The Cost-Plus Model in Pharmacy Benefits: Advantages and Disadvantages

July 2026

As the healthcare industry faces increasing scrutiny over drug pricing, the cost-plus model in pharmacy benefits has emerged as a potentially more transparent and consumer-friendly alternative to traditional pricing models. Popularized by companies like Mark Cuban’s Cost Plus Drugs, this model proposes a radical shift from opaque pricing and spread-based profit margins. But like any business model, cost-plus pricing comes with its own set of advantages and limitations, especially when applied to pharmacy benefit management (PBM). Below is an exploration of both sides.

What Is the Cost-Plus Model?

In the cost-plus model, the price of a drug is determined by the actual acquisition cost (e.g., wholesale or manufacturer price) plus a fixed markup to cover overhead and generate a profit. For example, a PBM or pharmacy might charge the cost of the drug + 15% + a dispensing fee.

Advantages of the Cost-Plus Model

1. Transparency
The hallmark advantage of cost-plus pricing is clear, upfront pricing. Employers, insurers, and patients can see what a drug truly costs and how much margin is being added. This demystifies the drug pricing process and reduces opportunities for hidden rebates or profit spreads.

2. Aligned Incentives
Traditional PBMs often make more money when higher-priced drugs are dispensed due to rebate structures and spread pricing. The cost-plus model removes these incentives, encouraging more rational drug choices based on efficacy and cost, not profit potential.

3. Cost Savings
Many cost-plus models result in lower out-of-pocket costs for patients, especially for generic drugs and medications with significant price variability in the traditional market. Employers may also save by cutting out unnecessary middlemen and rebates.

4. Easier Budgeting for Payers
Since prices are consistent and markup is fixed, predicting pharmacy costs becomes more straightforward for employers and health plans, reducing financial risk and volatility.

Disadvantages of the Cost-Plus Model

1. Limited to Certain Drugs
Cost-plus models typically provide the most savings on generics and non-specialty drugs. High-cost specialty drugs…especially biologics may not see as dramatic price reductions, and the model might not fully account for value-based contracting opportunities.

2. Loss of Manufacturer Rebates
Traditional PBMs negotiate substantial rebates from drug manufacturers, especially for brand-name and specialty drugs. The cost-plus model usually eliminates these rebates, potentially resulting in higher net costs if the rebate value exceeds the markup.

3. Operational Simplicity vs. Clinical Complexity
Cost-plus models may lack sophisticated formulary management, step therapy, and utilization review strategies that PBMs use to manage utilization and ensure safety and efficacy. Without these tools, inappropriate prescribing or overutilization could increase.

4. Not Scalable for All PBM Clients
Large health plans or employers managing high volumes of complex medications may need more robust infrastructure than many cost-plus vendors currently provide, including comprehensive data analytics, member services, and clinical programs.

5. Risk of Underinvestment
Since profit margins are limited and fixed, cost-plus models may struggle to fund innovation in areas like AI-driven adherence monitoring, value-based contracts, or specialty pharmacy care coordination.

Conclusion

The cost-plus model is a compelling and refreshing alternative in a pharmaceutical landscape often criticized for its complexity and lack of transparency. It offers simplicity, fairness, and trust, qualities often missing in traditional PBM arrangements. However, it’s not a universal solution. Employers, payers, and healthcare providers must weigh the trade-offs between transparency and functionality, especially when managing high-cost or clinically complex patient populations.

Ultimately, the cost-plus model is best viewed as part of a broader movement toward value-based care, requiring careful integration with clinical strategies, patient outcomes, and financial sustainability.