01-05-2002

HEALTH: Was 9/11 an Rx for Drugmakers?

Like other issues that don't involve bolstering security or fighting
terrorism, creating a Medicare prescription drug benefit was put on hold
in Congress after September 11. But as this year's congressional campaigns
get going, lawmakers are expected once again to tackle the politically
charged issue, albeit under new realities that make pharmaceutical
industry lobbyists a bit nervous.


Money that once might have paid for an expensive universal prescription
benefit for the elderly is now much harder to come by in the federal
budget. Experts cite three reasons: the recession; billions of dollars in
post-September 11 spending on New York City relief and anti-terrorism
measures; and the massive income tax cut enacted this past summer.


With federal coffers reduced, the Medicare debate will focus not only on
creating a prescription benefit but also on two other ways to cut drug
costs: forcing pharmaceutical manufacturers to lower their prices, and
making sure that cheaper generic versions of medicines get to the
marketplace in a timely manner. These two strategies have long been among
the biggest fears of brand-name drugmakers.


Lobbyist Chris Jennings, who was President Clinton's top White House aide
on health care and who now represents drug companies that produce
generics, said lawmakers can ill afford to give up on the drug benefit
issue. "The focus [in Congress] will be, `If I can't deliver a drug
benefit, I need to find another way to be responsive to an undeniable need
for prescription drug cost relief,'" said Jennings, who runs his own
K Street firm.


The September 11 terrorist strikes and the anthrax attacks have given drug
companies an early leg up in the Medicare prescription benefit battle. The
industry boosted its public standing by delivering a quick and, some
argue, generous response to the national tragedies.


Before September 11, drugmakers were often portrayed as wealthy corporate
executives who gouge consumers and force seniors to choose between
medicine and food. The Pharmaceutical Research and Manufacturers of
America, the industry's powerful Washington-based trade association, spent
millions of dollars on advertising and lobbying last year to justify the
high costs associated with developing new, breakthrough medicines.


Immediately after the attacks, pharmaceutical firms donated medicines and
vaccines to burn and trauma victims, rushed supplies to hospitals, and
sent teams to New York and New Jersey. (See chart, next page.)


Drug lobbyists hope that their industry's importance will be better
understood by a public that has been hoarding the anthrax antibiotic Cipro
and worrying if the country has enough smallpox vaccine. "It's not
somebody at the NIH or in some university, it's us, the pharmaceutical
companies," said the chief Washington lobbyist for a leading drug
company. "We're trying to prove we can do something right to help
people. This has given the industry an opportunity to show what it can do
best, and win some respect."


Alan Holmer, president of PhRMA, says it's all about doing the right
thing. PhRMA set up a task force to make its companies' services readily
available to the government, and the association retained Michael
Friedman, a former acting Food and Drug Administration commissioner, as
its point person on bioterrorism. Holmer agrees that these activities
might help the industry's image, but he says that isn't what drove the
actions. "I've always felt the best PR is to do the right thing, then
get caught doing it," he said.


Still, drug companies have been on a public image roller coaster since
September 11-shooting upward when companies offered their services to the
injured and to those exposed to anthrax, then dropping down when the
issues of prices or patents arose. The industry's response
"underscores that our medications are priceless, but people still
think they're overpriced," Holmer said.


Critics of the industry say the buffed-up image could be tarnished once
seniors start reminding members of Congress that many elderly Americans
can't afford their medicines. Ron Pollack, executive director of the
consumer advocacy group Families USA, said pharmaceutical companies
"had a wonderful opportunity to improve their public image, and they
did take some steps in that direction." But, he added, "they
also showed what some of us believed to be their true
colors."


Pollack was referring to recent contract negotiations between the federal
government and Bayer AG, the German drugmaker that produces Cipro. Bayer
initially did not offer discounts on Cipro, but eventually reduced its
price on the first 100 million pills from $1.77 per pill to 95 cents,
after members of Congress and Secretary Tommy G. Thomson of Health and
Human Services considered allowing generic drugmakers to supply their
versions for a cheaper price. Bayer also agreed that the second 100
million pills would each cost 85 cents, while the third 100 million would
cost 75 cents per pill.


"PhRMA was headed for a public relations disaster," said a
congressional Democratic aide involved in drug issues. The aide said the
industry executed a "brilliant PR save" when companies other
than Bayer offered up Cipro alternatives for free.


A more recent patent squabble over Bristol-Myers Squibb Co.'s diabetes
drug Glucophage may have tainted some of the good will that was building
toward the industry. The battle has been so fierce that other drugmakers
have lined up against Bristol Myers-Squibb.


The patent on Glucophage was set to expire at the end of last year, but
because Bristol-Myers Squibb tested the drug on kids in December 2000 and
changed its labeling, the company said it was due another three years of
patent exclusivity. The FDA last year agreed and extended the patent for
Glucophage for use in children for another three years. Cost-conscious
members of Congress were outraged and insisted the company was clearly
going beyond the intent of U.S. drug patent laws. The outcome remains
uncertain: In December, the Senate passed legislation that would end
Bristol-Myers Squibb's patent, while the House has not yet acted.


Indeed, one congressional Democratic aide reports having been approached
by lobbyists from other drug firms who were working Capitol Hill against
Bristol-Myers Squibb. "Three different drug company lobbyists said,
`You're not going to let them get away with this, are you?' They're PhRMA
members, and PhRMA usually doesn't break ranks." The aide reported
receiving an e-mail from one of the lobbyists that said that PhRMA was
"aghast" at the Bristol-Myers Squibb campaign.


Meanwhile, when Congress and President Bush get back to the Medicare
debate this year, Bush is expected to propose some amount of money for a
prescription benefit, and House Speaker J. Dennis Hastert, R-Ill.,
recently told a group of health care lobbyists that he is considering
proposed spending of $300 billion over 10 years, according to a lobbyist
who was present. Still, other lobbyists question whether Hastert will be
able to find that amount of money in the budget. With limited funds, some
lobbyists predict that there will be more discussion about prices,
discounts, and patents. The idea of drug company discounts is catching on
at both the federal and state levels. There's speculation that President
Bush will build on the drug discount card proposal he included in his 2001
Medicare reform proposal; Bush recommended spending $156 billion over 10
years for a prescription benefit and Medicare reform. By contrast, the
Senate voted as part of its 2002 budget resolution to allow up to $300
billion over 10 years for a Medicare drug benefit.


Moreover, state governments that are drowning in red ink are facing annual
growth rates of up to 20 percent for Medicaid prescription costs. These
states are negotiating rebates from drug companies and promoting greater
use of generics.


"Conceivably, these and other federal and state approaches might
reflect a national trend," said Jennings. The push to find ways to
cut drug costs and to provide a benefit, he said, is an "obvious
outgrowth of a weakened economy and the President's tax cut that has
sucked away all the surplus dollars that would have been previously
utilized for that purpose."


As they did in the Cipro controversy with Bayer, some members of Congress
indicate they are sympathetic to allowing generic drug companies to get
into the market more quickly. "It exposes the vulnerability on patent
protections," said one pharmaceutical industry lobbyist for a
brand-name drugmaker. "It lends credence to the arguments that there
are circumstances under which patent protections should be
waived."


Congress may choose to revamp the so-called Hatch-Waxman Act, which allows
brand-name companies to hold patents for a certain number of years, after
which they must allow cheaper generics on the market. "The generic
industry is doing real well on Capitol Hill with Republicans and
Democrats, and fair with the Administration," said Jake Hansen, a
lobbyist for the generic company Barr Laboratories Inc.


Pollack complains that brand-name drugmakers are "putting more and
more time into promoting anti-competitive practices" designed to
extend their patents and to keep out generic alternatives. He predicted
that Congress would move to end the practices, citing pending court cases
against drug companies on the market competition issue.


The brand-name industry's post-September 11 efforts on bioterrorism could
help bolster its position going into this year's Medicare debate and
battles over patents. "It underscores the message of the
extraordinary value of our medications," said PhRMA president Holmer.
"When Tom Brokaw holds up Cipro and says, `In Cipro we trust,' that
helps."


Peter H. Stone contributed to this report.


Marilyn Werber Serafini

National Journal