The White House, in its efforts to line up industry support for health reform, announced an agreement this spring with the Pharmaceutical Researchers and Manufacturers of America (PhRMA) to discount senior drug costs and save $80 billion over the next decade.  PhRMA has announced that it will finance new ads in support of health reform—it has helped advocates like Families USA with previous ad campaigns.  However, with House leaders now proposing to go further in reining in excessive drug costs, there is speculation that PhRMA might pull its support if the House drives too hard a bargain.  But PhRMA should be supporting health reform—it’s not only good for the country, but good for the industry when more patients are insured and become new customers for their products. 

While details are scant, a recently leaked memo describes the deal as including: $25 billion in savings through a half-price discount for seniors buying brand name drugs in the ‘donut hole’ under Medicare Part-D; $34 billion in increased rebates under Medicaid; $12 billion through an industry fee or tax, and some $9 billion in savings on biologics.  Any mechanisms to ensure oversight and reliable pre-discount drug pricing are not clear.  

Controversy has now erupted, however, over drug pricing issues that affect the cost of health reform.  House Speaker Nancy Pelosi has said that “the House was not bound by any industry deals with the Senate or the White House.”   House Energy and Commerce Committee Chairman Henry Waxman (D-CA) also said that the House would not be obligated to abide by the agreement.  On July 31^st House democrats added new drug provisions in the House Committee on Energy and Commerce mark-up of its bill,  America’s Affordable Health Choices Act of 2009, H.R. 3200.  

H.R. 3200 includes an amendment introduced by Representative Schakowsky (D-IL) which allows the federal government to negotiate lower drug prices on behalf of senior citizens and persons with disabilities covered under Medicare Part D.  PhRMA quickly cried ‘foul’ and claimed that part of their deal was the administration’s promise to not pursue any other cost-cutting proposals.  They claimed that Schakowsky’s amendment would be a ‘deal breaker.’  But proponents are quick to point out that the potential savings for consumers and government payors are significant, and could easily exceed the PhRMA deal’s $80 billion over-ten-years.  

In the days following the release of H.R. 3200, the White House seems to have pulled back on its previous description of the agreement with PhaRMA. Huffington Post   $8 million in annual savings on a yearly drug tab in excess of over $200 billion nationwide seems to leave a lot on the table that we hope will be up for negotiation over the course of hammering out a final health care agreement.  

Another important provision in the House health care reform bill was a successful amendment by Rep. Rush (D-IL) would prohibit the ‘pay-for-delay’ settlements that drug manufacturers have used to keep generic competitors off the market.  (See more info here). Thees anti-competitive agreements, also called reverse payment settlements, have kept generic versions of several drugs off the market since 2005. The FTC conservatively estimates that banning such ‘pay-for-delay’ or ‘reverse-payment’ settlements would save $35 billion dollars over the next decade.

In addition Rep. Baldwin (D-WI) successfully introduced an amendment that wouldrequire the disclosure of financial relationships between pharmacy benefit managers (PBMs) and drug manufacturers.  PBMs manage insurers’ prescription drug benefits, including creating formularies of preferred medicines, negotiating discounts with drug manufacturers, and negotiating reimbursement rates with retail pharmacies that fill prescriptions.  Under Rep. Baldwin’s amendment, all PBMs must provide, to both their client health plans and to the federal government, a confidential annual accounting of all payments and rebates they receive from drug manufacturers in relation to the prescriptions filled.  In addition, the PBM must report, in aggregate, how much they paid pharmacists to fill all prescriptions. 

These two classes of information are essential for health plans to ensure that their formularies are designed to lower costs and not to maximize rebates often alleged to be retained by the PBM.  It would help ensure that the conflict of interest that PBMs face is not working against the fundamental purpose of PBMs to manage formularies that reduce costs.  Similar disclosure provisions have been enacted under state law in Maine and the District of Columbia even withstanding legal challenges.  Maryland, Iowa, South Dakota, and Vermont have also enacted state PBM reform measures.  In South Dakota, the state saved more than $800,000 on health insurance costs in one year after enacting its law.  Kansas, Mississippi, North Dakota, Rhode Island, Tennessee, Connecticut, Georgia, Louisiana, and Arkansas have also taken steps towards PBM transparency.  For example, through an audit of the PBM which manages the state employee health program, Arkansas discovered that in a three-month period, the state was overcharged by nearly $500,000.  The experience of these states demonstrates that increased PBM transparency has the potential to yield significant savings for public and private insurers.  

AP reported on August 17 that the Pharmaceutical Research and Manufacturers of America (PhRMA) spent $10.7 million in the first half of 2007 to lobby the federal government. PhRMA is headed by the former member of Congress, Billy Tauzin. While in office, Rep. Tauzin was one of the main proponents of the passage of the legislation that created Medicare Part D, which is widely regarded as an enormous giveaway to the pharmaceutical industry.

Pharmaceutical companies and their trade groups spend large amounts on federal lobbying. The Center for Public Integrity issued a report in April 2007 documenting that they “spent a record $155 million lobbying the federal government and its agencies from January 2005 to June 2006.” The Center had previously reported that “since 1998, the top 20 drug companies, their subsidiaries and two industry trade groups have spent more than $650 million on lobbying. During this same time period, the industry’s top trade group, the Pharmaceutical Research and Manufacturers of America (PhRMA), spent $104 million on lobbying.”

In addition, donations in 2006 to federal political candidates from PACs and individuals associated with pharmaceutical companies exceeded $19 million. Since 1990, the industry has donated more than $139 million to federal candidates.

It is hardly surprising, given this largesse, that Congress and federal agencies are so obliging of PhRMA and so frequently adhere to its agenda. It has been more than 2 1/2 years since Vioxx was withdrawn from the market, yet no meaningful reform of drug safety has yet been enacted.

Until Congress weans itself off of drug company cash, no significant changes to how prescription drugs are reviewed, approved, monitored, advertised or priced is likely to be forthcoming.

Here’s the AP story:

Drug trade group spent $10.7M lobbying

Aug. 17, 2007

WASHINGTON (AP) – The Pharmaceutical Research and Manufacturers of America spent $10.7 million in the first half of 2007 to lobby the federal government, according to a disclosure form.

The group, known as PhRMA, lobbied on issues related to Medicare, patent reform, international trade and drug fees, importation and safety, according to the form posted online Tuesday by the Senate’s public records office.

The group — whose members include Amgen Inc. (NASDAQ:AMGN) , Eli Lilly & Co. (NYSE:LLY) and Pfizer Inc. (NYSE:PFE) — lobbied Congress, the Food and Drug Administration, the Health and Human Services Department, the Centers for Medicare and Medicaid and other agencies.

Former Louisiana Rep. Billy Tauzin, who is PhRMA’s president and chief executive, is also a registered lobbyist for the group.

PhRMA’s other registered lobbyists include: Mimi Kneuer, who was Tauzin’s former chief of staff, Amy Efantis, former legislative director for Rep. Artur Davis, D-Ala., Valerie Jewett, former legislative director for Rep. Rodney Frelinghuysen, R-N.J., and Matt Sulkala, who was senior legislative assistant to Rep. Allen Boyd, D-Fla.

Under a federal law enacted in 1995, lobbyists are required to disclose activities that could influence members of the executive and legislative branches. They must register with Congress within 45 days of being hired or engaging in lobbying.