Congress is certain to push legislation next year that threatens to cut into drug company profits, but industry executives are confident they can overcome challenges from incoming Democratic leaders.

"There is an assumption that the Democratic ascension will be a disaster for the industry," Eli Lilly and Company Chief Executive Officer Sidney Taurel told financial analysts at a December meeting in New York. "I believe the facts point to a more moderate direction."

A priority for the new Democratic majority is to repeal a clause in the 2003 Medicare Modernization Act that prevents the government from negotiating price discounts from drug makers on behalf of millions of elderly and disabled Americans who participate in the new Medicare Part D prescription drug program.

Democrats, and some Republicans, also are likely to move legislation to make it legal and safe for Americans to buy cheaper prescription medicine from pharmacies abroad, such as those in Canada.

But the pharmaceutical industry's armada of lobbyists will do all it can to block both efforts, or at least water them down.

"We'll continue to oppose ill-advised legislation, such as risky importation bills that threaten public health and safety," said Ken Johnson, senior vice president of the Pharmaceutical Research and Manufacturers of America (PhRMA).

The industry spends more than any other on federal lobbying, campaign donations and congressional travel - more than $1 billion combined since 1998, according to the Center for Public Integrity.

Democrats claim that by giving Medicare negotiating power, the program could win significant discounts from drug makers, enough to save each beneficiary, about $500 more each year.

The estimated $61 billion in savings over 10 years could be used to fill part of a gap in coverage - known as "the donut hole" - facing most people participating in the Medicare Part D prescription drug program.

"I felt from the very beginning we could have had a better program that covers more things, such as eliminating the donut hole," said Rep. Frank Pallone Jr., a New Jersey Democrat expected to chair the subcommittee that will be instrumental in crafting Medicare legislation. "If we negotiate prices, it's a way to provide more."

The drug industry says government-mandated prices would threaten the industry's vital investments in researching and developing new drugs, estimated at $51.3 billion in 2005. It costs an estimated $1.2 billion to bring a new drug to market, according to industry estimates.

The industry spends approximately double its research budget on marketing each year - which includes the cost of fielding a massive sales force and advertising, which has grown steadily in recent years.

The House is expected to repeal the Medicare non-negotiation clause during its first 100 hours of business in January. In the Senate, the pace will be slower and less certain.

Senate Democrats, who hold a 51-49 majority, need 60 votes to end debate on any controversial bill. And there's the very real possibility of a veto from President Bush.

Drug industry lobbyists plan to use two additional arguments to counter lawmaker attempts to overturn the Medicare non-negotiation clause.

First, the Congressional Budget Office, the entity that produces the official cost and revenue estimates for proposed legislation, has concluded it's unlikely Medicare would see significant savings if government managers get authority to negotiate with drug makers for discounts.

Second, the year-old Medicare Part D program already is producing significant savings for consumers, said Jim Greenwood, president of the Biotechnology Industry Organization, which represents more than 1,000 biotechnology companies and organizations.

The prices beneficiaries now pay for prescription drugs through the Medicare program were determined by actual free-market negotiations, Greenwood said.

"When the federal government sets prices, it becomes a political process and not one based on real, free-market honest negotiations," said Greenwood, a former Pennsylvania Republican congressman.

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Congress vs. Big Pharma: Let the Games Begin 

With its stranglehold on the nation's health care bills and its record-high profits, including billions from public coffers, no industry may be an easier target for reform than Big Pharma. But don't hold your breath for any meaningful reforms from the next Congress, given that even the most obvious ideas - such as expanding the Medicare drug benefit and opening the door to drug imports from Canada and elsewhere - will face unrelenting pushback from the massive drug lobby. In the end, Congressional Democrats may not accomplish much to help patients, but they will likely launch the first serious investigations of the industry in decades.

In January powerful Michigan Democrat John Dingell will take the reins of the House Energy and Commerce Committee. Sources with knowledge of the committee's plans say that by February, Dingell aims to launch several probes of the drug industry, including a look at fraud in Medicare and Medicaid with particular focus on the black-market sales of expensive cancer drugs and other pharmaceuticals. Dingell also wants to investigate the process by which drugs get approved at the FDA, and explore the question of imports from Canada, where U.S. drug makers sell many pharmaceuticals cheaper than they do here.

In whatever configuration, the issues the new Congress will have to confront right away include the new Medicare Plan D drug benefit program. The benefit is administered through various private plans run by HMOs, the AARP, and others, each of which negotiates its own prices with drug makers. Critics argue that as constituted, this program - the only part of Medicare that doesn't include price controls - is a virtual handout to the drug companies, and that the government could push for much lower drug prices if it were to negotiate with manufacturers directly. A number of Congressional freshmen supported this idea on the campaign trail.

Another likely agenda item is Plan D's so-called doughnut hole. A senior can register for the plan and receive coverage for up to $2400 worth of drugs. After that a senior continues to pay premiums but gets no coverage until he or she spends about $3800. Then the insurance picks up again.

Plan D is a miasma - the Bush people like to refer to it as a marketplace - of different private plans, some plugging the doughnut, some closing it part way. According to staffers at the Center for Medicare Advocacy in Washington, there is as of yet no real plan in Congress for plugging the doughnut or changing the overall plan. Edwin Park, who follows Medicare for the Center for Budget and Policy Priorities, a Washington think tank, says he doubts there will be any quick fixes for the doughnut hole, in part because of the cost of closing the gap - an estimated $400 million over 10 years. Bush is dead set against removing the marketplace feature and the Democrats, with their narrow margins, would have a hard time overriding a veto. Thus, some health advocates think that while Congress won't allow the government to negotiate prices wholesale, they might let the government enter the Plan D market as another buyer alongside the existing private plans.

A second confrontation may come over the import of cheaper drugs from Canada. Democratic Senator Byron Dorgan of South Dakota has taken the lead on this issue; last July, Senate Democrats voted to permit Canadian imports. Bush has promised to veto such legislation, should it ever pass; meanwhile, the Canadian drug industry is preparing to press Ottawa to ban cheap exports to the United States, a move that would leave patients turning to Latin America and elsewhere.

"My main hope is exposure,'' says Dr. Sidney Wolfe, who heads Public Citizen's Health Research Group. Even if reform legislation were to pass in this Congress, he notes, "it would be almost guaranteed to face a presidential veto." More likely, he says, investigations today will pave the way for reform later.

For more information on this article written by James Ridgeway, a journalist from Mother Jones magazine, visit: http://www.motherjones.com/washington_dispatch/
2006/12/big_pharma.html

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