President Obama on Monday credited the Senate for “standing up to the special interests — who've prevented reform for decades, and who are furiously lobbying against it now.” But the health care “reform” bill, passed late Sunday night, provides the drug companies with billions in taxpayer-funded subsidies, government-sanctioned monopolies, and mandates forcing people to buy drug insurance. At the same time, the bill doesn't touch the industry's existing special favors that Obama had pledged to eliminate in the name of consumers.
The biggest favor to name-brand drug companies may be the lengthy monopolies for complex drugs known as biologics. Congress has long and quietly debated how many years the Food and Drug Administration should prohibit generic versions of biologics. Generic companies proposed a five-year exclusivity period — the same protection granted to standard drugs. Name-brand companies wanted 15 years. The Senate bill, like the House bill, grants biologics a 12-year monopoly. This could keep generics off the market altogether, meaning higher costs and more drug-company profits.
The individual mandate — the Holy Grail for private health insurance companies — also spells more business for prescription-drug companies. Under the Senate bill, everyone, like it or not, will be required to buy prescription-drug insurance. Similarly, states will be forced to include prescription drug coverage in their Medicaid plans.
Then come the subsidies. By 2019, taxpayers will be providing $196 billion in annual subsidies for poor and middle-class people to buy the health insurance the bill forces them to buy. Liberal blogger Harold Pollack happily points out that this “exceeds the combined total of federal spending on Food Stamps and other nutrition assistance programs, the Earned Income Tax Credit, Head Start, TANF cash payments to single mothers and their children, all the National Institutes of Health,” and more.
These mandates and subsidies are what caused top drug lobbyist Billy Tauzin to gush over the “reform” push last March, saying on CNBC, “Think about what this plan does: This plan talks about providing comprehensive health insurance to people who don't have it — that means to patients who can't take our medicines because they can't afford it. Six hundred and fifty billion dollars spent to better insure Americans for the products we make. That ought to be a very optimistic and positive message for everyone who is interested in our sector of the economy.”
But the Senate stuffed even more goodies in Tauzin's “reform” stocking. The bill preserves the 2003 favor prohibiting Medicare from negotiating down prices for the drugs it subsidizes through the Medicare drug benefit. Candidate Obama had attacked this special favor in a 2008 campaign ad that pointed out how Tauzin, as House Commerce Committee chairman, had helped write the bill before cashing out to the drug lobby.
Another big government favor Obama said he would strip from the drug companies was the federal ban on reimporting prescription drugs from Canada, where drug companies sell them for far lower prices because of government price controls. The amendment to allow reimportation failed, but Obama is still rallying behind the measure as a blow against the “special interests.”
Keeping generic drugs off the market for so long and barring reimportation and Medicare negotiation undermine a purported central aim of the bill, which is to broadly reduce health care spending. These provisions, together with the subsidies and mandates, serve another purpose: keeping the drug makers and their powerful lobbies — the Pharmaceutical Researchers and Manufacturers of America and the Biotechnology Industry Organization — on the “reform” bandwagon. “There's been so much pressure to make sure BIO and PhRMA don't walk away,” according to a drug industry lobbyist who has clashed with those groups.
PhRMA pledged the White House $150 million in advertising to support the bill. The other sacrifices by PhRMA include discounts for seniors in the Medicare “doughnut hole” — the gap between basic Medicare drug coverage and catastrophic coverage. But discounts for unsubsidized customers paired with high prices for subsidized customers hardly constitute a sacrifice because of the industry's odd pricing model.
A $2.3-billion-a-year excise tax on the drug makers is the only real haircut in the bill, but drug profits are so high that “nobody's really crying about” the increase within the industry, says pharmaceutical expert Greg Conko at the Competitive Enterprise Institute.
So while Obama has been excoriating the “special interests” as selfish obstructionists, at least some of them are getting lumps of gold in their stockings this year.
Timothy P. Carney, The Examiner's lobbying editor, can be reached at email@example.com. He writes an op-ed column that appears on Friday.