Pharma Plans Ads To Attack Obama Drug Plan
29 CommentsBy Ed Silverman // November 14th, 2008 // 7:32 am
The pharmaceutical industry’s trade group is preparing a multimillion-dollar public relations campaign to tout the importance of free-market health care and undercut an expected push by the Obama administration for price controls of prescription drugs, according to The Washington Times.
The effort, which will include a national TV commercial scheduled to begin airing next week, is the first salvo in what likely will be a huge battle over health care reform during the Obama presidency. Obama, you may recall, attacked drugmakers repeatedly during his election campaign.
Other major industries are also gearing up for the fight, including big businesses and insurance companies. But the stakes are especially high for drugmakers, which stand to lose as much as $30 billion in revenue if President-elect Barack Obama’s plan to let the federal government negotiate Medicare drug prices is implemented, according to one independent report.
“There’s no question that next year will be a challenging year,” Ken Johnson, senior vp at PhRMA, which is organizing the campaign, tells the paper. The ads will feature TV talk show host and PhRMA spokesman Montel Williams, but the ads won’t criticize the Obama team or its health care proposals.
“We’re going to do an ad campaign that is designed to make people aware of the importance of preserving your free-market health care system,” Johnson says, adding that PhRMA recognizes that “some reforms are needed in order to keep that system vibrant.”
He insists PhRMA would run exactly the same ad campaign if John McCain had won last week’s presidential election. Obama has said he will hold drug and insurance companies “accountable for the prices they charge and the harm they cause.” And he has promised to allow Medicare to negotiate with drugmakers for cheaper prices.
Giving Medicare the authority to negotiate drug prices – a provision that currently doesn’t exist – would cause drugmakers to lose $10 billion to $30 billion in annual revenues, according to a report released last month by the Boston Consulting Group.
“If you start to take a pretty big price decrease out of that large market, it has an enormous impact on drug companies and really their ability to generate their type of shareholder return that they have had in the past,” Peter Lawyer, a senior partner with Boston Consulting, tells the Times. “I think (drugmakers) are rightfully concerned about it. Even on the lower end of our estimate – the $10 billion – that’s a big deal, that’s a big chunk of your profitability.”
With less revenue from Medicare, drugmakers may begin charging more for drugs sold outside the program. And lower profits mean less money for R&D – and a reduction in the amount of new drugs on the market in the future, according to Lawyer.
Drugmakers so far have generally shied away from criticizing the new administration, saying they are taking a wait-and-see approach to Obama’s pending health care reforms. But the PhRMA ad campaign indicates that the industry is leaving nothing to chance. Yet, drugmakers gave more than $1.6 million to Obama’s campaign – almost triple the amount the industry gave to McCain.
“We’ve been moving the pieces on the chess board around for some time now getting ready for next year, and we’ve got a great game plan in place,” Johnson tells the Times. “We think we’ve earned a right at the table, and we’re optimistic that at the end of the day, the majority of members of Congress will recognize the importance of the pharmaceutical industry to health care.”
atlex
Ed,
I would argue that your headline is misleading. PhRMA is targeting one component of proposed Medicare changes. This is not targeted at the overall Obama health reform plan. In fact, as far as I am aware most of big pharma has either come out in favor of aspects of this plan or have been silent on it.
Atlex
Condor
Great piece, Ed!
Frankly, the sentiments of ENTITLEMENT expressed — by PhRMA representative Johnson, above — turn my stomach.
So — we,as a nation, years ago, concsiously CHOSE as a policy, to create a monopoly (and, as to perhaps 30 percent of all pricing decisions — i.e., Medicare) we CHOSE to forbid the paying party from NEGOTIATING for a lower price.
That’s a stacked deck, folks.
NOw, PhRMA will advertise to tell us — a message of fear, no doubt — that the very SURVIVAL of pharmaceutical companies DEPENDS on this “corporate WELFARE check” (But PhRMA will call it “fair pricing”, or some-such).
Hogwash!
Grow up — move out of Dad’s basement! Get a real market-driven wage, and price, is my answer.
I KNOW it will be President Obama’s, too. And Sen.s Kennedy, Dodd, Grassley, Bauccus, and Reps. Stupak, Dingell, Conyers, Sanchez, Lee and many many others. . . .
GO ahead PhRMA — that light is the oncoming train — and it is an EXPRESS, at full-throttle — market pricing is coming. Deal wid’ it.
Cheers!
Condor
Right — Atlex, PhRMA is in favor of universal coverage, and universal drug benefits, and in favor of reducing doctor discretion.
But that is a two edged sword, obviously.
Namaste
atlex
Condor,
I think the industry is well aware that the non-interference will be repealed, but there are many variations as to what that might look like. PhRMA has the responsibility to support legislation that does the least harm to its members.
By the way, there is plenty of negotiation in Part D. Its the same negotiation that the federal employees benefits program uses–the negotiation between plans and pharma. Remember, it is Obama who is suggesting that health reform produce insurance that is similar to the insurance that federal employees have.
Moreover, your negotiation comment is weak. How do you think that Medicare would negotiate with pharma? CMS doesn’t have the infrastructure. Thus, it would likely contract it out to one of the major PBMs. In addition, according to CBO, negotiation doesn’t provide cost savings.
The alternative is price controls. That is likely where we’ll end up. It certainly may be acceptable to most, however, don’t fool yourself, is not as you describe “real market-drive…price.”
Atlex
Ed Silverman
Hi Atlex,
Fair point, in so far as the ads apparently will not chastise his entire health care proposal.
Regards
ed
Condor
I have other business to attend to, Atlex, but it would seem you are only qubibling with the finer details of my statements — not the overall sense of them:
Pharma has a monopoly; pharma enjoys “no negotitation (down)” clauses — as a matter of law — for Medicare.
As to how it will all sort out — I do think we’ll see actual negotiations — your comment is naive, itself: how do you think the large unions negotitate drug pricing, and availability plans for their members?
Large PPOs? Group buying plans?
There are many models out there — none of them to the (thus far, UNFAIR) advantage of pharma — thus PhRMA’s hue and cry — selling “wolf-tickets”, actually — about the very survival of pharma being at stake.
More later!
harpy
I’m sure PhRMA is quite interested in protecting the member benefits they wrote into the legislation. Isn’t Part D how Billy bought his position? Maybe now we’ll have a chance at a plan that benefits the people who need it rather than industry.
Salmon
Notice all the recent news about the auto industry. The reason they can’t compete is because the health card costs are so high for retirees. 1 worker supporting 7 retirees vs. 1 supporting maybe 2 for newer Japanese owned plants in the US. If you look geograhically the location of auto plants matches the distribution where smoking was heaviest in this country, plus many of the illnesses that cost the automakers are tobacco related, e.g. CA, cardiovascular toxicity, pulmonary toxicity.
Imagine if you will a class of drugs that causes long term cardiovascular toxicity similar to Vioxx of Phen/Fen that is being promoted to children (at proportionately higher than adult dosages), and the indications are very flexible, but these toxicities may not become apparent for several years or more, (remember kids have forced compliance vs. compliance in adults may be horrible (months)). Plus the indications are expanding and are very flexible, and the use of this class of drugs (especially off label) is accounting for a large portion of the growth in Pharma. Now let’s say you screen the population via school screening, train a new cadre of MDs specializing in these illnesses, decrease the barriers that prevent people from being diagnosed, require insurance carriers to cover these illnesses, and even work on laws for forced medication of patients, and label anyone who disagrees with you unbalanced and dangerous. Plus you know about this for over a decade and so preemption is definitely in your favor.
Why you might have a situation where in several years down the line the children who aren’t dying early now are maimed and need expensive monitoring every few months, can’t work as they’re too disabled, and need expensive meds to treat them that the same companies who made the original meds also make.
But who pays for all this? Well there’s always Medicaid, but if it’s 5% or 10% of the US pediatric population that’s untold amounts of money that is required to be spent by law as an entitlement meaning more borrowing etc.. Why it would blow the Medicaid/Medicare/Social Security Budget (Grassley and Condor had a nice graph about this back in June). Plus it would likely effect the US economy long term more than anything with the current Wall Street bailout. (Remember this isn’t an investment where there’s the possibility of money being paid back or that will help grow the economy.) It’s only advantageous to a section of the economy but is all based on fewer taxpayers having to pay more and more taxes to support more and more sick people.
Salmon
Salmon
For those of you interested in the graph from the Senate Finance hearings I mentioned in my last comment, the link to Condor’s blog on this follows
http://shearlingsplowed.blogspot.com/2008/06/june-17-2008-senate-finance-committee.html
Now remember this graph makes certain assumptions like that Medicaid will level out in the next few years, and Grassley makes a big deal about the possible invalidity of this assumption. Also notice how Pharma is taking about resumed growth post 2012 etc.
Salmon
Salmon
Salmon
Getting back to the auto industry. Let’s suppose that it eventually becomes apparent that the scenario I hypothesized is true and becomes known, and it becomes apparent that the structures of some of the main additives to tobacco are sufficiently similar to some of the drugs we have toxicities with. Well the tobacco settlement in the early ’90′s only stopped lawsuits with state attorney generals. It still allows for private party lawsuits, but who has the resources to really fight the tobacco companies. Even so there’s the possibility the tobacco companies could lose and have to pay long term health benefits. So if tobacco could somehow be regulated by FDA and preemption passes then that might establish a precedent and insulate the tobacco companies. Another mechanism they could use would be to allow a spinoff of the people who evaluated potentially addictive additives into a small startup pharmaceutical company and have them take all the structure activity data so say an RJR has no information on hand etc..
SAR
Targacept.
atlex
Condor,
You may call my comment naive, but it is also accurate. It’s supported by the CBO and by CMS actuaries. You ask about how large unions and employers negotiate for drugs. They do it the same way government is likely to–through PBMs and the existing negotiating channels. Currently, it is the same way Part D operates.
Again, the most likely answer is that government will resort to price controls, which will impinge on innovation in the long term. Like any industry, when ROI from innovation declines, the industries no longer invests as much and no longer gets capital to invest. That may be a sacrifice that society wants to make, but it’s one that should be made with full knowledge of the long-term consequences.
Finally, yes the industry does have short-term monopolies on molecular entities. But as Nathan pointed out, that’s like Toyota having a monopoly on Prius. It was the first widely sold hybrid, but it soon received direct competition from Honda, Nissan, Ford, etc. In the statin market, Mevacor was the first out and maintained a “monopoly” until its patent expired. It didn’t stop a handful of better statins from taking its market share.
Atlex
Atlex
Jack2
Condor, I think you overestimate the latitude pharma has when it sets prices for the government. It must give the government the lowest price it is giving anyone else in the country. Essentially, whatever private entity negotiates the best price with the government has also, by extension, just negotiated the government’s price.
“Grow up — move out of Dad’s basement! Get a real market-driven wage, and price, is my answer.”
I fail to see how giving even more power to an already unbelievably powerful single buyer (the government) promotes market-driven prices. A monopsony isn’t market driven.
Condor
Jack2 — Here in the US, the so-called “most favored nations” rules on pricing are a little like Swiss Cheese — that is, they are more “exceptions”, than rules, actually.
For a lawyer well-versed in these arcane arts and letters, there are several ways to comply with the rule of law, and yet differentiate pricing, inside government organizations.
That said, you may be speaking about the U.K., as to which I express no opinion.
Now, as to Atlex’s car analogy — I have already exposed the conflation underway there, in other threads here on Pharmalot. “Asked and answered”, your honor.
Once again, though, Atlex suggests that long term pharam innovation depends — in some large part — on monopoly price “subsidies” from the US government.
That is plainly, and demonstrably fales.
Finally, Salmon is spot-on here!
Cheers!
Condor
“pharma” and “false” — my obvious typos, from a pDF keyboard — sorry.
Namaste
atlex
Condor,
Your lack of reading comprehension is amazing. I have never said that innovation depends on monopolies and subsidies from the US government. I believe that innovation–in most industries–depends on fair and appropriate intellectual property standards (ie patents). As I have “proven”, patent protection rarely produces anything but a very short term monopoly in pharma. Typically, once a product is produced in a new drug category, competition is close behind. I’m waiting for you to demonstrate how Lipitor and Crestor are monopolies when simvastin is growing its share significantly.
Atlex
Outside the Box
With the recent productivity of the big pharma R&D and the continuing above average margins of the industry, the new administration has a pretty soft target. I can understand why Pharma wants to run these ads, but wouldn’t it be more effective to wait and see what the administration wants to do before pulling the trigger? Exposing the industry to yet more bad publicity (such as arguing in favor of high prices when the mass of the population believes those prices to be excessive) doesn’t seem to me to be good PR (which is, after all, the objective of the ad campaign).
Anyone who thinks that the new administration is going to create a new health plan that involves central price control or a totally free market (the two extremes) hasn’t been paying attention. I expect to see changes that impact the absolute prices that pharma can charge Medicare as well as changes in the way that insurance companies can set co-pays that are wholly unrelated to prices or discounts. I think this new administration is so much smarter than shifting to one or other extreme and the overall effect will be that the health consumer wins a lot whilst the big industries (both pharma and insurance) lose a bit. In such a scenario there is no doubt that the biggest loser would be the insurers.
Justice in MI
Ed wrote: “Obama, you may recall, attacked drugmakers repeatedly during his election campaign.”
I’ll take your word for it, Ed, but I barely recall an instance. The few I do, pharma was bundled in with other ‘special interests’ and certainly not singled out.
Did I miss something? A lot?
Jack2
Condor the way you liken compliance with the law in this area to sorcery:
1. tells me that I can present no rational argument to change your mind, and
2. implies to me that you A) simply don’t want to understand how the system works and B) want to go on assuming the system complies with your ignorant assumptions.
Susan
Jack2,
Could you point out where Condor likened the law to scorcery. I simply can’t find it anywhere.
Condor does use the term arcane but that only means that a limited number of people understand those laws. Although sorcery is often referred to as arcane, this does not mean that all arcane knowledge is sorcery.
Jack2
You’re right Susan. Forgive me for twisting his words and using a common synonym for the word he selected, even if my synonym may represent an especially apt choice since he used the phrase “arcane ARTS” [emphasis added]
Bob Freeman
Atlex is completely right: the competition between and among patent holders creates greater economic losses than those from loss of patent do. Monopoly power is short-iived. It’s called “creative destruction”.
Nathan
Condor,
I’m tired of your assertions that pharma has some sort of special “monopoly”. It isn’t based in fact. We have a monopoly granted to us by the US patent office. We aren’t any different than any other industry in that reguard. Moreover, we have a “monopoly” only on a VERY narrow set of claims. People are free to choose alternative treatments or non-treatment as they so-choose. You need to get a new argument. It doesn’t hold any water.
Anon
I love these arguments. Monopoly, Arcane Arts, …
It’s like arguing over the definition of is.
Tie the enemy up over minutia.
Forget the real issue, there is no price negotiation with Medicaid and companies promote misuse of drugs that are reimbursed under medicaid. (Could this be major health care fraud agaist the US government?)
Condor
Atlex and Nathan: Your products are opaque and enjoy a government-created monopoly. Deal.
Now — I’ll let the rest pass — but this one deserves a full response:
2:24 PM (Yesterday)
Condor,
“Your lack of reading comprehension is amazing. I have never said that innovation depends on monopolies and subsidies from the US government. I believe that innovation–in most industries–depends on fair and appropriate intellectual property standards (ie patents). As I have “proven”, patent protection rarely produces anything but a very short term monopoly in pharma. Typically, once a product is produced in a new drug category, competition is close behind. I’m waiting for you to demonstrate how Lipitor and Crestor are monopolies when simvastin is growing its share significantly. . . .”
– Atlex
~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Atlex, you said that innovation, in the long term, will be hurt by GOVERNMENTAL price controls — that is exactly the opposite of what is being proposed — what is being proposed is REAL-MARKET-DRIVEN NEGOTIATIONS.
Please explain how those hurt innovation.
Now — as to Crestor, Lipitor and generic statins — you have cleverly picked a drug where the monopolies are EXPIRING. Even so, there were perhaps 10 years of high returns while Lipitor was an exclusive — a branded, FDA approved, patented (read: noone else could make or market it) drug. Crestor is a statin, Lipitor is a statin, and now each faces generic statin competition. Deal.
Now that monopoly-time is ending.
The crux of all of this is that pharma cannot have its “monopoly” cake — and “eat it, too” — in the form of protection from price negotiations — where, as here, the government is a very-powerful counter-party on the other side of the price negotiations. That’s life.
Again — deal wid’ it.
Condor
“. . .Lipitor was approved by the FDA in 1996 for patients with primary hypercholesterolemia, an approval expanded to all patients in 1998. . . .”
Seeing that the generic statins would begin to reach market in 2006, Merck partnered in 2002 with Schering-Plough to add Ezetimibe (Schering’s then-experimental drug) to simvastatin (branded as Lipitor), and call it “Vytorin” — to extend the Cholesterol Franchise’s patent-life, and stave off a switch to generic statins.
The problem now becomes that it seems like Vytorin may not work (ENHANCE) to reduce risks of CV events, and may actually elevate the risk of a wide variety of cancers (SEAS).
[We won't know until 2012, when IMPROVE-IT is complete, according to Schering.]
Despite the pharma spins on all of this — we should wait no longer than the FDA’s final pronouncements — due out very-soon on ENHANCE, and due out in about February of 2009 on SEAS.
So, tell me once again, folks — why should these characters be EXEMPT from price negotiations with the government-payers?
BTW, Crestor was FDA approved in 2003.
Namaste
Susan
Jack2,
Arcane Arts? Is that arcane medical arts, arcane legal arts, or arcane mystical arts?
All are arts.
Unless Condor can enlighten us we’ll have to decide based on the original context.
Atlex
Condor,
Your argument still doesn’t fly. Statins were competitive before the entry of generics. The simple truth that you seem unwilling to acknowledge is that a patent on a chemical entity is not a monopoly on a drug class. And, for the vast majority of situations, competition is within drug classes.
Finally, another point that seems to fly right over your head is the fact that Part D already has negotiation–by PBMs and health plans on the government’s behalf (ie, the same way they do it on behalf of the federal employees health benefits program). Since the CBO and CMS actuaries recognize that “government negotiation” is likely to be conducted in a similar fashion, neither organization expects a significant savings just from negotiation. In all likelihood, in order to save money, other mechanisms will be used–price controls, mandated rebates, etc. While all save money, none amount to “REAL-MARKET-DRIVEN NEGOTIATIONS.”
Atlex
Sam
As a pharmacist I look at all these “Comments” and they seem to
involve politics, profits, costs,marketing, legality, insurance, drug
prices and lobbyists. No one seems to care that patients are not
achieving the outcomes expected from prescription drugs. They
spend about $34 billion on Over the Counter drugs and about
another $33 billion on herbal and nutrient products. The real
problem is that none of these drugs cure anything – antibiotics the
only exception.
Can you all imagine that if stem-cell research is successful for the
top 5 medical conditions – we may not have anything to talk about!
Maybe Pharmalot would cease to exist.
Sam