GOP corporate allies in Congress's cross hairs

Pharmaceutical companies and Big Oil look to be Democrats' first targets after the party takes control of Capitol Hill in January.

When Republicans expanded their majority in 2004, their first target was the trial lawyers, virtual ATM dispensers for Democratic candidates. A new law curbing class-action lawsuits was on the president's desk by mid-February.

Now, Democrats are targeting some of the GOP's strongest corporate allies – Big Oil, big pharmaceutical companies, and, in all likelihood, defense contractors.

In their first 100 legislative hours, Democrats aim to negotiate lower drug prices for seniors, roll back subsidies for oil and gas companies, and reduce the cost of student loans. They're also quickly gearing up to investigate allegations of corruption in war contracting.

"Parties reward their constituency groups, and they go after the other party's constituency groups. Parties are never stronger than in the first few days, so they do it early," says Larry Sabato, a political scientist at the University of Virginia in Charlottesville.

Moreover, it's popular. "You can't find people supporting big drug and oil companies, except the people who work in them," Professor Sabato says. For example, some 85 percent of Americans say the government should negotiate prescription-drug prices for the Medicare program, according to a recent poll by the Kaiser Family Foundation.

When the GOP-controlled Congress passed the Medicare prescription-drug bill in 2003, it included a one-line provision that banned the government from negotiating directly with drug companies to lower prices for seniors, as it now does for veterans. Rep. Billy Tauzin (R) of Louisiana, who drafted that provision, left Congress to become the top lobbyist for the drug industry as president and CEO of the Pharmaceutical Research and Manufacturers of America (PhRMA) – a controversial move that Democrats say they will make less likely with new lobby-reform legislation.

If that ban on price negotiating is lifted, House Democrats say that seniors overall could cut their drug costs by as much as $180 billion over the next 10 years. A study last year by the consumer group Families USA found that 19 of 20 drugs were priced lower through the Veterans Administration than they were for Medicare recipients.

But critics, including the White House and the Department of Health and Human Services, say that drug prices are already falling faster than expected under the 2003 law, and that mandating government to negotiate drug prices could limit the access to drugs for seniors.

Under the current prescription-drug bill, seniors are already saving an average of $1,200 a year on prescription drugs, according to the Centers for Medicare and Medicaid Services. And the cost to the Treasury is about $30 billion, instead of $43 billion as anticipated.

The conflict sets up one of the first big battles of the 110th Congress. Since 1990, drug companies have contributed more than $134 million to national candidates, more than two-thirds of that to Republicans, according to the Center for Responsive Politics. The industry doubled its political contributions in the run-up to the 2003 legislation.

"Critics would have you believe that there are no negotiations in how prices for medicine are set. That's simply not true," said Ken Johnson, PhRMA's senior vice president, in a statement after the November elections in anticipation of the Democrats' proposal. "The negotiations are occurring – as they should be – between prescription drug plans, several of which already purchase medicines on behalf of tens of millions of Americans, and pharmaceutical companies. That's the marketplace in action and that's how America's seniors will see true savings without compromising the search for future cures."

But despite broad public support for lifting a ban, Democrats are divided on how to proceed and have yet to release specifics of their proposal. Max Baucus (D) of Montana, incoming Senate Finance Chairman, opposed a bipartisan plan in the 109th Congress that would have required the Department of Health and Human Services to get involved in negotiations between private drug plans and drug companies in some cases. If House Democrats lift the ban, as expected, Senator Baucus says he will conduct hearings on its likely impact. Meanwhile, HHS Secretary Mike Leavitt has already signaled that if given the opportunity to negotiate lower drug prices, he would not exercise it.

Similarly, Democratic calls to roll back subsidies for Big Oil are also popular, but problematic. In the first days of the new Congress, Democrats are calling for establishing a fund to promote renewable energy and conservation, which they say will be funded by money recovered from oil companies.

"Every oil subsidy will be given the highest level of scrutiny. We've been paying record energy prices at a time when Big Oil is making record profits – and record CEO compensation packages. It's unconscionable," says Drew Hammill, spokesman for incoming Speaker Nancy Pelosi.

But even before Congress reworks subsidies provided in the Energy Policy Act of 2005, Democrats will take up proposals to recover royalties from oil and gas companies in the Gulf of Mexico. Because of a gaffe in 1998-99 oil leases, negotiated during the Clinton administration, companies have avoided some $10 billion in royalty payments. Republicans in the 109th Congress tried to go after these lost revenues; Democrats say they will push harder.

"The companies have not done anything wrong. We're a nation of law, and contract law is one of the cornerstones of our economy," says Red Cavaney, president and CEO of the American Petroleum Institute, the industry trade group. Under an agreement announced Dec. 14, five companies – BP, ConocoPhillips, Shell Oil, Marathon Oil, and Walter Oil and Gas Corp. – have already reached an agreement with the federal government to pay royalties on production that began on or after Oct. 1, 2006. "Why not let the process continue," he says.

Both the outgoing chairman of the House Government Reform Committee, Rep Thomas Davis (R) of Virginia, and incoming chairman Henry Waxman (D) of California have pledged to go after all lost royalties. Forty-one other companies are currently not paying royalties under the terms of these leases.

Still, the biggest wild card for energy companies such as Halliburton in the 110th Congress isn't energy subsidies, it's the scope of congressional investigations into wartime contracts. House Democrats are reviving an investigative subcommittee that was eliminated when Republicans took back the House in 1995. That panel will target both Defense contractors and White House officials who contracted with them, aides say.