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Pharma's Investment

Turns out that the White House's deal with Pharma might actually pay off. Mike Allen has the details:

A new coalition this morning is launching $12 million in TV ads to support President Obama’s health-reform plan, in the opening wave of a planned tens of millions of dollars this fall. The new group, funded largely by PhRMA, is called Americans for Stable Quality Care. It includes some odd bedfellows: the American Medical Association, FamiliesUSA, the Federation of American Hospitals, PhRMA and SEIU. [...]

The group’s campaign is likely to mean that White House supporters keep the upper hand on the airwaves. PhRMA’s participation is key, because the group has promised to kick in as much as $150 million for advertising and grass-roots activity to help pass the president’s plan. But the new group could provoke complaints from the left. The debut ad is mean to shore up support among the conservative House Blue Dog Democrats, and to target swing senators. So it’s airing in Alaska, Arkansas, Colorado, Indiana, Louisiana, Maine, Montana, Nebraska, Nevada, North Dakota, South Dakota and Virginia. The first buy is expected to run for two weeks, with a weekly spend of around $3 million.

it's a bit unclear whether Pharma alone will be responsible for that $150 million. But let's say it will be. That's a serious investment. By political campaign standards, it's huge. But by national industry standards, it's piddling.

Consider the sums involved. The White House's original request from Pharma was for $95 billion in savings. That was a number the government considered reasonable enough that Pharma might agree to it voluntarily. Many liberals in Congress wanted far more. But let's imagine that an unfettered and successful political process would have resulted in $95 billion in savings. The deal then, wherein Pharma agrees to an $80 billion cut in return for offering political support, means that the industry spends $150 million to save $15 billion. That a 100-fold return on its investment.

The White House was probably right to make the deal. This was never going to be easy. And passing the bill is a lot better than not passing a bill with $15 billion, or even $500 billion, more in savings. But it does give you a sense for why industries pump so much money into Washington. This town either needs a lot more money in it, so $150 million isn't quite so impressive, or it needs a lot less. But the present situation, where politics runs on money but not very much of it, creates almost comically lucrative investment opportunities.

By Ezra Klein  |  August 14, 2009; 8:53 AM ET
Categories:  Health Reform  
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Comments

The involvement of Big Pharma and the like in this campaign has been a VERY pleasant surprise. I think I was just saying here, a couple of days ago, that the industry groups that had signed on in support of ObamaCare had been acting and would continue to act as neutrals as the bill succeeded or failed - that their 'support' would mean no more than the absence of their active opposition.

Sure, it's a good deal for Pharma, but at least they believe the best deal is to be had here, rather than in outright opposition to any change.

Posted by: rt42 | August 14, 2009 9:42 AM | Report abuse

I thought the left disapproved of pharmaceutical companies spending money on advertising.

Posted by: tomtildrum | August 14, 2009 9:47 AM | Report abuse

But to be fair to Pharma, they could also have chosen to bet on health reform not passing, opposed reform by running ads against reform, and potentially saved $80 billion. And unfortunately, reform failure looks more and more likely by the day.

Posted by: wufang83 | August 14, 2009 10:22 AM | Report abuse

The ad campaign is the result of an unseemly shakedown by Obama.

Will progressives be as ourtraged at big pharma's attempt to influence the current health care reform effort as they were at the insurers' funding of the Harry & Louise ads during the Clinton years? Somehow I doubt it.

Posted by: tbass1 | August 14, 2009 10:41 AM | Report abuse

Prof Alan Sager of BU has spent his career studying drug companies. He has found that they spend about 11% of their budget on R & D, 19% on profit (about twice the average of all industries) and 34% on "Marketing". This includes not only the odious TV and magazine ads, but the thousands of unqualified "pushers" who visit physicians' offices to get them to use various drugs and the many payments to doctors such as fake educational conferences at fancy resorts and stipends to give talks to other doctors based on faulty information supplied by the drug company. The purpose of all this "marketing" is to get us to use drugs we do not need or to use expensive new drugs even when cheaper older drugs are as effective or even more effective. It is clear that we could cut drug prices by at least a third and not impact research at all. This would be about $100 Billion in savings each year.

$8 Billion a year (if they don't raise prices to cover it) looks pretty puny compared to $100 Billion a year.

Posted by: lensch | August 14, 2009 11:20 AM | Report abuse

"$150 million for advertising and grass-roots activity to help pass the president’s plan."

Can any person based in reality call activity provided by the pharmaceutical industry "grassroots"?

Posted by: JohnSnider | August 14, 2009 1:36 PM | Report abuse

as karen ignani stated in her newsmakers piece on cspan where Ezra interviewed her insurers profits amount to one cent. THAT'S RIGHT ONE CENT for every dollar in the healthcare market. They operate on the thinnest of margins and yet they're still villified.

Its nice to see President obama get duped by Pharma. Spend 150 million save 15 billion. I'd make that deal any day.

And not enough can be made of the point she made with electronic auto ajudication. That providers should LOVE and would result in wait times for claims payments that is currently about a month to 45 days to two weeks. No wonder doctors are against a government run plan that won't do that.

Posted by: visionbrkr | August 14, 2009 5:03 PM | Report abuse

What Phrma gave up in the deal with the White House is indeed chump change for them. We could rail about that and demand more. But it is far, far more important to have them on our side than against us......and remember, this is the beginning of reform, not the end, the first step in a long journey. The ultimate may or may not be attained, but we will have to work a long time to get there.

Posted by: scott1959 | August 14, 2009 6:20 PM | Report abuse

visionbrkr, as someone in the industry, you should know that it is not run on profits. I am sure you know this but here is a primer.

The goal of a well run corporation is to make money for shareholders. In the case of health insurance companies this is in conflict with providing good efficient health care to the country.

The for profit insurers have learned that the way to get a high stock price is to have a low Medical Loss Ratio which is the percentage of inflow (premiums) paid out in medical benefit to patients. Notice that they consider medical benefits as "losses."

They do this in two ways. They make the numerator smaller by making it difficult for doctors and patients to collect, by cherry picking, and by recession. They make the denominator larger by obscene executive compensation, high profits, billions spent processing complicated forms they require of physicians and patients, and still more billions spent on fighting with doctors and patients over coverage and payments. This money lowers profit, but because it is money spent on things other than medical benefits, it lowers the MLR.

We waste about $200 each year because the major companies have managed to get their MLR down to 70% - 80% and another $200 Billion each year because of compliance costs for physicians and patients filling out forms and fighting to get paid. But all this goes to lower the MLR.

Posted by: lensch | August 14, 2009 7:06 PM | Report abuse

lensch,

admittedly i'm an agent, i don't get into the high finance like that as much but i know in my state insurers have their acutaries do their best to make sure their MLR is as close to the requirement without going under it and without going too far over it. They do this by their pricing. As i've said before I don't know why they don't include nationwide MLR requirements of say 80%, 85% because that would end the idea of gross profiteering that some people think is the case.

Posted by: visionbrkr | August 14, 2009 10:03 PM | Report abuse

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