Scrounging up all the money to pay for Obamacare’s massive coverage expansion brought deep pay cuts to hospitals and health plans. And for those industries, it fundamentally changed the rules of the game.
Insurers have to cover sick people, no matter how costly their illness. Hospitals must meet new benchmarks for things like readmissions or face penalties. Doctors are caught up in a rapid industry consolidation and must adapt to new payment models, changing traditional practice.
The pharmaceutical industry, on the other hand, hasn’t much changed — except its prices are higher and there’s nothing in the health law that allows the government to push back. Prescription drugs are now the fastest growing category of medical costs. Pharma companies are charging $84,000 for a new hepatitis C cure, more than $14,000 for new cholesterol treatments. Novel cancer therapies routinely run six figures.
“There was nothing in the deal that was a structural reform of the [drug] industry,” said John McDonough, who was a top health policy adviser to the late Sen. Ted Kennedy (D-Mass.) during health law negotiations “They were first in line; they were on the winning side; they got a good deal that they could live with and they stuck to it.”
With drug prices rising — and both Democrats and Republicans telling pollsters how much they worry about that — policymakers can’t pull out any game-changing tools from their Obamacare bag in response. Big Pharma is still plenty powerful — it’s been showing just how powerful this spring. It ignited a campaign against a Medicare proposal to experiment with new ways of paying for some high-cost drugs, including cancer infusions, that now cost Medicare about $20 billion a year.
Technically that payment experiment doesn’t require Congress’s assent — but Congress could block it or scale it back, and there are moves afoot to do precisely that. Lobbyists say it’s just a matter of time before Medicare downsizes its proposal, as politicians bemoan rising drug prices but don’t act on them.
Former Rep. Henry Waxman (D-Calif.), a frequent critic of the pharmaceutical industry and one of the authors of the health law as the then-chair of the House Energy and Commerce Committee, sees the Obamacare negotiations back in 2009 as a missed opportunity.
The industry’s deft positioning at the time let drugmakers avoid “changes that would have made our problems on runaway pharmaceutical prices a lot easier now” — and in the foreseeable future.
Zeke Emanuel, a former White House adviser on health reform, said drug costs can only be blamed on the ACA to the extent that nothing put in place then to address pharmaceutical pricing. “Drug companies, could have behaved differently,” Emanuel said. “But they didn’t.”
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Stephen Ubl, the current CEO of the Pharmaceutical Researchers and Manufacturers of America, vigorously defends the industry, and says the criticism is “myopic and misinformed.” At the lobby’s 2016 annual meeting he called drug costs “a relatively small and stable share of overall health care spending.” He argued that drugs “stand the best chance of ameliorating,” the financial burden of chronic disease.
Under one of his predecessors, former Louisiana Republican Rep. Billy Tauzin, the industry moved smartly and swiftly as Obamacare was taking shape. It was first to the negotiating table with Senate Finance Committee Democrats and the White House. The drug companies agreed to pay $90 billion to help fund the law’s insurance expansion — an expansion that would also happen to deliver millions of new, paying customers to the drug companies.
Otherwise, drug companies were left to carry on business as usual.
No reimportation of medicines from countries like Canada, where they’re sold at a fraction of what Americans pay — an idea that has reemerged recently but has not gotten traction.
No government negotiations of drug price — although both Donald Trump and Hillary Clinton have endorsed Medicare negotiations. Congress has repeatedly nixed the idea.
Democrats had majorities in both houses of Congress when the health law deal was cut, but the negotiators caved on their party’s longstanding proposals — seen as a mortal threat by pharma — in exchange for the industry’s buy-in and financial support for getting the historic health reform bill enacted. They’ve been talking about the spiking drug prices, and holding hearings. But no action agenda has taken hold.
Looking back six or seven years, Tauzin explained that PhRMA decided it was better off making a deal — and heading off a more radical health transformation, like the kind of single payer plan Bernie Sanders ran on this year, or even the public option that Clinton has endorsed.
“We had a choice [to] make sure it wasn’t going to be a single-payer government system,” Tauzin told POLITICO, recalling PhRMA’s thinking at the time. “If we were not at the table, it would be likely we would become the meal.” The agreement was brokered with Senate Democrats and the White House in the early summer of 2009.
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Since then, drug spending has spiked to historically high levels — 2014 saw the biggest increases in more than decade. The hikes were fueled by Obamacare’s coverage expansion, a wave of new treatments and industry chutzpah.
It’s not just breakthrough drugs that are soaring. Drugmakers are hiking prices of older medicines too; pharma bad boy Martin Shkreli’s 5,000 percent increase of the AIDS drug Daraprim last year was the most brazen example, but hardly the only one.
The Obama administration has few ways of confronting drug costs — and critics of the 2009 health law deal say it tied their hands.
Both the White House and Senate Democrats were acutely aware of how health care industries torpedoed the Hillary Clinton-led reform effort in 1993-94. They were keen to avoid the same fate. Once PhRMA signed on to the 2009 bill, it ultimately spent $150 million in advertising to support it, largely to prop up vulnerable lawmakers who were backing health reform. If PhRMA had tapped that war chest to fight the bill, it would have sunk the effort, supporters of the deal said.
“We needed 60 votes in the Senate; we got 60. We needed 218 votes in the House; we got 219,” said Ron Pollack, executive director of Families USA, a health care advocacy group and ally of the White House that worked to corral industry support for the bill. “Had structural changes to pharmaceutical pricing been in the bill, the Affordable Care Act would not have been enacted.”
PhRMA coughed up about $32 billion to help close a large gap in Medicare drug coverage known as the “doughnut hole” — which meant that once seniors got about $2,800 in drug coverage, they were on the hook for all the costs until they hit $6,400, when coverage kicked in again. The trade group also agreed to pay tens of billions in taxes and to increase drug discounts in Medicaid to help with the broader financing of the law.
The drug industry won two other victories as the law took shape that weren’t part of its initial deal with Democrats. And both are constraining policymakers today.
One involved a new quasi-government entity — the Patient Centered Outcomes Research Institute, known as PCORI. It was set up by the Affordable Care Act to test how different medical treatments stack up against one another — but PhRMA insisted that PCORI would not be able to take cost effectiveness into account — and it doesn't. The Tea Party uprising against Obamacare in the summer of 2009 — and the outlandish claims that it would set up “death panels” — fed into PhRMA’s arguments. Politicians didn’t want to do anything that could fuel fears that the health bill, already controversial enough, would limit Americans’ access to treatment.
Critics say that restriction has hamstrung the independent expert group, making it hesitant to take on politically sensitive issues and unable to assess the true value of treatments. A Center for American Progress report in May found its “potential impact on the nation's health care system has not been fully realized” — which is exactly what PhRMA sought, to protect its turf.
Perhaps more significantly, the drugmakers won an unprecedented, guaranteed 12-year monopoly for biologic drugs — a costly class of new cell-based therapies that are more complicated to manufacture than more familiar chemical drugs. Twelve years — as opposed to five that most other drugs get — means biologics get a much longer time to dictate prices on the market before they have to face generic-like completion.
The dozen-year market lock is still stirring controversy. One of PhRMA’s top demands for the 12-country Trans Pacific Partnership negotiations was that the monopoly be extended internationally, but other countries balked. The TPP deal set the target at eight years, and the drug industry’s ire is one shadow hanging over the sweeping, unfinished accord.
But the Obama administration’s repeated bid to cut the domestic market protections to seven years – what it had sought during the Obamacare negotiations — has gained no traction on the Hill.
Seven years later, Tauzin’s goal is intact. PhRMA’s not the meal; and everyone else is still picking up that tab.