Cuban’s healthcare provocation and why the devil lies in the implementation details 

Table of Contents

I. Abstract

II. The Full Manifesto

III. Medicare Rate Anchoring and the MLR Shell Game

IV. Cash Shopping and the Deductible Paradox

V. Net Pricing at Point of Sale and the Rebate Illusion

VI. Wholesale Net Pricing and Supply Chain Archaeology

VII. Acquisition Moratoria and Market Structure

VIII. Provider Consolidation Price Freezes

IX. The Wholesaler-Provider Integration Question

X. Physician Hospital Ownership Revival

XI. Contract Standardization Fantasy

XII. Cost Plus Drugs as Policy Beneficiary

XIII. What Gets Lost in Translation

Abstract

Mark Cuban’s recent healthcare policy proposals target core dysfunction in drug pricing, insurance administration, and provider consolidation. This analysis examines nine specific recommendations ranging from Medicare rate anchoring for intercompany transfers to physician hospital ownership liberalization. Key tensions emerge between theoretical benefits (reduced administrative burden, pricing transparency, independent pharmacy survival) and implementation risks (regulatory arbitrage, market exit, unintended consolidation acceleration). The wholesale net pricing proposal represents the most technically complex intervention with highest potential impact on pharmacy economics but also greatest measurement challenges. Contract standardization promises administrative savings but may ossify innovation in payment models. Several proposals explicitly advantage Cuban’s Cost Plus Drugs business model, raising questions about self-interest versus public benefit alignment. The package reflects sophisticated understanding of healthcare financial engineering but underestimates state capacity requirements and second-order effects on market structure.

The Full Manifesto

Cuban’s LinkedIn post deserves to be read in full before dissection begins:

For those legislators who are working on healthcare legislation right now, here are some suggestions:

1) For intercompany medical charges, require them to be priced at Medicare rates. Ends gaming of MLRs

2) Require all insurance plans to apply any cash purchase against your deductible. Let plan holders shop.

3) Require all pharmacy purchases by a plan holder to be charged at net price after rebates. Right now YOU pay full retail price for branded meds in your deductible phase. You can thank your insurance company PBM for lying to you when they say they negotiate better prices. They obviously suck at their jobs if the best they can do is get you retail price!

4) Require wholesale pharmacy pricing to be at net. This may seem like price controls. It’s not. The wholesaler buys at retail, gets a prompt pay/data discount of 5 pct from the manufacturer, then has the pharmacy buy from them at retail price minus a small discount. Which reimburses the wholesaler.

5) Wholesalers complain then don’t make money on brands. Indie pharmacies get crushed on brands. Manufactures don’t make more money this way either. Why? Because they write HUGE rebate checks to the PBM!

Require pricing to be at net, and you improve cash flow and reduce reimbursement risk for indie pharmacies. Patients can naturally pay lower cash prices for brands because pharmacies will pay much less.

Wholesalers can mark up their cost and make the same amount as they did before.

The only loser in this? The PBMs, every one else gains

1) Create a moratorium on all acquisitions by ins carriers

2) If a medical provider of any kind, hospital, clinic, whatever, acquires another provider, they must retain the pricing (pre any price increases meant to game this rule), for a period of 5 or 10 yrs, allowing only for cpi increases

3) Investigate the acquisitions of providers by pharmacy wholesalers.

4) Allow doctors to own hospitals

5) Standardize contracts by insurance carriers, by provider type. Every contract, with every hospital, should have the same fill in the blanks with minimal variance. This will cut administration costs dramatically

I can go on for days. This is a start

Forgot the most important item. If brand pricing went to net via wholesalers, costplusdrugs could buy brands from them, mark them up only 15 pct, and cut the price of EVERY SINGLE BRAND MEDICATION

The post reads like someone finally got fed up enough with healthcare’s financial engineering to just say the quiet parts loud. Whether you think Cuban’s a prophet or a billionaire whose business model happens to benefit from these exact changes probably depends on how cynical you are about regulatory capture working in reverse. What makes this interesting is these aren’t hand-wavy “we should fix healthcare” platitudes. These are surgical strikes at specific mechanisms that make drug pricing and insurance administration unnecessarily complex.

Medicare Rate Anchoring and the MLR Shell Game

Cuban leads with intercompany transfer pricing, which is genuinely one of the slimier corners of health insurance finance. The MLR (medical loss ratio) requirement under ACA says insurers have to spend at least 80 or 85 percent of premium revenue on actual medical care depending on market segment. Seems straightforward until you realize vertically integrated insurers can charge themselves whatever they want for services provided by their own subsidiaries.

UnitedHealth owns OptumRx, OptumHealth, Optum Insight, and a constellation of physician practices and surgery centers. When a United member fills a prescription at an Optum pharmacy or sees an Optum physician, the charges that flow between these entities count toward the MLR numerator. Set those intercompany prices high enough and suddenly you’re “spending” 85 percent on medical care while the economic profit stays in-house. It’s transfer pricing 101, same thing multinationals do with Irish subsidiaries except the tax authority here is CMS and state insurance regulators who are wildly outgunned.

Anchoring these transfers to Medicare rates would theoretically prevent the gaming. Medicare rates are public, relatively standardized, and already represent a benchmark that most of healthcare pricing orbits around. The appeal is obvious: take away the ability to inflate costs through captive transactions and force actual market discipline on what counts as medical spending.

The problems show up in implementation. First, Medicare rates don’t exist for everything. Medicare doesn’t cover certain services, doesn’t credential certain provider types, and has gaps in its fee schedules that would require regulatory gap-filling. Second, Medicare rates themselves are subject to political manipulation and geographic adjustment factors that create their own arbitrage opportunities. Third, this only works if you can actually identify intercompany transactions, which requires disclosure and enforcement infrastructure that doesn’t currently exist at scale.

More fundamentally, if you force intercompany pricing to Medicare rates, you create a huge incentive to simply stop using intercompany transactions. Spin out the subsidiaries with contractual relationships instead of ownership stakes. Use joint ventures and management service organizations instead of direct subsidiaries. Hire PwC to design a corporate structure that technically complies while preserving the economic substance of the arrangement. The regulatory whack-a-mole becomes expensive for everyone involved.

The other issue is whether Medicare rates are actually the right benchmark. Medicare deliberately pays below market-clearing rates for many services, which is sustainable because providers cost-shift to commercial payers. If you force commercial insurers to use Medicare rates for their own transactions, you’re either going to see margin compression that drives exits from certain markets or you’re going to see creative redefinition of what constitutes an intercompany transaction. Neither outcome necessarily improves consumer welfare.

That said, the directional instinct is right. Letting vertically integrated insurers set their own transfer prices with zero oversight creates obvious moral hazard. The question is whether Medicare rate anchoring is the best mechanism or whether you want something more like mark-to-market requirements where intercompany transactions have to be benchmarked against arm’s length comparables. The latter is harder to implement but probably more robust against gaming.

Cash Shopping and the Deductible Paradox