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Pablo Martinez Monsivais  /  AP
President Barack Obama joins AARP Chief Executive Officer Barry Rand in the White House's Diplomatic Reception Room Monday during an announcement on lower drug costs.
updated 6/22/2009 7:43:42 PM ET 2009-06-22T23:43:42

Hailed by President Barack Obama, a multi-billion-dollar promise by drug companies to narrow a Medicare drug coverage gap for seniors is valid only if Congress succeeds in passing a comprehensive health care bill encountering strong opposition from Republicans, an industry spokesman said Monday.

The commitment was "made in the context of comprehensive health care reform being enacted," said Ken Johnson, senior vice president of the Pharmaceutical Research and Manufacturers of America. "We recognize that there has to be a shared commitment if this is going to happen and this is our part of it."

The industry sealed a weekend deal with the White House and Sen. Max Baucus, D-Mont., chairman of the Finance Committee, to spend $80 billion over the next decade defraying the cost of drugs for seniors and paying a portion of the cost of Obama's legislation. The president, in an appearance Monday at the White House, said the agreement was "a significant breakthrough on the road to health care reform, one that will make a difference in the lives of many older Americans."

The agreement marked a major triumph for Baucus, although the drive to enact a sweeping bill faces numerous obstacles and some of the timetables set by Democrats have begun slipping. Baucus has yet to produce a draft, even though he originally said it would be completed by last week. And officials said the Senate Health, Education, Labor and Pensions Committee would not be able to complete work on its version of the bill before Congress begins a one-week vacation at the end of the week.

Deal is just a beginning
Obama's appearance and the deal that prompted it underscored the extraordinary complexity of the political environment as the administration and Democrats try to remake the nation's health care system. While Obama and lawmakers praised the pact for helping millions of seniors, they acknowledged that it was just one step on the long road to overhaul.

While many details of the weekend deal remained unclear, so, too, was the agreement's impact on efforts by Baucus and the White House to gain similar concessions from insurance companies, hospitals, doctors and others.

Baucus has been negotiating for weeks, hoping to win agreement on hundreds of billions of dollars worth of savings for legislation expected to cost $1 trillion or more over 10 years. He and the president have both said the legislation will not add to the deficit.

Obama made his appearance with A. Barry Rand, the president of the AARP, the seniors' advocacy organization whose support for health care legislation is coveted by the White House. "This is an early win for reform," Rand said in remarks that omitted any mention of the drug industry or PhRMA.

A win for the drug industry?
The drug industry's top official, PhRMA CEO Billy Tauzin, was not invited, although he is scheduled to be present at the White House on Wednesday for a town-hall meeting on health care.

The drug industry has long been aligned with Republicans in Congress, and the industry's decision to strike a deal with the White House and Democrats in Congress appeared calculated at least in part to head off a series of more costly demands as the legislation is drafted.

"Our initial take is that this is a win for the industry because it appears to short-circuit the prospect of direct government price negotiation ...," said Leerink Swann, a health care equity research company.

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Who's who in the health care debate

Many Democrats favor giving the government authority to negotiate directly for lower prices under Medicare with drug companies, a step they argue will hold down prices. The Congressional Budget Office has disputed that claim.

Industry also has been fighting a yearlong effort to prevent passage of legislation permitting the importation of prescription drugs from Canada and certain other countries where prices are lower than in the United States.

More pressing, House Democrats are drafting a bill that is expected to rely on $61 billion from drug companies to completely fill the coverage gap under Medicare, according to officials, as well as additional money to help defray the cost of subsidizing health coverage for millions who lack it.

Making the numbers work
The deal announced over the weekend appears less costly. Drug firms agreed to pay half the cost of brand-name medicines for seniors in the so-called "doughnut hole." That term refers to a feature of the current drug program that requires many beneficiaries to pay the entire cost of prescriptions after initial coverage is exhausted but before catastrophic coverage begins.

Lower-income seniors whose drugs already are subsidized heavily would be exempt, as would those whose income exceeded $85,000 a year, $170,000 a year for couples.

An estimated $30 billion to $35 billion of the $80 billion would go to reduce the costs of Medicare beneficiaries. The balance would go toward paying for overall health care legislation, and likely will involve drug companies paying the government larger rebates for drugs taken by patients on Medicaid, the government health care plan for the poor.

Obama insists any bill not add to the deficit, and any costs not covered through cuts in Medicare or Medicaid most likely will have to be made up in higher taxes.


Pharmaceutical donations over the years
Figures compiled by Open Secrets.Org, which tracks political donations and lobbying, show pharmaceutical and health products industries have made donations totaling more than $170 million over the past two decades, 64 percent of it going to Republicans.

The disparity was largest for the two years ending in the 2002 elections, when GOP candidates received 74 percent of the industry's donations.

The drug benefit under Medicare passed Congress in 2003, when Republicans controlled Congress and President George W. Bush was in the White House.

AARP supported the legislation, angering Democrats who had longed viewed the organization as an ally.

PhRMA's agreement drew a skeptical response from a spokesman from House Republican leader John Boehner of Ohio.

"Obviously, we hope seniors see lower costs, but there is a real concern that this will largely benefit the pharmaceutical industry, which wants seniors to use fewer generic medications and more costlier brand-name drugs, driving up costs for everyone," said Michael Steel.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Video: Obama praises drug cost agreement

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