Another Couple of Shoes Dropping In The Mike Ross Corruption Scandal?

Good haul this year for Blue Dogs willing to sell out their constituents

-by Doug Kahn

How the mighty have fallen. 

It seems as though it was only yesterday (actually March 5th) that we received a dispatch from the "Democratic Blue Dog Coalition." I had thought it was a caucus, but apparently it's much, much more than that. They have a coalition, they have allies. Plus they're "fiscally conservative," don't you know. Anyway, our update from the Army of the Potomac said that, uh, wait a moment, I'm getting confused here. They used naval terminology: "Blue Dogs Launch Health Care Task Force." No, really, that's what it said. I guess they're Blue Sea Dogs. Aircraft carriers and cruisers.

"Coalition, Task Force Leaders Participate in White House Health Care Summit" was the subhead. Now that's a bit mixed up. Obviously President Obama is only going to have summits with other heads of state; the Blue Dog Coalition leaders are what, kings and queens? (The co-Chair for Policy is a Baron, actually; Baron Hill, Indiana-09. They're all knaves, to me.) And the Task Force leaders must be at least Rear Admirals.

So, Admiral Mike Ross was promoted from U.S. Representative, and would command the fleet. The release said he would "lead" Blue Dog efforts to "advance" health care reform legislation. We learned that at the summit he and the other Task Force commanders, Rep. Jim Cooper (Tennessee-05) and Rep. Earl Pomeroy (North Dakota) "presented President Obama with a letter communicating the Blue Dogs' willingness to work with the Administration on meaningful health care reform legislation." By God, that must have really made the President's day.

Mike really got into it. On May 12th, he promulgated the Blue Dog 'Principles for Health Care Reform.' On June 4th, he laid out the Blue Dog "conditions for responsible health care reform." June 19th, Mike issued a statement on Draft Health Care Reform Legislation. On July 7th, another statement introducing the Blue Dog position that there should be a triggered public option insurance plan, and its reimbursement rates (if it were ever to be triggered) would be negotiated with providers, who wouldn't be required to negotiate at all. Rendering it useless for its purpose, i.e., providing competition for the private insurers. On July 14th he issued another pronouncement, marking the introduction of the legislation in the House.

More on July 16th, and July 22nd, July 24th (yawn). Then something odd: a July 29th release attributed to Rep. Stephanie Herseth Sandlin (South Dakota). Did Mike have the flu? No, he was being scoped, investigated.

By the end of July, ProPublica, an independent, non-profit investigative journalism group was calling Mike about the sale of his pharmacy to USA Drug. On September 22nd, the story broke in Politico. The main thrust of the article was that Mike had been paid much more for the building than its assessed value. In addition, ProPublica had hired an independent appraiser, and that figure was even lower than the county assessor's number.

So ProPublica said Mike got a higher price ($420,000) than he should have. They figured the building should have been priced somewhere between the independent appraisal ($198,500) and the assessed value ($269,000). So Mike called them 'leftists' and said, 'nuh-uh,' and then they said 'yeah-huh' and so on and so forth. Citizens for Responsibility and Ethics in Washington asked the Justice Department to investigate whether Mike Ross had "engaged in bribery and honest services fraud" and that's where it stands.

The more interesting story is something I haven't seen analyzed anywhere: what the buyer paid for the pharmacy's inventory. Overpaid is more like it. The big number there was $450,565.40, which lumped together pharmacy inventory (medicine) with OTC drugs and general-store type bric-a-brac. That makes it impossible to tell if the drugs were valued at net acquisition cost, as they claimed. The non-prescription drug inventory got valued at 90% of retail, which is ridiculous. Mike bought the stuff hugely discounted from the retail price, so that's an overpayment right there. It's like giving Mike the profit on all the stuff in the store until it runs out, even though he no longer owns the business. The other junk was bought at various percentages of retail price, also making no sense. You buy inventory for cost; plus a percentage, maybe.

And now we enter the fascinating world of pharmacy entrepreunership. I warn you not to read this if you're at all sleepy.

Mike received $154,886.25 for his 'prescription files.' The going price for the information in a single refillable prescription is $7 going on $10, depending on who's buying it and what the customer base is like. If you own a pharmacy, you might buy the files of a pharmacy that's closing, getting names, drugs, dosages, the prescribing doctor's name, social security number, phone number etc. The purpose is to get the customers to come to your pharmacy; you're buying an opportunity to woo new customers. Obviously, your distance from the defunct pharmacy, the presence of other competing pharmacies, and other factors go into how much you'll be willing to pay for each 'script.'

But Mike's pharmacy wasn't closing. And his wife is still working for the new owner as pharmacist. In that situation, the scripts are worth nothing on their own. The scripts and the drug inventory are inextricably linked. The buyer paid for the drugs, and also for the opportunity to have Mike's customers come back tomorrow and next week, which they would anyway. This was completely a paper transaction; the name of the pharmacy even stayed the same. It's as though they paid Mike and his wife to keep being nice to their own customers, paid them $155,000.

Then it gets sort of weird, and Mike is saying some things that really don't make much sense to me. According to Mike, he got paid a very low price for the scripts, only about $2.50 each, instead of the $7 to $10 industry standard. But he's counting on our ignorance of the business when he says that.

According to the pharmacy association's studies, it's useful to think of grouping various business-sale scenarios, depending upon the material circumstances of the sale. The Group 1 scenario would be a major chain buying a small, nearby pharmacy's scripts, with a great opportunity to capture the customers, as long as they get contacted immediately. Scripts are worth a lot of money in that case, because the chain store is gaining a steady customer who's buying expensive drugs over and over again. In contrast, Group 4 is the situation where you only have one competitor within driving distance (more or less), so you only have one possible pharmacist to sell your scripts to. In that case, they have you over a barrel. In Mike's case, you have Group 5, no value. The new owner of Mike's pharmacy only loses his customers if Mike and his wife send them over to the only competition in town. That won't happen, because first, Mike's wife is still the pharmacist and her salary (so far undisclosed) is being paid by the new owner, and second, because the new owner paid them another $100,000 not to compete.

Even more curious, if you take $155,000 and divide by $2.50, you get about 62,000 scripts. Even if this is every prescription for an entire year (and really you should only count the first prescription, not every refill), it's still 7 prescriptions for every man, woman and child in Nevada County, Arkansas. There's more than one pharmacy in Nevada County; Mike shares the town of Prescott with a competitor, and there are others. For instance, there are 11 WalMarts within 50 miles of Mike's pharmacy. (As our former Fearless Leader would have said, Thank God for the Google. Or was that McCain?) Then there's Walgreens, not to speak of all the other pharmacies owned by the chain that bought Mike's building and inventory.

My gosh this is fun to write. If my thinking here actually makes sense, we may be 1 step out of 52 closer to our goal of retiring the Blue Dogs in the House of Representatives. I hereby demote Task Force Admiral Mike Ross, and will henceforth think of him as Captain Peter "Wrongway" Peachfuzz, captain of the S.S. Guppy.