Pharma Defensive After Dem's Victory

November 22, 2006

Pharmaceutical Executive

Volume 0, Issue 0

Industry points to new reports on Part D to blunt new Congressional critics.

Pharma may be, at least temporarily, regretting that two-thirds of its campaign contributions went to Republicans. The industry is taking a defensive posture now that the Democrats have gained control of Congress, and issues such as drug pricing and drug safety go from lukewarm to hot-button. House Speaker-elect Nancy Pelosi (D-CA) has outlined priorities for the first 100 hours that the newly elected Congress is in session, and the self-proclaimed "party of the middle class" has the drug industry in its sights, along with the national debt, the minimum wage, the oil industry, and CEO salaries.

One issue to get an early airing is Medicare Part D, and whether government negotiation of drug prices can help close the so-called doughnut hole coverage gap.

Mason Tenaglia, managing director at consulting firm The Amundsen Group, believes that much of the rhetoric is unlikely to translate into sweeping changes. The current system "is one of the few mechanisms that gives the plans the power to squeeze drug makers on prices," said Tenaglia, whose firm compiled a report on Part D for PhRMA. "The plans are far more effective [at negotiating] than they've been in the commercial space."

The Centers for Medicare and Medicaid Services is closely tracking how well private drug plans have been able to negotiate with the pharmaceutical industry, and early data suggest that the system--contrary to Democratic claims--is effective. In some states, up to 40 percent of beneficiaries might be on a single plan, and with co-pays averaging $22 for preferred drugs and $60 for non-preferred, there is heavy incentive for manufacturers to negotiate lower prices in return for preferred formulary placement.

The Kaiser Family Foundation has similarly compiled a study comparing plans offered between this year and next--and pharma can find some good news in its pages.

Yet there is still reason for the drug industry to be concerned about the power shift on the Hill.

"Democrats are going to turn to a lot of pocketbook issues," said Dean Rosen, who runs the healthcare practice at government affairs firm Mehlman Vogel Castagnetti. He cited the State Children's Health Insurance Program (SCHIP), the Deficit Reduction Act, and the Prescription Drug User Fee Act, which could usher in new drug safety initiatives, as three areas where Democrats can have an immediate impact.

"I think on these issues [pharma] is going to play good old-fashioned defense," he said. "They are going to make the argument that the private market is working pretty well."

Robert Schooling, managing director of the Washington office of public affairs firm APCO Worldwide, noted that the industry should focus on issues that cut across the political spectrum--such as undoing the pitfalls of the drug benefit, reauthorizing SCHIP, and eliminating health disparities. "These are areas where there is common ground," he said. "This should never be seen as a partisan industry."

Exit polls have suggested that this year's election was a referendum on national issues like Iraq, with healthcare lower on voters' worry list. But Tenaglia noted that the implementation of Medicare Part D was the beginning of a "sea change" in healthcare spending--and is likely to keep the issue of drug prices on the front burner.

He pointed to Ford, the automaker that recently announced it would replace healthcare benefits for retirees with an annual stipend--a move that reflects the general change from a defined benefit to a defined contribution.

"The government has changed the rules and put the onus on the consumer," he said. "The government started it, and how long will it take until employers adopt this? And that's what's going to put the biggest price pressure on the manufacturers."