room, Alex.
Dr. Alex: Oh, I think even closer. I’m not sure.
Dr. Z: Even closer.
Dr. Alex: I’m not sure how or why, but you are. You definitely are.
Dr. Z: Alex, thanks for coming on the show. I mean, you are someone who worked with my wife, actually, doing teleradiology, and we met a while ago. And at the time we met, you told me a story that I thought would be really compelling to my audience, which is drugs cost a lot of money. And they cost a lot of money partially because we’re doing them completely wrong. We have middlemen. There’s all kinds of drama that actually jacks up the prices of drugs. And you have this crazy opportunity to work with Mark Cuban, of “Shark Tank” fame. That’s, I mean, that’s, forget everything else. It’s just the “Shark Tank,” and he and you have started this company to try to disrupt drug delivery prices, everything. Just tell me about it, man.
Dr. Alex: Oh yeah, absolutely. So yeah, the company, actually started it like five, five and a half years ago as a nonprofit.
Dr. Z: Ah.
Dr. Alex: Yeah, so the idea was actually, if I’m being honest in direct response to, you remember Martin Shkreli, the Pharma Bro?
Dr. Z: Oh, he’s, how can you forget?
Dr. Alex: He’s a delightful fellow.
Dr. Z: Yes, a joy.
Dr. Alex: Amazing. Yeah, I don’t know. I just got so angry at that. I was like, you know what? I’m gonna go, take myself, some friends who are doctors. We’re gonna start a nonprofit. We’re gonna make low-cost versions of these same drugs, which are very expensive. So I went out, kinda hat in hand for like, say about three years after that trying to raise money to get it off the ground. And did not succeed. Failed absolutely miserably. Eventually I ran into a group of venture capitalists here in California, actually very close to here, a group called Y Combinator. They’re like a-
Dr. Z: Oh, I know those guys. Yeah.
Dr. Alex: Yeah, like a startup accelerator type deal. And basically they periodically donate to nonprofits. So I was like, so I gave ’em my pitch, and they were like, hey, we like what you’re doing, but you will not be able to get enough capital to get this off the ground as a nonprofit.
Dr. Z: You were, you weren’t just trying to make generic drugs. You were talking about very high cost drugs.
Dr. Alex: Yeah, so there are all these drugs, which for a variety of reasons that, I’m sure we’ll get into, cost pennies to make, sometimes even less, but can retail for hundreds, thousands, tens of thousands of dollars for a single pill. And it’s this whole sort of corrupt ball of bad practices that gets the price so expensive with so many people between the drug and the individual patient that all need to get their cut before the money, before you can actually get your medicine.
Dr. Z: So it’s like 13,000 middlemen in between that are each taking a chunk.
Dr. Alex: Yeah, so it can get, so what we can get into, so we just released our first drug from the program, which is an anti-parasitic drug called albendazole.
Dr. Z: Oh yeah.
Dr. Alex: Yeah. So it’s a very cheap drug to make. In most of the world you can get it for like a few cents a pill, basically. In the U.S., if you go to the pharmacy and try to pay cash for it, the odds are they’ll ask that you pay $250 for each tablet. Not for the whole prescription, just for each tablet.
Dr. Z: Gosh.
Dr. Alex: And the question becomes why is there disparity in the price of the drug? And initially sort of the way it happened is you do need FDA approval in the U.S. to market your generic drug, which makes a lotta sense. You don’t wanna just be swinging drugs everywhere, but what happened is one company realized, hey, we’re the only ones, even though this is a generic, we’re the only ones who applied to the FDA to get the drug to the market. We basically have a monopoly. Why don’t we try to see what the market will bear and just keep increasing the price of the drug over and over and over again?
Dr. Z: The Shkreli effect.
Dr. Alex: The Shkreli effect. So in this case, the initial company that made it was kind of the bad guy of the story. But what happened was when the drug got to like $250 a tablet the market took over. Basically other drug companies were like, hey, we can also make $250 a tablet. So pretty quickly like five or six different companies entered the market for this drug, but it stayed the same.
Dr. Z: Hm, why is that?
Dr. Alex: Ah, I’m delighted to tell you. So actually, if you talk to the drug companies themselves, which we did, the price they’re actually selling it for is far, far less. So, I’m under a non-disclosure agreement with our source, but essentially I think it’s safe to say we can buy it for about $10 a tab.
Dr. Z: albendazole.
Dr. Alex: albendazole.
Dr. Z: This drug that’s selling for like $250 a tab.
Dr. Alex: Exactly, exactly.
Dr. Z: By the way, before we even go on, what do we use albendazole exactly for? I know it’s an antiparasitic. What’s the main use case?
Dr. Alex: Oh, sure. And this is the most sort of perverse part of it all, is it treats conditions basically that are associated with indigent poverty, with extreme poverty. So it treats conditions like hookworm. So it’s a disease you get basically due to bad sanitation, which affects primarily populations of extreme poverty.
Dr. Z: Of poverty.
Dr. Alex: Yeah, and we used to, we thought we eradicated it in the United States, but it’s cropped back up in the American South.
Dr. Z: Yeah, right, and causes anemia and other issues. And Peter Hotez was on the show talking about these neglected diseases, tropical diseases.
Dr. Alex: Exactly.
Dr. Z: So albendazole is a treatment for that, and ironically it’s $250 a tab to treat a disease of poverty.
Dr. Alex: Yeah, so we were actually working with Dr. Hotez and Dr. Mahia, their laboratories. ‘Cause they’re, essentially they wanted to set up mass treatment for hookworm, but it costs $250 a tablet. That’s what they’re getting asked to pay to treat this condition. And no grant can afford that. So basically what we did is we just purchased it at a lower price and just gave it to them for free. I say we donated $2.5 million worth of albendazole. In actuality it’s probably closer to like a $100,000, even less. If they were to like apply for a grant that’s what it would have cost them to to get that albendazole, which is just crazy.
Dr. Z: And again, it’s all because of these layers of obfuscation and profiteering and middlemen and all of that.
Dr. Alex: Yeah, so there’s basically two primary layers of middlemen, between you or more accurately like the pharmacy and the pharmaceutical company. The first layer is the pharmaceutical wholesalers, who have sort of a defacto monopoly. So three companies, McKesson, AmerisourceBergen, Cardinal control 80 plus percent of the wholesale market, which gives, puts them in kind of a unique position. So I had to look this up. They’re a monopsony. So they’re a buying monopoly. So the pharmaceutical companies essentially have to sell to them. So they can negotiate extremely good prices. I can’t know for sure, but I, I’m gonna guess that they can get albendazole for an even better price than I can, because we can’t match, these are multi-billion dollar corporations. There’s no, if you look at the fortune, like a 20 or even 10 list, I forget exactly where McKesson is, like number five or six. It’s all companies your average person on the street would recognize, Apple, ExxonMobil, whatever. And then you see McKesson and you’re like, what is McKesson? And why is it?
Dr. Z: I mean they make EHRs. They can’t be making that much money from that. Or can they?
Dr. Alex: Or can they, actually, now that you mention it. But yeah, talking to the pharmacists, if they want to buy albendazole from some of the big three wholesalers, what I was told is that it’s currently going for $120 a tablet from the wholesalers. So that layer is capturing a delta.
Dr. Z: From the 10 bucks up to, or even less ’cause you’re saying they can aggressively-
Dr. Alex: Yeah, I’m sure they can probably get, well, I can’t say for sure, but I’m sure, basically, that they can get it for less than $10, but they’re retailing it or wholesaling it for $120.
Dr. Z: So this is interesting because your first instinct is to hate the pharma company, primarily. And go, well why are the prices so high? But we forget… And they hold culpability as well, but it’s this, so that even just the second layer of wholesaling is jacking up the price so much, ’cause they can. Is it just ’cause they can?
Dr. Alex: It’s just ’cause they can, yeah. So essentially the way it works is each independent pharmacy or each individual pharmacy will try to, will pick a single wholesaler to be their primary wholesaler. And they kinda trap ’em into the contract with this promise of a rebate. So they’ll say, if you give us 80, 90%, usually 90%, of your total drug purchase we’ll rebate you some percentage of the cost of all your purchases at the end of the year. So the pharmacy is led to believe that they won’t be profitable. They will not be able to exist without this rebate at the end of the year. So, you can buy 10% of your drugs from somebody else, but once you reach that threshold you’re endangering the viability of your company. But there are secondary wholesalers that if you go to, like will actually just give you a lower cash price, and at the end it works out in your benefit, but it’s such a risk for the pharmacy to do that that they generally don’t. So part of our mission is education and just telling people and healthcare practitioners, like actually you don’t have to be beholden to these extreme contracts along the way.
Dr. Z: Right, so how does your company then disrupt that process? What does it do differently?
Dr. Alex: Yeah, so basically there’s two things that we’re doing. One is we are a proper pharmaceutical manufacturer. So as we speak, my construction guys are onsite in Dallas. We’re building a pharmaceutical manufacturing plant.
Dr. Z: Oh, so you make the stuff.
Dr. Alex: So we actually make this stuff. So not albendazole specifically, but basically there are all these products which are in shortage, which are for rare disease, orphan drugs, which you are gonna be very hard pressed to find people willing to get into the market and provide a reasonable price because yeah, it’s just if you need a drug for 60,000 doses for the entire country for the year, and it costs a million, $2 million to get your, and your abbreviated new drug approval through the FDA, you’re not gonna sell that 60,000 doses for $1 a dose after. But we are.
Dr. Z: So how would you make money then?
Dr. Alex: So we will aggregate the costs over all the products we produce. So some of the high cost products will subsidize the other ones and whatnot.
Dr. Z: I see.
Dr. Alex: Yep, and there’s various regulatory strategies we’ll try to play through. But essentially drugs which are in shortage as well. So you, I’m sure everybody who works in a hospital, they’re constantly trying to get bumetadine or even calcium carbonate, very simple drugs, which are just in constant shortage. So that facility is more targeted there. But our second line of business is basically what I’m calling our supply chain business, which is basically disintermediating all these sort of bad actors that are intermediaries in the pharmaceutical supply chain. And we haven’t even touched on one of your favorite entities which are the pharmaceutical benefit managers.
Dr. Z: The PBMs.
Dr. Alex: The PBMs.
Dr. Z: The notorious PBM. Right, right, right, right.
Dr. Alex: The notorious PBMs. So as much as I love to harp on the wholesalers, at least they do serve a function, like they do legitimately, they do the, it would be incredibly inconvenient for a pharmacy to try to source each individual drug from a pharmaceutical manufacturer. There’s clear economies of scales that the wholesalers bring.
Dr. Z: Right, ’cause a pharmacy can just go to McKesson and say, “Okay, I want all these drugs.” Right, yeah.
Dr. Alex: Yeah, yeah. So there is, in my humble opinion they probably charge too much, that delta from $10 a drug to 120 for their services. But there is a service. The second layer of basically middlemen in the system, which are, it’s phenomenal to me how big these companies are, and no one’s even heard of their industry. It’s not like they haven’t heard of the companies. They haven’t heard of this industry. They don’t know it exists. And it’s the pharmaceutical benefit managers. So basically, this made sense back in the 1980s, before computers. Basically what they do is they process insurance claims for pharmaceuticals for insurance companies. So your insurance company actually outsources the management of each individual claim to one of the three big, generally one of the three big PBMs, Express Scripts, Optum, or Caremark are the three big PBMs. And much like the wholesalers, they have a defacto oligopoly or pseudo-monopoly in their industry, sort of regionally distributed. So, but what they discovered soon after, hey, there’s only three of us. We’re doing it for all the insurance companies in America. Like, what if we asked for money to be put on insurance formularies? So they started taking this function not just processing the claims, like 10 cents a claim or whatever, to do all the paperwork associated with it.
Dr. Z: The overhead stuff.
Dr. Alex: Yeah, they started proposing, hey, we can actually negotiate on behalf of the insurance companies for lower costs, which is also what the wholesalers are meant to be doing, but whatever. But they’re like, yeah, we can negotiate for lower costs, and because we’re, again, a monopsony, we’re a buying monopoly, I just love that that’s a random word that exists.
Dr. Z: It’s a good one.
Dr. Alex: It’s a good word.
Dr. Z: It makes me wanna put a monocle on and go, hey, everyone, did you hear about a monopsony? This is a threatening on monopsony. So these PBMs, then, they have this generally good idea, which is, well, we can negotiate on behalf of the insurance company since we’re processing their claims. Go to the wholesaler… Do they go to the wholesalers or the pharma companies directly?
Dr. Alex: Generally they go to the pharma company.
Dr. Z: Pharma directly?
Dr. Alex: Pharma directly.
Dr. Z: And what do they do?
Dr. Alex: They basically say, “Hey, we would like a rebate “back on the price of the drug. “And hey, even better, “so that the insurance companies we work with “know we’re on the up and up “we won’t even request a fee for doing that. “We’ll just take a percentage of the rebate.” So suddenly, but let’s say you’re the PBM, and you wanna maximize how much money you’re taking in, suddenly the important number becomes the percentage of that rebate.
Dr. Z: Yeah.
Dr. Alex: Yeah. So how do you make the rebate as big as possible?
Dr. Z: Make the price as high as possible.
Dr. Alex: Exactly. So these rebates become basically defacto bribes to be placed on insurance formularies, like pay us $40 a tablet or your product isn’t gonna be covered by insurance, basically.
Dr. Z: Wow.
Dr. Alex: Yeah, yeah.
Dr. Z: So they say I want a $40 rebate per tablet or it’s not gonna be covered by insurance in order to make any profit then, I mean, the price of the drug has to go up.
Dr. Alex: Yeah, exactly. And the pharmaceutical companies are like, well we can’t not be covered by insurance.
Dr. Z: So let’s do this.
Dr. Alex: So let’s do this.
Dr. Z: Ahhh. People don’t know this.
Dr. Alex: And it’s shocking that they don’t. And I’ve, I don’t think I’m too tinfoil hatty, conspiratorial, and saying that’s kind of intentional. ‘Cause if they did, again, CVS Caremark, one of the top five biggest companies in America, on the Fortune 500 list, that’s crazy. They process insurance claims. So care-
Dr. Z: ‘Cause Caremark is the PBM.
Dr. Alex: Is the PBM part of it. So I should say obviously CVS is a big company all its own. But this is one of the ways they kind of mess with independent pharmacies as well. ‘Cause these chains are all, these entities are all vertically integrated at this point.
Dr. Z: Right, because the pharmacy and the PBM are the same, just like Optum is integrated with United, the insurance company is integrated with the PBM.
Dr. Alex: And they’re in turn, oftentimes not technically like merged with each other, but partnered with, so like Cardinal is partnered with CVS Caremark. So you have this whole vertically integrated kinda monstrosity that’s like, the money just stays with us no matter which part of it goes.
Dr. Z: But what I love about this that people don’t realize is they go, “Well, at least American healthcare is free market. “At least it’s capitalism.” No, this is monopsony monopoly.
Dr. Alex: Yeah, yeah.
Dr. Z: This is an oligopoly of several companies just enriching themselves, vertically integrating, pushing out independent pharmacies, pushing out independent doctors. the whole thing is anti—
Dr. Alex: Oh, absolutely. It’s startling that the FTC allowed it to come to pass.
Dr. Z: Well, I mean, why do you think that is? Because the same people that regulate through FTC are former members of these companies that is in a revolving door, go back and forth.
Dr. Alex: Yeah, yeah. And I talked to independent pharmacists. They have to pay these so-called DIR fees.
Dr. Z: That’s right.
Dr. Alex: Yeah.
Dr. Z: Clawbacks.
Dr. Alex: Clawbacks. So basically they’re getting paid less for the drugs from the PBMs, ’cause the PBMs are responsible for reimbursing them. And then they’re charged a fee just to work with the PBMs. The reimbursements keep going down. Like when you give a copayment to a pharmacist the PBM can actually, one, not reimburse anything for the drug; and two, actually claw back part of that co-payment. Plus then they charge the independent pharmacists for even the privilege
Dr. Z: And the independent pharmacists are going out of business. And remember, these are the pharmacists who are, sorry, I’m just gonna move the camera a little.
Dr. Alex: Oh, no, it’s all good.
Dr. Z: There we go. Just ’cause it, as you get into it, dog, you’re like, let me tell you the secrets of PBMs. And you know what we need to hear those secrets. So the independent pharmacists are the ones who, they know you. They’re the ones who form relationships with you. My father used to work with independent pharmacists as a doctor, and they knew each other, man. He could read their hand, like that guy could read my dad’s handwriting. No one can read my dad’s handwriting. And they’re being squashed by this practice, right?
Dr. Alex: Yeah, ’cause it’s a, so if you’re CVS Caremark, not to harp on them specifically, but let’s harp on them specifically.
Dr. Z: Why not?
Dr. Alex: Yeah, it’s not, if the independent pharmacy goes out of business, that’s less competition for CVS. And if they underpay both CVS and the independent pharmacies they can say, well, these are the reimbursements we give to everyone. But if CVS makes less money, Caremark makes more money. So it doesn’t really matter. At the-
Dr. Z: It’s a wash.
Dr. Alex: It’s a wash for them at the end of the day versus the independent pharmacies are driven out of business or forced to be bought out by CVS. And yeah, like you’re saying, the independent pharmacists are the ones that are out there dealing with the most complicated patients. They’re the ones actually going into their community, actually acting as healthcare providers, oftentimes, and helping those patients. And yeah, they’re just basically being driven out of the market by JD Rockefeller-esque monopoly systems.
Dr. Z: Right, right. Again, we’re back to the robber barons with the monocles, we’re a monopsony, see. So let me ask you a question. So you’re, so the PBMs are clearly, they’ve evolved into being very bad news. Maybe they started with good intention and they were serving a function, like you said, 10 cents per claim or whatever to process this because the insurance companies don’t wanna do it, and they’re serving a role, but now it’s evolved into this hegemony of weirdness. I don’t even know if that’s the correct word, but I like the word had hegemony.
Dr. Alex: It makes, it sounds smart.
Dr. Z: It just feels smart or conspiratorial. Like, did you hear about the hegemony?
Dr. Alex: Yeah, it’s like the Illuminati.
Dr. Z: Very much so. Bro.
Dr. Alex: Respect.
Dr. Z: Respect. So you’re, what you started up, and we can talk more about that in detail, how is that designed to disrupt this process? Or does it?
Dr. Alex: Yeah, so I’m gonna be a little bit coy and obnoxiously secretive, because we have sort of plans in the works, but basically broadly we’re looking for people who are still good actors in this space. So there are, kind of like PBMs, like this feels weird to say, but like family owned, small PBMs that still operate on the old model, like 10 cents a transaction, price transparency type of model, and we’re acting kind of defacto as a wholesaler on the sort of second part of our business. And yeah, we’re hoping, kinda shining light to make the cockroaches go away. Just transparency, that people know actually what these drugs actually cost to make. So, like for our pharmaceutical factory, we’re gonna reveal our books publicly. Everyone’ll know what our salary costs are, what our raw ingredient costs are, what it cost to build the facility, and how much we’re adding to the price of the drug to account for the facility costs. Everything will be transparent. So you’ll know for sure, like, okay, it cost them like five bucks to make this medicine, and they’re charging a 15% margin. So they’re charging 75%. That way we’re profitable, we’re sustainable. But at the same time, we’re not extortionate. People know that we’re basically doing the right thing by them.
Dr. Z: So heaven forbid, you’re talking about price transparency in medicine, which doesn’t exist. Like you said, the obfuscations, the layers of confusion are intentional, because if the public really found out what was going on, they would be like, wait, what? And then they would demand legislation, which would be very bad for these companies. And of course the legislation would fail because the politicians are all paid by these companies through lobbyists. And that’s how American capitalism actually works. If it was actually free market and we clawed away all the garbage and made it a transparent competition and open and saying, hey, this is the profit we’re making, like you said, these are our costs. Our costs would drop, our quality would improve through competition, and patients would get the drugs they need at the cost that’s affordable, but it doesn’t. So let me throw an example at you. And then I’m gonna get at why the hell Mark Cuban is involved in this, because this is fascinating to me. I’m like, what did you go on “Shark Tank”? And like, well, this is the thing, “Drugs are expensive.” And, and he was like, “Okay, I’m investing,” but we’ll talk about that. But let’s say insulin. Insulin’s been in the news, right? People who need this drug to survive are having to spend more and more and more money. EpiPens, same thing. How would your company interfere with this price escalation? Would you start making the drug yourself and then clearly and transparently pricing it? Would the pharmaceutical companies, do they license the process to you? How does that work?
Dr. Alex: Yeah, so we’re kind of exploring our options on those two products, specifically.
Dr. Z: Oh, you are? You’re looking at those, especially?
Dr. Alex: Again, I’ll be a little bit coy, but we’re looking at a lot of different products and trying to figure out the ones we can attack that will have the most impact for the most people, but basically all of the above. Sort of tackling it drug by drug. It’s amazing when I talk to the pharmaceutical companies, like they, as you might imagine, are as furious about the like middleman system as anyone. Kind of my general salesman pitch to them is, or business development pitch, to be hoity toity about it, is like, in any opaque market in classic capitalism, if it’s an opaque market the winners are neither the buyers nor the sellers. So like dark pools of equity that Goldman Sachs set up. The buyers and sellers of those stocks are not the winners. Goldman Sachs is the winner.
Dr. Z: Right, the middleman, the facilitator.
Dr. Alex: The middleman is the winner. And they’re like, yep, that’s right. That totally makes sense.
Dr. Z: So the pharmacies agree.
Dr. Alex: Yeah, the pharmaceutical companies, bizarrely enough, are all, yeah, are totally on board with it generally when I talk to them, ’cause they’re like, yeah, I spent, even the brand name ones, ’cause they’re like, hey, I spent 20 years of research and development, hundreds of millions of development costs, why is half the profit going to the PBMs? This makes no sense. The seedy sort of rent seeking actors in in between.
Dr. Z: And who’s paying? We are.
Dr. Alex: Yeah, exactly.
Dr. Z: The patients are paying.
Dr. Alex: Yeah, absolutely.
Dr. Z: Through high premiums.
Dr. Alex: Yeah, absolutely.
Dr. Z: Through copays. Through out-of-pocket expense.
Dr. Alex: Or if you’re about 50% of people who are on private insurance plans, are on the plans that are sort of self-insured by their employer. So the employer’s directly paying for those costs.
Dr. Z: That’s right, 50%. And people don’t realize that in those companies where they’re paying all their healthcare costs directly, where is that money coming from? Your wages.
Dr. Alex: Yeah.
Dr. Z: Our competitive advantage in the world relative to other countries where it’s tax subsidized or whatever. So it-
Dr. Alex: If you aren’t making furniture, why are you paying an extra two, $500 a year per employee for PBM fees? It’s insanity.
Dr. Z: It’s nuts. It’s nuts. So, but, then is there any advantage to… You said you’re working with kind of ma and pa smaller PBMs, if such a thing does exist. What’s the advantage of having a PBM at all? Is it purely administrative?
Dr. Alex: Yeah, so you can see, again, I’m harping hard on the PBMs, but if you are an employer, you probably don’t wanna hire a person full time to learn to and then process all the paperwork for each individual insurance claims by your employee. Yeah, so you’re like, okay, 10 cents each time some paperwork needs to be filed. Fair enough. But, so they do serve a function for those self-insured entities. For insurance companies it is bizarre to me. I don’t really understand. Even living this day in day out like 24 hours a day for years, I don’t really understand why they outsource that function. ‘Cause you’re like, you’re an insurance company.
Dr. Z: That’s all you do is overhead.
Dr. Alex: That’s all you do is process paperwork.
Dr. Z: Administrative. Yeah.
Dr. Alex: Yeah. So that I don’t really understand.
Dr. Z: Yeah, you know, it might’ve been, yeah, I don’t know, we’re speculating, but what is interesting about this is when something like your thing comes up, one of the big objections people will raise is well, but I bet you don’t play nice with insurance. So you’re probably asking for cash pay. Is that right? Or do you work with insurance?
Dr. Alex: No, we’d love to work with insurance. Like, why wouldn’t we? I don’t want our albendazole to cost, at the end of the day where us have a manufacturer’s suggested retail price. Only drug company I know of that does that, of $20 a tablet. I don’t want people paying $20 a tablet. I want them paying a dollar or whatever their copay is. I want it to be free. So yeah, obviously, yeah, we wanna play nice with the insurance companies for that purpose. It’s just when we do we insist on transparency in the pricing. That’s sort of our line in the sand. ‘Cause we wanna make sure.
Dr. Z: Well, these entities are gonna resist you, which is now why I’m starting to feel the Mark Cuban thing actually is an advantage. Because the Mark Cuban Cost Plus Drug Company, it almost, it’s a little kitschy of a name. But in a way putting Mark Cuban’s name in that says, no, we’re actually dead serious, because we have the resources and the innovative drive to actually do this, and we’re not messing around. Is that, how did you get hooked up with Mark?
Dr. Alex: Oh so actually I just cold emailed him.
Dr. Z: You’re kidding?
Dr. Alex: Yeah, believe it-
Dr. Z: Like the kinda emails I get?
Dr. Alex: Yeah.
Dr. Z: Zubin, and it looks like it’s formed in there, we believe we can provide your website with many, many services, and then poor English.
Dr. Alex: Yep, yep, no.
Dr. Z: Yeah, right. So you did that?
Dr. Alex: Yeah, so I did that, form, yeah, yeah, poor English, whole nine yards.
Dr. Z: The whole, yeah, exactly. Are you Russian by descent?
Dr. Alex: My family is Russian. I was born in, just in Denver.
Dr. Z: Got it. That’s like me. My family’s from India, but I was born in New Jersey. But actually technically we’re Persian, because they’re Middle Eastern by descent, but that’s, what does that have to do with this? Nothing. Back to this. You send a poorly Englished cold email to Mark Cuban.
Dr. Alex: Yeah, and believe it or not, he reads his cold emails. Like, and his public email is out there, [email protected] Like if you email him, he personally will read it, which was startling to me.
Dr. Z: That’s nuts.
Dr. Alex: He doesn’t have like minions that I figured would be doing it.
Dr. Z: You know what’s interesting is the very connected billionaires like that, like my late friend, Tony Hsieh, read all his emails. It was [email protected], and he read every single one. I mean, he had minions to help once he triaged them, yeah.
Dr. Alex: Wow, yeah.
Dr. Z: So Mark read this email.
Dr. Alex: Yeah, he read this email, basically respond back, like tell me more. And I was kinda startled. He knew all of this. Like he had been looking for ways to kinda get past this for years, ’cause he had done his research, and in intimate detail knew about the PBMs, knew about the wholesalers.
Dr. Z: Is that because he’s running companies that are affected by this?
Dr. Alex: You know, I never asked him how he knew. I just figured he was interested in it and did his research. But yeah, maybe part of it was, yeah, The Mavs, they have to pay these same costs that everybody else does. So, yeah, I’m not sure how exactly he knew, but he is very well versed in sort of the nitty gritty details of this stuff. Sort of everyone you see as sort of a celebrity on TV you assume they’re just kind of a talking head, but no, Mark’s the real deal. He knows what the PBM overhead stuff is, in like granular detail.
Dr. Z: Does he get as outraged as we get about it?
Dr. Alex: If not more so, ’cause I try, we’re fancy schmancy doctors, we talk professionally and stuff. He’s not obligated to do that. He’ll scream and yell and just be like, “this is so messed up.” He has F-you money.
Dr. Z: Yeah, he has F-you money, exactly.
Dr. Alex: But yeah, no, he’s also a shockingly normal person. I imagine probably your interactions with Tony, bless his soul.
Dr. Z: Yeah, yeah, yeah.
Dr. Alex: Such a kind individual.
Dr. Z: Just a truly authentic, genuine person. And people can lose their way, but at the same time be just genuinely human. So Mark.
Dr. Alex: Yeah, is a shockingly normal guy.
Dr. Z: That’s awesome.
Dr. Alex: You talk to a lot of people in sort of investment and the VC world, they have this sort of professional managerial class, sort of like airs about them, because that’s their job is to present themselves professionally. Mark’s just a normal dude. Like if you’re talking to him, he’s just, talks, like you said, he has F-you money. So he just talks like a normal human being.
Dr. Z: Isn’t that nice?
Dr. Alex: Yeah, it is actually startlingly refreshing.
Dr. Z: It’s the top of Maslow’s hierarchy where you’re just like, oh I can self-actualize now because I’m not gonna be on the street.
Dr. Alex: But, no, he’s very involved in day-to-day details of the company as well. He communicates with me, like, I don’t know, at least four or five times a week. And he’s like, what if we do this? What if we do that differently?
Dr. Z: That’s great.
Dr. Alex: So yeah, so he’s very passionate about these issues.
Dr. Z: And he probably sees the world a little bit differently than us doctors do, which is really good, ’cause we get in our own heads, and it’s really amazing, ’cause you’re a radiologist.
Dr. Alex: Yeah, yeah.
Dr. Z: And yet you got involved in drug manufacturing and sales.
Dr. Alex: Yeah, just think of me as kind of George Costanza. Like I was just angry about this, and I was just like I’m gonna do this all out of spite.
Dr. Z: And so you basically built your own pirate shirt factory, basically, Costanza style. Amazing. I feel like Kramer’s gonna walk in at any moment now. So it was just pure outrage.
Dr. Alex: Yeah, just, I know you talk about, what is the term, like moral outrage or moral fatigue, on your show a lot?
Dr. Z: Moral injury.
Dr. Alex: Moral injury, that’s it. That’s it. Yeah, no, I was just mad and just sort of went off on this tangent for the better part of the last decade at this point.
Dr. Z: And you’re still doing radiology almost full-time.
Dr. Alex: Yep.
Dr. Alex: Well, that-
Dr. Z: You have to peel that back.
Dr. Alex: I’ve had to peel it back a lot. So now I do, I still do like a shift every Saturday night.
Dr. Z: Got it.
Dr. Alex: But like the week there’s just so much going on.
Dr. Z: Oh yeah, yeah, yeah, yeah. Even before you got on the show, I mean, you’re putting out fires and doing all kinds of stuff and being an entrepreneur. Did you have entrepreneurial experience before you started this thing?
Dr. Alex: Oh, sure, so I did actually. Yeah, that was kind of the little niche I found for myself within the academy. ‘Cause everyone finds sort of entrepreneurship to be very mysterious, even though it’s very, as you know as a fellow entrepreneur, very banal at the end of the day. Like, oh gosh, the city’s on me to mow the lawn. Okay.
Dr. Z: My business license expired because I forgot to fill out the paperwork.
Dr. Alex: Yeah, yeah, absolutely. Right there with you. But, no, during grad school I actually started a company that made door handles that dispensed waterless hand sanitizer when you use them. Yep, yep, totally.
Dr. Z: That’s actually brilliant.
Dr. Alex: Thank you.
Dr. Z: So as you turn the door handle it just squirts some-
Dr. Alex: Yeah, exactly. So it was, ’cause I kept forgetting to wash my hands when I went between patient rooms. And yeah-
Dr. Z: Docs are the worst about it.
Dr. Alex: And I was like, oh my God, I’m gonna kill someone. I don’t wanna kill anybody by doing this, heaven forbid. So yeah, that company’s been going strong for 15 years. As you might imagine, sales I think went up by like a factor of 10 because of the pandemic.
Dr. Z: So forget about monopsony, you’re a pandemic profiteer.
Dr. Alex: Yeah, I’m fundamentally an evil person at the end of the day.
Dr. Z: I figured as much. It’s the beard. Exactly. We need to get you a little cat. Well, Mr. Cuban. I’ve taken your money and squandered it on pills.
Dr. Alex: So, so many pills.
Dr. Z: So many pills.
Dr. Alex: But yeah-
Dr. Z: So you had that experience.
Dr. Alex: Yeah, so I had that experience. I mean, I left the company pretty soon after it started. So I ran it as the CEO for about a year or two and then moved to being like a part-time CFO, and then kind of, and then left, was still on the board for awhile, left completely a couple years ago just because it’s sort of outgrown me. But yeah, I had that experience of starting a company, all these like arcane things, like what’s a convertible note? All these sort of like-
Dr. Z: Board of directors.
Dr. Alex: Yeah, setting these up. Like oh man lawyers are really taking advantage of me. I have to manage the lawyers.
Dr. Z: That’s one thing that I, as a wantrepreneur, someone who wanted to be an entrepreneur and ended up doing it, I was shocked at how much lawyers actually, if you’re talking about PBMs, we might as well talk about lawyers real quick, because they take so much revenue to do so little, really. But it’s necessary in the current structure.
Dr. Alex: Yeah, so what I quickly learned is lawyers make work for themselves.
Dr. Z: Yes.
Dr. Alex: So basically at the time-
Dr. Z: Especially when two lawyers talk to each other.
Dr. Alex: Exactly.
Dr. Z: Like, oh my company’s talking to their company’s lawyer. They’re gonna make work for themselves. Suddenly, Blue Cross actually gave us a cease and desist for our logo for Turntable Health because they said it looked blue and it was in healthcare.
Dr. Alex: Awesome.
Dr. Z: And I had a copyright lawyer who was like, “Okay, well I’ll call their lawyer.” And the next thing I knew it’s like $20,000 of legal fees, and all they said was change the color one shade lighter of blue. And I’m like, this is a joke. Are you kidding me?
Dr. Alex: Yeah, this is, yeah, this is bringing back like PTSD flashbacks to me of similar things. Essentially what I learned was, one, you gotta say no to the lawyer. So they’ll recommend things, and you just gotta cut ’em off and just be like, no. And the second thing we moved to, this is gonna be deeply, this was deeply ironic to me. We were frustrated with basically over-billing from our lawyers at the time, and we moved to basically the most expensive law firm we could find, which was this group, actually I really like ’em, Wilson Sonsini. They do a lot of startup stuff here here in Silicon Valley, and yeah, our costs actually went way down.
Dr. Z: Because they’re more directed.
Dr. Alex: They’re more directed, and I just think, there’s no way to prove this, this is perhaps me being, oh, I don’t wanna get sued by anyone for saying this, but basically inflating your billable hours, ’cause they pay you per hour worked. And I just think our new lawyers are just honest with us about what the actual time is they spend. And maybe they don’t have junior associates who need to learn the law and you pay them to learn the law as they go.
Dr. Z: That’s right, yeah.
Dr. Alex: They just have senior people, like, oh yeah, I just need to write one line, takes 15 minutes.
Dr. Z: And so because these little details are interesting, people don’t, this is why a lot of physicians and nurses don’t succeed instantly in business. It’s a lot of work learning this stuff. And what other things have you learned? Because, do you have a board of directors or is it all Mark? How is it working now? Because you started at, did you, you approached Y Combinator? I cut off your story early on.
Dr. Alex: Oh yeah, sure, so I approached Y Combinator. Just, again, cold emailed. I don’t really have-
Dr. Z: Well, so this is the lesson guys. Just start cold emailing everybody, and all your dreams will come true.
Dr. Alex: Actually, totally. You can’t say anything else. But, yeah, no, they have a webpage where you can just apply to be funded by them. And I did. And they called me in and they basically said if you convert from a nonprofit to a for public profit public benefit corporation we will just invest in you like we would in any other company. So public benefit corporation is a for-profit company, but with a public mission in its charter.
Dr. Z: I see. So you’re not a not, ’cause they’re not investing in nonprofits.
Dr. Alex: So they do.
Dr. Z: They do.
Dr. Alex: Well, I guess it would be donating to nonprofits.
Dr. Z: Yeah, yeah, yeah, exactly.
Dr. Alex: But they have like a nonprofit or two, I think, in each of their batches. So they fund companies once or twice a year.
Dr. Z: I see, I see. So Y Combinator is where you kind of incubated?
Dr. Alex: Yep, and no, it worked really well. Wound up raising a little over a million dollars coming out of their program from other sort of socially-minded investors.
Dr. Z: So other outraged people who wanna see-
Dr. Alex: Other mad people were on board.
Dr. Z: Yeah, exactly.
Dr. Alex: And yeah, emailed Mark a couple months after that, and yeah, just taken off dramatically since then. So in terms of the structure, this is strange to say because my old company had a board of directors and how to set that up. And yeah, to your point, this is stuff that you really can’t find anywhere. You can’t find this information short of listening to YouTube videos of people talking like this, seriously.
Dr. Z: It’s true.
Dr. Alex: And so yeah, the only way to learn it is kind of by doing it and messing it up the first time. And then the next time you can not, not mess it up basically. But yeah, no, the way it’s worked out since is basically I am my own board of directors. There’s a board of directors of one, and I’m that person. Of course it would be madness for me to do anything that Mark was like dead set against. But I find myself usually in agreement with him on like 98, 99% of stuff, if not that, ’cause, I don’t know, it’s nice when you, it’s almost like dating, you click with someone, and you’re like, oh, we’re on the same page.
Dr. Z: That’s exactly right. I mean, that’s what it was like with Tony and Turntable, and we just kind of understood each other. And the nice thing about Tony is he wasn’t there to, he didn’t care if it worked or not. He wanted it to make a difference somehow, and it did. And the thing is you never worried like, oh my gosh what if the thing… You still were though, right? You’re still worried all the time. Every day I would wake up like what if this fails? And when it finally did, when we finally did have to close it, it was actually more of a relief than like this horrible thing. ‘Cause it was like, oh, we were fighting so hard in this losing battle sitting with United Health at the table and them talking about giving us 11 per patient per month for primary care or something ridiculous.
Dr. Alex: Oh wow.
Dr. Z: It’s the same because they’re a monopsony. I’m learning your words now.
Dr. Alex: I love that word. It makes me feel so smart.
Dr. Z: It does. And you knew that until we disrupt even more deeply, and sow the seeds for real change, and some of it is outrage, some of it is you have to make people feel how unjust the situation is. And how big is your company now? How many people are you?
Dr. Alex: So, actually it’s still very small. But we have essentially like a small army of contractors. And part of that is like a lot of the tasks we’re doing now, like building the factory, will only have to be done once. So it’d be, rather than like hiring the construction guys full-time, which would be a little silly, we hire contractors to contract all that out or all of the regulatory stuff. But I think we’ll probably be between 60 and 80 people this time next year, full-time employed.
Dr. Z: Got it.
Dr. Alex: And that’ll probably, the majority of that will actually be just the line staff at the factory, like the people who are hands-on making the medicine.
Dr. Z: Where can people find more information about what you’re doing?
Dr. Alex: Sure, so our webpage is www.costplusdrugs.com.
Dr. Z: That’s a good URL.
Dr. Alex: Right?
Dr. Z: You even threw the www in just to keep it old school, man. That’s what my dad, whenever my dad he talks about websites, he’s like, okay, go to w w w, it just took you five minutes to get through the www, now I gotta listen to the spelling of the rest of this thing.
Dr. Alex: Well, I just want people to know it’s on the worldwide web.
Dr. Z: That’s important.
Dr. Alex: You can surf that whenever you want.
Dr. Z: I understand. I have my AOL dialup.
Dr. Alex: Ooh.
Dr. Z: 2200 baud. That’s one page of text every 25 seconds. I just learned that reading a pre-print of Federico Faggin’s book. He’s writing about micro, he’s one of the fathers of microprocessors. And he was talking about the early dialup speeds. And I was like, wow, I remember getting on those bulletin boards. You would get on these bulletin boards where you would interact with other people. This was in the 80s. And it was 2200 baud modem. And it would be like . You would hear individual bits.
Dr. Alex: Yeah, no, we’re actually working with my teleradiology firm, the same one your wife used to work for. It feels a lot like late 90s, like chat. And I was really bad at it as a teenager. So I’m still bad at it now as like a teleradiologist, talking to everyone else in the practice.
Dr. Z: You don’t use enough emojis. What’s the emoji for Ghon complex?
Dr. Alex: I think it’s a dancing turkey. Pretty sure it’s a dancing turkey.
Dr. Z: Radiology emojis. Yeah, it’s interesting. ‘Cause the way you guys did teleradiology is, I mean there was this open chat window and you guys were sharing, asking each other questions, and it’s actually very collegial, even at a distance.
Dr. Alex: Yeah, it’s like, I’ve worked with the same folks for six, seven years now. And I feel like I know them, though. I’ve never actually met them in person.
Dr. Z: It’s crazy.
Dr. Alex: Yeah.
Dr. Z: It’s pre pandemic you guys were doing this.
Dr. Alex: We were in isolation before it was cool.
Dr. Z: That’s true. You guys were edgy. And so what’s your vision for where this thing will go in terms of effecting the bigger picture of everything?
Dr. Alex: Oh, sure. So basically, my grandiose vision is kind of just setting up a parallel supply chain and parallel manufacturing base that just goes around all these sort of pathologic entities, and just be like, hey, get your drugs at an honest, transparent price if you go this route through the following actors.
Dr. Z: Ahhhhh, so it’s true disruption. You’re saying, okay, we started out small on the fringes. Then we create a parallel thing that’s better, cheaper, more effective. And then the old players are out of business.
Dr. Alex: Yeah, so the traditional Clay Christiansen, like real-
Dr. Z: Innovators.
Dr. Alex: Disruption, yeah.
Dr. Z: Disruption, yeah. So here’s a question of the beautiful thing about working with Cuban then is that he’s probably not keen to just sell you off to some PBM. In other words, you know what I mean?
Dr. Alex: No, a lot of the companies, so, clearly this is not a brilliant, innovative idea. Like, make drugs cheap is an old concept. It’s not that hard to think of, but a lot of time what happens is people go into it with good intentions, just get a huge buyout offer and just take that. And Mark’s like, we don’t need that.
Dr. Z: Yeah, see that’s great.
Dr. Alex: Like, no. We can’t be bought out essentially.
Dr. Z: The Mark Cuban Cost Plus Drug Company, it’s another advantage of that. And it was the same thing working with Tony. We weren’t there to sell our thing to some big buyer and get rich. That wasn’t the goal. It was to make a real difference. This is great. And what I think is where your thing fits in is in this bigger model of health 3.0. So price transparency, reasonable profits, so you do well by doing good for people, competition, and getting rid of anything that doesn’t need to be there. It sounds like there’s enough in between the drug companies and the purchaser, the patient, that doesn’t need to be there. Now some people would say even insurance doesn’t need to be there, and we oughta have a single payer and so on. How would a single payer plan affect your business model?
Dr. Alex: Oh, that’s interesting. So, my, kind of my personal aside, kinda the way I went into this is like, I’m a radiologist from central Montana. No one cares what I think from a policy perspective. I have zero ability to influence or change politics. So I am going to play the ball as it lies and work within the structures as they currently exist. Just ’cause I have, if Bernie Sanders with tens of millions of followers and just brilliant vision can’t change the system, like Dr. Oshmyansky with the unpronouncable name is not gonna be able to change the system. So, until such a point comes when the system changes we’re just gonna work within what is set up for us. What the barriers are, we’re just gonna power through them as best we can.
Dr. Z: So adapt to what is, yeah makes a lotta sense. Man, that’s awesome. This is, I’m excited to see how this thing turns out, because any innovation, any disruption to the, I’m gonna use the word, the wrong word, hegemony, ’cause I like it, ’cause it sounds good, to the existing oligopoly that is healthcare. I think we oughta be encouraging, we oughta be shining a light on, we oughta be, especially when there’s a practicing physician involved, because that changes the dynamic quite a bit. So you have this really good combination of Mark Cuban and you, which is crazy.
Dr. Alex: Yeah, no, it’s surreal. Like, our offices, or at least before the pandemic, were in Dallas Mavericks headquarters.
Dr. Z: That’s awesome .
Dr. Alex: No joke.
Dr. Z: You must get a lotta perks.
Dr. Alex: Well, I assume the basketball players are the guys who are seven feet tall walking around. I’m like, yeah.
Dr. Z: So you’re like me with sports.
Dr. Alex: Yeah, I consider myself a total baller.
Dr. Z: Yes, oh yes, yes.
Dr. Z: B-A-W-L-E-R, that’s the-
Dr. Alex: oh, indeed, indeed, indeed. But yeah, I think I’m not yet at the cool kids’ table, but maybe one day, maybe one day.
Dr. Z: Well, listen George Costanza, you’re at the cool kids table right now. All right, because-
Dr. Alex: Durn skippy.
Dr. Z: Look at me. Just look at me. How cool? Durn skippy. Dude, thanks a million for comin’ on the show.
Dr. Alex: Oh, thank you for having me.
Dr. Z: And we’ll get you back to see an update as things grow. ‘Cause I’m excited to see it evolve. And you guys can go to costplusdrugs.com?
Dr. Alex: Mmhmm.
Dr. Z: Sorry. www.costplusdrugs.com, and check it out and share this episode. If you wanna become a supporter of the show I won’t complain because we go deeper on things. And if you like what we do you can also give us a little tip in the tip jar. This is the thing, I put my little hat out like a street busker now. It’s just paypal.me/zdoggmd. We take all that money and… Tell ’em about the studio, dude. Tell ’em about what you see here.
Dr. Alex: Oh, this is sweet. There’s like really professional equipment in here, right?
Dr. Z: Who pays for it? You all do. No big pharma. You know what? There was a time, Alex, when I would have been reluctant to have you on, by the way, you’re not sponsoring this episode. No one’s paying me to have you on the show. I would have been nervous to have you on because I would be afraid that I might piss off CVS or Walgreens or Optum, because maybe they might wanna sponsor our show. And we were always hustling to try to pay the bills, pay the team. Now I don’t care about any of that because-
Dr. Alex: That’s so awesome.
Dr. Z: We’re fully funded by our Supporters, and some ad revenue here and there and that kinda thing. And if the ads dry up, then our supporters fill the void. So that’s the wonderful thing about being in our audiences’ pocket instead of in big whatever’s pocket. So guys, we’d love to be in your pocket. It came out wrong. I’ll edit that out later. Or I won’t. All right, guys, I love you. Until next time, we out. Peace.
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