The Other Drug War II
This new Public Citizen report, the third in as many years, shows how the biggest drug companies and their trade associations employed more lobbyists and spent more on Washington, D.C. lobbying in 2001 than in previous years. This lobbying increase occurred while overall lobbying by all industries appeared to decline in 2001, based on available data.
The drug industry’s lobbying money was well spent. Although the industry faced mounting pressure in 2001 from employers, politicians and senior citizens to make prescription drugs more affordable and accessible, drug companies lost no legislative battles last year. Instead, they actually gained ground – and additional profits – thanks to federal legislation that extends the lucrative monopoly patent protections for some drugs if they are tested for safety in children. The success of drug companies in Washington, D.C. last year owes much to the industry’s phenomenal lobbying efforts.
The full bill for that massive buttonholing operation recently became public with the availability of all lobby disclosure reports for the year 2001. Using these lobbying reports, along with information about the lobbyists’ "revolving door" connections, Public Citizen’s new report shows the following:
Prescription drugs have become a hot topic in America’s heartland and on Capitol Hill. National spending on prescriptions has soared, drug prices have climbed, and millions of elderly Americans have continued to pay for prescriptions out-of-pocket because they lack insurance that covers medicine. Meanwhile, the drug industry remained by far the most profitable industry in the U.S. In a year when overall profits of Fortune 500 companies fell 53 percent, the top 10 drug companies saw profits increase 33 percent from $28 billion in 2000 to $37.2 billion in 2001. (See Public Citizen’s April 18, 2002 report, "Pharmaceuticals Rank As Most Profitable Industry, Again")
Yet despite this formula for outrage and action, Congress did nothing last year to make pharmaceuticals cheaper and more accessible for Americans.
How can this be? The answer is simple: It’s a testament to the prowess of the drug industry’s massive lobbying campaign.
Last year the industry fended off pro-consumer efforts on a number of fronts. In 2001, the drug industry thwarted congressional efforts to create a prescription drug benefit under Medicare with cost-containment provisions; it beat back a push to require drug manufacturers to sell their products to Medicare recipients at the same low prices they’re sold at in other industrialized nations; and it held off attempts to make generic drugs more accessible.
Indeed, rather than giving any ground, the drug industry pushed Congress to pad the industry’s bottom line with a multi-billion dollar incentive program that awards drug companies with an additional six months of monopoly patent protections. To gain these monopoly patent extensions, drug companies need only test some of their products in children.
That particular effort was indicative of the way drug companies work in Washington, D.C. They employed dozens of well-connected lobbyists. (see "Patently Offensive," page 4) They issued ultimatums to members of Congress, saying that the legislation had to be exactly what the industry wanted or else children would suffer. And they built support for their position by funding a "grassroots" coalition – run by a former drug company lobbyist – that claimed to represent sick children.
Drug companies achieved this success and others thanks to an army of well-compensated lobbyists. The full bill for this lobbying assault recently became public with the availability of all lobby disclosure reports for the year 2001 (complete lobby disclosure reports typically lag four months behind the year’s end).
The bottom line – which is detailed in this report – is once again sobering for health care advocates.
Who Didn’t Lobby for the Drug Industry?
Lobbying by all industries in Washington, D.C. appeared to dip last year because of an overall slump in the American economy. But the biggest drug companies showed no signs of cutting back on their lobbying. Instead, they increased their lobbying expenditures and number of lobbyists in 2001.
In fact, the 10 most active drug companies and industry groups spent 16 percent more on Washington, D.C. lobbying in 2001 than the previous year, as they boosted their lobbying bills from $43 million to $49.8 million. (See Table 1) These top 10 companies and industry groups accounted for two-thirds of all drug industry lobbying expenditure in 2001.
The biggest increase in lobbying activity was by the drug industry’s trade association, Pharmaceutical Research and Manufacturers of America (PhRMA), which hiken spending 51 percent from $7.5 million in 2000 to $11.3 million last year. PhRMA spent more on lobbying than any other drug industry organization in 2001.
Other companies that significantly hiked their lobbying expenditures in 2001 were GlaxoSmithKline (28 percent jump), Eli Lilly (23 percent) Hoffman-LaRoche (23 percent), Johnson & Johnson (17 percent) and Amgen (15 percent).
The 10 most active companies and trade groups also increased the number of lobbyists they employed by 30 percent, as their lobbying ranks swelled from 417 to 541 paid advocates.
(Public Citizen defines the drug industry as brand name and generic pharmaceutical companies and their trade associations. Several large biotechnology companies and their trade association are included because they share similar agendas as the brand-name pharmaceutical companies on intellectual property, Medicare drug benefit and pricing issues.)
Overall, the industry employed 623 different lobbyists and spent $78.1 million on lobbying in 2001. (See Table 2) Since 1997, the industry has spent $403,071,467 to lobby the federal government. But the 2001 totals mark a decline from the previous year when drug companies and their trade associations employed 625 lobbyists and spent $92.3 million.
This industry-wide dip is largely due to dramatic reductions in spending by three companies: Schering-Plough (lobbying expenditures dropped $6.3 million), Pharmacia ($2.4 million decrease) and Abbott Laboratories ($1.9 million dip).
In addition, mergers continue to play a part in consolidating the lobbying operations and expenditures of companies. For example, in 2000 Glaxo Wellcome spent $3.13 million and SmithKline Beecham spent $2.86 million on lobbying. But last year, the two companies merged into GlaxoSmithKline, and were able to eliminate some duplication in their lobbying efforts and reduce the number of lobbyists employed. As a result, the new GlaxoSmithKline spent $4 million – or $2 million less.
Furthermore, the drug industry faced less threatening political dynamics in 2001 than in the previous year. In 2000, a presidential election year, politicians were more focused on prescription drug issues than they had been in decades. And as part of election-year politics, members of Congress gave serious consideration to bills that aimed to provide comprehensive drug insurance through Medicare and control prescription prices. Thus, the industry felt more threatened in 2000 than in 2001, when the push for a Medicare benefit and mechanisms to contain drug costs abated.
That said, the drug industry – as defined by Public Citizen – still appeared to have spent more on lobbying in 2001 than any other industry, based on available data.
Watch the Revolving Door
In the process of employing 623 hired guns, the drug industry acquired the services of the top firms in Washington, D.C. and some of the best lobbyists.
For starters, the industry hired 23 former members of Congress. (See Table 3) These former members were almost evenly divided by party affiliation, with 13 Republicans and 10 Democrats shilling for the industry. They included Sens. Dennis DeConcini (D-Ariz.) and Steve Symms (R-Idaho), Reps. Vic Fazio (D-Calif.) and Bob Livingston (R-La.), and even the husband-wife team of former Reps. Susan Molinari (R-N.Y.) and Bill Paxon (R-N.Y.). In 2000, 21 former members of Congress lobbied for the drug industry.
The drug industry also made sure its operation was well-stocked with lobbyists who used to work in Congress or other branches of the federal government. In all, 340 drug industry lobbyists (54 percent of the total) came through the revolving door that spins between Capitol Hill and K Street. (See Table 4) In 2000, 316, or 50 percent of the 625 lobbyists, had revolving door connections.
These revolving door lobbyists include well-connected veterans, such as Haley Barbour, who was a top political adviser in the Reagan White House, as well as chairman of the Republican National Committee (RNC), where he raised money from pharmaceutical companies. (Barbour is currently Finance Committee chairman of the National Republican Senatorial Committee.)
The industry added some impressive revolving door lobbyists to its roster last year. For example, Ronna Freiberg, who was legislative director for former Vice President Al Gore, lobbied for five drug industry clients in 2001. Steve Ricchetti, who was deputy chief of staff for ex-President Bill Clinton, had three drug industry clients last year. Wallace Henderson, who was chief of staff to Rep. W.J. "Billy" Tauzin (R-La.), chairman of the important House Energy and Commerce Committee, became a drug industry lobbyist last year; so did Cathy Abernathy, who was chief of staff for Rep. Bill Thomas (R-Calif.), the chairman of the House Ways and Means Committee.
The Key Issues
Drug industry lobbyists worked on a variety of issues, ranging from tax credits to stem cell research. But above all they focused on legislative issues directly connected to the industry’s financial bottom line. In 2001, that meant a Medicare prescription drug benefit, intellectual property protection, patent extensions, and prices.
One can get a good sense of the industry’s legislative priorities by examining the disclosure reports for the 10 most active companies and industry associations – and looking at the number of lobbyists they brought to bear on these issues.
Consider the issue of a Medicare prescription drug benefit. The 10 most active drug companies and industry groups employed 285 lobbyists who worked against a comprehensive prescription drug benefit administered by Medicare. The same 10 companies and groups employed 182 lobbyists who worked on patent and intellectual property protection issues. (Most lobbied against legislation, known as the Schumer-McCain bill, S. 812, which would make it easier for consumers to gain access to lower-cost generic drugs.)
Perhaps the best example of the drug industry’s lobbying prowess was its work on a provision in federal law known by the mind-numbing name of "pediatric exclusivity." The provision amounts to a huge giveaway to the industry, in the form of a six-month monopoly patent extension. And with the help of industry lobbyists, pediatric exclusivity elbowed its way into Congress’s busy post-September 11 agenda.
Patently Offensive: A Case Study
The industry’s goal was reauthorization of a law first passed in 1997 that gives a financial windfall to drug companies for testing the safety and efficacy of some pharmaceuticals in children. The government does not pay companies to test the safety of drugs in other population groups, such as women and minorities. It requires such tests. But drug companies had historically refused to test their products in children because the children’s market for prescription drug is not as big and rewarding as the adult market.
Anxious to get drugs tested in kids, Congress in 1997 resorted to a bribe, creating a financial incentive for pediatric tests – six months of added monopoly patent protection. Unfortunately, the pediatric incentive turned out to be too onerous to consumers and too generous to drug companies. Pediatric tests cost only $3.9 million per drug on average, while six-month patent extensions were worth more than $1 billion in added sales for some blockbuster drugs.
In January 2001, the federal Food and Drug Administration (FDA) estimated that the pediatric incentive would cost consumers $14 billion in delayed access to cheaper generics over 20 years. Rep. Henry Waxman (D-Calif.), the leading Democratic sponsor of the original patent extension legislation, wanted to revise the law so it dangled in front of drug companies something more like a carrot than a carat. "We don’t have to pay this much," lamented Waxman. "In fact, if we paid this price in any other [policy] we’d call it waste, fraud and abuse."
Waxman and other Democrats offered several amendments aimed at curtailing the drug industry’s windfall from the pediatric patent extension. (For example, one amendment would have replaced the six-month patent extension with a program to pay drug companies twice the costs of any pediatric studies.) But all of the amendments were defeated, thanks to Republicans, who voted almost unanimously against them, and some Democrats. Why? In part, because when drug industry lobbyists got face time with members of Congress and staffers, their message was clear: "They were pretty pointed in saying, in effect, ‘We’ll walk away [if Congress trims the pediatric incentive]. We want our bill.’"
That message was reinforced by children’s health advocacy groups, such as the American Academy of Pediatricians (AAP), which felt it had no choice but to support the windfall incentive. Together, lobbying by the industry and children’s groups such as the AAP and the Coalition for Children’s Health – which received funding from PhRMA and was headed by a former drug company lobbyist – was potent. Children’s advocates were "giving members of Congress who wanted to vote with PhRMA a fig leaf," said one key congressional staffer.
The drug industry lobbied the House Energy and Commerce Committee, which had jurisdiction over the pediatric patent extension, in strategic fashion. Consider the efforts of Merck, the most successful drug company in America. To get the patent extension bill passed, Merck knew it needed to win friends among Democrats in the House Energy and Commerce Committee.
So Merck hired two former Democratic House staffers with close ties to the committee to lobby on the bill. One was Kay Holcombe, who worked on the Energy and Commerce Committee, which had jurisdiction over the bill, from 1993 to 1997. The other was Stacey Rampy, a former health care aide to Rep. Anna Eshoo (D-Calif.). (PhRMA employed another former Energy and Commerce Committee staffer, Howard Cohen, who was committee counsel from 1988-1999, to lobby for the pediatric incentive.) Suddenly, Rep. Eshoo emerged as the chief Democratic sponsor of the pediatric patent extension legislation. Then, Eshoo led a group of committee Democrats who opposed all of the amendments aimed at curtailing the windfall incentive.
As the pediatric incentive bill moved out of the House committee of jurisdiction, the message was clear: opponents couldn’t muster the votes to make the legislation more consumer-friendly. The dynamic was similar in the Senate. Drug companies made it clear that they had no intention to negotiate. "The message was always ‘it’s good for kids, it’s good for innovation, don’t screw with it or it could go away,’" said one Senate aide who was lobbied by the industry.
And once again, drug companies employed lobbyists with key connections to Democrats such as Steve Ricchetti, who was deputy chief of staff for President Clinton and former executive director of the Democratic Senatorial Campaign Committee. Ricchetti’s firm (Ricchetti Inc.) lobbied for the pediatric bill on behalf of Eli Lilly and Pharmacia in 2001 and was paid $390,000 from the two drug companies in that period.
The pediatric incentive bill sailed through the full House and Senate and was signed into law.
Most Popular Firms and Lobbyists
The drug industry was very good for Washington’s "K Street" economy last year: 129 firms were paid to lobby for the industry, and 61 different lobbying firms earned at least $100,000 from the drug industry in 2001.
The leading firm, in terms of income, was Powell, Goldstein, Frazer & Murphy, LLP, which specializes in patent law and intellectual property protection. Its earnings – which were almost 50 percent more than the second-most popular firm, Washington Council Ernst & Young – show the importance of patent protection to PhRMA and the drug industry. (See Table 5)
Some lobbyists were much more popular with drug companies than others. For instance, Karina Lynch, an associate at Williams & Jensen and a former lawyer for the Senate Permanent Subcommittee on Investigations, represented eight drug industry clients in 2001. (See Table 6)
Brand-name Drug Companies Blow Away Generics in Lobbying
There are basically two kinds of companies in the pharmaceutical business: brand-name drug companies (which receive roughly 90 percent of the money that Americans spend annually on prescriptions) and smaller generic drug makers, who often compete with the brand-name companies for market share.
Occasionally, brand-name companies and generic companies share the same lobbying agenda. For example, Barr Laboratories, one of the largest generic drugmakers, supported the pediatric exclusivity legislation because of benefits it offered to companies that brought to market the first generic version of a certain drugs. But more often the brand-name and generic companies are at odds. When that happens, the generic companies are outgunned in lobbying efforts by bigger brand-names companies.
In 2001, brand-name companies and their trade associations accounted for 97 percent of all pharmaceutical lobbying spending ($75.7 million out of a $78.1 million total). Brand-name companies employed nine lobbyists for every one employed by generic companies. (See below)
Conclusion: Prescription for Success
As the House Energy and Commerce and Ways and Means Committees holding hearings on the Medicare prescription benefit proposals during the week of June 17, 2002, drug industry lobbyists are expected to swarm Capitol Hill. The industry’s chances of getting what they want this year from Congress once again look good.
The drug industry lobby is well-positioned to make its case to these committees: in 2001, the industry fielded 18 lobbyists who previously worked for the House Commerce Committee and 14 paid advocates that came from the House Ways and Means Committee.
In 2002, new lobbyist registrations show that the industry continues to stockpile strategic talent. For example, one of the bills that brand-name drug companies oppose most is the Greater Access to Affordable Pharmaceuticals Act (S. 812), also known as the Schumer-McCain bill after its chief sponsors, Sens. Charles Schumer (D-N.Y.) and John McCain (R-Ariz.). The bill would limit the ability of brand-name drugmakers to use legal tricks to extend the life of a monopoly patent when it is due to expire.
Sonya D. Sotak was McCain’s legislative assistant for health care issues and worked on the bill – that is, until she recently became a lobbyist for the Pharmaceutical Research and Manufacturers of America. PhRMA, which opposes the McCain-Schumer bill, says Sotak's hiring wasn't an attempt to derail the legislation. But her defection can’t help the bill.
The revolving door keeps spinning the drug industry’s way: PhRMA has enlisted Joel Johnson, former Senior Adviser for Policy and Communications to President Bill Clinton. Pfizer has added Richard N. Bond, Deputy Chief of Staff to Vice President George Bush. And Amgen has bagged J. D. Derderian, staff director for the House Commerce Committee from 1995-2001.