Disclosure and Media Development Background: Parish & Company maintains no speculative investments in the health care companies discussed and does not collaborate with any private equity or hedge funds. It’s goal is to identify high quality health care opportunities suitable for long term oriented investment.
This effort includes providing high quality news material to leading journalists including Gretchen Morgenson of the NY Times, Mark Maremont and Rich Rubin of the Wall Street Journal, Joseph Tanfani of the LA Times and Margaret Collins of Bloomberg.
In doing its research Parish & Company has revealed a massive price fixing scheme, both in medications and medical equipment, being orchestrated by private equity and hedge funds, often financed by public pensions including Oregon PERS. These firms purchase drug and medical equipment royalty cash flows and, in conjunction with the use of various drug and medical procedure distribution systems, including hospitals, specialized clinics and pharmacies, are price gouging patients and fleecing taxpayers via Medicare and Medicaid reimbursements.
In addition to anti-competitive practices that would result in quick DOJ actions in most industries, these firms are also aggressively using tax evasion to embellish financial results.
The purpose of this post is to provide a conceptual overview of the scheme for leading journalists to further their work in this area. A related goal is to demonstrate that indeed one person can make a dramatic positive difference by revealing such issues via collaborating with leading journalists. Already Congressional hearings have been scheduled.
The original analysis was provided to a few key reporters in the fall of 2014 with the expectation a story would be completed by December 2014, yet this was complicated by Bloomberg dismissing most of its leading investigative reporting staff and my favorite reporter at the NY Times, Gretchen Morgenson, being weighted down by a backlog of story material. In reference to the analysis of investment firms purchasing drug cash flows and price fixing generic drugs, she did note ” Thanks Bill. And thanks again for an illuminating conversation…sorry that my head is always spinning after we talk. You’re always way ahead of me.”
In order to help facilitate the story, I began to publicly discuss the scheme on December 3, 2014 at the monthly Oregon Investment Council meeting. See link to minutes and related audio file involving public comment questioning whether it was appropriate for public pensions to invest in such drug cash flow resulting from the sale of royalty rights to private equity and hedge funds.

OIC meeting 12/3/15 Parish comment (See public comment at end of 3 page document)
OIC meeting 12/3/15 Parish comment audio mp3 (Full audio of testimony, approx 2 minutes)
It is amazing that medical equipment representatives from leading firms like Stryker are regularly in the operating rooms during procedures and appear to be compensated on commission based upon the volume of product sales. Technicians yes, but commissioned sales reps? Two key areas where this should be a major concern are oncology and spinal procedures. Hopefully this post will stimulate a close look at this yet to be publicly revealed practice,
This was followed by a January 2015 interview on Kink Radio here in Portland, the leading morning radio show. This interview was generally about the energy sector yet I also made comments about Enron like accounting practices and its role in price fixing of generic drugs, specifically claiming that drug prices could fall sharply if this scheme were addressed,

Kink FM Interview January 8, 2015 audio mp3 (5 minutes of audio)
One could easily criticize the NY Times for waiting nearly 8 months to do the first major story on this analysis yet they still beat Bloomberg and the Wall Street Journal. Of course they must also be especially careful given the enormous financial stakes.

Gretchen Morgenson, Reporter/Editor New York Times
Since Andrew Pollack and Gretchen Morgenson of the NY Times superb original September 20, 2015 report on Daraprim, a drug purchased by a hedge fund for which the price was immediately raised from $13 to $750 a pill, leading generic drug maker, Valeant Pharmaceuticals, has declined almost 70 percent, erasing more than $50 billion in market value.
Valeant was indeed one of the top holdings in many large hedge funds. This superb story on Daraprim finally motivated the financial analyst community to get to work and realize that revenue increases at firms like Valiant were mostly resulting from what some call “price gouging,” an unsustainable model.
Here is the link to the NY Times story on Turing, the hedge fund that purchased the rights to Daraprim. Remarkably, the fund manager agreed to a video interview in which he tried to defend his actions.
Drug Goes From $13.50 a Tablet to $750 Overnight, NY Times, by Andrew Pollack
Later in October of 2015 the NY Times also reported that a competitor would start selling the same medication for $1 per pill for bottles of 100. Patients might call this sweet justice.
Drug Compounder Offers $1 Alternative to $750 Pill, Associated Press

And while Berkshire Hathaway’s Charles Munger and Warren Buffett (In photo at right) are calling Valeant’s practices immoral, one of its defenders, Bill Ackman (photo on left), is similarly calling out Munger on Berkshire Hathaway’s investment in Coke, calling it a key contributor to obesity and diabetes. Neither Ackman nor Munger talk about their sizable investments in transporting coal and crude oil by rail and the related environmental and health/safety consequences.
Ackman is one of Canadian Pacific’s largest shareholders while Buffett and Berkshire of course own Burlington Northern, which receives a third of its gross revenues from transporting coal, in addition to transporting 80 percent of all oil in the U.S. that goes by rail. Interestingly, Bill Gates and his foundation are together the largest holders of Canadian Pacific railway, and are clearly trying to corner rail traffic in North America together with Buffett.
Already Canada Pacific has attempted to purchase CSX railway and, having backed away due to anti-trust issues, is now making a play for Norfolk Southern. It is almost ridiculous that Warren Buffett is making billion dollar transfers to the Gates Foundation and then the foundation is using these funds to create a monopoly on rail traffic in North America. Put another way, they are clearly related parties and the SEC should treat them as such.
Tax exempt public pensions should similarly think about whether it is appropriate for them to participate in monopoly generating activities in the health care grid. Especially when these investments are using inversions and other schemes to deplete the very same general tax base necessary to sustain the public pensions.
I did also attempt to get some major coverage on this health care grid price fixing scheme in the LA Times as part of a review done on Jeb Bush”s financial statement yet was unsuccessful. And while the market is focused on Valeant’s relationship with a “specialty pharmacy,” the best example needing more disclosure, in my opinion, is Blackstone’s development of Catalent, which it merged into Vanguard Health Systems, which was sold to Tenet Healthcare, the nations third largest for profit health care company, on whose board Jeb Bush sat until shortly after the story was printed.
Here is a link to the excellent story by Joe Tanfani. Unfortunately, the drug and procedure price fixing concept was too big to fit into the scope of the story, even though Bush made a fortune in gains from Tenet stock options, gains largely created by the roll-up purchase of Vanguard Health from Blackstone. Consolidations done with tax-exempt public pension investment dollars.


Jeb Bush Joseph Tanfani, LA Times
Jeb Bush, shifting focus, quits firm that has profited from Obamacare – LA Times, by Joseph Tanfani
Basic Premise Regarding Private Equity and Hedge Funds in Health Care: Just as Enron spiked energy prices by shutting down key generation facilities on the power grid for unnecessary maintenance, private equity and hedge funds are purchasing hospitals, specialized clinics and various other health care distributions systems and limiting access points through “roll-up” consolidations. This is moving patients to higher cost choices, both in medications and medical equipment, often from related companies.
In understanding Enron, one could always rely on Ken Lay’s own words. ” We are going to be the Microsoft of the energy field,” he would say. In practical terms he meant that they were using “financial engineering” to raise its share price and leverage growth in their stock options.
One key strategy was to hide debt in offshore entities, thereby strengthening its balance sheet. The major debt now being hidden is taxes and all investors should ask, what if these firms had to pay a modest rate upon their various schemes being successfully challenged by the IRS?

Ken Lay, Former Enron CEO
Of course Key Lay was known as “Kenny Boy” in the Bush administration, as he masterfully manipulated regulators, including the SEC, to prevent any real regulatory scrutiny. Today PE firms like KKR are similarly manipulating key regulatory agencies and hiring the best political muscle money can buy.
Not only is former CIA director General David Petraeus on board with KKR for millions yet former President Bill Clinton has also made a fortune working for KKR thru 2014, a year in which he made $4.5 million working for one of KKR’s key portfolio companies, Laureate Education, a controversial for profit college company living off student loans. Laureate paid Clinton $16.5 million over a 4 year period ending in 2014.
The irony regarding Clinton is that student loans and drug costs are positioning to be key issues in the 2016 Presidential campaign.

Henry Kravis George Roberts
Two Top KKR Promoters:

Bill Clinton David Petraeus
Still unreported in the business press is that 70 percent of all carried interest earned by most major PE firms is paid in the form of stock options, see PricewaterhouseCoopers study posted on this blog. And similar to Enron and Microsoft prior to the .com bust, PE firms are excluding the cost of these options from the valuation of their portfolio firms, thus greatly inflating their values and legitimizing “deal specific” carry fees they would not otherwise be entitled to.
See slide with PricewaterhouseCoopers summary.

Health Care should present some terrific investment opportunities, especially in the basic delivery area, yet the level of fraud is currently simply staggering. Step one should be to allow the government, since their are 45 million people in Medicare, to negotiate volume discounts and other key terms. Remarkably, this was prohibited by Congress when prescription coverage was added.