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Rx Industry Goes for KO: Drug Companies Spend Record Amount This Election Cycle

November 2000

Executive Summary

The prescription drug industry is spending approximately $230 million this election cycle on lobbying, campaign contributions and issue ads as it tries to shape public policy in the face of increasing public hostility to its price-gouging and profiteering.

It's clear why the drug industry has gone on such a political spending spree. Prescription drug coverage and costs, particularly for the elderly, have become a leading if not the leading issue in election campaigns this year. Drug costs are rising 15 to 20 percent a year. Drug company profits exceed the profits of other Fortune 500 companies two to three times. (1) And drug companies spent 38 percent more on advertising last year to encourage Americans to buy even more expensive drugs. (2) Consumers are demanding that Congress provide Medicare drug coverage and drug price relief for the elderly and the drug industry is resisting, with all its might.

The drug industry's investment has paid off handsomely as the industry's special-interest clout has kept the Republican-controlled Congress from providing prescription drug coverage through Medicare.

Public Citizen's analysis found that:

• The drug industry's political spending could easily top $230 million for the 1999-2000 election cycle. This record amount includes: approximately $170 million for lobbying ($82 million in 1999 and a projected $86-$90 million in 2000); almost $15 million in direct campaign contributions to Republicans and Democrats; at least $35 million in campaign ads by the drug industry front group Citizens for Better Medicare; and $10 million funneled to the U.S. Chamber of Commerce for pro-drug industry campaign ads.

• Drug company lobbying for the first half of 2000 reached $42.9 million, according to lobby disclosure reports analyzed by Public Citizen. It is on a pace to break the industry record of $82 million, set last year, when the industry employed 297 lobbyists or more than one lobbyist for every two members of Congress.

• Drug company campaign contributions already stand at $13.8 million this election cycle (Jan. 1, 1999 through Sept. 30, 2000). That's 2.5 times what the industry gave in 1992 and 52 percent more than the industry spent in the entire 1996 election cycle.

• The drug industry's soft money contributions have exploded this election cycle. Drug companies have contributed $8.8 million in soft money, which is 74 percent more than the amount of soft money they contributed in the entire 1996 election cycle and almost seven times more than the industry's soft money contributions in 1992. Overall, soft money accounts for 64 percent of all drug industry contributions this cycle.

• Drug companies are writing checks increasingly to Republicans. In 1992, 52 percent of the industry's contributions went to GOP candidates and committees. In 1996, the Republican share of drug industry contributions climbed to 71 percent. In the 2000 cycle, 78 percent of industry contributions have gone to Republicans.

• Citizens for Better Medicare, the drug industry's front group, spent $8.5 million from July 1 to September 30, according to the group's first disclosure report filed on Oct. 15 pursuant to a new law that requires IRS section "527" groups to reveal their expenditures and funding sources. (A new law passed this summer required previously secretive "527" groups, which are formed to influence elections, to make such disclosures.) The CBM filing reveals that 98 percent of the money went to ad producer Alex Castellanos, who also works for George W. Bush and the Republican National Committee. Castellanos' threesome of clients raises questions about campaign coordination between the drug industry and Republican candidates.

Margaret Washington vs. Army of Lobbyists

Margaret Washington, 80, of Washington D.C. was a teacher and director of a day care center until she retired 10 years ago. She remains active in her church and community although she suffers from high blood pressure, arthritis, and eye problems as well as heart ailments. Her primary source of income is $543 each month from Social Security benefits. Margaret takes seven prescription drugs every day. Margaret's monthly prescription drug costs exceed $250 so she is often forced to dip into her savings and sometimes ask her daughter for money. She believes that the stress from her expensive drug bills complicates her medical conditions. "I have been a good citizen. I have paid my taxes and I have worked hard," she says. "I deserve some kind of help to make my prescription drugs more affordable." (3)

Margaret Washington's problem like that of many elderly citizens is that Medicare doesn't provide coverage for prescription drugs. That means 13 million Americans under Medicare must pay top retail prices for their prescriptions. Public Citizen drug price surveys in nine states and the District of Columbia show that consumers who lack prescription drug coverage are being charged retail prices that are double the prices prescription drug makers charge their most favored customers, such as the Department of Veterans Affairs. (4)

In other words, if the Medicare program were to get the same price discount as the Veterans Department receives, the price of drugs to uninsured Medicare beneficiaries could be cut in half based on the survey results. Such a price cut would make Medicare drug coverage much more affordable for taxpayers and substantially reduce any out-of-pocket costs for beneficiaries.

But there's one significant obstacle to this solution: the drug industry doesn't want it for fear it would reduce profits. So the industry has employed an army of lobbyists to battle legislation, backed mainly by Democrats, that would provide drug coverage directly through Medicare.

These lobbyists are required to file reports twice a year revealing the issues they worked on and the amount spent on that work. Public Citizen's Congress Watch analyzed drug industry lobbying reports for the first half of 2000 (the most recent available) to follow up on our "Addicting Congress" investigation of the industry's 1999 lobbying and campaign contributions.

Our new investigation found that the drug industry's phenomenal political push has not slowed at all. Instead, it accelerated as the industry pulled out the stops to keep House, Senate and presidential candidates from advocating policies that would cut into profits.

Public Citizen found that:

• Drug companies spent $42.9 million in the first half of 2000 a pace that will top the industry's record spending in 1999 ($82.1 million), when it employed 297 lobbyists, including 85 who were former members of Congress or former Congressional staffers.

• The top 10 drug companies accounted for $24.4 million in lobbying expenses in the first half of 2000. By comparison, that's 62 percent more than what the top 10 companies and trade associations in the automotive industry spent ($15 million) in the first six months of 2000. (5)

• The roster of lobbyists working for the drug industry reads like a "who's who" of Washington insiders: Haley Barbour (former chairman of the Republican National Committee), Linda Daschle (wife of Senate Minority Leader Tom Daschle), Bob Livingston (former House Appropriations Committee chairman), Vic Fazio (former House Democratic Caucus Chairman) and C. Boyden Gray (former counsel to President George Bush). The lobbying dream team also includes lesser known but well-connected players such as Scott Hatch (son of Judiciary Committee Chairman Sen. Orrin Hatch), Tony Podesta (brother of President Bill Clinton's chief of staff, John Podesta), and Vicki Hart (former aide to Senate Majority Leaders Bob Dole and Trent Lott). (6)

Source: Public Citizen analysis of lobby disclosure reports filed with the Secretary of the Senate and Clerk of the House pursuant to the Lobby Disclosure Act of 1995.

Soaring Campaign Contributions Benefit GOP

In addition to increased lobbying, drug companies also have dramatically boosted their campaign contributions. Drug company contributions already have reached $13.8 million this election cycle which is far more than the industry has contributed in the past. That figure includes soft money (unlimited contributions to party committees) and hard money (limited contributions from individuals and political action committees).

As the drug industry's campaign cash reached new heights, so did the share of those contributions flowing to Republicans, who have controlled the House and Senate since 1995, and thus, the legislative agenda on Capitol Hill (see Figure 1). For instance, this year, House Republican leaders barely passed H.R. 4680 by a margin of 217 to 214, a bill that would offer prescription drug coverage to Medicare beneficiaries delivered through private insurance companies and HMOs. Essentially, the bill which was acceptable to the drug industry would subsidize private companies to provide prescription drug benefits, leaving millions without coverage. The Democratic alternative would have provided prescription drug coverage under the Medicare program a great fear of the industry because it could lead to much stronger measures to rein in skyrocketing drug costs.

Killing Us Softly

Much of the drug industry's hike in campaign contributions can be traced to a huge surge in soft money, which has become the contribution of choice for drug companies. Soft money accounts for 64 percent of all donations thus far in the 2000 cycle. This shift to soft money is easy to explain drug company executives know soft money enables them to maximize their influence over congressional leaders who help raise party money and determine the legislative agenda.

In the 2000 election cycle, drug companies have contributed far more soft money than in the past, with a growing share going to the Republicans. For instance:

• In the 2000 election cycle, the industry has contributed $8.8 million in soft money (see Table 2). That's 74 percent more than what drug companies contributed in the entire 1996 election cycle and almost seven times more than the industry's soft money contributions in 1992. (7)

• Drug industry soft money also has gone increasingly to Republicans. For instance, in 1996, Republicans received 72 percent of the industry's soft money. (8) This cycle, the GOP's share has climbed to 83 percent. This lop-sided distribution of soft money helps explain the overwhelmingly partisan vote this summer for the House Republican leadership's prescription drug bill, which the drug companies favored but most health and consumer groups opposed.

Source: Public Citizen analysis of Center for Responsive Politics (www.opensecrets.org) and FECInfo (www.tray.com) data.

Hard Cash

Drug industry hard money contributions to candidates from company employees and political action committees also reflect the pro-Republican party tilt of the drug industry (see Table 3). Overall, Republican candidates received more than two-thirds (69 percent) of all contributions. While strongly biased toward Republicans, this split is not as extreme as the distribution of drug industry soft money to Republicans (83 percent). That's because the drug industry has friends among individual Democratic office holders, such as Sen. Joe Lieberman (D-Conn.) and Rep. Cal Dooley (D-Calif.). Dooley was especially aggressive in opposing a popular Democratic bill (H.R. 664) that would allow senior citizens to purchase drugs at the same low price that drug makers charge federal agencies such as the veterans health care system. In return, the drug industry ran TV ads praising Dooley for his position. (9) The industry's soft money, by contrast, goes almost exclusively to GOP party committees whose leaders control the legislative agenda.

Source: Public Citizen analysis of Center for Responsive Politics (www.opensecrets.org) and http://www.opensecrets.org);/ FECInfo (www.tray.com) data.

This preference for Republicans is further evident in the lists of top Senate recipients (Table 4) and House recipients (Table 5) of drug industry contributions. On each list, eight of the top 10 recipients are Republicans.

It appears that the drug industry has received a good return on its contributions. For instance, Sen. Orrin Hatch (R-Utah) is the leading recipient of drug industry contributions in the Senate this cycle. Last year, Hatch helped Schering-Plough by trying to push its patent extension bill for its blockbuster drug Claritin through the Senate Judiciary Committee, which he chairs. The Claritin patent extension would cost consumers an estimated $7.3 billion over 10 years. (10) When that effort failed due to adverse publicity Hatch didn't give up. He just employed more discreet tactics. This summer, he tried to attach Schering-Plough's patent extension language to a military appropriations bill and tried to do it anonymously, until the effort was exposed by the media. (11)

Source: Public Citizen analysis of Center for Responsive Politics (www.opensecrets.org) and http://www.opensecrets.org);/ FECInfo (www.tray.com) data.

In the House, Rep. Bill Thomas (R-Calif.) is by far the leading recipient of drug industry hard money. It's no wonder, Thomas was the lead sponsor of H.R. 4680, the bill that would subsidize private insurance companies and HMOs to provide drug coverage for Medicare beneficiaries. The Thomas bill, which could have left millions uninisured, would not have brought the negotiating power of Medicare into play and thus, would do little to rein in drug costs. The second leading recipient in the House is Speaker Dennis Hastert (R-Ill.) who strongly supported the Thomas bill and helped push it through the House by a very narrow party line vote.

Source: Public Citizen analysis of Center for Responsive Politics (www.opensecrets.org) and http://www.opensecrets.org);/ FECInfo (www.tray.com) data.

Citizens for Better Medicare

In addition to the drug industry's record-spending on campaign contributions and lobbying, it is also financing a front group called Citizens for Better Medicare (CBM) (12) that is expected to spend between $30 million and $50 million this election cycle on "issue" ads that criticize Democratic prescription drug plans, and in many cases are trying to elect or defeat incumbents. (13)

CBM spent $8.5 million in the third quarter of this year alone, according to a report the group recently filed with the Internal Revenue Service. This is the first report filed pursuant to a new law that took effect on October 15 requiring so-called [IRS code] "527" groups, which are established to influence elections, to disclose their contributors and expenditures. CBM was allowed to operate in complete secrecy prior to October 15, so its income and spending before this year's third quarter (July 1-Sept. 30) cannot be determined.

CBM's first disclosure report revealed where most of CBM's money was going: 98 percent of its $8.5 million in expenses went to National Media Inc., a company headed by Republican ad guru Alex Castellanos. Known for his striking attack ads, (14) Castellanos also makes campaign ads for George W. Bush and the Republican National Committee. The fact that Castellanos' three clients have similar objectives raises the question whether Bush, the RNC and the drug industry are coordinating their campaigns. The curious threesome of clients also raises the question of whether CBM is truly an independent group, or a surrogate for Republican candidates.

In addition to Citizens for Better Medicare, the drug industry is also funnelling millions of dollars to the U.S. Chamber of Commerce, which is then running TV ads on the industry's behalf. The Wall Street Journal recently reported that the Chamber will spend $20 million on ads, which will be "underwritten substantially by drug companies," because some industry officials feel the Chamber has more credibility with voters and therefore, greater freedom to run attack ads. (15)

In sum, if the drug industry pays for $10 million of the Chamber's TV ads, and if Citizens for Better Medicare spends $35 million on campaign ads (a conservative estimate), and if drug industry campaign contributions total $15 million (very likely), and if drug industry lobbying in the second half of this year keeps pace with the first six months, then the drug industry will spend approximately $230 million trying to shape Congressional policy in the 1999-2000 cycle.

Endnotes

1. Public Citizen, "Analysis of Corporate Profits 1999."

2. National Institute for Health Care Management (NIHCM), "Prescription Drugs and Mass Media Advertising," Research Brief, September 2000.

3. Public Citizen, Washington D.C. area drug price survey, Oct. 24, 2000. See full report at http://www.citizen.org/congress/drugs/statereports/washdc.html

4. Public Citizen's state drug price surveys can be found at http://dev.citizen.org/congress/reform/state_rx_price

5. Public Citizen analysis of auto industry lobby disclosure reports filed with the Secretary of the Senate and Clerk of the House pursuant to the Lobby Disclosure Act of 1995.

6. Public Citizen analysis of disclosure reports filed with the Secretary of the Senate and Clerk of the House pursuant to the Lobby Disclosure Act of 1995. A full 1999 roster of drug industry lobbyists can be found in Public Citizen's "Addicting Congress" report.

7. Center for Responsive Politics (www.opensecrets.org).

8. Public Citizen, "Addicting Congress: Drug Companies' Campaign Cash & Lobbying Expenses," July 2000, Table 3, page 10.

9. Public Citizen, "Addicting Congress: Drug Companies' Campaign Cash & Lobbying Expenses," July 2000, Table 3, page 10.

10. Prof. Steven Schondelmeyer, "Patent Extension of Pipeline Drugs: Impact on US Health Care Expenditures," PRIME Institute, University of Minnesota, July 28, 1999. Schondelmeyer asserts that a patent extension for Claritin would keep generic alternatives out of the market for three years, then it would effectively slow consumers' purchases of generic alternatives over the next seven years, as the generic durgs struggled to market themselves on a par with Claritin.

11. Details of Sen. Hatch's support for a Claritin patent extension can be found in the Public Citizen report "Schering Plough's Political Money Pushes Claritin Patent Extension and Distorts GAO Report," August 2000.

12. Citizens for Better Medicare IRS form 8871 shows the organization's affiliation with the drug industry trade association, Pharmaceutical Research and Manufacturers of America.

13. Juliet Eilperin and Thomas B. Edsall, "Ad Blitz Erodes Democrats' Edge on Prescription Drugs," The Washington Post, Oct. 27, 2000, A14. Eilperin and Edsall provide an estimate that has been reported in other news stories recently that Citizens for Better Medicare will spend up to $50 million on issue ads this election cycle.

14. Sara Fritz, "Consultant Bridges Ad Campaigns," St. Petersburg Times, July 31, 2000. Fritz says, "Castellanos' most notable ad, broadcast in 1990 on behalf of Sen. Jesse Helms (R-N.C.) was clearly designed to stir up resentment among white voters toward minorities in general and, more specifically, toward Helms' black opponent. To this day, consultants debate the merits of that ad. Under the Code of Ethics of the American Association of Political Consultants, members pledge that they will use no appeal to voters which is based on racism.'"

15. Jim VandeHei and Tom Hamburger, "Drug Firms Underwrite U.S. Chamber's TV Ads," The Wall Street Journal, Oct. 6, 2000.

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