Industry Fights to Put Imprint on Drug Bill

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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. "

 

Copyright 2003 The New York Times Company