Drug Industry Is on Defensive as Power Shifts

By Robert Pear
The New York Times

Friday 24 November 2006

Washington - Alarmed at the prospect of Democratic control of Congress, top executives from two dozen drug companies met here last week to assess what appears to them to be a harsh new political climate, and to draft a battle plan.

Hoping to prevent Congress from letting the government negotiate lower drug prices for millions of older Americans on Medicare, the pharmaceutical companies have been recruiting Democratic lobbyists, lining up allies in the Bush administration and Congress, and renewing ties with organizations of patients who depend on brand-name drugs.

Many drug company lobbyists concede that the House is likely to pass a bill intended to drive down drug prices, but they are determined to block such legislation in the Senate. If that strategy fails, they are counting on President Bush to veto any bill that passes. With 49 Republicans in the Senate next year, the industry is confident that it can round up the 34 votes normally needed to uphold a veto.

While that showdown is a long way off, the drug companies are not wasting time. They began developing strategy last week at a meeting of the board of the Pharmaceutical Research and Manufacturers of America.

Billy Tauzin, president of that group, a lobbying organization for brand-name drug companies, recently urged Representative Edolphus Towns, Democrat of New York, to seek a position as chairman of a powerful House subcommittee, said Karen Johnson, a spokeswoman for Mr. Towns. The subcommittee has authority over Medicare and the Food and Drug Administration.

Democrats have yet to decide who will head the subcommittee.

Mr. Tauzin, a former congressman, also met with Senator Byron L. Dorgan, a North Dakota Democrat who has been trying for six years to allow drug imports from Canada. The industry vehemently opposes such legislation.

James C. Greenwood, president of the Biotechnology Industry Organization, another trade group, said, "There is a lot of pent-up animosity among Democrats against the pharmaceutical industry."

Mr. Greenwood, a former Republican congressman from Pennsylvania, said he had a list of 37 Congressional Democrats whom he intended to call in the next month.

Amgen, the biotechnology company, recently disclosed that it had retained as a lobbyist George C. Crawford, a former chief of staff for Representative Nancy Pelosi of California. Ms. Pelosi, the House Democratic leader, is in line to become speaker in January and has said that the House will immediately take up legislation authorizing Medicare to negotiate prices with drug manufacturers.

The 2003 Medicare law prohibits the federal government from negotiating drug prices or establishing a list of preferred drugs.

Amgen is also seeking strategic advice from the Glover Park Group, a consulting firm whose founders include Joe Lockhart, a former press secretary for President Bill Clinton.

Other major drug companies have been snatching up Democratic former-aides-turned-lobbyists. Merck recently has hired Peter Rubin, a former aide to Representative Jim McDermott of Washington, one of the more liberal House Democrats. Cephalon has hired Kim Zimmerman, a health policy aide to Senator Ben Nelson, a conservative Democrat of Nebraska.

The Biotechnology Industry Organization has retained Paul T. Kim, a former aide to two influential Democrats, Senator Edward M. Kennedy of Massachusetts and Representative Henry A. Waxman of California.

A Medicare expert who works for House Democrats said he recently received three job offers in one day from the drug industry, by telephone and in person.

At a dinner last week at the Hotel Monaco here, as part of their board meeting, pharmaceutical executives dissected the midterm election results with experts including Ed Goeas, a Republican pollster, and Stuart Rothenberg, the editor of a political newsletter.

Drug makers have not set a budget for their campaign. They and their trade groups already spend some $100 million a year on lobbying in Washington.

"We have new political realities to attend to," Mr. Tauzin said in an interview after the board meeting. "We and our allies will do everything we can to defend the Medicare drug benefit, to get out the message that it is working."

To reinforce that message, drug companies plan to mobilize beneficiaries and urge them to contact Congress.

"I'm putting my trust in beneficiaries," said Mr. Tauzin, who represented Louisiana in the House for more than two decades, first as a Democrat and then as a Republican. Several recent surveys suggest that at least three-fourths of the people with Medicare drug coverage are satisfied.

But Representative Frank Pallone Jr., Democrat of New Jersey, who hopes to head the health subcommittee of the Energy and Commerce Committee, said price negotiations for Medicare were his priority.

"The 2003 Medicare law was essentially written by the drug industry," Mr. Pallone said in an interview. "That's why you don't have negotiated prices. Republican policies have served special interests like the pharmaceutical industry, and the American taxpayer is paying the price."

Drug lobbyists believe that the Senate will be receptive to their argument that price negotiations lead inevitably to price controls, and to restrictions on access to drugs, likely to be unpopular with beneficiaries.

Michael O. Leavitt, the secretary of health and human services, said the White House opposed federal price negotiations because they would unravel the whole structure of the Medicare drug benefit, which relies on competing private plans.

Among leaders who attended the board meeting last week were Kevin Sharer, chairman of Amgen; Jeffrey B. Kindler, chief executive of Pfizer; Sidney Taurel, chairman of Eli Lilly; and Richard T. Clark, chief executive of Merck.

Drug lobbyists say they want to work with the new Democratic majority, but that will not be easy. In its campaign contributions, the pharmaceutical industry has overwhelmingly favored Republicans over Democrats. Drug companies infuriated many Democrats in 2003, when they worked closely with Republicans to create the Medicare drug benefit, in a process from which Democrats were largely excluded.

On other issues, Democrats are pushing for stricter regulation of drug safety and for legislation to encourage development of low-cost generic versions of expensive biotechnology drugs. They are determined to allow imports of drugs from Canada, where brand-name products are often cheaper.

They want to investigate drug pricing and profits, drug advertising aimed at consumers and the marketing of drugs to doctors for purposes not approved by the Food and Drug Administration. Democrats may try to repeal some of the liability protections that have been given to vaccine manufacturers.

Outspoken critics of the pharmaceutical industry will gain power as a result of Senate committee assignments made last week. Senators Debbie Stabenow, Democrat of Michigan, and Maria Cantwell, Democrat of Washington, are joining the Finance Committee, which has sweeping authority over Medicare and Medicaid. Three liberal senators - Sherrod Brown of Ohio, Barack Obama of Illinois and Bernard Sanders of Vermont - are joining the Committee on Health, Education, Labor and Pensions, which oversees drug regulation and biomedical research.

The pharmaceutical industry lost one of its most effective defenders when Senator Rick Santorum, Republican of Pennsylvania, was not re-elected. The new Senate Republican whip, Trent Lott of Mississippi, is no friend of the brand- name drug industry. He supports bills to allow imports from Canada and to increase access to generic drugs.

Top pharmaceutical executives are hurriedly planning a response to the Democratic agenda.

"It's all hands on deck," said Ken Johnson, a senior vice president at Pharmaceutical Research and Manufacturers of America. "It's like a hurricane warning flag. You don't know where it will hit. You don't know who will be affected. But everybody has to be prepared."

Drug companies may be open to some changes in the Medicare drug benefit, but they say they cannot accept any form of price negotiation.

"The new Medicare program is clearly benefiting seniors and people with disabilities and has exceeded initial expectations," Mr. Tauzin said. "But we are open to new ideas that could make it even better. We will propose at the same time we are opposing."

Specifically, Mr. Tauzin said, drug companies would like permission to fill a gap in coverage that has angered many Medicare beneficiaries.

Many drug companies have programs to provide free drugs to people with limited incomes. When such programs are used to fill the gap in the Medicare drug benefit, they may run afoul of federal law - the anti-kickback statute - because they steer patients to products made by one particular company.

The drug industry is anxiously waiting to see details of the Democratic proposal. Lawmakers are weighing several options. At a minimum, Congress could simply repeal the ban on price negotiations, without requiring Medicare officials to do anything. Many House Democrats want to go further. They would direct Medicare officials to negotiate prices for a government-run prescription drug plan, which would compete with dozens of existing private plans.

The government could negotiate prices for all drugs or just for brand-name drugs that have no competition. Alternatively, Congress could require manufacturers to provide a specified discount, so Medicare would get the "best price" available to any private buyer.

Such details, defining the federal role, are immensely important and could determine the outcome of any votes in Congress.

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