In June, 2009, Pharmaceutical Research and Manufacturers of America (PhRMA), the drug industry’s trade group, followed up on its offer to help finance expanded health coverage within health care reform. PhRMA’s CEO, Billy Tauzin, was very familiar with politics and the drug industry. The former Republican turned Democrat Congressman from Louisiana had played a leading role as chairman of a House committee in design and passage of the Medicare Prescription Drug, Improvement and Modernization (MMA) Act of 2003. That bill turned the new prescription drug benefit over to the private sector and prohibited the government from negotiating drug prices as the Veterans Administration does so effectively. Tauzin then used the revolving door between government, industry and K Street to become CEO of PhRMA and a top lobbyist in Washington, D.C. with a reported salary in the range of $2 million a year. He continued to lobby against price controls of drugs or importation of drugs from Canada or other countries.

In an agreement with President Obama and Senator Max Baucus, Chairman of the Senate Finance Committee, PhRMA pledged $80 billion toward the costs of health care reform. Though some of the details of this agreement have since become a matter of controversy, two parts of the pledge are widely known — (1) drug companies would give a 50 percent discount to Medicare beneficiaries for the costs of their drugs in the “doughnut hole” (annual costs between $2700 and $6,100); and (2) drug companies would give higher rebates on the drug costs of people on Medicare and Medicaid. It has been estimated that about $30 billion would be expended for these two purposes over the next 10 years, with the other $50 billion being directed to non-specified costs of reform.

This pledge was hailed as an “historic agreement” by the White House and praised by the AARP, but it soon became clear that much of this pledge will not result in savings to the federal government. Further, as pointed out by Charles Butler, a pharmaceutical analyst at Barclays Capital, those discounts won’t cost the drug companies much — “Because of the discounts, Medicare beneficiaries are likely to continue filling prescriptions in the doughnut hole, whereas in the past many stopped taking their medications because the drugs were unaffordable to them.”

The main point of contention in weeks after this agreement was whether the quid pro quo for the drug industry is assurance that the government will not pursue negotiation of drug prices. In August, an internal memo obtained by the Huffington Post confirmed that the White House and the drug industry lobby secretly agreed to protection of drug companies from price controls. (Grim, R. Internal memo confirms big giveaways in White House deal with big PhRMA. Huffington Post, August 13, 2009) Both sides subsequently issued conflicting reports in an effort to backtrack from the controversy. But many progressives in Congress felt betrayed. In response, Speaker of the House Nancy Pelosi declared that the House was not a party this agreement. The House E & C Committee, chaired by Henry Waxman (D-CA) soon passed an amendment to the House bill (H. R. 3200) calling for negotiation of drug prices by the government, and many Democratic leaders would like the drug industry to make a bigger commitment to health care reform.

Despite the lack of transparency in whatever deal was made between PhRMA, the President and Senator Baucus, the drug industry’s agenda is crystal-clear — expand its markets through wider insurance coverage and government subsidies, avoid price controls and competition from importation of drugs from other countries, and gain maximal patent protection from generic drug-makers of biotech drugs.

Much as the insurance industry feels more secure in the more conservative Senate, the drug industry has also counted on the Senate Finance Committee to roll back provisions in any House bill counter to its interests. PhRMA therefore became an active supporter of a bipartisan approach to health care reform. While not lobbying specifically against the public option, it expressed serious concern over any erosion of employer-sponsored health insurance. It also arrayed its forces in these directions:

• Joining with Families USA, a not-for-profit advocacy group for affordable health care, in a $150 million ad campaign supporting health care reform. This campaign includes a re-appearance of Harry and Louise, the fictional couple now on Medicare who played a large part in defeating the Clinton Health Plan in1993-1994. They now tell us on major national TV channels, some network news and Sunday talk shows that “a little more cooperation, a little less politics, and we can get the job done this time.”

• Teaming up with Families USA to lobby for expanded Medicaid coverage for
Americans making up to 133 percent of the federal poverty level ($14,000 a year for individuals). As Tauzin said: “When Families USA and PhRMA can get together, I hope that’s a sign to everybody in the House and Senate that we can find common ground, and that the president’s call to put party aside and to put ideologies aside and try to find what works is a good call.”

• Lobbying against proposals that would prohibit brand-name drug makers from paying generic drug makers to delay marketing of lower-cost generic drugs.

• In the first six months of 2009, PhRMA and Pfizer spent $13.1 and $11.7 million in lobbying, respectively.

It was soon apparent that the initiatives taken by the drug industry to appear to support reform was bound to please its CEOs and stockholders. These early returns were gained:

• Passage by the Senate HELP Committee (by a 16-7 vote) of a provision giving manufacturers of branded biotechnology drugs at least 12 years of patent protection before generic manufacturers can bring such drugs to market (the White House had proposed seven years while Henry Waxman had wanted five).

• Strong projected annual increases on prescription drug spending

In sum, in the same way that the insurance industry had already won preferential treatment from legislators even as developing health care reform legislation was in a fluid state, the drug industry had also achieved many of its important goals, especially assurance of strong future markets for its products for years to come. In our next post, we will see how the hospital industry has fared during this critical period of potential system change.

John Geyman, M.D. is the author of The Cancer Generation and Do Not Resuscitate: Why the Health Insurance Industry is Dying, and How We Must Replace It, 2008. With permission of the publisher, Common Courage Press

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