Fw: Industry Fights to Put Imprint on Drug Bill

September 6, 2003

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" Frank " <califpacific

<alternative_medicine_forum >

Saturday, September 06, 2003 12:25 AM

Industry Fights to Put Imprint on Drug

Bill

http://www.nytimes.com/2003/09/05/business/05MEDI.html?th

RE-EXAMINING MEDICARE Industry Fights to Put Imprint on Drug BillBy SHERYL

GAY STOLBERG and GARDINER HARRIS

In the thick of the 2000 presidential campaign, executives at Bristol-Myers

Squibb, one of the nation's largest drug companies, received an urgent

message: donate money to George W. Bush.

The message did not come from Republican campaign officials. It came from

top Bristol-Myers executives, according to four executives who say they

donated to Mr. Bush under pressure from their bosses. They said that they

were urged to donate the maximum — $1,000 in their own name and $1,000 in

their spouse's — and were warned that the company's chief executive would be

notified if they failed to give.

Bristol-Myers said no one was forced to donate. But elsewhere in the drug

industry, the message about the election was much the same. At some

companies, officials circulated a videotape of Vice President Al Gore

railing against the high price of prescription drugs. A torrent of

contributions for Mr. Bush and other Republicans resulted. And the money

kept flowing, right through the elections of 2002.

Those donations may soon pay off handsomely for the pharmaceutical business.

Four years ago, a Democrat was in the White House and the industry was

bitterly fighting a prescription drug proposal that it said would have led

to price controls. Today, a Republican-controlled Congress is preparing to

send a Republican president a measure with a central provision — the use of

private health plans to deliver Medicare prescription drug benefits — that

is tailor-made to the industry's specifications.

The story of how pharmaceutical manufacturers helped shape the Medicare drug

benefit is, in part, that of a calculated decision by a lucrative industry

to throw its financial weight behind one political party — with $50 million

in campaign contributions over the last four years, the vast majority to

Republicans. It is also the story of a dogged, mostly unseen campaign that

included a small army of lobbyists in Washington and a network of

industry-financed groups, which carried the drug makers' message to the

public.

Throughout, the industry had a single goal: to defeat any legislation that

would let Medicare negotiate steep discounts on the prices of medicines for

its 40 million beneficiaries.

Instead, if there had to be a prescription drug benefit, industry executives

agreed that it should be administered by the private sector, where insurance

companies would negotiate on their own, without Medicare's influence. That

is precisely what will occur if bills passed by the House and Senate are

reconciled and a law is signed by President Bush. Both measures envision

taxpayers spending $400 billion over the next 10 years on the drug makers'

products, while banning government officials from even seeking volume

discounts.

" The drug lobby has just emasculated Congress with tons of money, " said

Representative Pete Stark of California, the senior Democrat on the health

subcommittee of the House Ways and Means Committee, whose Republican leaders

wrote the House Medicare bill. " They bought themselves a deal. "

But Republicans say that their legislation will lead to discounts and that

the industry gave up as much as it got.

" I think the drug industry would rather not have any bill, " said Senator

Charles E. Grassley, the Iowa Republican who, as chairman of the Senate

Finance Committee, is a driving force behind the legislation. " But they know

there is going to be a bill because of public demand for it, and I think

they are just swallowing hard. "

For the manufacturers, the stakes could hardly be higher. The United States,

the last industrialized country with unregulated drug prices, provides half

of the industry's revenues, up from less than a third a decade ago, and most

of its profits. And the elderly are its best customers. Some companies

estimate that up to half of their sales in the United States come from drugs

bought by the elderly. Pfizer alone sells medicines to treat cholesterol,

blood pressure and arthritis problems that brought in $17 billion last

year — nearly all from Medicare-eligible patients.

Some companies, like Merck, are pressing hard for the legislation, while

others are lukewarm. A number of drug executives say they fear that the

proposed benefit is so skimpy that Congress will be forced over time to

improve it — a move that will eventually lead to price controls. One

described the measure as " deeply flawed. "

Yet even those drug executives with reservations say they will not stand in

the legislation's way. A spokesman for the Pharmaceutical Research and

Manufacturers of America, an industry trade group, said that passing a

Medicare drug benefit " remains the top priority. "

" I kind of hate to say the industry got what it wanted, " said Ian Spatz,

vice president for public affairs at Merck. " But I think it's a fair

solution that does give people access to our medicines, and does it in a way

that is least likely to lead to price controls. "

The Beginnings

Clinton Plan Spurred Industry Into Action

It was the White House — the Clinton White House — that provided the impetus

for the drug makers' long-running campaign to shape the public discussion

about a Medicare drug benefit.

Late in his second term, Mr. Clinton proposed giving elderly Americans some

relief from the cost of prescription drugs. Knowing that a benefit

administered by Medicare would never pass muster with Republicans, he called

for Medicare to contract with private pharmaceutical benefits managers, or

P.B.M.'s — one per region of the country — to manage drug purchases for the

government.

The drug industry hated the idea. Private benefits managers had muscled

their way into positions of considerable power just a few years earlier, and

drug makers were stunned by their ability to drive down prices and even

shift sales to competitors' pills.

So the drug makers took a page from the insurance industry's successful

Harry and Louise advertising campaign, which helped defeat the Clinton

health care plan in 1994.

This time, an arthritic bowler named Flo was featured in a $30 million ad

campaign. Flo's message was simple and direct: " I don't want big government

in my medicine cabinet. "

The ads were devastatingly effective — and infuriating to the Clinton

administration, which responded by threatening the industry with price

controls and issuing reports that excoriated drug prices and profits.

With the drug companies being painted as pariahs, a handful of executives

concluded that they could not stand in the way of a Medicare drug benefit

forever. Among them was Raymond V. Gilmartin, the chief executive of Merck.

" We came to believe that people will deal with the affordability of

medicines one way or another — either through access and competition or

price controls, " Mr. Gilmartin said. " We decided that getting seniors access

reduced the risk of price controls. "

On Capitol Hill, meanwhile, Senator Edward M. Kennedy, Democrat of

Massachusetts, was quietly reaching out not just to Mr. Gilmartin, but to

Gordon Binder, then the president of the industry trade group.

" It was apparent to me that if they were going to block it, nothing was

going to be achieved, " Mr. Kennedy said. " I've been around here long enough

to know that was the case. So the question was whether you could find any

common ground. "

Administration officials also had talks with industry officials, hoping for

a compromise. But when news of conciliatory moves between drug makers and

Democrats became public, some Republicans and a few industry executives were

furious. Executives at several companies suspected that Mr. Gilmartin

supported a drug benefit because he had hopes that Medco, a Merck pharmacy

benefits subsidiary, would land a crucial role in buying drugs.

" Having the whole benefit run through a couple of P.B.M.'s — especially if

one were Merck-Medco — could be a disaster, " said one industry executive,

speaking on condition of anonymity. Another, at a different pharmaceutical

company, said, " Gilmartin wrapped himself in some clever rhetoric of

private-sector solutions, and it used to drive us crazy. "

Merck has since spun off Medco, and Mr. Gilmartin said that his support of a

Medicare drug benefit had nothing to do with Medco.

In the end, the talks between the drug industry and Democrats went nowhere.

The industry pinned its hopes on the election of Mr. Bush, who supported a

Medicare drug benefit, so long as it was administered through the private

sector. In early 2000, the pharmaceutical industry announced it would do the

same.

" When Bush came out for it, that nailed it, " one industry executive said.

" Where else are we going to go? "

The Contributions

A Push for Money, Mostly for the G.O.P.

Republican campaign officials were keenly aware of the drug industry's

growing anxiety about how a drug benefit might be set up.

In a letter dated April 9, 1999, Jim Nicholson, then the Republican National

Committee chairman, wrote to Charles A. Heimbold Jr., then the chief

executive of Bristol-Myers, to discuss plans for a coalition to lobby for

issues important to drug companies.

" We must keep the lines of communication open if we want to continue passing

legislation that will benefit your industry, " Mr. Nicholson wrote in the

letter, which has since become public as part of litigation on campaign

finance rules.

He encouraged Bristol-Myers — already a major donor to Republicans — to give

$250,000 to join the national committee's Season Pass program, which offered

donors " premier seating " at a fund-raising gala and " V.I.P. benefits " at the

Republican convention in Philadelphia in 2000.

Bristol-Myers and its employees contributed $2 million to the party and its

candidates during the 2000 campaign, according to the Center for Responsive

Politics, a nonpartisan group that tracks campaign financing. That ranked

Bristol-Myers second, behind Pfizer. Mr. Heimbold, who was a co-host at a

fund-raiser for Mr. Bush, gave $206,830 to Republicans in the 2000 campaign,

according to the center.

In one letter from Richard J. Lane, who at the time was president of

Bristol-Myers's worldwide medicines division and co-chairman of its employee

political action committee, company executives were chided for failing to

contribute in sufficient numbers. " The politically motivated attacks against

our industry have intensified during this election season and hostile

candidates have one goal in mind — to shackle our industry with price

controls, " Mr. Lane wrote.

Although the letter said contributions were voluntary, four former

Bristol-Myers executives, all speaking on condition of anonymity, said the

company's huge contributions resulted in part from aggressive internal

solicitations. Each said they were told that a list of those who did not

contribute would be given to Mr. Heimbold.

" The need to gather in money to provide green power for our Washington

activities was spelled out in excruciating detail to all company officers, "

one of these executives said.

A spokeswoman for Mr. Heimbold, now the United States ambassador to Sweden,

said she had no comment.

Federal election law bars companies from using coercion to force someone to

make a political contribution. A spokesman for Bristol-Myers, John Skule,

said yesterday that while " we ask for active participation in the political

process, " no one was forced to donate, and the company " takes very seriously

its duty " to comply with election laws.

" There was not one person in the company who lost their job because they

didn't donate, " Mr. Skule said.

The push to gather money for Republicans was prevalent throughout the drug

industry during the 2000 campaign. With Vice President Gore saying that drug

makers were gouging the elderly, the industry contributed $20 million to

candidates and parties during the campaign, 79 percent of it to Republicans,

according to the Center for Responsive Politics.

More important, the industry bought $50 million in TV commercials and

millions more in radio, newspaper and direct-mail ads. The ads assured

voters that Republican lawmakers were fighting for a Medicare drug benefit.

Drug makers also gave the United States Chamber of Commerce $10 million more

to run ads under its name. Months before the election, House Republicans

passed a bill along the industry's preferred lines.

The bill never gained traction in the Democratic-controlled Senate. And when

Mr. Bush won the election, the drug makers celebrated. As one industry

executive said, " There were a lot of high-fives around here. "

The Victories

A New Congress and a New Outlook

Having a Republican in the White House, however, was not enough to bring

elderly people the relief they were clamoring for. In the two years after

the 2000 election, a Medicare drug benefit remained bogged down in partisan

politics on a divided Capitol Hill.

The drug industry contributed $26 million in the 2002 election, again mostly

to Republican candidates. And it again spent millions on television ads in

crucial districts around the country — this time telling voters that

Republican incumbents had been fighting to add prescription drugs to

Medicare.

" What they did, which was so clever, was run ads in Republican districts

saying, `Thank Congressman X for coming up with a prescription drug program

for seniors,' " said Senator John McCain, Republican of Arizona, who voted

against this year's Medicare bill, saying it favored drug makers while

providing the elderly scant relief. " They were helping these guys get

re-elected who had done nothing. "

Afterward, the drug industry claimed credit for several crucial victories

that helped keep Republicans in charge of the House — and, more important,

helped them win back the Senate. Once again, industry executives celebrated

on election night.

" Having both houses of Congress Republican-controlled was great, " one drug

lobbyist said. " Like in Monopoly, when you get to add hotels. "

By the time the 108th Congress convened in January 2003, drug makers no

longer faced the danger of a benefit administered by Medicare. Lobbyists for

consumer groups knew not to bother trying. " The whole question of Medicare

being the direct purchaser was off the table at the beginning of this

Congress, " said John C. Rother, the chief lobbyist for AARP, the

organization representing retired people.

Changes within the drug industry also increased the likelihood of a drug

benefit delivered through the private sector. Merck's spinoff this year of

Medco assuaged much of the concern in the industry that any bill would give

Merck an unfair advantage.

With the framework of a privately delivered benefit already settled,

industry lobbyists went to work on the details. A critical issue was

ensuring that Medicare administrators could not press directly for

discounts. Both the House and Senate bills have language barring Medicare

officials from interfering " in any way with negotiations " between insurers

and drug companies.

The industry also won a provision in the House bill that puts Medicare in

charge of drug benefits for the elderly poor. That would strip the

responsibility from state Medicaid programs, which have begun to rein in

costs by limiting purchases of high-price drugs.

In addition, several drug companies pressed lawmakers to include provisions

that would allow patients to appeal insurers' decisions to deny coverage for

certain drugs, and they fought an amendment to the Senate bill, offered by

Senator Hillary Rodham Clinton, Democrat of New York, that would have

included money for studies comparing drugs' cost-effectiveness.

" It seems to me if we are going to move toward a market mechanism — which I

have a lot of questions about — markets thrive on information, and this is

information which is largely within the province of the drug companies, "

Mrs. Clinton said.

Her amendment failed, receiving just 43 votes. That was no surprise to

Senator Clinton, or to others who voted against the Senate bill, including

Senator McCain. " There's no doubt in my mind that the drug industry got

everything it wanted and more, " he said. " It perhaps should be called the

`Leave No Lobbyist Behind Bill.' "

In fact, the industry did not win every battle. Both the House and Senate

bills contain provisions that would speed generic drug approvals — a move

the manufacturers of brand-name drugs oppose.

And in the House, a provision that would make it easier for Americans to

import cheap drugs from Canada and Europe passed, despite intense industry

lobbying against it. Later, the industry persuaded 53 senators to sign a

letter saying they oppose the provision. The matter must now be settled in

conference.

While the lobbyists worked behind closed doors, the industry financed

citizens' groups to bring its message to the public. One such group was the

United Seniors Association, whose national spokesman, Art Linkletter, took

to the airwaves this spring, congratulating lawmakers who voted to add

prescription drugs to Medicare. Gone was the strident campaign featuring

Flo, the bowler. Mr. Spatz, of Merck, said there was no need.

" Back then it was really about opposing President Clinton's proposal, " he

said. " This wasn't about opposing anything. This was about supporting

something. "

The industry's silence could change, of course, as the House and Senate

reconcile their bills. But so far, the behind-the-scenes strategy seems to

have been successful. Industry opponents see the low public profile as

evidence of the drug makers' satisfaction.

" The dog is not barking, " said Bill Vaughan, a lobbyist for Families USA, a

consumer group. " I think the dog got what it wanted. "

September 6, 2003