Insurers going into the drug manufacturing business? Imagine Hershey starting a milk farm.

Friend of IP4PI Bob Campbell, MD writes in:

BCBS announced this week it is planning to become a manufacturer of generic drugs. This bizarre market behavior is a direct result of the anti competitive secret contracts. It is not at all how normal markets work. 

Hershey Foods is based in my town. Let’s say cocoa beans and milk and almonds and sugar were unavailable due to some form of anticompetitive cartel. Hershey might buy land in Africa and start cocoa bean farms and buy land in Brazil and begin growing sugar cane and buy land in Iowa and stock it with dairy cows and buy land in California and plant almond trees. The problem here is they do not have the resources experience and expertise to do this well. They know nothing about almond farms and nothing about African politics and farm workers.

Markets encourage efficient specialization. This lowers cost and improves the value equation for the customer. Free markets enhance supply chain productivity.  Think if Dow chemical had to drill for its own oil to make its plastics and materials. They know nothing about drilling for oil. Bad for Dow and bad for consumers.

Insurance companies last time I checked were not running their industry very well. I pay a $27k per year premium for embarrassingly bad coverage. They should fix their own industry before they become a pharmaceutical manufacturer. This bizarre inefficient market behavior is a predictable outcome with the Safe harbor in place. It is what is called a broken marketplace.

Read the American Antitrust Institute White Paper on the GPO/PBM Safe Harbor. The drug shortages are a predictable outcome. They will persist as long as the safe harbor for racketeering persists. 

Bloomberg just came out in favor of eliminating all PBM kickbacks. He said we will make pharma manufacturers compete again with no payments to PBMs distorting the marketplace. Remember Azar our in a new fixed rate kickback to replace the traditional % of revenue kickback in the Trump PBM Rule. Trump does not want to be seen backing down from his prescription to lower prescription costs plan and he does not want to have a Bloomberg lite watered down plan. Trump should be even more bold than Bloomberg in this issue. 

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