Democrats to Take On Big Pharma

By Marc Greilsamer

When the Democratic-controlled 110th Congress was sworn in on Capitol Hill last week, it was no cause for celebration inside the pharmaceutical industry. During the previous dozen years, the outgoing Republican majority had delivered to the industry an era of unprecedented prosperity and regulatory kindness. However, it’s not hard to decipher the message being pounded home by the newly minted Democratic Congressional leaders: The jig is up.

The next few months will determine whether or not the industry’s dread is warranted as the Democrats pursue a number of initiatives intended to lower the costs of prescription drugs for the American consumer. Chief among them is a proposal to drastically revamp the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), which currently prohibits the government (i.e. Medicare) from directly negotiating with drug companies to obtain lower drug prices for seniors. Democrats have also debated lifting the ban on large-scale drug importing from nations such as Canada. It is suspected that Democrats may attempt to allow generic drugs onto the market more quickly than is currently allowed.

Other subjects being bandied about by Democrats may not directly affect prescription prices, but may well affect the drug industry’s bottom line. Many Democrats favor a tightening of the drug-approval process at the U.S. Food and Drug Administration (FDA). In addition, it is widely believed that Democrats, as part of a larger purge of corruption on the Hill and a pledge to rein in big business in general–will intensely scrutinize a variety of conflicts-of-interest issues that the old guard may have been willing to let slide. What’s more, there is the issue of the FDA’s “preemption rule,” which attempts to shield drug companies from private lawsuits in state courts.

In the eyes of many observers, a Democratic Congress is nothing short of Big Pharma’s worst nightmare. But, as the industry scrambles to establish and renew friendships with its old Democratic pals–and with a Republican president and his veto power at the ready–it remains to be seen whether health-care consumers will actually benefit from Congress’ actions.

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To no one’s surprise, the pharmaceutical industry did all it could to prevent the Democrats from taking control of the legislature. According to the nonpartisan Center for Responsive Politics, the industry contributed more than $10 million to Republican candidates in the 2006 elections–almost 70 percent of their total contributions. (Since 1990, Republicans have received two-thirds of all industry contributions. In 2002, the last year that “soft money” contributions were allowed, the percentage was up to 74 percent in favor of the GOP.)

Last year, the five biggest contributors each gave more than $500,000 to political campaigns. Number one, Pfizer, gave 70 percent of its $1.3 million in donations to Republicans; GlaxoSmithKline, the second-biggest contributor, gave 70 percent of its $800,000 to Republicans. For companies such as Merck, Abbott Laboratories, and AstraZeneca, the money earmarked for the GOP accounted for more than 80 percent of their total donations.

And who benefited from this largesse? In House races, 18 of the top 20 recipients of pharmaceutical-industry money were Republican. Four of the top five among Senate candidates were also Republican. (The number one beneficiary was Pennsylvania’s Republican Rick Santorum, who couldn’t manage to keep his seat despite $450,000 in contributions from Big Pharma.)

Clearly, the industry believed it had a vested interest in the outcome of last year’s elections. While Big Pharma’s generosity didn’t achieve for them the desired results, the industry must surely remain thankful for the decade of enormous success that Republicans helped usher in. Perhaps nothing was more greatly appreciated by drug companies than the controversial prescription drug plan known simply is “Part D.”

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When Part D of the Republican-backed 2003 Medicare Modernization Act was signed into law, many industry observers thought it might as well have had a ribbon and a bow tied around it–a munificent gift for the pharmaceutical and insurance industries. The federal program subsidizes the cost of prescription drugs for Medicare beneficiaries by having patients enroll in a variety of private insurance plans. It went into effect on January 1, 2006, much to the chagrin of a coalition of legislators and consumer advocates.

There has been a ton of criticism leveled at the Part D plan: complicated enrollment choices, inconsistency in what drugs are covered, difficulty in changing plans, etc. However, the two biggest issues–the ban on direct negotiations by the government with drug companies and the so-called “donut hole” coverage gap–are driving the reform process among Democrats.

The desire for direct negotiations between Medicare and pharmaceutical manufacturers is one of the top issues for Democrats in the new Congress–so much so that it’s one of the party’s “First 100 Hours” priorities. (Debate over the issue is slated for later this week.)

A week after the 2006 elections, a New York Times editorial noted: “Michael Leavitt, the secretary of health and human services, says he does not want the power to negotiate drug prices for Medicare beneficiaries, but Democrats should give it to him anyway…. The 2003 Medicare drug law–written by a Republican-dominated Congress in thrall to big drug company contributors–explicitly prohibits the federal government from negotiating drug prices or establishing a list of preferred drugs…. The approach that most appeals to us would direct the secretary of health and human services to set up one or more government-operated drug plans to compete with the private plans.”

For the most part, this is the tack that House Speaker Nancy Pelosi and her Democratic cohorts are taking as part of their Medicare reform proposal, which they’ve dubbed Democratic Prescription for Change. However, their proposal would have the government negotiating on behalf of the private drug plans, not competing against them. Proponents of direct negotiations cite the example of the U.S. Veterans Administration as proof of potential cost reductions. Currently, the VA is allowed to negotiate directly with drug companies, and this has resulted in significant discounts for their medication–sometimes as much as 50 percent or more.

William Novelli, CEO of the AARP, came out in full support of the measure, saying “AARP supports H.R. 4 and the common sense approach to give the HHS Secretary the opportunity to develop a workable negotiation process for prescription drugs, consistent with the structure of the Medicare drug benefit, with the ultimate goal to lower drug costs.”

The independent Medicare Rights Center (MRC), which provides health-care information and assistance for Medicare patients, believes the proposal should go further. According to the MRC, “By using the collective clout of 43 million members, Medicare can obtain drug prices that actually benefit older adults and people with disabilities, rather than the drug industry…. Allowing the government to negotiate lower drug prices for people with Medicare will be a tremendous first step, but Congress should not stop there. The ultimate fix is what our legislators should have implemented in the first place: a drug benefit provided directly through Medicare.”

Not everyone believes the plan is workable. Many believe that the government would be forced to restrict the drugs available under the plan if they truly hoped to drive down prices, something that the proposed legislation does not allow for. The senior vice president of the powerful industry lobbyist Pharmaceutical Research and Manufacturers of America (PhRMA), Ken Johnson, remained set against the proposal, saying that his organization was “strongly opposed to any price control schemes which would limit the choice of medicines available to seniors and disabled Americans.”

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With President Bush and the lobbying weight of the pharmaceutical industry defiantly opposed to government negotiations with drug makers–and with passage by the Senate far from a lock–Democrats will need a surge of support if they are to push through any legislation that calls for direct negotiations between the government and the drug companies. As a central platform of the party’s agenda, and on the cusp of a big electoral victory, this might be the best chance for success.

Beyond that issue, other challenges await the Democratic leadership. Closing the donut hole will prove to be a rather difficult task. The term refers to a gap in Medicare coverage that kicks in when a senior’s drug costs reach $2,400. From that point, the patients become responsible for the total cost of all their prescriptions–while still paying premiums–until out-of-pocket expenses reach $3,850. (Close to 4 million people fell into the gap in 2006, the plan’s first year.)

Democrats are committed to closing the coverage gap and they contend that savings from direct negotiations with the drug makers can go a long way to doing so. The Washington Post reports that Congressional Budget Office estimates put the cost of filling the donut hole at $450 billion over 10 years. The Post also notes that a study conducted by Rep. Henry Waxman’s office estimated that savings from direct negotiations would be between $61 billion and $96 billion. However, the extreme cost of addressing the problem means that any legislation to eliminate the coverage gap remains highly unlikely.

Then there is the issue of drug importation. Plans are in place in the Senate to reintroduce the Pharmaceutical Market Access and Drug Safety Act, a bipartisan bill cosponsored by Senators Byron Dorgan, a North Dakota Democrat, and Olympia Snowe, Republican from Maine. (GOP Rep. Jo Ann Emerson of Missouri and Rep. Rahm Emanuel, the Illinois Democrat, will attempt to guide it through the House.) The bill has failed to gain passage in previous attempts during the last couple of years.

The legislation is intended to help American buyers benefit from international price competition by allowing licensed pharmacies and drug wholesalers to import FDA-approved medications from Canada, Europe, Australia, New Zealand, and Japan and by allowing individual patients to import their prescriptions. This proposal has wide support, but has not yet found the legs to make it through Congress.

According to Consumers Union, who supports the bill, “Spending on prescription drugs in America has increased faster than any other category of health-care expenditure. Yet in Canada and many other industrialized nations, prescription drug prices are either partly or entirely kept in line by government negotiation and policy–leading to significantly lower prices for consumers…. Canadian medications can cost 40 to 70 percent less than the same product in the United States.”

Obviously, the folks at PhRMA representing the industry are not eager to see this legislation passed. They claim that the safety of imported drugs cannot be assured by the FDA. With all of the safety measures the bill includes–FDA registrations and inspections, detailed tracking systems–that contention seems specious.

Congress may also look into ways to speed up the generic-drug approval process as a path to bringing down overall drug costs. Much of this issue comes down to appropriations for the FDA’s Office of Generic Drug Approval (OGD), which Democrats might look to increase. Bottlenecks at the OGD are responsible for much of the delays, something that increased funding and staffing can address. (The agency plans to take some action on its own by streamlining the approval process for first-time generics.)

The Access to Life-Saving Medicine Act, sponsored by Democratic Rep. Henry Waxman and Sen. Charles Schumer, may also be reintroduced in Congress. The bill would establish a process for the approval of generic biopharmaceuticals, which currently does not exist under FDA rules.

“When the new Congress convenes in January, it will have a real opportunity to improve the health care of Americans by increasing access to safe, effective, and affordable generic medicines,” said Generic Pharmaceutical Association (GPhA) President and CEO Kathleen Jaeger. “Key to achieving this goal is passage of biogenerics legislation. The FDA should exercise its responsibility to create an abbreviated approval pathway for biogenerics and not keep consumers waiting for affordable medicines. If the FDA can review the more expensive medicines, they should also work on behalf of consumers and review generic alternatives. It’s time to let sound science drive the approval system.”

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If Democrats are feeling emboldened, there is a chance they may go after the FDA’s notorious “preemption rule,” which the agency enacted in January of last year. The act basically says that the FDA’s decisions about prescription-drug labeling are final and may not be challenged by state courts (or, for that matter, state legislatures). For many observers, it amounts to a kind of tort reform intended to protect drug companies from liability suits.

The National Conference of State Legislatures said that the “FDA has usurped the authority of Congress, state legislatures, and state courts.” “State tort laws and civil justice systems serve as an important check on federal standards,” they added. “Our civil justice system establishes a duty of care that protects citizens when the federal government is too slow to act or when federal standards are insufficient.”

Congressman Maurice Hinchey, a Democrat from New York, is an ardent opponent of the preemption rule. “The FDA has once again gone to bat for the drug industry by fully endorsing a policy that shields pharmaceutical companies from Americans who want to file lawsuits because a drug made them or a loved one seriously ill, or in some cases caused death,” he said about the rule. “The FDA is supposed to be in the business of protecting the American people from dangerous drugs, not protecting pharmaceutical companies from lawsuits over drugs that have tragic consequences.

“This is the latest example of the FDA sticking its nose where it does not belong and treating the drug companies as clients rather than regulated entities. Drug companies must be held accountable when their products do serious harm. If the drug industry is shielded from being held accountable then they lose much of the incentive to be forthcoming with potentially harmful or lethal side effects.”

Two years ago, Hinchey wrote a piece of legislation called the FDA Improvement Act, which would, among other things, cut financial ties between the agency and the pharmaceutical industry; reduce conflicts of interest by keeping researchers with financial ties to the industry off of FDA advisory panels; and strengthen the drug-approval process.

Beyond these issues, there are a myriad of other ways that forceful Democrats may manage to get under Big Pharma’s skin. They may choose to take a closer look at influence peddling by the drug industry with medical professionals, regulators, and legislators. They can take a more active role in investigating the suppression of drug side effects and other damaging information by pharmaceutical companies, or perhaps they may challenge the industry’s aggressive and misleading marketing tactics–an issue that various state governments are already addressing in the courts.

One thing that Democrats have firmly in their corner: The American people overwhelmingly support many of these measures. Polls show that large majorities of Americans believe that drug prices are way too high and they support direct-negotiation and drug-importation schemes to lower costs. They are not willing to give up their protection by the courts in the event of adverse effects and they firmly believe that the pharmaceutical industry wields too much influence in Washington.

Yes, Big Pharma is scared. However, whether the new Democratic-led Congress will show the power, fortitude, and moxie to justify their fears is another matter.

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