Pharmacy tales: The “No. 1 priority” and the public good

January 10, 2016

A look at one of life's persistent questions: “How on earth does a company get away with charging these kinds of prices?”

David StanleyHave you ever noticed that when a company finds itself in hot water, the first line in its first public statement will almost always say the same thing? No matter what the problem, you can rest assured that the public good is its “highest priority.”

The potentially lethal ignition switches in some General Motors cars? Customer safety is the company’s “highest priority.”

The E. coli outbreak at Chipotle restaurants around the country?  The “safety of our customers and integrity of our food supply” is … well, you know.

Similarly, after an explosion at a refinery in Texas killed 15 workers, BP assured the world that henceforth safety would be its “No. 1 priority.” Then came the Deepwater Horizon disaster.

I can't help but wonder how these companies can possibly execute their second and third priorities when they have so much trouble with the “first” or “highest.”

See also: the tiny alternative to the pharmacy megamerger

Specialty relationships

So when I saw in the press release from Valeant Pharmaceuticals - makers of $1,000 lorazepam, $4,000 methyltestosterone, and $300 hydrocortisone cream, among other things - that “operating honestly and ethically is our first priority,” I figured something was up.

Sure enough, a scandal has been unfolding over the last few months that has actually made a company that charges these kinds of prices look even worse.

As you can imagine, Valeant is eager to steer prescriptions for its extremely overpriced products away from community pharmacies, where it's possible that pharmacists will explain to prescribers the idea behind Valeant's business strategy. So the company has developed relationships with “specialty pharmacies,” ones that will make sure that Valeant’s brand-name product is ... ahem ... a higher priority than it would be at my store or at your local CVS.

See also: Pharmacy tales: The man who out-Shkrelied Shreli

How close are they?

The question of just how close these relationships are has become crucial as the business practices of one pharmacy in particular, Philidor Rx Services, have come to light.

Bloomberg Business News has reported that employees of Philidor routinely marked prescriptions for Valeant products as doctor-ordered “dispense as written” without actually having a doctor's order.

And the Los Angeles Times recently ran the story of a small community pharmacy bought out by Philidor, evidently for the sole purpose of obtaining access to the business' license to operate in California and an extra NPI number to use for claims that were rejected under Philidor's code.

Valeant has claimed to be unaware of Philidor's shenanigans, and it has ended its relationship with the company. (In the latest news, it has entered into an agreement with Walgreens.) However, before the scandal, Philidor alone accounted for 6.8% of Valeant's revenue, and in December 2014 Valeant had signed an agreement to buy Philidor.

Now, far be it from me to cast any stones, but it strikes me that to be so unaware of the policies of a company you've agreed to buy - policies that directly benefit your own business - at the very least suggests that you need to make your commitment to due diligence a ... higher priority. 

 

But there’s more

It's possible that Philidor was just the tip of the iceberg. A hedge fund by the name of Bronte Capital has recently claimed to have uncovered a network of dozens of pharmacies set up by Valeant or Valeant associates. “This should keep the fraud investigators for various insurance companies busy,” Bronte claims in a blog post.

To be fair, Bronte has a large “short” position in Valeant, which means that the fund will profit if shares of Valeant go down in price. Still, it should be interesting to see how these allegations shake out.

At the very least, you and I now have a bit of an answer to the question that comes to mind every time we see a $1,100 minocycline prescription, namely, “How on earth does a company get away with charging these kinds of prices?”

Now, if you'll excuse me, I have to type up a press release assuring my wife that cleaning out the gutters this weekend is … my No. 1 priority.