Healthcare reform: Obama cut private deals with likely foes

President Obama struck agreements with insurers, doctors, drug companies, and hospitals to keep them from turning against healthcare reform. What are they?

By the time the Clinton administration launched its bid for sweeping healthcare reform in 1993, corporate interests opposed to the idea had already taken the field. Health insurers alone raised and spent $50 million in advertising to sink the bill. Together, insurers, doctors, hospitals, and drug manufacturers spent more than $100 million on lobbying. The bill never got off the ground.

That’s the scenario the Obama administration set out to avoid.

At a May 11 White House meeting that US officials called a “game changer,” drugmakers, the insurance and hospital lobbies, and the American Medical Association, representing physicians, committed to finding a total of $2 trillion in savings in the healthcare system over the next 10 years. Hospitals and the pharmaceutical industry even agreed to fund a multimillion-dollar ad campaign to promote reform.

Call it a preemptive strike. Early on, the Obama White House reached out to key corporate stakeholders to enlist their support – and, it’s becoming clear, cut them deals to get it. The challenge now, as the House of Representatives is poised to vote on reform legislation, is that not everyone in Congress approves of the private handshakes. Balky Democrats in particular fret that President Obama did not extract enough from these stakeholders in return for the windfall profits they stand to gain if all Americans are required, for the first time, to obtain health insurance.

The White House acknowledges that drug manufacturers agreed to contribute $80 billion in product discounts over 10 years to reduce the cost of brand-name prescription drugs. In turn, Big Pharma stands to get some 30 million new customers and White House help in holding at bay congressional demands for further concessions.

Hospitals, for their part, agreed in July to kick in $155 billion over 10 years toward lowering healthcare costs, the White House confirms. The Senate Finance Committee, a key panel drafting reform legislation, worked out most of the deal’s specifics; the White House agreed to an amount. In return, hospitals got some assurances that government will adequately reimburse them for services. Call it a political insurance policy: If healthcare reform includes the so-called public option (the choice of a government-run insurance plan), hospitals don’t want to be forced to accept Medicare rates because they don’t cover the providers’ full cost of care.

Some stakeholders, such as medical equipment providers, were invited to the table but didn’t cut a deal with the White House and faced stiff penalties as a result. The Senate Finance panel assessed the industry $40 billion over 10 years in its bill, which passed the committee Oct. 13.

“We are committed to working with Congress and the White House to advance health reform and to eliminate the $40 billion tax on medical devices and diagnostics,” said Stephen Ubi, president and CEO of the Advanced Medical Technology Association (AdvaMed), the industry trade group, in a statement after the Oct. 13 Finance panel vote.

Others, such as health insurers, say they weren’t invited at all and face new federal mandates – in all versions of pending legislation – that insurers claim will require them to raise premiums.

These deals are now center stage as Congress heads toward votes that could overhaul one-sixth of the American economy. Some agreements are already unraveling as House and Senate leaders grapple with changes needed to find majorities to pass a bill. The risk is that the corporate interests who so far have backed reform could turn against it. The White House is pushing Democrats to keep the substance of those agreements intact, even at the risk of alienating elements of the party base.

“Some people who are hawks for going after these groups may not have liked [deals made with the White House], but the Obama administration rather astutely recognized that they could have a greater chance of moving ahead if they weren’t being advertised against by a great number of groups that take care of people – and that was worth the price to them,” says Henry Aaron, senior fellow at the Brookings Institution, a Washington think tank.

At the same time, watchdog groups are pushing for more public disclosure about the substance of these deals.

“We should be able to know who they met with and who they have been talking with. If there are deals, if there are understandings, that ought to be public, too,” says Bill Allison, a senior fellow at the nonpartisan Sunlight Foundation, which promotes transparency in government.

Here are elements of these White House-corporate agreements that are stirring controversy on Capitol Hill.

Drug companies

The $80 billion that the Pharmaceutical Research and Manufacturers of America (PhRMA) pledged to contribute to cut prescription-drug costs for seniors survived an early vote in the Senate Finance Committee. But that agreement has taken a battering on Capitol Hill ever since.

Congressional critics say the White House did not strike a tough enough bargain with drugmakers given the tens of millions of new customers they could gain when health coverage becomes mandatory. Congress, they say, is not bound by any agreement that caps at $80 billion PhRMA’s obligation to support reform.

“Compared with what PhRMA is likely to gain in return for this agreement, they really haven’t given up virtually anything at all,” says Henry Simmons, president of the pro-health-reform National Coalition on Health Care, an alliance of some 70 business, labor, health, and faith-based groups favoring healthcare reform.

“I can’t be bound by someone else’s agreement. President Obama never sat down with us. We’re not party [to] anything like that,” says Sen. Tom Harkin (D) of Iowa, who chairs the Health, Education, Labor and Pensions Committee (HELP), the other Senate panel that drafted a reform bill. “PhRMA is just giving pennies when they ought to be coming forward with a heck of a lot more than that. "

The House version of reform requires the industry to contribute $140 billion to lowering drug costs for seniors. It also allows the government to negotiate lower Medicare drug prices for seniors – an option the industry thought it had excluded with its deal with the White House and Senator Baucus. As the Senate merges the Finance and HELP versions of the bill, Senator Harkin and other liberals are demanding more concessions from drug companies, including the right of drug reimportation from Canada.

Hospitals

The leading hospital groups – the American Hospital Association, the Federation of American Hospitals, and the Catholic Health Association – agreed to accept $155 billion less in Medicare reimbursements over 10 years. In exchange, Sen. Max Baucus (D) of Montana, the Finance Committee chair, agreed to exempt hospitals from the cost-cutting regime under a proposed new Medicare Commission for its first few years of operation. That deal was not clear until the committee released legislative language on its bill. The Congressional Budget Office, for example, was not aware that hospitals were exempt from cuts when it estimated the bill’s impact on the federal deficit.

But the key to the deal from the hospital industry’s point of view is that Congress produce legislation that will insure at least 97 percent of Americans, says Rich Umbdenstock, president and CEO of the American Hospital Association. Anything less than that damages the level of care at hospitals and will not serve the needs of the newly insured, he says.

Device manufacturers

After the Senate Finance panel voted to impose a $40 billion tax, the industry rallied home-state lawmakers in Minnesota, Indiana, and New Jersey to roll it back. In a big win for device manufacturers, the House version of the bill cuts the tax to $20 billion over seven years. Last month, 14 senators wrote to Senate majority leader Harry Reid, who is leading closed-door negotiations on a final version of healthcare reform, urging him to reject the tax.

“AdvaMed appreciates the decision by House leaders to reduce the device tax,” said spokeswoman Wanda Moeblus in a statement Nov. 6. "We look forward to working with Congress and the administration on critically important implementation issues. The tax should be delayed to 2013 to give companies time to plan and adjust, and rates should be tiered by product type to reflect the diversity of the industry.”

With 60 votes needed for passage of healthcare reform in the Senate, the clout of home-state senators in closed-door negotiations over such issues could be critical.

Physicians

The American Medical Association, which represents doctors, proved a formidable foe in blocking President Truman’s healthcare reform as “socialized medicine.” But on Thursday, in a timely boost to reform prospects, the AMA endorsed the House bill – for a price: that the House also commit to abolishing the formula for mandated cuts in payments to physicians who serve Medicare patients.

The formula was set by a 1997 law designed to reduce federal deficits. Without the “fix,” doctors face a 22 percent drop in Medicare payments in 2010. The AMA wants to put a permanent end to the “sustainable growth rate” cuts to physicians now mandated by law. The Senate on Oct. 21 voted down a measure to do that, on grounds that the cost of the repeal was not offset.

But after the AMA endorsement of the House healthcare bill, the speaker’s office confirmed that the House will vote on a bill to end the issue by Thanksgiving. Moreover, the $210 billion cost of the bill will not be offset, a move that conservative Democrats have said is a violation of House pay-go rules.

"The 'pay as you go' principle of budget discipline requires Congress to find a way to pay for any new spending, outside of an economic crisis. A previous Congress established the policy for paying Medicare doctors, so the update for 2010 is not a new policy to be paid for,” said a spokesman for Sen. John Dingell (D) of Michigan, who is sponsoring the legislation.

Majority leader Reid says he will continue to work on passing the change the AMA is seeking.

“There was no quid pro quo [in meetings with Democrats on healthcare reform], but the implication was that they would get a doc fix and doctors would support healthcare reform,” says Julius Hobson, a senior policy adviser at Bryan Cave LLP who lobbies on healthcare. “If you don’t see a permanent doc fix, you might see a division in the house of medicine” about the health-reform effort.

A recent poll of physicians found that 2 in 3 oppose healthcare overhaul proposals on Capitol Hill. They cite concerns about soaring costs, possible rationing of care, and government competence, according to the survey by TechnoMetrica Market Intelligence and Investors Business Daily.

Insurers

In exchange for universal coverage (and as many as 30 million new clients), the insurance industry committed to ending discrimination based on preexisting conditions, discontinuing ratings based on health status or gender, and cutting overall healthcare costs by 1.5 percent annually.

But the Senate Finance Committee weakened proposed penalties for individuals who fail to obtain insurance. That, insurers say, will drive down the number of healthy people prompted to buy health insurance under the terms of the law. In September, just before the finance panel began its markup of a bill, America’s Health Insurance Plans (AHIP) released a scorching report concluding that the bill would increase the cost of healthcare coverage for Americans.

On Oct. 21, Senate and House Judiciary panels announced plans to repeal the insurance industry’s limited exemption from federal antitrust regulation, a move the industry sees as punitive.

“The bills attempt to remedy a problem that does not exist,” AHIP president and CEO Karen Ignagni complained in a letter to Rep. John Conyers Jr. (D) of Michigan, who chairs the House Judiciary Committee.

“Ending this cozy exemption is another way to strengthen consumer choice through a competitive marketplace,” countered Sen. Patrick Leahy (D) of Vermont, who chairs the Senate Judiciary Committee.

Is the full Congress bound by such corporate bargaining with the White House?

“I think the administration is pretty pleased at what they were able to accomplish, but I think Congress has to take a look at these deals and do what it thinks is right,” says freshman Sen. Benjamin Cardin (D) of Maryland.

If Congress were to undo the deals with key stakeholders, the corporate interests now funding pro-reform ads could reverse course and come out strong against a final bill. In 1994, health insurers spent $50 million to defeat the Clinton healthcare proposal, including the devastatingly effective “Harry and Louise” ads. (Harry: “They choose.” Louise: “We lose.”) PhRMA alone is reported to have a $150 million war chest to use for the healthcare-reform endgame.

But for now, principal stakeholders are angling to get the best deal they can through negotiation – some with the White House at their side.

The American Academy of Family Physicians is still pushing for a permanent fix for that Medicare formula for doctors. “Every physicians’ organization was very disappointed when that was not done” in the Senate, says Lori Heim, the AAFP’s board president.

The AAFP is also disappointed that its request for a 25 percent bonus payment for primary-care physicians is down to 5 percent in some versions of the legislation. But the potential gains from insuring 30 million more Americans, she says, trump the disappointments.

“We have not had anything that says this is a no-go. We want to continue the discussion, but there need to be principles,” she adds.

Prospects for healthcare legislation turn on whether such groups stay with reform, even if agreements unravel, says Brookings’ Mr. Aaron, a longtime analyst of healthcare politics. “If you move into a psychological mode where people are saying, ‘I really don’t like this,’ but they’re trying to find ways they can live with the bill, rather than saying, ‘If I don’t get this, I’m not on board’ – that’s a big difference with 1994.”

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See also:

Beyond 'just say no': GOP lawmakers launch their healthcare plan

AARP, AMA give House healthcare bill an 11-hour boost

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