Thursday, July 23, 2009

More drug industry cost cuts sought

Some of the biggest impediments to health reform and cost containment are drug industry profits and costs. Wall Street presses companies to show increased profits every quarter, punishes them when the profits are disappointing, and thus fuels the cycle of climbing costs.

The pharmaceutical industry has remained relatively unscathed so far in Washington’s effort to overhaul the nation’s health care system. But it is too soon for drug makers to declare victory — especially now that the cost of health care has become a central issue in the debate.

Despite the much publicized 10-year, $80 billion cost-saving promise the drug industry made to President Obama and the chairman of the Senate Finance Committee last month, some House leaders do not think the drug makers have given enough.

This time the industry coöperated from the get-go, surely, for seeing that it could not pull a "Harry and Louise" campaign, as it did during the early days of the Clinton administration.

It is not remarkable that a top Democrat like Mr. Waxman would be taking a hard line against drug makers. After all, the pharmaceuticals industry has long been a target of attack by the Democrats who now rule Washington.

What is more notable is that on many other issues in the health care debate, the drug industry seems to have staved off some of the measures it most feared. None of the legislative packages now favored by the Democratic leadership, for example, include long-simmering proposals to let Americans buy cheaper drugs from Canada. Nor is there a push to end the tax breaks for drug advertising that some critics say promote the unnecessary use of costly pills.

And seemingly off the table is any talk of giving the federal government new powers to negotiate drug prices with the pharmaceutical industry.

The debate certainly has shifted in focus. The head of the pharmaceutical lobby is Billy Tauzin, a former Representative from Louisiana (1980-2005). He certainly knows his way around the legislative arena, and still has friends and contacts on the Hill.

As a trade-off for opening that market to generic competitors for the first time, the Senate health committee last week voted 16 to 7 to give the name-brand drug companies 12 years of exclusive marketing rights before a copycat biologic drug could go on the market. “That was a huge vote,” Mr. Tauzin said.

The President wants the term to be 7 years, Waxman wants 5; Billy says 12 years was a "huge" victory for his new employer.

“PhRMA’s biggest worry is price negotiation,” said Steven Findlay, a health policy analyst at Consumers Union, using the nickname for the drug industry group. “They would like to keep that totally off the table — this year and forever.”

That way their profits are protected. Giving some concessions is preferable to having their profitability limited for the longer term.

John Rother, executive vice president of AARP, the lobby for older Americans and a longtime critic of the drug industry, described PhRMA as “one of the big winners so far in health care reform.

Tauzin has to be only one of its protectors.

Drug companies have invested nearly $1 billion in lobbying over the last decade, more than any other industry, according to the nonprofit Center for Responsive Politics, and more than $100 million in campaign donations, increasingly to Democrats. And the drug industry in the last three months has increased its spending, according to reports filed Tuesday: PhRMA spent $6.2 million during that period and 10 drug companies each spent more than $1 million.

A billion, well deployed, builds an effective defense. A hundred million buys a lot of influence.

A crucial moment for the industry came a month ago when Mr. Obama and Max Baucus, chairman of the Senate Finance Committee, announced that PhRMA had agreed to come up with $80 billion in drug savings for seniors and federal health programs over the next decade. About $36 billion of that would come from a 50 percent discount on name-brand drugs when people using the Medicare Part D drug program enter the so-called doughnut hole — a built-in gap in the federally subsidized coverage when enrollees must pay for their drugs out of their own pockets.

Seems good.

A Deutsche Bank stock analyst termed the 50 percent offer “a palatable form of concession” since it would also raise new revenue from people who would otherwise stop buying the drugs or switch to lower-price generics. A Barclays Capital analyst called the offer “less than what meets the eye.”

But perhaps not that good. A "palatable" concession is not what is seems; it was willingly made to fend off more significant ones.

On July 7, Rahm Emanuel, Mr. Obama’s chief of staff, and Mr. Baucus assured at least five pharmaceutical companies during a White House meeting that there would be no provision in the final health care package to allow the reimportation of cheaper drugs from Canada or elsewhere, according to Mr. Tauzin. The industry’s message, Mr. Tauzin said, was, “Don’t put us in a big negative fight over this issue while we’re trying to help you pass something that would be good for the American public.” The meeting included chief executives from Pfizer, Merck, Amgen, AstraZeneca and Abbott Laboratories.

Quid pro quo: something for something; that which a party receives (or is promised) in return for something.

How in hell could McCain and other Republicans call Obama a socialist? Rhetoric. Bullshit. Lies. The President is a capitalist, a moderate, and will work with pharma to get his legislation passed. To speak of government control is nonsense.

The details [of how to cut more costs] are expected to emerge from Mr. Baucus’s bill, which is still under cloak as he negotiates concessions from other industries.

“We’ll do it in a way they want,” Mr. Tauzin said.

I'm sure of that.

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