When the shark meets the pediatrician: what the Cuban-Conway debate reveals about healthcare structural problems
Table of Contents
Setting the Stage
The Core Disagreement on Rebates and Net Pricing
Biosimilars, White Labels, and the Question of Multiple Prices
The Independent Pharmacy Dilemma
Transparency, Cash Pricing, and Deductible Crediting
What This Reveals About Vertical Integration
The Real Cost Drivers Nobody Wants to Address
What Entrepreneurs and Investors Should Actually Care About
Key Takeaways:
- OptumRx claims 100% rebate passthrough starting in 2024, but implementation details remain murky
- The gross-to-net bubble creates a tax on sick patients during deductible phases
- Multiple pricing tiers for identical drugs persist despite cost-plus rhetoric
- Independent pharmacy reimbursement uses NADAC, which may not reflect actual acquisition costs
- Vertical integration creates alignment problems that no amount of efficiency can solve
- Both speakers agree hospitals and pharma list prices are the real cost drivers
- Cash pricing consistently beats insurance pricing across the system
- Deductible crediting for out-of-network purchases remains a policy battleground
Setting the Stage
The Hopkins forum that brought Mark Cuban and Dr. Patrick Conway together for a public debate on payment and delivery innovation turned into something more valuable than either participant probably intended. This was not a polite academic discussion. Cuban, who runs Cost Plus Drugs and has made transparency his crusade, faced off against Conway, CEO of Optum, the quarter-trillion-dollar health services behemoth that includes OptumRx as one of the three dominant PBMs in America. Professor Ge Bai from Johns Hopkins moderated, though moderating might be too generous a term for what became a rapid-fire cross-examination.
The basic facts here check out. Optum reported 250 billion in revenue for 2023, making Conway’s characterization accurate within rounding. OptumRx is indeed one of the big three PBMs alongside CVS Caremark and Express Scripts, collectively controlling roughly 80% of the prescription market. Cuban launched Cost Plus Drugs in 2022 with a transparent pricing model showing acquisition cost plus 15% markup plus pharmacy fees. What neither mentioned is that Cost Plus primarily focuses on generic and specialty generic drugs, with limited brand coverage because manufacturers have largely refused to contract with them, a point Conway would later dance around.
Conway came prepared with talking points about clinical programs, rebate passthrough, and cost-based reimbursement for independent pharmacies. Cuban came prepared to challenge every single claim with the kind of specificity that only comes from actually trying to sell drugs to employers who have OptumRx contracts. The result was a transcript that reveals more about how the pharmacy benefit management system actually works than a dozen white papers or congressional testimonies.
What makes this debate valuable for health tech investors and entrepreneurs is not the spectacle, though there was plenty of that. The value lies in watching two smart operators with different business models argue over specific mechanisms. When Cuban asks why patients pay different prices for the same drug, or why OptumRx needs price comparison tools if everything is already at net price, these are not gotcha questions. They are fundamental questions about market structure that every founder building in the pharmacy space needs to understand.
The Core Disagreement on Rebates and Net Pricing
Conway opened by explaining that OptumRx negotiated over 50 billion dollars in discounts and rebates last year, and that OptumRx is the only large PBM that announced 100% rebate passthrough to clients. This sounds straightforward until you start pulling the thread. The 50 billion dollar figure is likely accurate based on OptumRx’s market share and total rebate dollars in the system, which the USC Schaeffer Center estimates at around 240 billion annually across all PBMs. The claim about being the only large PBM with 100% passthrough needs more scrutiny. Prime Therapeutics announced a similar model earlier, and several smaller PBMs like Navitus have operated on full passthrough for years. What Conway likely means is OptumRx is the only one of the big three to announce this publicly, which is technically true but misleading about the competitive landscape.
Cuban immediately went there, asking about MSR, the group purchasing organization that OptumRx created as a subsidiary, technically based in Delaware but with people in Ireland. The structure matters because it determines where value accrues and who captures it. MSR, or MedImpact Strategic Resources, is real and the Delaware-Ireland structure is real. This setup is common for intellectual property and licensing arrangements that benefit from Irish tax treatment, though OptumRx would argue the location is about accessing European biosimilar markets.
Cuban’s question was direct. If MSR negotiates rebates but no longer keeps any of the money, what is MSR for? Conway explained that group purchasing organizations pool negotiating power to get lower prices, which is true in healthcare and outside healthcare. Every contract coming up for renewal moves to the 100% passthrough model, and they have already moved over 95% of contracts. The 95% claim is impossible to verify without access to OptumRx’s contract database, but the timeline Conway describes, announcing in January 2024 and implementing over a three to four year contract cycle, means many employers signed contracts in 2021-2023 that would not expire until 2024-2027. So the 95% figure would only be plausible if OptumRx is offering contract amendments or buyouts, which they might be doing to get competitive advantage while other PBMs have not made this move.
