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Published on Saturday, August 8, 2009 by The New York Times

Obama Reverses Stand on Drug Industry Deal

by David D. Kirkpatrick
WASHINGTON — Caught between a pivotal industry ally and the protests of Congressional Democrats, the Obama administration on Friday backed away from what drug industry lobbyists had said this week was a firm White House promise to exclude from a proposed health care overhaul the possibility of allowing the government to negotiate lower drug prices under Medicare.

The reversal underscored the delicate balancing act the White House has pursued in its strategy of negotiating behind-the-scenes deals to win industry support without alienating liberal supporters on Capitol Hill.

Supporters of health care reform rally outside the office of U.S. Rep. Mario Diaz-Balart, R-Fla., in Miami, Friday Aug. 7, 2009. (AP Photo/Lynne Sladky) Pressed by drug industry lobbyists, a White House deputy chief of staff, Jim Messina, confirmed in an e-mail message on Wednesday that the White House shared the drug lobbyists’ interpretation of the deal: that any health care overhaul would not include allowing direct government negotiation of drug prices or require certain additional price rebates. Since Wednesday, other representatives of the White House had also stood by Mr. Messina’s statement as well.

After reading reports about Mr. Messina’s e-mail message, House and Senate Democrats loudly protested that they would not be bound by any such agreement to remove clauses allowing government negotiation of drug prices under Medicare — something Democrats have sought for years.

Several Senate Democrats said Friday that, in a private meeting, White House officials had told them there was no such deal, sowing yet more confusion. House Democratic leaders vowed to fight against it.

Then, after contending for two days that the Senate Democrats had misunderstood the White House aide’s comments, the White House appeared Friday night to back away.

In a telephone interview, Linda Douglass, a White House spokeswoman on health matters, said the question of government drug-price bargaining “was not discussed during the negotiations.” Asked if that meant such a provision was excluded, as the top drug lobbyists had previously said, Ms. Douglass declined to comment, repeating, “It was not discussed.”

White House officials said Friday that Mr. Messina, the deputy chief of staff who sent the e-mail message, had not intended to confirm that the deal ruled out price negotiations.

The drug industry lobbyists appeared to make peace with the White House over the terms the deal as well. The industry had reached an agreement with the White House in June to contribute $80 billion over 10 years to the cost of the health care overhaul but cap its share of the costs at that level. And since striking the deal, the drug industry lobbyists had become a vital and thus powerful White House ally, even helping to bankroll a million-dollar advertising campaign in support of the health care overhaul.

But the industry reacted with alarm when, despite its deal the White House, a House version of the health care measure included both new price rebates and government price negotiations. House leaders talked of trying to extract far more.

As recently as Wednesday, Billy Tauzin, president of the PhRMA, the Pharmaceutical Research and Manufacturers of America, had all but threatened to reverse the group’s support for the health care overhaul if the White House did not affirm its commitment to cap the industry’s costs at the agreed-upon $80 billion. He insisted that adding government price negotiations or additional drug price rebates would both violate the agreement, saying each idea had been discussed and discarded in negotiations with the Senate Finance Committee that the White House later approved.

On Friday night, however, the drug industry lobby appeared to line up once again with the White House, perhaps satisfied that the White House had at least ruled out the price rebates in the House bill.

Asked about the White House statements, Ken Johnson, a senior PhRMA official, said, “All of the questions about what was in the agreement distract from our shared goal of making sure everyone has access to health care coverage.”

Several people involved in the negotiations of the original drug industry deal with the White House said there had been some ambiguity in the original discussions, conducted primarily through the Senate Finance Committee, over whether the overhaul might include the government negotiations of drug prices.

Because the Congressional Budget Office has questioned whether government price negotiation would, in fact, save the government or cost the drug industry much money in any event, White House officials might have intended to argue that the $80 billion cap still left room for such a provision.

The full terms of the White House agreement with the drug makers, like a similar deal with the hospital industry, have never been disclosed.

Perhaps capitalizing on his leverage as the political battle heated up over the health care measure, Mr. Tauzin insisted early this week that the deal clearly precluded drug price negotiations as well as any other additional costs. Drug companies have long opposed government price negotiations on the grounds that they would effectively set prices and cripple the industry.

As Mr. Tauzin spoke up, the White House initially chose not to argue. But faced with a chorus of Congressional complaints, the administration appears to have recalibrated its position.

Copyright 2009 The New York Times Company
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