Drug reimbursement shenanigans

In the drug industry, there are different types of abusive practices that occur:

  1. Drug companies encouraging off-label use (and/or “recreational” use) of their drugs, potentially harming patients’ health.
  2. Drug companies encouraging doctors to increase dosages and drug use, potentially harming patients’ health.
  3. Drug companies encouraging waste to increase the volume of drugs sold.
  4. Pharmacy benefits managers (PBMs) selling out their clients (payors) in exchange for kickbacks from drug manufacturers.
  5. Drug manufacturers using “specialty” pharmacies to bilk payors, tricking the payors into reimbursing expensive drugs that they would otherwise not reimburse.  Unlike traditional pharmacies, captive pharmacies can go the extra mile to obtain (possibly improper) drug reimbursement for the drug manufacturer.

This blog post will look at #4 and #5.

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Throwing pennies in front of a steamroller

One of the annoying things about short selling is that frauds and stock promotes will occasionally be taken private, causing short sellers to lose money on their positions.  If a company announces a going private transaction or other takeover event, my opinion is that the best strategy is to cover your short position and redeploy that capital into other shorts.  Looking back at Chinese reverse mergers, it seems that almost every going private transaction closed.  There were a handful of non-binding going private transactions that didn’t close; those were the only ones worth betting against.

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