Imagine that you are Billy Tauzin. You’re known as a brazen politician, with few scruples. You helped shepherd the Bush administration’s Medicare bill through Congress—legislation that included a startling provision that actually forbid Medicare from even trying to negotiate discounts with drug-makers.
Mission accomplished, a few weeks later you quit Congress (after having assured your constituents that you planned to run for re-election), and take a $2 million job as president of Pharma, the trade organization representing the very drug-makers who benefited, so handsomely, from the legislation.
Flash forward to 2009: you find yourself up against a progressive White House, and a president who targeted you personally, in a televised advertising campaign.
What do you do?
You keep your friends close, your enemies closer.
You pledge that your industry is willing to give up $80 billion in cost savings over 10 years to help fund reform. The White House appears pleased.
Pharma begins making reverse “Harry & Louise ads,” helping to underwrite a multimillion-dollar TV advertising campaign to promote health-care reform. In 1994 Harry & Louise helped sink Clinton’s hopes. This time around, they’re all similes. “A little more cooperation, a little less politics, and we can get the job done this time,” Louise declares.
Indeed, you have become so friendly with the administration that you hire AKPD, White House strategist David Axelrod’s former firm to help make the ads. (The White House didn’t ask for the favor; AKPD is good, and you want to cement your relationship with new friends.)
Then out of the blue, you’re blindsided by House liberals who mange, at the 11th hour, to tack on an amendment to the House bill giving Medicare the authority to negotiate discounts on drugs. How can this be? This is America. The governments of other countries may try to regulate prices, but we believe in free markets. Drug manufacturers should be able to charge whatever the market will bear—and when people are in pain, and afraid, let me tell you, the market will bear quite a bit. What right does government have to interfere in the Pharma-patient relationship?
“We had a deal!” you squeal. Furious, you spill your guts to the New York Times, explaining that when Pharma “volunteered” to contribute $80 billion to the cause over ten years, the White House agreed to limit the industry’s concessions to that amount.
Aggrieved, as only a crook can be aggrieved, you spell out the details to the Times, which prints your accusations on the front page of its Wednesday edition: "We were assured . . . . ‘If you come in first, [promising concessions before other health care lobbyists come around] you will have a rock-solid deal.’ Who is ever going to go into a deal with the White House again if they don't keep their word?” you fume.
Reportedly, Senator Max Baucus, Rahm Emanuel, and White House deputy chief of staff Jim Messina (who used to work for Baucus) cut the deal. (Some blame Emanuel, but I can’t help but notice that every time I hear about a compromise that reeks to high heaven, Max Baucus appears, center stage.)
Wednesday night, Messina, Baucus’ former staffer, comes forward and declares that what Tauzin told the Times was true. The White House shares the drug lobbyists’ interpretation of the agreement: any health care overhaul would not include allowing direct government negotiation of drug prices.
But then, other representatives of the White House began telling different stories. Meanwhile, members of Congress who believe that they, too, are supposed to play a part in the Democratic process, are growing apoplectic.
By Friday, the White House is “recalibrating” its position. The New York Times reports that, on Friday night, the administration begins to “back away” from Tauzin’s tale:
“In a telephone interview, Linda Douglass, a White House spokeswoman on health matters, said the question of government drug-price bargaining ‘was not discussed during the negotiations.’ Asked if that meant such a provision was excluded, as the top drug lobbyists had previously said, Ms. Douglass declined to comment, repeating, ‘It was not discussed.’”
The Times elaborates: “White House officials said Friday that Mr. Messina, the deputy chief of staff who sent the e-mail message, had not intended to confirm that the deal ruled out price negotiations.
“Several people involved in the negotiations of the original drug industry deal with the White House said there had been some ambiguity in the original discussions, conducted primarily through the Senate Finance Committee, over whether the overhaul might include the government negotiations of drug prices.”
The Mystery: What Was Billy Tauzin Thinking?
Now here is what I don’t understand. Why did Billy Tauzin “out” his new-found friends by telling the Times that, in exchange for $80 billion the executive branch had pledged to block certain legislation that Congress might attempt to pass?
Sure doesn’t sound like “checks and balances” to me. The bald fact is that, legally, the executive branch doesn’t have that authority. The story was, to say the least, embarrassing.
Again, pretend that you are Billy Tauzin. When you heard about the House amendment why wouldn’t you just pick up the phone and say “Rahm, this is not what we discussed . . . ,” confident that Rahm would then have a quiet talk with House Speaker Nancy Pelosi, explaining that the amendment allowing Medicare to bargain with drug-makers “just isn’t go to fly in the Senate.”
Maybe, because you don’t trust Rahm Emanuel not to double cross you? Maybe you’re afraid he’ll say “Deal, what deal? Did the president say that? . . . I never heard the president say that.” Or “Sorry, Billy, we were just kidding!
Perhaps you’re not certain that Rahm can control Nancy Pelosi?
Or, maybe, the president never signed off on a quid pro quo.
So you decide to do what any whistle-blower would do: you go to the newspapers, and spill the whole story. What can the White House do then?
It turns out that they can tell the Times that they don’t remember any discussions about whether or not Medicare would bargain for discounts.
Did Tauzin Ever Have a Deal?
No one knows what was or wasn’t said when Tauzin, Baucus, Emanuel and Messina talked. No one knows what the president said or didn’t say.
Earlier this summer, when the White House was extracting concessions from members of the health care industry, I heard industry representatives gloat: “Now, we have a seat at the table!”
Wary, I watched very closely and I never found a single statement from the President, or any of his senior advisers, suggesting that the White House had promised something concrete in return. As I wrote in a recent post, I suspected that drug-makers, for example, were celebrating prematurely.
Could it be that Tauzin never clinched a “deal”? I have talked to enough corporate lobbyists to know that they are salesmen. And like any good salesmen, just as they sell others, they sell themselves. They must believe that they have “closed” the deal—even if they haven’t.
One can imagine Tauzin’s confusion when he heard about the House amendment. Don’t these people understand, I scratch your back, you scratch mine? One hand washes the other. This is how the world works!”
Whatever implicit promises healthcare lobbyists assumed were embedded in those cordial discussions with the administration, I have long thought that, at the very end of this legislative process, the health care industry’s lobbyists might be in for a rude surprise.
Of course, I could be wrong. But I still am inclined to believe that the Obama administration can afford to stand up to lobbyists. After all, Obama’s team is able raise large amounts of money from grassroots supporters.
And I’m willing to hazard a guess that if Tauzin felt confident that he had a rock-solid commitment that went all the way to the top of the White House, he wouldn’t have gone to the Times. He would have made that phone call to Rahm Emanuel. Or perhaps, he did make the call, and the conversation didn’t go as well as he hoped.
What’s certain is that talking to the Times w
as either a terribly stupid or a very desperate move. Tauzin put the White House in a totally untenable position. Whether or not Baucus and/or someone in the administration had made a quid-pro-quo promise—once the story broke, the administration had no choice but to deny the deal.
Thanks to Tauzin’s Loose Lips, Drug Discounts Are More Likely
Now everyone is going to watch that last-minute amendment to the House bill very carefully. If the lines that authorize Medicare to negotiate suddenly disappear from the legislation, stories headlined “Democrats for Sale” will surface once again.
I suspect that Medicare is now one giant step closer to actually winning the right to haggle, just like every other big purchaser in virtually every other developed nation.
Sunday, the New York Times announced that Phrama is going ahead with its August advertising blitz, supporting reform. Once Tauzin took his foot out of his mouth, he probably realized what others in Pharma have said: reform will bring the drug industry millions of new customers who, in the past, could not afford to see doctors or fill prescriptions. Even if prices are lower, revenues and profits will grow on volume alone.
Medicare Can Bring Drug Prices Down
And if a dismal scientist from the Congressional Budget Office (CBO) tries to tell you that Medicare’s bureaucrats will never be able to score significant discounts, I would suggest that he take a look at the bargains that the Veteran’s Administration (VA) has secured. On average, the VA pays 58 percent less than Medicare for prescription drugs.
“But, but,” skeptics sputter—to be able to bargain with Phrama Medicare would have to be willing to say that it won’t include some drugs in its “formulary” (a continually updated list of preferred medications, representing the judgment of physicians, pharmacists and other experts.)
That’s exactly right. The Veterans Administration has a formulary—a list of drugs that it is has approved for its patients. The Mayo Clinic has a formulary. Why shouldn’t Medicare have a formulary?
Formularies protect patients. When Mayo saw that Vioxx was no more effective than other pain-killers for most patients—(and recognized that because doctors knew less about the new drug, it might well be riskier) Mayo stopped giving it to most patients—as did the VA. They both acted more than a year before the manufacturer was forced to pull it product from the market. This is how an efficient medical system creates a formulary that puts patients first.
And this, in the end, is the goal of the Comparative Effectiveness Research funded by the administration’s fiscal stimulus package. Unbiased physicians and medical researchers will sift through head-to-head comparisons of various treatments, and assess which work best for patients who fit a particular medical profile.
If a new drug isn’t any better than existing medications, why include it in Medicare’s formulary? (If it is better, it would be included, even if it’s more expensive. Though Medicare might well balk at paying 500% more for an arthritis drug that is only 5% more effective than existing treatments. At that point, the negotiations would begin.)
Consider another scenario: what if the new product is as good as older products? Medicare and a public sector insurer might well agree to include it in the formulary--if the manufacturer is willing to sell it for less. That’s what we call free market competition: one company makes a product, another comes along with a similar, equally effective treatment product, and offers it at a lower price. That’s how efficient markets keep quality high and prices down.
But someone has to have the power: first to make a disinterested comparison of the two products, and secondly to say, “no we won’t pay that much.” Cancer patients don’t have that clout. They can’t wait for a cheaper drug to come down the pike. Private insurers don’t fight for the deep discounts that the VA manages to secure. Insurers simply pass exorbitant prices on in the form of higher premiums and co-pays. We need a large government insurer, like the VA, who can say: “We represent millions of people. We are protecting their interests.”
In part 2 of this post I explain that progressive reformers need to use the month of August to make one point very clear to the public: We are ready to stand up to the lobbyists