Just the Facts on Drug Negotiation

Congressional hearings often serve as elaborate theatrical productions. Members ask pre-written questions, receive formulaic answers, and in many cases use witnesses as props to engage in rhetorical grandstanding. The grandstanding element was on full display Tuesday during the confirmation hearing for Alex Azar, the Health and Human Services Secretary-designee. Sen. Claire McCaskill (D-MO) wanted to beat up on “evil” drug companies, and she wasn’t going to let facts get in her way.

McCaskill spent two minutes attacking pharmaceutical advertisements, including a reference to “the one for erectile dysfunction where they have them in two bathtubs,” before she tackled the issue of Medicare “negotiating” prices with drug companies. At this point she demonstrated ignorance on several issues.

Second, McCaskill failed to grasp that Medicare drug plans already negotiate with pharmaceutical companies, and that the discounts they obtain have helped keep overall premiums for the prescription drug Part D plan low. It may sound radical to McCaskill, who has spent practically her entire adult life working in government, but the private sector can negotiate just like the government, and probably do so more effectively than a government entity.

Third, McCaskill refused to believe that getting the government involved in “negotiating” drug prices would not save money. When Azar explained that removing a provision prohibiting federal bureaucrats from “negotiating” prices wouldn’t save money, McCaskill called his explanation “just crazy” and “nuts.”

It isn’t nuts, it’s economics. Even though McCaskill tried to lecture Azar on economics and markets at the beginning of her questioning, her queries themselves showed very little understanding of either concept. In a negotiation, the ability to drive a hard bargain ultimately derives from the ability to seek out other options. If Medicare must cover all or most prescription drugs, such that it can’t walk away from the proverbial bargaining table, it will by definition be limited in its ability to put downward pressure on prices.

But don’t take my word for it. As Azar pointed out to McCaskill, none other than Peter Orszag, who directed the Office of Management and Budget (OMB) under President Obama — said as much in an April 2007 Congressional Budget Office letter:

By itself, giving the Secretary broad authority to negotiate drug prices would not provide the leverage necessary to generate lower prices than those obtained by PDPs and thus would have a negligible effect on Medicare drug spending. Negotiation is likely to be effective only if it is accompanied by some source of pressure on drug manufacturers to secure price concessions. The authority to establish a formulary, set prices administratively, or take other regulatory actions against firms failing to offer price reductions could give the Secretary the ability to obtain significant discounts in negotiations with drug manufacturers.

Only the ability to limit access to drugs by setting a formulary or imposing  administrative prices, i.e. “negotiating” by dictating prices to drug companies, would have any meaningful impact on pricing levels. But this truth proved inconvenient to McCaskill, who admitted she “refuse[d] to acknowledge it.”

Instead, McCaskill continued haranguing him about the evils of drug companies. She pointed out that one congressman who helped negotiate the prescription drug benefit, Rep. Billy Tauzin (R-LA), “went to run PhRMA after he finished getting it through.”

Indeed he did. And as the head of PhRMA, he bragged about the “rock-solid deal” he cut with the Obama administration to help his industry. Big Pharma’s “deal” as part of Obamacare encouraged seniors to purchase costlier brand-name drugs instead of cheaper generics, which the CBO concluded would raise Part D premiums by nearly 10 percent. And who voted for that “rock-solid deal?” None other than Claire McCaskill.

As the old saying goes: If you have the facts on your side, pound the facts. But if you don’t, pound the table.

The facts indicate that McCaskill voted for a “rock-solid deal” with Big Pharma that raised premiums on millions of seniors, which actually makes her part of the problem, not part of the solution. Of course, that also makes her willingness to grandstand at Tuesday’s hearing, and her unwillingness to face facts she now finds politically inconvenient, less “crazy” than it first seemed.

This post was originally published at The Federalist.

Gov. Jindal Op-Ed: Yes, We Can Still Repeal Obamacare

According to those in the elite salons of Washington, Obamacare cannot be repealed. The conventional wisdom on the cocktail circuit contends that once you mandate health insurance for millions, you cannot unmandate it.  This theoretical belief has become accepted in Washington as a dogmatic article of faith.  And the Obamacrats and most of the press believe that repeating this mantra often enough will make it so.

Of course, many Beltway insiders claim that Obamacare cannot be repealed because they wish to preserve the financial windfalls the law has brought them.

From the Big Pharma CEO bragging about the “rock-solid deal” benefitting his industry, to the health insurers who have a captive audience of Americans now required to purchase their products, to the lobbyists seeking preferential treatment in regulations, Obamacare has become big business to the K Street crowd.  No wonder so many view repeal of the law as fantastical—it would take away their gravy train.

But even many conservative “thinkers” in Washington have given in to Obamacare fatalism.  They may not say so in public, but they fully believe that talk of the law’s repeal exists only in the land of unsophisticated rubes.

The country that won two world wars and put a man on the moon cannot, it is believed, repeal a disastrous public policy. Says who? Why not?

I know a little bit about health care policy, having spent most of my adult life analyzing and implementing policy changes on the state and federal levels.  And based on my decades of experience, the idea that Obamacare cannot be repealed defies both logic and real world justification, on multiple levels.

First, the fact that the federal government has by force of law and under pain of taxation forced millions to sign up does not constitute “success” or “progress.”  In fact, I bet the administration could have raised their enrollment totals even higher if friendly IRS agents had paid personal visits to all Americans “encouraging” them to enroll.

The real “progress” thus far from Obamacare? Health care premiums have gone up, health care costs continue to escalate, and millions of consumers are losing their plans and finding that they may not be able to see their doctors any longer.

Let’s remember, too, that Obamacare was sold on a series of deceptions – if you like your plan you can keep your plan, you can keep your doctor, and premiums will decrease on average $2,500 per year.

To pass Obamacare in the first place, the American people were sold a bill of goods that would make even P.T. Barnum blush.

In one sense, the smart guys are correct. Conservatives do need to articulate alternatives to Obamacare—because the American people need relief from premiums that continue to skyrocket.

The plan I endorsed last month would do just that—focus like a laser beam on reducing costs. The Congressional Budget Office previously analyzed many of the policies included in our plan, and concluded they could reduce premiums by thousands of dollars compared to Obamacare’s surging costs.

Many families struggling with rising premiums and co-payments might believe that they will never see relief. But the notion that we can’t slow the growth of health spending is just as fanciful as the idea that Obamacare cannot be repealed.  The only reason we can’t accomplish both objectives is political will—because Washington needs a Beltway-sized reality check.

Fortunately, there’s a big country out there. We don’t care what they think in Washington, and we are not willing to quit on the idea of America.

This post was originally published at Fox News.

The “Rock-Solid Deal” the American People Reject

The House Energy and Commerce Committee released its latest report into the backroom dealings behind Obamacare on Friday.  This report, as well as a memo released the previous week, and the supplemental documents related to each report, provide for an interesting read, on multiple levels.

It is of course interesting to learn precisely how candidate Obama went from criticizing Big Pharma’s CEO for exerting improper influence in a 2008 campaign ad to cutting a “rock-solid deal” with the very same executive he had earlier criticized.  It’s just as ironic to find a President who pledged to televise all health care negotiations on C-SPAN cutting legislative deals behind closed doors.  And perhaps the piece de resistance is the way the Administration endorsed the creation of secret advocacy groups designed to run pro-Obamacare ads – the same kind of “shadow groups” that President Obama has repeatedly criticized as being insufficiently transparent.

But over and above the irony – and hypocrisy – readily apparent in these documents lies a simpler yet more profound truth:  Practically every health care group in Washington SUPPORTED Obamacare, and moved heaven and earth to build public support for the law, yet the American people OPPOSED it – and still oppose it to this day.  The documents reveal just how desperate special interests were to enact the massive 2700-page law:

  • Big Pharma spent $69.7 million on advertising supporting the law through various coalitions – and that’s just one trade association.
  • The CEO of AARP personally called Senator Ben Nelson to solicit his support for the measure – after multiple requests from the White House.
  • The heads of the major hospital associations let White House officials edit their press releases about their own “deals” with the Administration.

A separate study from Bloomberg Government released late last week demonstrated just why all these special interests were so keen on passing Obamacare.  The study found that a Supreme Court decision striking down the law could cost pharmaceutical companies, hospitals, and other health care interests as much as $740 billion in revenue over the next ten years.  Hospitals alone could lose $430 billion.  Coming on the heels of last month’s study indicating insurers benefit from Obamacare to the tune of $1 trillion, the Bloomberg report illustrates perfectly why all the health care special interests were desperate to pass the law – as the Energy and Commerce documents reveal.

As might be expected, the documents also include some comedic moments.  Given that experts have concluded that Obamacare will make 40 percent of hospitals unprofitable, the frantic struggle among hospital association executives to get Democrat members to vote for the bill may be (to paraphrase an historic expression) the first time in recorded history that turkeys desperately lobbied Congress to vote for Thanksgiving.  In a moment of candor, one Pharma executive – a Democrat and former Clinton Administration official – after telling his colleague the bill “raises taxes, raises [insurance] premiums and cuts Medicare,” admitted that “I’ve seen them [i.e., Pharma’s campaign ads about Obamacare].  But I don’t believe them.”

He’s not the only one who didn’t believe the ads.  The American people didn’t believe the hype about Obamacare then, and they don’t believe it now.  And no amount of special interest lobbying, or “rock-solid deals,” can change that fact.

Will Democrats Disinfect Their “Rock-Solid Deal” with Big Pharma?

President Obama used his weekly radio address over the weekend to promote Democrats’ new campaign finance “reform” law, arguing that “sunlight is the best disinfectant” in revealing corporate involvement in campaigns.  Given the President’s sudden interest in transparency, one can only ask when the White House will be releasing all the documents regarding the Administration’s “rock-solid deal” with the pharmaceutical companies – and the “windfall” which the PhRMA-sponsored ad campaign brought to David Axelrod’s consulting firm.  Republicans have previously asked for information about both the terms of the “deal” itself and the events that led up to it, but this Administration – which supposedly decries “the great power of special interests” – has yet to reveal its backroom dealings with pharmaceutical company executives.

Similarly, if Democrats are so intent on promoting transparency in politics, will they be asking PhRMA head Billy Tauzin to appear in the organization’s campaign commercials to “stand by his ad?”  PhRMA’s latest ad campaign does not include a personal appearance by the CEO of the organization – which Democrats’ “reform” legislation (S. 3295, H.R. 5175) attempts to require.  So will Democrats who co-sponsor or vote for the campaign finance legislation request that Billy Tauzin appear in any ads sponsored by PhRMA, consistent with the spirit of the legislation they support – or will they, like the Administration, continue to obscure from the American people the backroom dealings that led Big Pharma to endorse the Democrat health care takeover?

Obama vs. Obama on Transparency

In an interview with ABC’s Diane Sawyer yesterday, President Obama accepted some “responsibility” for the secretive process that led to back-room deals with labor unions, pharmaceutical companies, hospitals, and Sen. Ben Nelson (D-NE) in an attempt to buy support for Democrats’ government takeover of health care.  He noted that the “health care debate as it unfolded legitimately raised concerns…that we [i.e. the American people] just don’t know what’s going on.”  (A full transcript of the interview can be found here.)

But in response to the very next question, the President claimed that “I didn’t make a bunch of deals,” blaming the entire secretive process on Congress.  That statement might come as news to Billy Tauzin, CEO of the pharmaceutical industry’s trade organization, who told the New York Times back in August that “the Administration had approached him to negotiate…‘We were assured, “We need somebody to come in first.  If you come in first, you will have a rock-solid deal.”’”  How can the President square his belief that he “didn’t make a bunch of deals” with lobbyists who have been publicly bragging about their “rock-solid deals” with the Administration?

Even more to the point, the President has said “we have to move forward in a way that recaptures that sense of opening things up more.”  Given that statement, and the multiple news reports over the past several days indicating that Democrats are attempting to negotiate more “compromises” to jam their government takeover of health care back through the House, when can the public expect to see THOSE negotiations televised on C-SPAN?

Another “Rock-Solid Deal” That Harms Seniors

Medicare Premiums to Rise, Thanks to Max Baucus


“But what we will do is, we’ll have the [health care] negotiations televised on C-SPAN, so that people can see who is making arguments on behalf of their constituents, and who are making arguments on behalf of the drug companies or the insurance companies.”

— Senator Barack Obama, Town Hall Meeting in Chester, Virginia, July 21, 2008


Even as Democrats campaigned on a platform of change and transparency, recent back-room dealings between health care industries, the Administration, and Finance Committee Chairman Max Baucus would raise Medicare premiums for seniors:

  • Both the Administration and Democrats in Congress have proposed the idea of creating a board of federal bureaucrats to recommend additional changes to, and generate savings from, the Medicare program. In particular, Sen. Jay Rockefeller (D-WV) has advocated such a commission as a way to de-politicize the process of adjusting Medicare payments.
  • While Chairman Baucus’ mark included such a commission, it exempted “providers scheduled to receive a reduction to their inflationary payment updates” from additional reductions by the Commission. In practical terms, this language exempted hospitals—who reached their own independent “agreement” to provide $155 billion in savings toward health “reform”—from having to contribute additional savings.
  • Unfortunately, neither Sen. Rockefeller nor the Congressional Budget Office (CBO) understood the hospitals’ exemption from additional cuts proposed by the Medicare Commission at the time the legislation was first unveiled. Because hospital payments comprise a large portion of total Medicare spending, exempting hospitals from the Commission’s purview effectively lowered the $23 billion in savings CBO originally assumed from the provision by at least half.
  • As a result of this lower score—and in his desire to preserve his “agreement” with the hospital sector—Chairman Baucus found a better target to achieve savings: seniors themselves. An amendment to the Chairman’s mark authorized the Medicare Commission to propose “reductions in federal premium subsidies” to Medicare Advantage and prescription drug plans—even though Medicare Advantage plans would already face a $123 billion cut in the underlying Baucus bill.
  • When pressed during the markup to explain the consequences of this amendment, Committee staff repeatedly refused to admit that a “reduction in federal premium subsidies” would be tantamount to premium increases for seniors’ Medicare Advantage and prescription drug plans. However, CBO Director Doug Elmendorf previously testified that fully half of the benefits currently provided to seniors under Medicare Advantage would disappear due to the existing cuts in the Baucus bill—and the scope of the premium increases and benefit cuts would likely be magnified if the Medicare Commission enacted additional savings.
  • Chairman Baucus’ actions during the Finance Committee markup do not represent the first time his agreements with the health care industry have been proven to harm seniors. In August, the head of the Pharmaceutical Research and Manufacturers of America (PhRMA) affirmed that drug manufacturers had negotiated a “rock-solid deal” with Chairman Baucus and the Administration. Previous analyses from the Congressional Budget Office have confirmed that portions of the “rock-solid deal” would significantly raise seniors’ Medicare prescription drug premiums.

Many may find the irony in an entity established to “de-politicize” the process of Medicare reform being modified in arbitrary—and harmful—ways in order to cement Chairman Baucus’ “rock-solid deals” with the health care industry. Moreover, if Democrats are willing to break yet another campaign promise on transparency in order to cut another back-room deal—and raise premiums for seniors in the process—what promises will they keep?

Barack Obama and “Big Pharma:” Hypocrisy You Can Believe In

“I’m appalled by the deal the White House has made with the pharmaceutical industry’s lobbying arm to buy their support….When an industry gets secret concessions out of the White House in return for a promise to lend the industry’s support to a key piece of legislation, we’re in big trouble. That’s called extortion.”

— Former Clinton Administration Labor Secretary Robert Reich, blog posting, August 9, 2009


Even as he campaigned on a platform of change and transparency, an examination of Barack Obama’s comments during the election—and his actions since taking office—indicates that on both politics and policy, the President has changed his tune on numerous issues of relevance to the pharmaceutical industry—perhaps as a result of up to $150 million in drug industry-funded advertisements supporting his government takeover of health care:

Then: “We’ll take on the drug and insurance companies and hold them accountable for the prices they charge and the harm they cause.”

— Barack Obama, speech in Newport News, Virginia, October 4, 2008

Now: “We were assured: ‘We need somebody to come in first. If you come in first, you will have a rock-solid deal.’”

— PhRMA head Billy Tauzin, discussing his negotiations with the White House, New York Times, August 5, 2009

Then: “I urge [my opponent] to stop siding with the drug manufacturers and put aside his opposition to the re-importation of lower-priced prescription drugs from Canada.”

— Barack Obama, Senate campaign press release, May 21, 2004

Now: “On July 7, Rahm Emanuel, Mr. Obama’s chief of staff…assured at least five pharmaceutical companies during a White House meeting that there would be no provision in the final health care package to allow the re-importation of cheaper drugs from Canada or elsewhere.”

New York Times, July 23, 2009

Then: “And we’ll tell the pharmaceutical companies, thanks but no thanks for the overpriced drugs—drugs that cost twice as much here as they do in Europe and Canada. We’ll let Medicare negotiate for lower prices.”

— Barack Obama, speech in Newport News, Virginia, October 4, 2008

Now: “The White House…clarified its commitment to a behind-the-scenes deal….[that] would limit the drug makers’ share of the cost of a health care overhaul…without imposing other savings…like the government’s negotiation of prices for the drugs it buys under Medicare.”

New York Times, August 7, 2009

Then: “What we will do is, we’ll have the [health care] negotiations televised on C-SPAN, so that people can see who is making arguments on behalf of their constituents, and who are making arguments on behalf of the drug companies or the insurance companies.”

— Barack Obama, town hall meeting in Chester, Virginia, July 21, 2008

Now: “At a certain point you start getting into all kinds of different meetings—Senate Finance is having a meeting, the House is having a meeting….I don’t think there are a lot of secrets going on in there.”

— Barack Obama, trying to explain closed-door health care negotiations, White House press conference, July 22, 2009

Then: “It’s an entire culture in Washington—some of it legal, some of it not—that allows [scandals] to happen. Because what’s most outrageous is not the morally offensive conduct on behalf of these lobbyists and legislators, but the morally offensive laws and decisions that get made as a result.”

— Barack Obama, speech on “Taking Our Government Back,” July 22, 2007

Now: “[The White House] wanted a big player to come in and set the bar for everybody else.”

— PhRMA head Billy Tauzin, quoted in New York Times, August 5, 2009

Then: “We need a President who sees government not as a tool to enrich well-connected friends and high-priced lobbyists, but as the defender of fairness and opportunity for every American. That’s what this country has always been about, and that’s the kind of President I intend to be.”

— Barack Obama, speech on “Taking Our Government Back,” July 22, 2007

Now: “President Barack Obama’s push for a national health care overhaul is providing a financial windfall…to Democratic consulting firms that are closely connected to the President and two top advisors.”

— Associated Press story, August 19, 2009

Then: “When I am President, I will make it absolutely clear that working in an Obama Administration is not about serving your former employer, your future employer, or your bank account—it’s about serving your country, and that’s what comes first. When you walk into my Administration, you will not be able to work on regulations or contracts directly related to your former employer for two years.”

— Barack Obama, speech on “Taking Our Government Back,” July 22, 2007

Now: “Two firms that received $343.3 million to handle advertising for Barack Obama’s White House run last year have profited from his top priority as President by taking on his push for [a] health care overhaul….[One] firm owes [White House senior advisor] David Axelrod $2 million, which it’s due to pay in installments beginning December 31. Axelrod’s son, Michael, still works there.”

— Bloomberg story, August 15, 2009

At best, the significant changes in position show the differences between lofty campaign rhetoric and the realities of governing; at worst, they reveal an Administration seduced by promises of campaign-style ads supporting its government takeover of health care. Moreover, the Congressional Budget Office recently announced that the provisions in House Democrats’ government takeover of health care (H.R. 3200) would raise seniors’ Medicare prescription drug premiums by 20 percent—even as pharmaceutical companies, sensing higher profits, promote the President’s “reform” agenda. Regardless of whether or not Members agree with the President’s policy positions—either those outlined “then” or “now”—many may wonder what exactly the President believes in—and, given his repeated reversals, why the American people should believe in him.

Democrats’ Government Takeover Will Raise Medicare Premiums by 20%

“Rock-Solid Deal” for Drug Companies a Bad Deal for Seniors


“I’m appalled by the deal the White House has made with the pharmaceutical industry’s lobbying arm to buy their support….When an industry gets secret concessions out of the White House in return for a promise to lend the industry’s support to a key piece of legislation, we’re in big trouble. That’s called extortion.”

— Former Clinton Administration Labor Secretary Robert Reich, blog posting, August 9, 2009


A recent analysis released by the non-partisan Congressional Budget Office (CBO) found what many policy-makers have long believed—that House Democrats’ government takeover of health care (H.R. 3200) will raise Medicare prescription drug premiums for seniors “by about 5 percent in 2011, rising to about 20 percent in 2019:”

  • The CBO estimated that provisions in the bill to gradually eliminate the Part D “doughnut hole” would raise Part D premiums. The analysis confirms a previous CBO report estimating that immediate elimination of the “doughnut hole” would cause Medicare premiums to rise by 50 percent.
  • CBO also found that providing discounts for brand-name drugs within the Part D “doughnut hole” would “increase federal spending” and thus premiums for seniors. While the discount provision is at the heart of an agreement reached between Democrats and the pharmaceutical industry to provide $80 billion in “savings” to fund health “reform,” the CBO analysis confirms that seniors will be paying more as a result of these “discounts.”
  • Even though the agreement he negotiated would raise Medicare premiums for seniors, the head of the Pharmaceutical Research and Manufacturers of America (PhRMA) publicly bragged that drug manufacturers had negotiated a “rock-solid deal” with the Administration.
  • As the New York Times has noted, big drug companies have embraced Democrats’ government takeover of health care: “Foreseeing new profits from the expansion of health coverage, they are spending as much as $150 million on advertisements to support the President’s plan,” hiring AKPD to generate publicity in support of Democrats’ health “reform.” AKPD owes its former founder—White House Senior Advisor David Axelrod—$2 million in compensation, and employs David Axelrod’s son.

Thus the past several weeks have revealed two inconvenient truths about Democrats’ government takeover of health care—seniors’ Medicare premiums will rise 20 percent, while Big Pharma companies are so certain of higher profits that they are willing to spend up to $150 million in support of the Democrat agenda. The juxtaposition of higher premiums for seniors and higher profits for drug companies has raised concerns even among proponents of government-run health care like Robert Reich. Is this the kind of change we can believe in?