Big change no challenge for Big Pharma

Even with the Democrat-controlled Congress, the drug industry still has more influence in Washington than consumers, says Fortune's John Simons.

By John Simons, Fortune writer

NEW YORK (Fortune) -- Talk is cheap. Just ask some of the Democratic presidential candidates jockeying for position on the 2008 campaign trail. They're reserving some of their most venomous verbiage for the nation's drugmakers. Yet, despite all the demonizing, the drug lobbying in Washington remains surprisingly strong - even under the new Democrat-controlled Congress.

Out among the voters, New York senator Hillary Clinton is talking up her plans to resurrect at least part of her decade-old plan for universal health care, a scheme that would inevitably focus on lowering the price of prescription drugs. Democratic darling, Illinois Senator Barack Obama too, has called out the drug industry while highlighting corporate lobbying abuses. Not to be outdone, former North Carolina senator John Edwards has called the Medicare Prescription Drug Plan, passed by a Republican-led Congress in 2003, "one of the great giveaways to the drug industry in American history."

Big Pharma is an easy target for campaign invective. When Democrats won control of both houses of Congress last fall, they made it no secret that one of their top priorities is revamping the Medicare drug plan. A new Democrat-designed version would allow the federal government to negotiate directly with drug companies to garner lower prices on behalf of Medicare's 43 million members. The Democrats have said they'd like Medicare prescriptions to operate like the Veteran's Administration plan, where the VA uses the leverage of restrictive formularies to negotiate discounts of roughly 25 percent below average prices. Also on the Democratic agenda is drug safety legislation of some sort. The measure would also seek to put tighter pre-approval demands on the drugmakers to show the FDA that their drugs are safe.

But given the realities of politics, very little is likely to change for drugmakers in the current Congress. For starters, the new Congress has its hands full, what with ongoing debates over the Iraq War, and a Democratic majority getting its bearings after a decade as the minority party.

But most importantly, Big Pharma has few rivals along the Potomac when it comes to raw influence. Much of that power comes from the drug industry's vital role as a source of campaign contributions and lobbying money. Between 1998 and 2006, drug companies spent more than any other industry cajoling and wining and dining politicians and their staffers. All told, they shelled out over $1 billion during the eight-year period, more than any other U.S. industry, according to Washington watchdog group, the Center for Responsive Politics. And in the most recent election, Big Pharma was among the top industries, contributing $17.8 million to political candidates and political action committees. Some 68 percent of contributions went to Republicans; 31 percent to Democrats.

Big Pharma's deep pockets ensure that the industry will find many sympathetic ears. Even the industry's chief lobbyist notes, "The campaign trail hostility is temporary. They used these issues to win a majority. But now they have to govern and do things responsibly for people employed in their states as well as patients who are counting on them." says Billy Tauzin, president and CEO of PhARMA, the drug industry's lobbying leviathan.

Furthermore, predicts Tufts University political scientist Jeffrey Berry, drug companies will begin funding Democratic campaigns more generously in the next few election cycles. "Companies are not ideologues; they're pragmatists," says Berry. The upshot: "Democrats will shout loudly, and carry a small stick," he jests.

The best indication that Big Pharma may emerge unscathed from the current session of Congress: The Medicare reform bill that passed the House in January as part of the Democrats' "first hundred hours" agenda. The pending legislation requires Health and Human Services to negotiate directly with manufacturers, but stops short of giving the government leverage and allowing it to remove a drug from the lists of medicines (known as formularies) offered under the program. The Senate is considering a similar bill. Regardless, President Bush has said he will veto any Medicare reform legislation.

On this matter the president has voters behind him. When the Democrats cobbled their message in 2006, a majority of seniors were dissatisfied with the new Medicare program. A poll taken in late November by the Kaiser Family Foundation found that 76 percent are now pleased with it.

"These are political stunts that get a lot of publicity, but mean nothing," says Ira Loss, a health care legislation analyst at Washington Analysis, an independent research broker/dealer. Indeed, many Democrats will think twice about doing anything to crimp the industry's profits. Why? Observe the locales where Big Pharma and Big Biotech employ the most voters: California, Illinois, Massachusetts, New Jersey, New York, and Pennsylvania, all traditional Democratic strongholds - something elected officials and those running for higher office aren't likely to forget.


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