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Drug bill well financed victory

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Drug bill a well-financed victory for industry
By Jim Drinkard, USA TODAY

WASHINGTON — An emerging prescription drug benefit for retirees represents a victory for drug companies and their lobbyists, who have spent heavily to keep Republicans in control of Congress.
Final work on the new Medicare drug benefit — the biggest change since the health care program was created 38 years ago — faces Congress as it returns this week from its Fourth of July break.(Related story: Congress returns to work with daunting agenda)

But pharmaceutical-makers already have averted what they feared most: a single new bloc of 40 million consumers with the market power to dramatically drive down prescription prices — and industry profits. Both the House and Senate versions of the bill bar the government from getting involved in price negotiations.

Instead, both bills break the nation into 10 or more regions where private insurance companies would offer coverage for prescriptions. Rather than negotiating with the government, the pharmaceutical industry would deal with an array of insurers, each with thousands of clients, rather than millions. The extra costs would be paid by taxpayers and consumers.

"It's manageable for them," says Scott Kay, an industry analyst for Banc of America Securities. "It's not government-run, and that's a home run for them."

The emerging legislation helps the drug industry in other ways, according to analysts:

•A new drug benefit would pump about $400 billion in tax dollars into the health care system over 10 years. Analysts say insurance coverage would lead to increased use of prescription drugs by seniors, particularly those with lower incomes for whom cost is now a barrier.

•The political pressure on the drug industry for price controls would be eased. Politicians and policymakers would wait to see how the benefit works, and the uncertainty that has been a weight on the industry's financial outlook would be removed.

"We believe there should be prescription drug coverage in Medicare," says Mark Grayson, a spokesman for the Pharmaceutical Research and Manufacturers Association, the main trade group for brand-name drugmakers. "We want to have a bill passed." But he said the industry has been wary of finding itself squeezed financially in the way hospitals and doctors have been under Medicare.

In 2002, drugmakers spent $20 million on congressional races, four-fifths of it to help Republicans. That doesn't count a $17 million television ad campaign that the industry funded to boost Republican members of Congress in close races. Those ads featured Art Linkletter defending Republicans who favored a private model for providing drug benefits. They helped the GOP solidify its grip on Congress.

In addition, the industry is among the heaviest spenders on Washington lobbying. Last year, it reported paying a record $91.4 million — a 12% increase over 2001 — for 675 lobbyists, including 26 former members of Congress, according to Public Citizen's Congress Watch. The figure does not include millions more spent on ads and support of patients groups and academics who take the industry's side in policy debates.

"The drug companies will always make out," says Rep. Charles Rangel of New York, the senior Democrat on the House Ways and Means Committee, which wrote the new drug benefit bill. "I don't see how the industry could come up with anything better."

For years, the drug industry fought an effort, mostly by Democrats, to create drug coverage for Medicare beneficiaries. Drug companies said it would resemble a huge buying cartel that could demand and receive rock-bottom prices. Government buyers such as the Veterans Administration and state-federal Medicaid programs get discounts of up to 40% from average wholesale prices.

In 1999, the industry fought to kill a Democratic plan that would have given the government a central role in providing drug coverage for seniors. It sponsored TV ads featuring a character named Flo, who admonished fellow retirees not to allow "big government into your medicine cabinet."

But the political climate changed this year after President Bush adopted the idea of Medicare coverage for prescriptions and made it part of his re-election strategy. Faced with that reality, the drugmakers channeled their efforts into making sure any plan did not overly depress prices.

"They didn't get out front and say this is going to wreck our industry," says Andy Bressler, a Bank of America health industry analyst. "They said if this is going to happen, let's make sure it's the best we can get. It was a good investment."

Political contributions
The prescription drug industry's donations to Republicans have increased since they took control of Congress in 1994. (Dollars in millions):
Election year Republicans Democrats Total{+1}
2002 16.3 4.3 20.6
2000 15.0 4.5 19.6
1998 6.3 2.9 9.1
1996 6.6 2.7 9.3
1994 3.2 2.1 5.3
1992 2.5 2.4 4.9
1-Some totals do not add up because of rounding and contributions to minor party candidates.

Source: Center for Responsive Politics

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