Why Big Pharma Should Vote Democratic

This Super Tuesday, pharmaceutical CEOs should ask themselves one question before they decide which way they will vote in 2008 if they are indeed single-issue voters:

Are you in favor of an expansion of the government subsidy to almost 50 million Americans to buy your products or would you prefer a drastic curtailing of the government subsidy under the popular Medicare Part D drug benefit?

If you’re in favor of the former, you should punch the Democratic ticket in November. If the latter is your desired outcome, then hop on the McCain Straight Talk Express.

The prospect of a Democratic administration with a Democratic-controlled House and a split Senate has a number of drug industry stakeholders nervous about the next four years. After all, the centerpieces of Senators Hillary Clinton’s (NY) and Barack Obama’s (IL) domestic policy agendas are universal health care proposals. And when Big Pharma hears “universal health care” it tends to be synonymous with national, government-run, single-payor system aka price controls.

But here’s something Big Pharma should keep in mind: neither Clinton nor Obama are proposing a single-formulary system. What they are proposing, though, is providing health care coverage for the 47 million and counting Americans without it.

In case you missed it, here was my first take on the Clinton and Obama health care proposals. Clinton has explicitly stated that buying coverage would be mandatory under her plan; Obama says he will wait to analyze affordability of a coverage proposal before mandating that individuals buy insurance.

“This should not be scary,” Clinton senior health policy advisor Chris Jennings told Wall Street investors at the Stanford Group health care conference in January. “This should be viewed as an incredible opportunity.” Obama health advisor Gregg Bloche echoed Jennings’ remarks at the meeting saying, “companies that innovate are going to thrive in the environment under the Democratic plans.”

There’s little doubt that under a universal, government-administered coverage system, there will be downward pressure on pricing, whether it’s through market competition or government “tinkering.” But Jennings and Bloche say whatever drug companies give up in margin, they’ll more than make up for in a jump in market share.

It would be hard to argue that the drug industry hasn’t reaped a windfall from providing roughly 40 million seniors with drug coverage under the Part D program. A universal coverage program would roughly double the number of Americans receiving some form of a drug benefit who previously were not.

Some senior company executives clearly see the advantages of working together with Democrats—should they win the White House—on health reforms. “It is really going to take a bipartisan view to be able to accomplish [universal health care],” Merck CEO Richard Clark said during the Morgan Stanley Pharmaceutical CEOs Unplugged conference in January. “I hope we are able to provide some recommendations, particularly around the uninsured and how that should be solved, just as we provided recommendations around Medicare” and the creation of the prescription drug benefit.

Eli Lilly SVP for corporate affairs and communications Alex Azar is urging the biopharmaceutical leadership to rally around a united position that preserves core industry business principles under more direct involvement by the government in health care. “We have to show that we’re willing to engage and to propose constructive alternatives,” the former HHS deputy secretary told attendees at The RPM Report’s FDA/CMS Summit in December. “Our industry brings some credibility to this discussion.”

For the most part, Republicans are looking at incremental improvements in health care that go hand-in-hand with the free-market principles underlying Part D ie. competitive insurance plans and allowing individuals to cross state lines to buy insurance from different providers if they don’t like the deal they’re getting locally.

Not too scary.

But under a Republican administration, the odds of a Medicare reform bill would be a near-certainty as the government looks for savings to fix the looming physician reimbursement cuts. In that climate, drug prices under Part D would be a tempting target for savings.

Moreover, the presumptive Republican nominee, Senator John McCain (AZ) does not look eager to become best friends with the pharmaceutical industry. During a New Hampshire debate before the primary in January, for example, McCain cast the industry in a not-so-flattering light while discussing why Americans can’t import drug from Canada. Former Massachusetts Governor and Presidential candidate Mitt Romney jumped in, “Don't turn the pharmaceutical companies into the big bad guys.” McCain responded: “They are.”

The drug industry is clearly reading the bi-partisan tea leaves. The pharmaceutical industry has given $4.6 million to Democrats thus far in 2008 compared to $4.5 million for Republicans, a 51-49 split, according to the Center for Responsive Politics. During the last election cycle in 2006, donations to Democrats totaled $6.1 million compared to $13.2 million, a 31% to 67% difference (independent donations make up the remaining 2%). The last Presidential election in 2004 saw the pharmaceutical industry give two-thirds of their donations to Republicans ($12 million) compared to one-third ($6.1 million) to Democrats.

You get the picture.

For all of the undecided In Vivo Blog readers, maybe the HealthCentral.com political PoliGraph will help you choose where you stand. Try it, it’s fun.

Listen for the Threat of the Medicare Rebate

Here we are shamelessly tooting our horn for calling the politics and action around pharmaceuticals and Part D correctly in 2007 and blowing a clarion call warning for 2008.

Tooting The RPM Report horn: In January a year ago, price negotiating and eviscerating the Medicare Advantage section of Part D were watched widely as two of the early objectives for the health leadership in the new Democratic Congress.

In the thick of the media obsession with those stories, The RPM Report pointed out how unlikely Congress would be to deliver on those goals in 2007 and why. (See here, and here and here, for clear foresight in retrospect).

Call to alert for 2008: This year, some in the media (for example, an interesting wrap-up piece in the Wall Street Journal January 23) are expecting a high-profile dangerous year for pharma.

Elections are always tough years for pharma in the news, but this one does not look to us like a year for major legislative initiatives against the drug industry.

Even the prospect of Democratic sweep in November may not be as threatening to Big Pharma as the Journal story suggests. The Democratic front-runners certainly do support action on pharma pricing that industry opposes--but their overall message is more nuanced and makes health care reform sound much less threatening to industry than it did 15 years ago. (You can read more here.)

There is one new threat, however, in a proposal that is generally beneath the radar for most observers: rebates to the government on Medicare Part D drug purchasers (see here).

We understand that rebates to Medicare sound pretty boring, wonky and not nearly as worthy of a headline as government price negotiation, but rebates could add up to big dollars from pharma. And the technical fix is just the type of tweaking to Part D that draws a real shiver from pharma execs.

The movement on Capitol Hill is just beginning for this way to recapture some of the alleged windfall that pharma reaped by moving Medicaid rebated drugs to Medicare. Listen for the distant horn.

Iowans Fall for Obama, Will New Hampshireites?

Uh oh, ladies and gentlemen, it looks like we have a race. I don't think I was the only one stunned by Barack Obama's victory in the Iowa caucus last week. Obama has gained a well-deserved reputation as an inspiring speaker but it just didn't seem like it would be enough to convince voters that a young, one-term freshman Senator would be able to lead the country through wartime (or peacetime depending on how much of an optimist you are).

Well, apparently his words and message are enough to convince voters he's the right (wo)man for the job. In Iowa, Obama accomplished two critical things: turn out voters and have them buy his "hope and change" message. Just look at the numbers.

Democratic Party officials said almost 240,000 Iowans turned out for the 2008 Iowa Caucuses compared to 124,000 in 2004, and under 60,000 voters in 2000. In other words, an incredible turnout.

The Washington Post cited some critical numbers from the National Election Pool that election watchers should be paying close attention to. “Half of the voters who turned out Thursday night said they were looking for a candidate who could bring change to the country while just a fifth said they most prized experience in a potential nominee,” the Post reported. “Half of those change-oriented voters backed Obama in the caucuses and helped propel him to victory.”

The National Election Pool found that 57% of Democrats said they were participating for the first time: roughly 40% chose Obama over Clinton, John Edwards and the rest of the Democratic pack.

Was Iowa an anomaly or the beginning of a trend?

The answer, at the moment, appears to be: trend. There's no question that the momentum Obama seized in Iowa is carrying straight over to New Hampshire. Obama has been down by a large margin for some time due in large part to the number of New Hampshire officials and political influentials who have endorsed Clinton. He narrowed the gap significantly after Iowa, and now two polls show him ahead by double digits as the voting takes place toady.

And how will voters react to this Clinton moment the day before the primary? Will they see Bill Clinton or Ed Muskie?

Assuming the Iowa numbers hold up for the rest of the Democratic Primary season, and a Democrat is elected President, what would an Obama White House mean for US health care policy? It could be a significant departure from a Clinton II Administration.

Some political observers argue that it doesn't matter which Democrat is elected President, since a Democratic victory means a big push for health care reform, and the differences among individual plans are less important than the political impetus of a Democratic landslide.

I don't necessarily think that will be the case. You may see a lot less reforming action under Obama than you would Clinton.

After reviewing both Clinton and Obama's health care proposals, it's patently obvious which one is further along.

Hillary's universal health care proposal is much closer to policy and more comprehensive than Obama's. Clinton emphasizes choice among four options: 1) keep the plan you have 2) buy a new plan from a for-profit insurer 3) pick a plan from the options available to members of Congress through the Federal Employees Health Benefits Plan (FEHBP), or 4) choose a public plan option similar to Medicare.

The program would provide small businesses and other employers with tax credits for buying into the system to help offset coverage costs. There are other pieces, such as Health IT, electronic medical records and a pay-for-performance-like bonus system, that are included in the Clinton plan.

As noted by the LA Times earlier this year, the most obvious sign that Clinton is closest to having a universal health care proposal that could satisfy everyone at the table was an acknowledgment from the America's Health Insurance Plans (AHIP) of the proposal's possibilities. AHIP represents 1,300 US insurers and dueled bitterly with the Clinton Administration in the early 1990's over "Hillarycare," eventually derailing the universal health coverage proposal in its entirety.

This is what AHIP has to say about Hillarycare Version 2.0: They praise the employer tax credit and say Clinton's reforms may be acceptable as long as they are linked to a mandate for individuals to buy coverage. That's very different than the "Harry and Louise" response to Hillary Clinton's proposal more than a decade ago.

Obama's plan for reform looks to be more in the idea stage compared to the Clinton plan. And anyone that has dipped their toe in the political waters in Washington will tell you it's a long journey between idea and policy.

For example, Obama's program would really offer one option, the FEHBP-like choice, under his proposal. Not bad. Obama also calls for the creation of a National Health Insurance Exchange to act as a watchdog arm for Americans. Here's a description of the NHIE from Obama's website:

"The Exchange will act as a watchdog group and help reform the private insurance
market by creating rules and standards for participating insurance plans to
ensure fairness and to make individual coverage more affordable and accessible.
Insurers would have to issue every applicant a policy, and charge fair and
stable premiums that will not depend upon health status. The Exchange will
require that all the plans offered are at least as generous as the new public
plan and have the same standards for quality and efficiency. The Exchange would
evaluate plans and make the differences among the plans, including cost of
services, public."

That's a proposal that seems a lot closer to idea than policy action. The NHIE would also monitor what insurers do with their profits. The plan will "force insurers to pay out a reasonable share of their premiums for patient care instead of keeping exorbitant amounts for profits and administration."

Moreover, where Clinton's plan delves into specifics, Obama offers very general solutions to complicated issues.

On the State Children's Health Insurance Program: "Obama will expand eligibility for the Medicaid and SCHIP programs and ensure that these programs continue to serve their critical safety net function."

On enrollment into a new government plan: "Easy enrollment. The new public plan will be simple to enroll in and provide ready access to coverage."

Still, Obama has a highly respected domestic policy team, many of them ex-Clinton officials. Harvard health economist David Cutler is one of Obama's top health advisers, along with David Blumenthal, director of Harvard's Institute for Health Policy. Cutler has co-authored papers with former FDA Commissioner and CMS Administrator Mark McClellan. Here's a look at some of his papers.

Maybe most importantly when it comes to the odds on serious health care reform happening in 2009, universal health care is Hillary Clinton's issue. It's the issue where she has the most experience and the most visible political wounds to show for it. For Obama, "coverage for all" seems to be more of a classic Democratic tenet he's running on--not necessarily his issue.

Simply put, Clinton's health reform plans are in policy stage, Obama's are in idea stage. So if you're looking at which candidate is most ready to reform health care, it's Clinton, not Obama.