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Has the White House Given the Health-Care Industry Immunity?


There's been a lot of skepticism about the White House's strategy of cutting deals in which industry players voluntarily promise to save money over the next 10 years. The skepticism is simple enough: If the pharmaceutical companies are willing to save $80 billion as a favor to Barack Obama, that suggests there's a lot more than $80 billion that could, and probably should, be saved. As Nancy Pelosi told me, "The minute the drug companies settled for $80 billion, we knew it was $160 billion. Right? If they're giving away $80 billion?" A few minutes later, she suggested that maybe those agreements weren't inviolable. "The president made the agreements he made," she said. "And maybe we'll be limited by that. But maybe not!"

A front-page story in today's New York Times suggests that her optimism was misplaced. Billy Tauzin, head lobbyist for the pharmaceutical industry, hasn't liked some of the cost-saving measures moving through the House. In particular, he's worried about provisions that would allow doctors to negotiate prices with Medicare. So he sat down with a reporter and gave up the game. The deal that the pharmaceutical companies made with the White House wasn't simply to offer up $80 billion in savings. It was to offer up $80 billion in savings so long as the White House promised to protect them from anything that would extract more than $80 billion in savings.

Pressed by industry lobbyists, White House officials on Wednesday assured drug makers that the administration stood by a behind-the-scenes deal to block any Congressional effort to extract cost savings from them beyond an agreed-upon $80 billion.

Drug industry lobbyists reacted with alarm this week to a House health care overhaul measure that would allow the government to negotiate drug prices and demand additional rebates from drug manufacturers.

In response, the industry successfully demanded that the White House explicitly acknowledge for the first time that it had committed to protect drug makers from bearing further costs in the overhaul. The Obama administration had never spelled out the details of the agreement.

“We were assured: ‘We need somebody to come in first. If you come in first, you will have a rock-solid deal,’ ” Billy Tauzin, the former Republican House member from Louisiana who now leads the pharmaceutical trade group, said Wednesday. “Who is ever going to go into a deal with the White House again if they don’t keep their word? You are just going to duke it out instead.”

A deputy White House chief of staff, Jim Messina, confirmed Mr. Tauzin’s account of the deal in an e-mail message on Wednesday night.

This is going to be a big deal. It exposes the soft underbelly of the administration's current strategy: There's no industry opposition because the bill doesn't threaten any of the relevant industries. That's also, at least in part, why it doesn't save any money.

But I imagine the folks at 1600 Pennsylvania are pretty pissed at Tauzin today. It's one thing to make that deal. It's another thing to see it on A1 of the New York Times. But Tauzin is so confident in the White House's desire to retain his support that he could spill the whole thing to reporters in an on-the-record interview and be assured that he'll face no reprisals. His argument this morning was that the White House has given his industry immunity, and Congress has to respect that. We'll see whether it will.

Photo credit: AP Photo/J. Scott Applewhite.

By Ezra Klein  |  August 6, 2009; 11:00 AM ET
Categories:  Health Reform  
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Next: Health-Care Reform Is Popular. But the Bill Isn't.


As I have repeatedly said- the reason I don't support the administration is that I think there is literally zero chance that our political establishment is capable of controlling healthcare spending longterm once all voters are covered. Look at how toxic it has been every time a politician has even discussed controlling costs for medicare- they have been savaged. Once everyone is covered that is just going to get worse and worse.

Posted by: spotatl | August 6, 2009 11:10 AM | Report abuse

Wow. Finding middle ground indeed, Obama...

Posted by: rcaditzpeck | August 6, 2009 11:10 AM | Report abuse

This is, as Ezra says, a big deal, and it will only get bigger and it's a terrible black eye and the White House owes a serious explanation of this and will come in for public flogging that is almost certainly much deserved.

But, spotatl, your comment seems to imply the opposite of what's true. Not sure if it's what you meant or not, but the reality is that Medicare controls costs MUCH better than private health insurance does.

Posted by: OpieCurious | August 6, 2009 11:13 AM | Report abuse

Another triumph for transparency in government.

Posted by: pj_camp | August 6, 2009 11:26 AM | Report abuse

That's nice and all, but Congress writes the legislation--not Obama.

If true, I guess we'll see who Congress really answers to--to the oligarchy or to the people. Alas, the latter just want to be entertained...

Posted by: terraformer5 | August 6, 2009 11:56 AM | Report abuse

I expect Congress to still move ahead with the cost saving measures. I mean, what can Obama do? Veto a bill because it saves too much money?

Talk about a worthless promise.

I guess Obama truly is just another politician.

Posted by: JERiv | August 6, 2009 12:00 PM | Report abuse

i wonder how much more there is to this story

we have heard tauzin/pharma's version ala nytimes

the white house can't speak for congress - house or senate - as baucus and grassley continue to demonstrate

moves in the house suggest that pelosi and house dems have no deal with billy tauzin

hard to believe emmanuel, axelrod, obama, et al would put themselves in this position

let's see how tauzin's gambit plays

Posted by: jamesoneill | August 6, 2009 12:12 PM | Report abuse

Candidate Obama said: "What we'll do is, we'll have the 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." So why wasn't the PhRMA deal broadcast on C-SPAN (the very "drug companies" mentions in calling for transparency)? The PhRMA deal guarantees that they can INCREASE PRICES (I'm not sure everyone understands it is a guarantee of raising prices - check it out and you'll see) in exchange for no drug importants and no government price negotiations. Remember if you object to the White House astroturf with PhRMA, they'll call you the astroturfer! To understand the White House astroturf, look up David Axelrod's ASK Public Strategies to see that the White House has the "gold standard" in astroturfers.

Posted by: SpanishInquisition | August 6, 2009 12:20 PM | Report abuse

Is anyone really surprised?

Obamapolitics has always emphasized consesus over progress. A political philosophy that would rather make deals than stand up for what's right.

But in a lot of ways Obama isn't the problem. He's just the ultimate realization of the weak willed nature of the democratic party that justifies capitulation by saying "we can't let the perfect get in the way of the good."

I'm no flaming liberal, I'm just tired of voting for politicians that don't have any balls. You know, instead of caving in to special interests at the first sign of conflict democrats should learn how to actually win political battles.

Posted by: TheChairman66 | August 6, 2009 12:27 PM | Report abuse

i don't like to post twice but

i was puzzled by the motive behind the nytimes billy tauzin/pharma complaint that he has a deal with the whitehouse

the article stated that tauzin said the white house had told him to go make a deal with baucus and his finance committee

from the boston globe blog - political intelligence

Obama huddles on healthcare with key senators

With time running out before the Senate starts its August recess, President Obama turns his focus back to healthcare today.

He is huddling this morning with the so-called Gang of Six -- the bipartisan group of Senate Finance Committee members trying to make a deal on a healthcare overhaul bill. "

now as i understand it the nytimes helped billy tauzin be in the room with obama and the gang of six

Posted by: jamesoneill | August 6, 2009 12:48 PM | Report abuse

Opie- medicare can control the cost they pay out for any individual procedure so providers make up for that in the scale of procedures they charge for. There are no controls on those costs which is why you get a McAllen problem. Government is incapable of controlling the costs of medicare overall. As Obama and Biden have said covering just 15% of the nation is going to bankrupt our nation. Now they want to cover more? Politicans are deathly afraid of controlling medicare costs. Do you really believe that a democrat running against an incumbent republican wouldn't savage the guy for wanting to reduce healthcare spending. (and vice versa) The voters want more free healthcare. Providers want more free healthcare. Suppliers want more free healthcare. Politicans want more votes. I think our political system is literally incapable of controlling healthcare costs if everyone is covered.

Posted by: spotatl | August 6, 2009 12:59 PM | Report abuse

"As Nancy Pelosi told me, "The minute the drug companies settled for $80 billion, we knew it was $160 billion. Right? If they're giving away $80 billion?" A few minutes later, she suggested that maybe those agreements weren't inviolable."

Good god, she's rapacious. Scheming to extract ever more income from "the rich" one minute, and strip the pharmaceutical industry of it's profits the next.

Too bad the pharmaceutical industry isn't heavily unionized. That's the only reliable insurance against the Democrats' clutches nowadays.

EZ: "It's one thing to make that deal. It's another thing to see it on A1 of the New York Times."

On the contrary, I'm glad to be privy to the backroom dealing that's been going on outside of public view. Who knows whatever side deals have been struck.

Posted by: tbass1 | August 6, 2009 1:19 PM | Report abuse

I don't care about drug co profit even if it is double the average of other industries. I want to get rid of marketing costs. It doesn't seem to me that that is constrained by the agreement.

First ban advertising of presciption drugs as we used to and all other countries (except Canada) do.

Second require the pushers who haunt docs office have qualifications, advanced degree say.

Three, strictly regulate companies' bribes to physicians.

Force druggies to use the $100 Billion a year thus saved to lower drug prices by a third.

Posted by: lensch | August 6, 2009 1:24 PM | Report abuse

You keep writing lines like "The White House cutting deals" that I find disappointing.

Ezra, the Cossacks work for the Czar. Are you now a Cossack?

Obama is in charge here.

Posted by: bobmcmanus | August 6, 2009 2:04 PM | Report abuse

"But I imagine the folks at 1600 Pennsylvania are pretty pissed at Tauzin today. It's one thing to make that deal. It's another thing to see it on A1 of the New York Times."

That's possible, but I do think another alternative is also possible. With an on-the-record confirmation by Messina, and Axelrod in the article as well, it appears that there may be some coordination. On what? A very clear message to insurers-- we'll deal, and hold ourselves to the terms, but we need a deal. Obama wants the $150 billion from the insurance companies to help pay for reform. Along with potentially an agreement to not oppose the whole plan because it includes a public option. AHIP hasn't agreed to the deal. So Obama et al are coming after them. Last chance, they're saying. So why is Tauzin needed? Obama wants to maintain general support from the business community and the political establishment. The PhRMA deal suggests that Obama is willing to be reasonable, but needs some concessions. He isn't looking to hang AHIP out to dry, but they haven't played ball. Establishment politics at its best.

Posted by: wisewon | August 6, 2009 2:25 PM | Report abuse

spotatl - I don't have time for more, but two quick points.

Other countries with government run health care control costs.

While private health insurance premiums increased an average of 7.3 percent annually from 1997 to 2006, Medicare spending per enrollee rose only 4.6 percent a year for the same benefits.

Posted by: lensch | August 6, 2009 3:02 PM | Report abuse

I'm not as troubled by this as some are. There's decent evidence that the pharmaceutical industry is about to get it's ass handed to it by non-gov't/free market means through the emergence of pharmacy benefit management companies that have fully transparent bookkeeping/pass-thru pricing (as opposed to the shady-ass off-the-books accounting of yore). The white house 'only' asking for $80 billion in cost reduction is reasonable when you consider that the free market solutions are going to gut the profit margins from the inside within the next few years.

It's the pharmaceutical industry's version of an itemized bill vs. a non-itemized bill. Given the choice, everyone picks itemized, which will be cheaper by necessity. Yay free market!

Posted by: ThomasEN | August 6, 2009 3:08 PM | Report abuse

If other countries have political systems that are capable of controlling costs on healthcare then good for them. Look at how utterly incapable our own politicians have been at putting even reasonable cost controls in place for Medicare. OUr politicians are incapable of doing it. Do you believe that democrats would refrain from attacking a republican incumbent that comes out in favor of controlling healthcare costs even if the plan is a good idea? of course not.

And Obama and Biden have already said that on the current course Medicare is going to bankrupt our government. Thats covering just 15% of the population. If you believe that government can control costs on a healtcare plan then put those plans into effect on medicare and then come back to me asking to expand coverage.

Posted by: spotatl | August 6, 2009 4:10 PM | Report abuse

"And Obama and Biden have already said that on the current course Medicare is going to bankrupt our government. Thats covering just 15% of the population. If you believe that government can control costs on a healtcare plan then put those plans into effect on medicare and then come back to me asking to expand coverage. "

Well, they may have said that although I thought they say "health care", not "Medicare"--machts nichts since the facts are different. Here's somebody who can do arithmatic, Uwe Reinhardt:

"If "economic sustainability," then exactly what do people have in mind with that phrase? During the past 4 decades or so, the long-run, smoothed average annual growth rate in real (inflation-adjusted) GDP per capita has been about 2%. Suppose that fell to only 1.5% for the next four decades. The current average real GDP per capita of about $40,000 would then grow to about $72,500 by 2050 in constant-dollar terms. Medicare now absorbs about 3% of GDP, leaving a non-Medicare real per capita GDP of $38,800. It was estimated by the CBO about a year ago that Medicare will absorb about 9% of GDP by 2050. Let’s make that 10%. At these numbers, the non-Medicare real GDP per capita available to today’s little critters who will run America in 2050 will still be close to 70% larger than is our current non-Medicare GDP per capita."

Posted by: lensch | August 6, 2009 4:32 PM | Report abuse

The big question this raises is whether Max Baucus really deserves ALL the opprobrium he's been getting for being in the thrall of the health care parasites. Given that Obama is making deals behind everyone's back, maybe Baucus is just co-operating with Obama and his backroom dealmaking, rather than betraying the membership of the Democratic Party who support real reform.
I mean why, given Obama's PUBLICLY stated support for a public option, and the unequivocal support of a strong public option throughout the Democratic Party, is Baucus working so hard to eliminate it? It seems to me that the best explanation is that Obama already bargained that away in exchange for support for something like the "no pre-existing condition exemption" from the insurance companies...

Posted by: Paul_Lukasiak1 | August 7, 2009 1:50 PM | Report abuse

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