Mark Cuban says healthcare companies are sued daily, usually lose and are 'too big to care.' He has a better solution

Cuban argues that large healthcare companies can treat lawsuits and government fines as a cost of doing business because the financial upside from questionable practices may exceed the eventual penalties.

That scenario leads to what he calls “enforcement arbitrage,” a business dynamic where a company can profit from breaking or pushing the limits of rules because the financial consequences of enforcement are smaller than the gains from the conduct.

“The Feds/states don’t have the resources to pursue us all,” Cuban noted on X. “And for civil suits, they [big healthcare companies] will delay and lobby, and their lawyers will be better. More importantly, they know they make more money than they can extract from them.”

Healthcare experts say the incentive problem Cuban is describing is real.

“If the economic benefit of a practice is immediate, while detection, litigation and any eventual remedy happen years later, enforcement can become a weak counterweight even without anyone literally budgeting for a future fine,” Kirat Kharode, founder and CEO at HealCo and a former hospital system executive, told Moneywise.

Healthcare makes this scenario especially difficult because the conduct is often buried inside contracts, reimbursement arrangements and highly concentrated local markets.

“By the time a dispute is resolved, the market may already have changed,” Kharode said.

Enforcement arbitrage is in play

Enforcement arbitrage is akin to financial arbitrage, where a stock market trader, for example, exploits a price difference between two markets. In business, enforcement arbitrage exploits the gap between the economic benefit of questionable conduct and the expected cost of getting caught and punished.

For example, a pharmaceutical giant may profit from a controversial product and make $1 billion selling it. Lawsuits may follow, with $200 million paid out in settlements and regulatory penalties. That leaves a net economic benefit of $800 million for the drug company. Under that hypothetical, even losing lawsuits or paying fines doesn’t necessarily deter the behavior. The penalties can effectively become just another cost of doing business.

In his recent X post chain, Cuban calls for a tri-partisan commission to set guardrails on what big healthcare companies can do at a time when AI appears set to make those companies even more powerful, and fight back against enforcement arbitrage.

That’s where the independent commission comes in.

“We have to recognize we don’t know the best answer yet,” Cuban noted on X. “As much as I hate committees or panels, that’s where we have to start. An organization, funded by taxpayers, with all variety of stakeholders, with the frontier model reps being in the minority, working to put together the research and suggestions to deal with this.”

AI makes policing big healthcare companies more difficult

In his X post, Cuban called for a tri-partisan commission with “Reps, Dems, independents” to police healthcare companies looking to exploit arbitrage gaps and profit from them.

“Who picks this?” he wrote. “This is the hardest part. Maybe we take someone from the GAO office who has served at least 20 years. They don’t need to be AI experts. They need to know how to be nonpartisan and manage.”

But any credentialed healthcare oversight commission should avoid a regulatory system that can only reconstruct what happened years after the market has moved on, Kharode added.