07-13-2002

LOBBYING: Peddling Prescription Plans

Around the middle of every month, the Pharmaceutical Research and
Manufacturers of America hosts a meeting of its 18-member industry
executive committee to discuss priorities and political plans in
Washington.


The gathering early on June 20 seemed especially promising: The night
before, PhRMA had been among


an elite group of donors that each kicked in at least $250,000 at a big
Republican Party dinner. And individual companies belonging to PhRMA had
made their own contributions, bringing the pharmaceutical industry's
giving to almost $3 million. The corporate chairman of the dinner-which
netted upwards of $30 million for the GOP's congressional campaign
committees-was Robert A. Ingram, the president of pharmaceutical
operations at the drug company GlaxoSmithKline. Ingram's fundraising
prowess got notice in a high place: President Bush thanked Ingram
personally during an address to the 6,500 guests.


Moreover, House Republicans earlier in the week had unveiled a Medicare
prescription drug measure that largely met PhRMA's goal for a benefit to
be run by the private sector. The PhRMA-friendly bill was the handiwork of
top GOP leaders, including House Ways and Means Committee Chairman Bill
Thomas, R-Calif., an industry ally who sat at the PhRMA table during the
GOP fete.


Despite these positive developments, lobbyists say, the good spirits
didn't last long among the PhRMA leaders attending the June 20 meeting.
Several of the CEOs vented their frustrations over escalating attacks on
their industry.


Over the past year, the drug industry has been hammered by new and
well-organized efforts from seniors groups, corporate America, governors,
and other powerful constituencies concerned about high drug prices and the
lack of insurance coverage for 13 million seniors who depend heavily on
prescription medications. One grassroots Goliath, the 35 million-member
AARP, is aggressively pushing prescription drug benefit legislation that
the drug industry doesn't like, while General Motors, Verizon, and other
big corporations have teamed up with makers of generic drugs, insurance
companies, and consumer groups to fight for greater access to less-costly
drugs.


Little wonder that some of the executives from name-brand pharmaceutical
companies were in a funk. As public criticism has increased, many big drug
companies have seen their stock prices drop significantly. Class-action
lawsuits and states hurt by fast-rising Medicaid costs, meanwhile, have
been targeting the industry's pricing practices.


One lobbyist attending the PhRMA executive committee meeting recalled that
among the top industry leaders, there was "a recognition of just how
bad things are, just how beat-up they are in terms of the financial
condition of the companies, Wall Street, the public, and Capitol
Hill." Executives from such drug giants as Eli Lilly, Merck, Pfizer,
and Schering-Plough also urged at the meeting that more shoe leather be
invested in pressing Congress to get a prescription drug bill through this
year, lobbyists say.


For PhRMA, the stakes are high. Enactment of a prescription drug benefit
for seniors, lobbyists say, is crucial to reviving the industry's sagging
image and fortunes.


There needs to be a bill "that provides some kind of public
protection for the industry," said Peter Teeley, who runs the
Washington office of Amgen, a leading biotech firm that belongs to PhRMA.
As Teeley sees it, passing a prescription drug benefit bill would help
alleviate public concerns about rising drug costs. "If you can take
away the issue of [insurance] coverage [for seniors], you dramatically
take away the issue of cost," he said. "If you have that happen,
there may be some breathing room for the industry to get back on its feet.
Right now the industry is in a lot of political trouble, and financial
trouble is sure to follow."


Other drug-industry lobbyists share that view. But prospects this year for
the pharmaceutical industry-long accustomed to getting what it wants-are
especially difficult for two reasons: election-year politics and critics'
success in upping the legislative ante and in advocating more-sweeping
reforms on insurance coverage and affordability.


The industry got good news on June 28, when the House passed the
Republican bill on a mostly party-line vote of 221-208. The legislation,
at a cost of $350 billion over 10 years, assigns the delivery of the new
entitlement firmly where PhRMA and its companies want it-with private
industry. Under the House bill, private insurance companies would get
government subsidies when they offered drug coverage for the elderly. The
GOP measure would bar the government from setting drug prices or from
interfering "in any way with negotiations" between drugmakers
and insurers.


The battle now moves to the Senate, where Democrats Bob Graham of Florida,
Edward Kennedy of Massachusetts, and Zell Miller of Georgia have
introduced a bill with a price tag of at least $750 billion over 10 years.
The Democrats' version, which is expected to reach the floor the week of
July 15, would hand the government a primary role in delivering the
benefit, a prospect that the industry finds anathema. By contrast, Sens.
John Breaux, D-La., Charles Grassley, R-Iowa, and James M. Jeffords,
I-Vt., are expected to soon introduce a bill similar to the House
measure.


Although Congress has wrestled before with the prescription drug issue,
Republicans and Democrats generally remain far apart. Both parties, are
highlighting their differences in congressional races across the
country.


"I don't see a reason for the Democratic Senate to want to compromise
with a Republican House bill that is less comprehensive than their bill
and could face a voter backlash if enacted," said Robert Blendon, a
professor of health policy and political management at Harvard University.
If a measure similar to the House version were to become law, Blendon
said, elderly Americans would be left "paying a large share of every
bill, [and] then they're still going to be concerned about
prices."


Adding to the industry's headaches are such efforts as AARP's $10 million
consumer ad blitz, which has helped bolster support for lower-priced
generic drugs even while helping advance the drive for a Medicare
prescription drug benefit. Both issues are vital to AARP members, said
John Rother, the group's top lobbyist. "Price and coverage concerns
are causing our members distress," he said.


Besides AARP, there's Business for Affordable Medicine, a group composed
of 11 governors and 15 corporations; it was set up to push for legislation
to increase everyone's access to lower-cost pharmaceuticals. In the
Senate, one bill that would help meet that goal has been introduced by
Sens. Charles E. Schumer, D-N.Y., and John McCain, R-Ariz. The
Schumer-McCain plan would sharply limit the legal tactic, used by many
drug companies, of filing lawsuits to gain 30 additional months on the
life of a patent about to expire. "For Congress to allow this legal
loophole to continue is unequivocally immoral," said South Dakota
Gov. William J. Janklow (R), a BAM member.


Further, consumer groups are heavily promoting a bipartisan Senate bill
that would allow individuals, wholesalers, and pharmacists to reimport
American-made drugs into the United States from Canada, where prices are
often lower because of government controls. PhRMA lobbyists vigorously
oppose these measures. The major drug firms argue that the Schumer-McCain
bill would interfere with their patent rights and that the reimportation
plan could cause a surge in drugs that have been tampered with or are of
poor quality.


Outside observers say that the industry will need all of its well-aimed
generosity and lobbying might to fend off its opponents. "The drug
industry is facing tougher times than before," said Dr. Arnold
Relman, a professor emeritus at Harvard Medical School. "They're
meeting a lot of price and cost resistance from the government, the
public, and other purchasers of prescription drugs."


That's not surprising, Relman said, given that consumer prices and drug
purchases have been increasing dramatically. Last year, for example,
retail spending on prescription drugs soared to $154.5 billion, a jump of
17.1 percent from the prior year, according to a May report by the
nonpartisan National Institute for Health Care Management Research and
Educational Foundation. And in each of the previous three years, the
institute said, consumer spending had increased by more than 18
percent.


These increases have been especially painful for seniors, who consume
slightly more than one-third of America's prescription drugs. Last month,
the liberal consumer group Families USA issued a study that said the
prices for the 50 best-selling drugs among the elderly last year had
jumped by 7.8 percent over the previous year. In contrast, the Consumer
Price Index for all items, except energy, rose by 2.7 percent in
2001.


Rep. Henry A. Waxman, D-Calif., a longtime critic of the name-brand drug
industry, called it "untenable" for seniors to continue facing
such big increases. "That's led to a huge demand for prescription
drug coverage under Medicare, or for some kind of cost containment,"
Waxman said.


Industry Beefs Up


To fend off its increasingly aggressive critics and to push its
priorities, PhRMA has hired a wave of new lobbyists, opened its flush
political war chest even wider, and launched new advertising
efforts.


"We've felt that it was important


to expand our lobbying because of the number, breadth, and importance of
the issues," explained Alan F. Holmer, the former trade lawyer who is
president of PhRMA. Holmer recalls that when he assumed the reins at the
104-member PhRMA in 1996, it had just two lobbyists on its federal staff;
the group now boasts 17.


The higher-profile opposition and the stark battle lines between the
political parties over prescription drug legislation have been a wake-up
call for PhRMA. Consider:


* This spring, PhRMA added such top outside lobbyists as Bill Paxon, a
former GOP House leader now at Akin, Gump, Strauss, Hauer & Feld; Dan
Mattoon, a former deputy chairman of the National Republican Congressional
Committee; and Tony Rudy, who was an aide to House Majority Whip Tom
DeLay, R-Texas. PhRMA also recruited two new in-house lobbyists from key
GOP offices on Capitol Hill: Sonya Sotak and Helen Rhee, who were,
respectively, the top health aides to McCain and Sen. Bill Frist, R-Tenn.
The infusion of new GOP talent bolsters a bipartisan lobbying team that
includes former top aides to Kennedy and to Senate Majority Leader Thomas
A. Daschle, D-S.D.


* Drug companies-mostly brand-name ones-had 623 federal lobbyists on their
payrolls last year, according to a recent study by Public Citizen; that
total included 23 former members of Congress. The liberal interest group
says that the industry spent a whopping $78.1 million on lobbying in 2001,
virtually all by the brand-name companies.


* In May, the conservative United Seniors Association-with help from a
multimillion-dollar "educational grant" from PhRMA-launched a
$4.6 million television ad campaign to help persuade 16 Republicans and
two Democrats to back the GOP House bill. The seniors group is now running
a $2 million ad effort and direct-mail blitz to build support in the
Senate for legislation comparable to the industry-friendly House
measure.


* PhRMA has spent close to $30 million since mid-2001 on a TV and print ad
effort aimed at opinion leaders. The ads tout the industry's research and
development expenditures (which last year hit a record $30 billion) and
focus on patients who say that their lives have been improved by new
medicines. Further, for almost two years, in such publications as The
Washington Post and National Journal, PhRMA has been running
inside-the-Beltway ads that stress the industry's support for a
prescription drug benefit for seniors.


* The drug industry is pouring more and more campaign dollars into GOP
coffers. So far in the 2001-2002 election cycle, about 75 percent of the
industry's $12 million in contributions has gone to Republican candidates
and party committees, according to the nonpartisan Center for Responsive
Politics. During the 1999-2000 cycle, about 73 percent of the industry's
$20.5 million in contributions went to the GOP.


All of these efforts might help explain the upbeat view of PhRMA's Holmer
on the prospects for passage this year of a prescription drug benefit.
"The conventional wisdom in Washington is that it won't happen this
year, but I don't buy into that," he said.


Paxon added: If a prescription drug bill passes, "it removes one of
the big clubs that's been used to batter the industry. The industry feels
under fire, and unfairly so. In many people's minds, they're a major
component of improving people's lives and health care."


Still, many drug-industry lobbyists, as well as industry critics, doubt
that the issue will be resolved before the November 5 election. Instead,
they predict that the campaign trail will be littered with positive and
negative issue ads that stake out the different positions and identify the
candidates who have embraced them.


Some lobbyists foresee a replay of the 2000 campaign, which featured
intense issue-ad battles. "Whoever throws the first snowball will
have everybody responding to them," said Mattoon, a name partner at
the lobbying firm PodestaMattoon. "I expect it will be like deja vu
all over again. I expect that the issue-ad battles on prescription drugs
will intensify as the Senate debates, and it will continue up to Election
Day."


Larry Sabato, a government professor at the University of Virginia, says
that it's highly uncertain whether Congress can enact a bill in 2002.
"The Republicans see passing a bill as a way to neutralize Democratic
attacks in the fall," he said. "Democrats view the GOP bill as
an opportunity to intensify their attacks in the fall. Exhibit A for the
Democrats is the enormous campaign support for the GOP from the
pharmaceutical industry."


Republicans and Democrats are already firing shots at each other.
"It's our suspicion that the Democrats don't want a bill, but that
they want an issue, like last time," said Rep. Tom Davis, R-Va.
Davis, chairman of the NRCC, pointed out that Republicans have passed a
program "that is more ambitious than last time."


But Rep. Nita M. Lowey, D-N.Y., who is Davis's counterpart at the
Democratic Congressional Campaign Committee, called the GOP measure
"a cynical strategy that I think will be rejected by the
voters."


Meanwhile, drug-industry lobbyists predict more political warfare.
"Obviously, the industry is going to be aggressive, as they've been
in the past," Paxon predicted. "They'd be foolish to sit on the
sidelines."


On the Defensive


PhRMA and lobbyists for individual companies suggest that the industry's
sagging image and its defensiveness are contributing to ill-conceived
policy prescriptions that will hurt drugmakers.


Addressing PhRMA's annual meeting in March, Holmer acknowledged, "Our
polling shows that Americans applaud our research and stand in awe of our
high-tech capabilities, but they think that we're on the wrong side of too
many issues. Many of them think the answer is price controls.... We at
PhRMA spend too much time on defense and not enough on offense." He
added: "We will not be out-thought, and we will not be
outworked."


Negative press coverage has added to the industry's embattled posture.
Industry officials were upset by a recent Peter Jennings special on ABC
that charged drug companies with aggressive marketing practices and
hardball tactics against generics competitors and industry
critics.


The industry's poor PR was also reflected in a recent Wall Street
Journal/NBC News poll reporting that 54 percent of Americans have an
unfavorable view of drug companies. Relman and other critics point out
that large pharmaceutical firms, which rely heavily on sales of so-called
blockbuster drugs, such as the antihistamine Claritin by Schering-Plough
and the anti-arthritic drug Celebrex by Pharmacia, have resorted to
direct-to-consumer TV ads to ensure these products' profitability. Many of
the most heavily advertised drugs, critics note, are "me-too
drugs" that are not all that different chemically from competitors'
products.


The aggressive advertising campaigns come as drug firms face leaner times
because of expiring patents. Over the next four years, drugs that account
for an estimated $30 billion in sales will lose their patent protections.
And although industry research and development spending last year hit a
new high, according to PhRMA, the Food and Drug Administration has been
approving fewer new medicines. Last year, the FDA gave the OK to 52 new
drugs, down from 64 in 1990.


The pharmaceutical industry, Relman said, is on the defensive because
"they're worried about their public image, and more importantly,
they're worried that their pipeline of truly innovative new drugs has been
slowing down. They're running scared, and that's reflected in the fact
that Wall Street investors are not as enthusiastic about drug-industry
stocks as they used to be."


Moreover, generics competitors now hold nearly 50 percent of the total
market, and state Medicaid programs and other large purchasers are
pressing for price cuts. "The drug industry fears nothing so much as
a powerful purchaser with market clout," said economics professor Uwe
Reinhardt of Princeton University. "The industry is frightened at
having the government's big hand on drug prices."


Yet some industry lobbyists dismiss the clamor over prices as a
distraction. "There are some people who would like the price issue to
be coequal with the coverage issue, because that allows them to take on
the big drug companies," said Ian Spatz, a lobbyist for Merck.
"PhRMA and its member companies would rather have Congress deal with
the real issues, rather than the sideshows that aren't going to have an
impact on patient lives."


Fall Campaigns


Industry critics show no signs of yielding. They are pressing hard on the
legislative front for congressional action, and they are laying plans for
a political offensive if Congress doesn't act. AARP is perhaps the most
formidable opponent, but it has plenty of backing from union-financed
groups and consumer heavyweights.


Stressing the need for individuals to "check up on their
prescriptions," an AARP ad blitz-slated to run through October on
network and cable TV and in leading publications-underscores high drug
prices and the plight of 40 million seniors who have minimal or no
insurance coverage for their medications. As part of its grassroots
effort, AARP has also convened town hall meetings in "kitchen
table" settings in the districts of most members on two relevant
House committees: Ways and Means, and Energy and Commerce.


Kevin Donnellan, director of AARP's grassroots efforts, said that the
group also has a direct-mail effort and phone banks to generate
constituent contacts with Congress. As of June, he said, about 80,000
AARP-inspired calls had been patched through, mostly to House members'
offices.


AARP is disappointed with the recently passed House bill and is getting
ready to lobby intensively in the Senate for the Democratic bill. The
biggest problem with the House bill, said AARP lobbyist Rother, is a
serious coverage gap. Under the House-passed measure, an individual's
out-of-pocket drug costs of up to $2,000 would receive some coverage. But
the $1,700 worth of expenses between that initial $2,000 and the $3,700
mark would get no coverage. Above that amount, everything is
covered.


AARP hopes that its grassroots pressure will cause moderate Senate
Republicans from New England and other Northern states to support the
Democratic plan. And if Congress doesn't pass a bill, Donnellan said, AARP
will spend roughly $1 million to make the prescription drug issue a top
priority in key electoral races through candidate debates, voter guides,
voter-registration efforts, and get-out-the-vote drives.


A new force pushing for comprehensive prescription drug coverage is the
Alliance for Retired Americans, which boasts a $5 million budget and gets
union financing. The 2.8 million-member alliance recently organized about
15 high-profile trips to Canada from every border state in the United
States. These May and June bus trips dramatized the plight of seniors who
lack coverage, as well as the fact that many drugs are sold at lower
prices in Canada than in the United States. Riding along were such key
Democrats as Sens. Debbie Stabenow of Michigan and Byron Dorgan of North
Dakota, and Reps. John D. Dingell and David E. Bonior of Michigan.


If Congress can't agree on a bill this year, said alliance Executive
Director Ed Coyle, the group will campaign in about 25 House districts and
at least four Senate races for the candidates who support a prescription
drug benefit. Coyle said that the Senate races will include those in Iowa,
Minnesota, New Hampshire, and South Dakota. The fall political campaign
will "constantly show the faces and the stories of people who, sadly,
have to get on a bus and go to Canada because they can't afford their
medicines here," Coyle said.


To counter these drives and to support a bill to its liking, PhRMA has
unleashed a multipronged lobbying blitz. Historically, PhRMA has looked to
outside allies to play key lobbying roles. So, well before the House vote,
PhRMA hooked up with the 550,000-member United Seniors Association in an
effort to rally older voters to prod Congress. United Seniors received a
grant from PhRMA that industry sources say totaled nearly $3 million. The
money helped underwrite a United Seniors ad campaign promoting the House
bill. The message was aimed in part at winning over conservative
Republican legislators who were deemed swing votes because of their
concerns that a new drug benefit could bust the federal budget.


Charles Jarvis, chairman of United Seniors, said that part of the strategy
was to focus on not only people who can "help pass the bill in the
House, but also people who can pull other members of their delegations
together. I want to spur positive action in the Senate."


The ads were the handiwork of Tim Ryan, a drug-industry veteran who works
at Weber Shandwick. In 2000, Ryan ran Citizens for Better Medicare, the
industry-funded "grassroots" group that sponsored about $50
million in ads aimed at members of Congress. Before that, Ryan worked at
PhRMA.


Jarvis's group also mailed out 250,000 fliers nationwide to push the House
bill, and he made the rounds at congressional offices accompanied by the
group's honorary national chairman, Art Linkletter. To put pressure on the
Senate, United Seniors ran a two-week, $2 million ad campaign around the
Fourth of July recess, thanking 24 Republicans and five Democrats who had
backed the House bill and encouraging them to push the same bill in the
Senate.


Meanwhile, PhRMA has deployed its heavy artillery of outside lobbying
firms to work Capitol Hill. Along with Paxon and Mattoon, PhRMA's forces
include members of about 20 lobbying shops in Washington, including
Covington & Burling and Verner, Liipfert, Bernhard, McPherson, and
Hand. Among the heavy hitters on PhRMA's payroll are former House members
Vic Fazio, a Democrat, and Vin Weber, a Republican, both partners at Clark
& Weinstock. Another member of the firm, Ed Kutler, a former aide to
House Speaker Newt Gingrich, R-Ga., also lobbies for PhRMA.


Some drug-industry lobbyists helped House staffers fine-tune parts of the
GOP-passed bill. One lobbyist some industry sources credit with playing
such a role was Howard Cohen, an outside lobbyist to PhRMA and several big
drug companies. Cohen is of counsel at Verner, Liipfert and worked at the
House Energy and Commerce Committee.


The Democratic-controlled Senate, of course, will be much tougher terrain
for PhRMA. For now, the association is focusing on getting backing for the
more industry-friendly Breaux-Grassley bill. To help with that effort,
PhRMA's team has recruited formidable Democratic arm-twisters: For
instance, outside lobbyists include Nick Littlefield, a former aide to
Kennedy, and Joel Johnson, a former aide to Daschle.


Holmer won't comment on his association's plans for the fall election
campaign. But lobbyists expect PhRMA and its individual companies to be
involved in helping friends win election and in targeting some foes for
defeat. Industry sources said that a few drug companies might back an ad
initiative by the U.S. Chamber of Commerce, as happened in 2000 when drug
firms kicked in some $10 million for a series of chamber issue ads on
prescription drugs. "There are all the elements for some sort of
drug-industry support for a chamber initiative again," said a source
familiar with the last effort.


A New Ballgame


Regardless of what happens on prescription drug legislation, industry
critics are turning up the heat on other bills in an attempt to rein in
drug prices. In the Senate, the Health, Education, Labor, and Pensions
Committee on July 10-11 was marking up-and poised to approve-a slightly
weaker version of the Schumer-McCain bill that had been amended by Sens.
John Edwards, D-N.C., and Susan Collins, R-Maine. Reps. Jo Ann Emerson,
R-Mo., and Sherrod Brown, D-Ohio, have introduced a similar bill in the
House.


Meanwhile, Business for Affordable Medicine has been using governors,
including high-profile Democrat Howard Dean of Vermont, and corporate
members to press for better access to low-cost pharmaceuticals.


For companies such as GM, one of BAM's first recruits, the stakes are
huge. Bruce Bradley, GM's director of health care, points out that the
company last year spent $1 billion on prescription drugs, the
fastest-rising part of its total health care bill of about $4 billion.
"GM supports measures that would end patent abuses and allow
consumers quicker access to generic drugs," he said.


Inside the Beltway, the Generic Pharmaceutical Association recently teamed
with Blue Cross Blue Shield association and some of BAM's member companies
in yet another lobbying effort, calling themselves the Coalition for a
Competitive Pharmaceutical Market. "We're reaching out to other
organizations to build broader coalitions," said Kathleen Jaeger,
president of the generics association. Over the Fourth of July recess, the
coalition ran radio ads to prod members of Kennedy's committee to back the
Schumer-McCain bill.


Mark Isakowitz, a GOP lobbyist at Fierce & Isakowitz who works for the
generics group and consults for AARP, argues that the lobbying dynamic is
shifting. "The growing involvement of the employers changes the whole
ballgame and where the center of gravity is," said Isakowitz.
"If I were PhRMA, that trend would scare me the most."


PhRMA lobbyists aren't taking the threat lightly. In PhRMA's view,
Schumer-McCain would needlessly reopen debate on the Hatch-Waxman Act, the
1984 legislation that struck a balance between the competing interests of
brand-name companies and the makers of generics. Under that law, brand
names have received extended patent rights, and generics get access to
markets when patents expire.


In April, PhRMA launched an effort inside the Beltway to quash support for
Schumer-McCain. Ads produced by the Ridley Group claim that 67 percent of
American doctors fear that weaker patent laws will mean less drug research
on rare diseases. The survey results are from a PhRMA-paid poll by Ayres
McHenry & Associates, which surveyed 400 doctors in 45 states and the
District of Columbia.


On the lobbying side, PhRMA recruited Sonya Sotak, McCain's top health
aide, who had worked on his legislation. One GOP drug-industry lobbyist
called PhRMA's hiring of Sotak a move bolder than "anything I've ever
seen."


For his part, McCain insists that his bill can get through the Senate. He
acknowledged that it is "no cure for the rising cost of prescription
drugs" but said that it would have a salutary impact by helping to
curb frivolous patent extensions.


At PhRMA, the mantra is that the real game is to pass a prescription drug
bill. Asked about the surge of critics demanding action on prices, Holmer
said, "I wish they'd focus their attention, as we have, on the issue
that would do the most to help seniors"-prescription drug
coverage.


Not surprisingly, the industry view is unconvincing to critics such as
Relman, who believe that the tide has turned against the drugmakers.
"I think there will be more regulation of pharmaceutical pricing and
marketing," he said, "and a more rational legislative control of
the use of patents."


Peter H. Stone

National Journal