Right now, we're joined by good friend of the Armstrong and Getty show, Craig got Walls, Craig the healthcare guru, attorney at law, benefits expert about the sixty minutes slash Washington Post story slash virtually everybody reporting on the generic drug cartel deal, the overpricing of generic drugs as the big drug manufacturers were working with each other to screw you and me. Craig joins us, Hello, Craig, how are you, sir? Um? Well,
how are you? Gentlemen? Terrific? Is this one of those deals where you were watching sixty minutes and screaming at your TV? Or did they mostly get it right? Now? You know, I both the Washington Post in sixty minutes generally got this one right. But they don't. They don't understand exactly why. And you get then when I was when I was listening to your interview yesterday on the radio, and you listen to no because you actually I think one of you asked the question. One of you said,
why two thousand and twelves and lo what happened? And and he you know, his his answer was legitimate, and that well, Medicare and Medicaid are the largest purchases of healthcare, and they moved incredibly slow, and they're not catching fraud, which was accurate. But there was something far more insidious going on that I didn't expect your reporter to know.
But okay, so this, this is why, all of a sudden two thousand twelve, these companies started rigging the market to raise the prices on generic drugs just because they wanted to make more money. Why did it happen then, Well, it happened in two thousand twelve, and more importantly, the reason it started to not be caught in two thousand twelve was if you recall, um, we had a small, little forty page regulation, federal law that mainly took effect
in two thousand twelve. We affectionately called that Obamacare. Hence the artists that used to be known as Craig the Obamacare lawyer. Um. Deep within, that's right, deep within, darkest, dankest Obamacare is a price control mechanism. It's referred to as the Medical Lost Race You mandate or MLR mandate.
And what that says, in effect is if an insurance carrier takes a hundred dollars from you, they have to spend eighty five of those dollars on medical claims, and they only get to keep fifteen percent of those dollars to pay their expenses and their profit margin. So it's
a price control mechanism. Okay. And in the past, prior to Obamacare, insurance carriers used to care about keeping costs down because the lower they kept cost, the more profit they can they could keep, the more they could compete
on price with their competitors. However, once you put this MLR mandate in their handcuffed, it's basically so simple as to say, whatever you think this customer's claims are going to be next year, you price their premium as fifteen percent more than claims, and all you can keep is fifteen percent. And oh, by the way, if you screw up and you actually end up keeping seventeen percent, you have to rebate two percent back to the policy holders.
So it's nothing but a price control mechanism. Now, if you all your child you're only allowed thirty percent of a bowl of ice cream, are they going to reach for the large bowl or the small bowl? Right? Go on, They're they're gonna grab for the large bowl, right so there to spend more. It's an it's an incentive for the insurance carriers to look the other way when claims are higher, because they're only going to get to keep more than claims. So if claims is a bigger number,
they're cool with it. So my starting go ahead. Well, I was gonna say, so, is this a um the people who wrote Obamacare? Did they know this was going to happen and they were paid off or cool of it? Or is this just one of those unintended consequences we thought we the world and we just we're just smart enough to figure out how we were going to get gamed. Oh that's it that it's absolutely the latter. This is a no good deed goes unpunished. Anybody who tries to
create a utopian heaven on earth always screws up. Well, and this is go ahead, finish your your thought. Well this is it. I mean you, when this first came out, a lot of us even thought, well, that's not a bad idea to keep, you know, to make sure that insurance companies aren't those evil insurance companies aren't profiting more than they should. But what happened was the unintended consequence was oh okay, well then we don't really care about
fraud or customer service or airs or high claims. So whereby prior to you would have had insurance carriers screaming at the top of their lungs if they saw drug manufacturers Quinn tupling the price of a of a generic drug overnight after insurance companies really didn't care. In fact, some of them might have saw it and thought, that's fine, we can just price that much higher. That is clearly
a key, if not the key part of this whole story. Absolutely, but it wasn't comfortable for the left leaning reporters to dive into that, or perhaps they just didn't know. But yeah, obviously, so the insurance companies are thinking, great, we get of a much larger number. Go ahead and jam, jam people all you want. We get more money that way. Craig
god Laws is Craig the healthcare guru. This is a perfect time to reintroduce to folks who aren't familiar with it, the term rent seeking, which is when you get government involved in all these things, and these bureaucrats think they're so clever and they try to build their utopia through thousands of pages long legislation. The experts go to work and between fifteen minutes and six months later, they figure
out how to game the system. So instead of spending their time and energy to innovate, to better serve their customers, to do their jobs better, they spend their time and energy figuring out how to game the system and how to rip off the government. You see it in folks who came over from the Soviet Union. They are so good at gaming the system because that was the most important life skill. Yeah, that's well said, that's exactly right,
and and it's on the drug. So this is carriers, right, Okay, so you know you say, well, who should have seen this? You guys asked the question, Well, carriers would have seen this.
But see now you created a system where carrier don't care. Now, even more insidious, you probably had very very smart generic drug manufacturers pouring through Obamacare and realizing, wait a minute, carriers aren't going to be as sensitive when we increase prices because that just means their profits can go up to So I don't think it's any accident that this all started in Yeah, and obviously, like the first time, the race prices and nobody said anything, and then you
all got to get them raise prices again even further, and nobody said anything. Pretty soon you caught on, Hey, we there's no market force stopping us from doing this, no market force, are legal force stopping us from doing So what do you expect to do with this? What do you expect to happen now? I mean, now that the jig is up, if this lawsuit ends up ending up the right way, will generic drug prices just collapse overnight? Because I mean they jammed them up for no reason
other than pure profit. Yeah, they're gonna drop. They're gonna drop precipitously. Jack. I I heard your frustration with that question yesterday too. And the only the only mechanism in place that would that would cause them to maybe not drop as dramatically as we would like, is that um drug prices in general are the fastest growing component of healthcare prices. So they're going up at twenty five percent per year. Generic Yeah, generics aren't quite that bad. They're
more like ten percent per year. So if we've got an inflation effect, a natural inflation effect of ten percent per year going back to when when now seven years later, we dropped those prices, we're not going to drop them as low as they were in maybe you know, halfway back kind of saying, so listen, we're running running out of time, but let's spend like sixty seconds on this, because I have a feeling you're familiar with this. I
just became hip to it when I can't remember. A listener or somebody pointed it out to us that one of the reasons a drunk drug company gets exciting new approval lad for instance, you know, we'll call it uh uh you know Armstrong and Gettysia, which has been a baldness treatment. Turns out it helps with dry eyes. It increases the tearing of your eyes. So they've sought FDA oval as a dry eye remedy. That's to keep it
from going generic. I didn't know that, right. If they if they can, if they can discover another valid purpose for that drug, they can they can gain another allotment of whatever it is six to eight years, where they can keep it as a brand name drug under that purpose as well. Now, and so I could see as a drug company and their way ahead of me on this. Obviously they do it for a living, but identifying a side effect that some people might want it gives you.
It gives you hives. Some people like it gives you severe headaches. What if you've never had a headache and you wonder, what are they like my room hauler highs Jack Exactly So Craig the healthcare guru, Craig got Walls. If you need help with benefits for your largish company, is happy to help you out at what benefit underscore Revolution Revolution Revolution dot com. That's the one, I'm sure of it. Or just email us we'll put you in touch. Craig.
It's always enlightening. Thanks budd Thank you, gentlemen. We'll talk to you later. While so drugs, even on their own, are going up per year. That's incredible. There are just so many examples of these well meaning government policies that are going to rein in these big, mean corporations. But they find their way around it moments later. But those laws, with all their unintended consequences and their costs and their restrictions on freedom, they stick around forever. You know, there
there are solutions to America's health care problems. Gigantic one size fits all ish legislation, that's not it.