“Draining The Sink” On Drug Pricing Will Be Messy Business.

Posted on | July 26, 2023 | 9 Comments

Mike Magee

Last week’s New York Times headline said it all: “Drugmakers Are ‘Throwing the Kitchen Sink’ to Halt Medicare Price Negotiations.” It called to mind a story our aging legislators might sooner forget from two decades ago.

But how the nation gave away the bank to these corporate characters (which include not only pharma, but insurers, big drug distributors and PBM middle men) is a bit of medical history worth recounting.

The Biden administration is about to announce the first 10 medications that will be subject to price negotiations with Medicare under a new law. Drugmakers are fighting the measure in court. The action is a part of a Biden legislative victory titled the Inflation Reduction Act, which allows the government to to negotiate prices which are projected to save just under $100 billion over the next 10 years and significantly cut seniors expenditures for their prescription drugs. But to succeed, they will have to reverse history.

Let’s begin the story with the 2000 Presidential election of George W. Bush, who had courted major leaders from medicine, pharmaceuticals, hospitals, and insurers and expressed interest in privatizing the management of Medicare and Medicaid, as well as covering pharmaceutical costs for seniors over 65.

That election provided the still loosely organized MIC or “Medical-Industrial Complex” (including industry giant PhRMA, health insurers, hospitals, and the AMA) proof of concept that quietly colluding and cooperating with one another in Washington, DC, while publicly appearing to compete with one another around the country in support of patients’ interests, was a winning strategy.

After Bush’s victory, the number of MIC lobbyists grew exponentially. Pfizer government relations alone funded 82 lobbyists in 2000 to support Republican control of Congress and the White House. A year later the pharmaceutical industry as a whole spent $78 million on lobbying activities and employed 623 different lobbyists.

 In the run-up to the 2002 midterms, the GOP spent just under a billion dollars, ran 1.5 million television ads, and gained eight seats in the House. More important, in achieving a net gain of two seats in the Senate, Republicans now enjoyed a majority of 51 to 49 and controlled both houses of Congress.

 The MIC list of legislative objectives now was focused on Medicare prescription drug coverage and the privatization of government health plans. Funding drug insurance coverage was a high priority since it would expand sales for the pharmaceutical industry, reimburse hospitals for drug costs, and provide new sales opportunities for insurers as legions of seniors purchased partially privatized Medicare Advantage (Part C) plans.There was a growing recognition that health care resources were not unlimited and that, if cost control were to be part of their combined future, the MIC was best positioned to manage and profit from the process.

The MIC had made the calculation that it simply needed more paying customers for its existing products. Insurers would profit from sale of the policies, doctors and hospitals would have fewer “no pay” customers, and drug companies would sell more drugs. But winning the election turned out to be easier than expanding prescription coverage under Medicare.

The Bush administration pushed legislation called the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 intended to put the popular entitlement program on firmer financial footing while expanding prescription coverage. Most of Washington now agreed that reform was necessary to bring the cost of managing seniors with illnesses under control, but the bill’s proponents were hammered from both sides with arguments that private sector incentives had gone either too far or not far enough. By June 2003, budget resolutions in the House and Senate committed $400 billion for Medicare reform.

The battle centered on the Medicare Advantage or Medicare Part C plans that had been created in 1997.These federally subsidized Medicare plans offered seniors who voluntarily chose them, rather than choosing traditional fee-for-service Medicare, additional benefits like health maintenance and wellness offerings and, in varying amounts, prescription coverage. Private insurers had been recruited by the Clinton administration to manage these plans, and shared in any profits derived from management efficiencies. But absent price controls, as costs of hospitalization and drugs rose steeply in the late 1990s, insurers pulled back on extra benefits, especially pharmaceuticals, and the numbers of aging citizens choosing Medicare Part C declined.

Bush’s original plan was to provide his new prescription benefit only to seniors within Medicare who chose his partially privatized Medicare Part C—Medicare Advantage. But when the administration was presented with an outcry of unfairness from both Republicans and Democrats, he backed down and decided that a freestanding drug benefit, dubbed Medicare Part D, should be available as a voluntary choice for those who decided to stay with traditional Medicare as well. 

To protect the interests of his key pharmaceutical and insurance industry supporters, Bush agreed that the plans would be administered through private insurers which, in turn, would negotiate against one another and with the newly empowered intermediary Pharmacy Benefit Management (PBM) companies like Merck’s Medco and CVS Caremark over pricing.

Insurers would be allowed to use various formularies that generally grouped drugs into two or three categories or tiers, with the best prices for consumers restricted to cost-effective drugs in column one, and higher-price options dropping into column two or three and costing consumers considerably more. Protecting the industry’s need for choice and coverage of me-too “copy-cat” drugs, the legislation also required that each category of drug have at least two options available. With this scheme, Bush committed to no direct government negotiation on Medicare drug purchases. In addition, he declared importation of Canadian low-cost drugs illegal. 

To further sweeten the deal for pharmaceutical companies, Bush agreed to a rule that would force 6.5 million “dual eligible” individuals (those then covered by both Medicaid and Medicare as a result of disability or extreme poverty) into Medicare drug coverage. This group was currently receiving its drugs through state Medicaid programs which enforced “lowest cost” provisions. In transferring dual eligibles to the Medicare Part D plans, where drug costs had no government controls, Bush assured the pharmaceutical companies of an additional markup of 25 percent on drug revenues from these patients. 

The American Medical Association (AMA), was an early supporter. Its’ members generally believed in expanding coverage for their patients, but their primary concern was the long-standing anxiety that any changes would be a foot in the door for socialized medicine. Once Bush established that there would be no direct government negotiation with drug companies, others lined up as well, including the American Association of Health Plans, the American Hospital Association, and the Business Roundtable. 

The health insurance industry saw the legislation as a source of new revenue, and as a solution to the deteriorating Managed Medicare (Medicare Part C) situation. By establishing another source of federal dollars to cover their pharmaceutical cost, industry sponsors of Managed Medicare (Medicare Part C) plans could once again offer a range of extra benefits that would entice seniors into these lucrative options and away from less profitable traditional Medicare. If the MIC coalition held, Medicare Part D and its new drug benefits could reinforce Managed Medicare and ensure a brighter future for all.

The media was not giving a pass to this complex sweetheart deal in which the MIC was paid in full and patients were saddled with partial coverage and ever more billing complexity. E. J. Dionne, in a Washington Post story titled “Medicare Monstrosity,” wrote, “How do you know this bill is such a great deal for the drug companies and HMOs? On word of an agreement last week, share prices soared.” 

Bush’s advisers had cautioned that the Iraq invasion that spring would distract Congress from focusing on the bill, and yet the Senate Finance Committee produced a “bipartisan agreement” in June. Seven days later, the two-page outline had taken on flesh, thanks to some heavy lifting by MIC lobbyists, and from there it emerged as a rather complete 90-page tome, which passed out of committee on June 13.

AARP remained the big unknown. Having sealed a profit-sharing deal with the fastest-growing national health insurer, UnitedHealthcare, to provide its members with supplemental health insurance, AARP was now more than ever heavily invested in the commercial side of the Medical Industrial Complex and positioned to be a major beneficiary of Medicare Advantage Part C and Part D plans that carried the new pharmaceutical subsidies.

Even so, it surprised the Democratic leadership to discover on the morning of November 17, 2003, that AARP had committed $7 million to a public campaign in support of the Bush bill. “The endorsement provides a seal of approval from an organization with 35 million members,” one analyst noted. “Republicans also hope it provides political cover against charges by some Democrats that the bill would undermine the federal insurance program for the elderly and disabled.” 

Five days after the AARP announcement, at 3 a.m. on a Saturday, after a full day of arm-twisting and dealing, the House bill was allowed to come up for a vote. After 15 minutes, Bush’s supporters were 15 votes behind, and the bill was held open. After further concessions to individual holdouts, it was still two votes short at 216–218. With everything at stake, HHS secretary Tommy Thompson was sent to lobby on the House floor, an action seldom taken.

President Bush himself, just back from a visit with the queen of England, was awakened at 4 a.m. to lobby the few remaining undecideds. The “longest roll call vote in history,” lasting just under three hours, came in at 220–215 in favor. Three days later, after some political maneuvering, the bill passed in the Senate. 

On December 8, 2003, with great fanfare, President Bush signed the Medicare Modernization Act in a heavily staged event. Declaring the legislation “a victory for America’s seniors,” he went on to say, “I’m pleased that all of you are here to witness the greatest advance in health care coverage for America’s seniors since the founding of Medicare.” With no evidence of irony, and no acknowledgment that within living memory the Republican Party had called Medicare a threat to the American way of life, he added, “And today, by reforming and modernizing this vital pro- gram, we are honoring the commitments of Medicare to all our seniors.” 

With the help of Big Pharma and Big Business generally, Bush comfortably won reelection over John Kerry. The AARP and its partner, UnitedHealthcare, secured a hefty chunk of the expanding Managed Medicare (Medicare Part C) and Medicare Part D business, and the pharmaceutical industry indulged privately in a self-congratulatory celebration. 

But now two full decades after these events, the most lasting impact of the deliberations that led up to the Medicare Modernization Act was the conversion of the MIC from a loose network of major sectors with casual connections to health delivery, and a penchant for joining forces only when its own status quo was threatened, into a complex syndicate committed to self-control and distributing the profits secretly among its members in the form of opaque negotiated rebates, invisible to the consumer, at the point of sale. 

In the center of the food chain were the MIC’s newest creations, the Pharmacy Benefit Managers, or PBMs, designed as vehicles to organize the movement of data, drugs, and money throughout the MIC supply chain. Now two decades later, as the headline above suggests, they are more than up to the task of “‘Throwing the Kitchen Sink’ to Halt Medicare Price Negotiations.” 

Comments

"Available Everywhere Now"
"Code Blue INDEX online"

 

  Ralph Snyderman
Prospective Health Blog
BIOGRAPHY   Meredith Magee Donnelly
Homegrown Friends
BIOGRAPHY   Eric Dishman
NIH Precision Medicine
BIOGRAPHY   Barbara Ficarra
Health in 30
BIOGRAPHY   William L. (Larry) Minnix, Jr.
Larry's Letters
BIOGRAPHY     Eric Dishman
Precision Medicine, Euthanasia, Abortion, Communism, Trillions of Dollars, Losing Freedom, and Town Hall Mobs BIOGRAPHY   Michael Millenson
Yearning for Universal Coverage Is Not Universal
BIOGRAPHY