The Devil (You Think) You Know / Part 2

When the Democratic party recaptured the House and Senate after the 2006 elections, there was much hope and anticipation that an era of "giving the store away", business-friendly administration would be coming to an end. In a February 28, 2007 article in Smart Money Magazine, Peter Keating's opening paragraph illustrates those expectations:

It won't be long before congressional Democrats authorize the federal government to negotiate the prices Medicare pays for prescription drugs - something the 2003 law creating the Part D program notoriously prohibited. Uncle Sam will crack some heads at Merck and Pfizer, and Washington will save so much money that it might even close the much-loathed "doughnut-hole", a flaw in the law that currently denies coverage to Medicare recipients who have at least $2,400 in prescription costs, but less than $3,850 in total out-of-pocket expenses.

It is now August of 2009. And very few heads (if any) have been cracked at Merck or Pfizer, or at any of the other big drug makers. Even worse, in a report last week in the L.A. Times, we are told that the Obama administration has made promises to the pharmaceutical industry that he would not pursue Medicare drug price negotiations, or lift restrictions on the importation of cheaper drugs from Canada or abroad. These assurances were given to Billy Tauzin, President of the Pharmaceutical Research and Manufacturers Association (PhRMA), through a series of meetings in the White House.

The N.Y. Times later confirmed the story, as White House officials assured pharmaceutical companies they stood behind their closed-door deal to block any Congressional efforts to gain more savings from the drug makers. The drug makers had offered up $80 billion over ten years during those behind the scenes discussions. The administration is now trying to back track amidst public uproar and fellow Democrats who are voicing their resistance to any such deals.

But it's leaving a familiar aftertaste in the mouths of Americans, who are increasingly beginning to view campaign promises as being no more dependable than their health care premiums. And it leaves them wondering why a government has to negotiate with an industry it needs to regulate. And how an industry association such as PhRMA has such power that it can be a guest at the White House, repeatedly, for back-room negotiations (which are far from the transparency that President Obama had promised on the campaign trail). And just who is this Billy Tauzin?


I'M GLAD YOU ASKED

Perhaps more important, and more telling, than who Billy Tauzin is, would be who Billy Tauzin was. Beginning his political career at the age of 29, he was elected to the Louisiana House of Representatives as a Democrat, where he served four terms. In 1980, Tauzin moved to Washington when he was voted to the U.S. House of Representatives. As one of the more conservative Democrats, he served fifteen years and even rose within the ranks to become an assistant majority whip. But Tauzin felt he and other "moderate" Dems were being shut out by more liberal members of the party. And when the Democrats lost control of the House in 1994, Tauzin helped found the House Blue Dog Coalition within the Democratic party. Interestingly enough, by 1995 he had switched to the Republican party.

Billy Tauzin went on to serve on the Energy and Commerce Commission and was its chairman from 2001 until February of 2004, when he announced he would not seek another term as Louisiana's representative. On January 3, 2005, the day he left Congress, Tauzin began working for PhRMA, and representing an industry that spent more on lobbying from 1993-2006 than any other industry in America. That would seem to be a good fit, considering all that Billy Tauzin had already done for the drug industry.

Only two months before taking the PhRMA job, he had helped push the Medicare Prescription Drug Bill through Congress (a bill which would be criticized for being overly generous to the pharmaceutical industry). The passage of that bill occurred under extraordinary and highly questionable circumstances, as the vote in the House remained open well beyond acceptable limits while arms were twisted and deals were being made. It would be the longest roll call vote in the history of the House of Representatives. But at 3 a.m., while much of America lay sleeping, the bill was passed. And many of those who worked on the bill, which some lawmakers claimed "the pharmaceutical lobbyists wrote", indeed now work as lobbyists for the same drug makers.

Even Medicare boss Thomas Scully (who had actually threatened Medicare's Chief Actuary, Richard Foster, with firing if he released numbers showing how much the bill would cost Medicare) was working a deal to become a pharmaceutical lobbyist while the bill was still working its way through Congress.

Yet, even as their representatives were passing the bill, very few Americans knew at the time, or know now, what was in the bill. And unless you were directly affected by it, you probably didn't care. But what it created was essentially a windfall for big pharma, in the guise of looking out for the interests of ordinary Americans.

THE SELL OUT

Known officially as the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, the bill which was ushered through Congress in the wee hours of the morning enacted Medicare Part D. Under that bill, Medicare was explicitly barred from negotiating drug prices for seniors. This meant that, although they represented the largest block of the prescription buying public, Medicare could not use that leverage to benefit from volume discounts to make drug prices cheaper for its recipients, or for taxpayers. So, even as Wal Mart is allowed to put its competitors out of business by negotiating these volume discounts with its suppliers, taxpayers and Medicare would not be afforded the same luxury.

The Veterans Administration, by comparison, is allowed to negotiate with the drug companies and pays 58% less for drugs, on average. The VA is also allowed to establish a formulary while, under Part D, Medicare can not. (Formularies are lists of prescription drugs which are covered by a particular plan. They are typically based on the efficacy, safety, and cost-effectiveness of the drugs.) This is a seemingly minor detail, but one which is of major importance in holding down a plan's costs. Compiling a formulary should be done by the end users, and not the distributors, for obvious reasons.

Also included in the bill was the stipulation that placed the processing and payment of Medicare's prescription drug claims under the care of 3rd party administrators known as Pharmacy Benefit Managers (PBMs). In other words, the handling of Medicare's prescriptions was being privatized. Contracted out. Or if you prefer, brought into the for-profit world.

In summary, though Medicare was created as a public program, and a protection for our senior population and the most vulnerable in our society, the passage of the 2003 drug bill essentially took the responsibility for their prescription drugs out of the hands of the government and dropped it in the hands of private, for-profit companies. And with predictable results.

PBMs (Predictably Bad Mojo?)

Pharmacy Benefit Managers, or PBMs, emerged onto the health care scene in the 1990s. Responding to HMOs desires to cut their prescription drug expenses, PBMs became intermediaries between drug companies and many health care plans. The HMOs had already begun to trim their lists of drugs they would cover, and it was thought that the PBMs, representing the purchasing power of the many plans they contracted with, could negotiate lower prices and discounts than the health plans could attain individually. Looked good on paper. But, as with most "good ideas" which involve big business, the profit motive is somehow always left out of the equation.


Initially, PBMs began negotiating prices and discounts with the drug makers as intended. All was right in the world. But it wasn't long before they had begun to pressure pharmacies and doctors to steer patients towards particular prescriptions and medications. And as their leverage as middlemen between drug makers and health plans began to grow, so did the power to dictate to the health plans they had contracted with. For example, which drugs should or should not be included in health plan formularies. Giving a for-profit entity this much influence and control is essentially the equivalent of handing them a signed blank check. So, it's no surprise that they have grown to become very powerful and extremely profitable. Which brings us to the great sell out of Medicare Part D, and the difference between public and private health care administration.

PBMs, like all contractors, are considered to have a fiduciary duty in the relationships with those they contract with. Essentially, that means they have contracted to take actions for and on behalf of someone in a relationship of trust and confidence. In the case of PBMs, they were contracted to negotiate drug prices and discounts on behalf of the health plans who pay them. But the Supreme Court has also ruled that CEOs have a corporate and fiduciary duty to maximize shareholder values (not to mention CEO bonuses and salaries). Is there a clearly defined line which separates the two, or gives one precedence over the other? Evidently, there is.

AND NERO PLAYED HIS FIDDLE

Increasingly, in recent years, PBMs are facing lawsuits filed by state and federal governments, as well as PBM clients, which charge them with the practice of negotiating discounts and rebates from drug companies, and then not passing them on to consumers and their clients, as they are contractually obligated to do. Instead, they are keeping the discounts and rebates for themselves as company profits.

In 2004 litigation, Medco Health Solutions (the nation's largest PBM) reached a $29.3 million settlement agreement for allegations of violating consumer protection and mail fraud laws, filed by 20 states and the federal government. We can assume that was but a fraction of the actual monies redirected.

They also paid the state of Massachusetts $5.5 million to settle the allegations that the company pocketed millions of dollars in rebates from drug companies that should have been passed down to the state. And, unfortunately, it's never one, single rotten apple.

PBM Express Scripts had a suit filed against it by N.Y. attorney general, Elliot Spitzer, citing breaches of its $600,000 contract and violations of civil law resulting in New York state being defrauded of up to $100 million over 5 years. And Caremark Rx is suffering a similar class action lawsuit in Tennessee.

The causes are obvious and easily pridictable. PBMs and the pharmaceutical companies have formed mutually beneficial relationships. When PBMs have the power to include particular drugs in health plan formularies, they also have the power to increase a drug's market share. Drug makers will often offer discounts if a PBM can get their drug to be accepted by the health plan. And it becomes difficult to make a distinction between discounts, rebates, kickbacks, and outright bribes when those savings are not passed on to the health plans. And PBMs grow fat by making money at both ends, keeping the rebates they've negotiated, as well as the payments for their services(?) to the health plans.

Yet, they are continually contracted for their services. A fact that becomes more confounding considering actual savings as a result of a PBM is rarely disclosed, by a PBM or its clients. You see, contractual arrangements with the drug makers are not subject to disclosure. The states of Maine and South Dakota, and the District of Columbia, do have laws on the books requiring PBM transparency. But the PBMs are fighting even those efforts. The Pharmaceutical Care Management Association (PCMA) filed suit against Maine and D.C. for their laws.

In Maine, although the industry won two preliminary injunctions against the state, they were denied their motion for summary judgement. The judge agreed that financial disclosure was reasonable in controlling costs of prescription drugs. In D.C. it was a different story, with the judge ruling it would be an "illegal taking of private property". Extraordinary, considering the taking which has already occurred.

THE DEVIL (YOU THINK) YOU KNOW

It continues to baffle me that so many Americans are willing to settle for the devil they know, while remaining fearful of a public health care option for all. They claim the government would have bureaucrats deciding whether or not they get care and how much, just like the insurance companies. They claim they are afraid of socialized medicine, even though the VA and Medicare are essentially just that. They even point to the fact that Medicare doesn't work very well and is running out of money. I would say just ask any senior if they want their Medicare taken away. They, and I, happen to believe it works very well, thank you. And to the extent that it doesn't work, or is running out of money, I'll let you ask Billy Tauzin and all of the politicians-turned-lobbyists why that might be.

And for those who argue that private industry is just more efficient and cost effective by nature, it comes down to one question. Is it more efficient at making health care better for us all, or more efficient at making money for private industry? Look in any direction you choose and you'll find the answer to that question. Follow the money.



Much of the information contained in this and all of my posts is the result of the hard work and investigation of many like-minded writers like myself. And it's from many of their writings that I get much of my information. Please honor their commitment to digging through the muck by staying informed. Read. -JW