WASHINGTON — With rising drug prices such a hot topic here, drug makers and health insurers are both coming under heavy fire.
So much fire that they’re considering a radical response: working together.
After years of relentlessly attacking one another, leaders of the pharmaceutical industry and the health insurance lobby are considering — warily — cooperating to shape any federal legislation that emerges from the public outrage at the high cost of medications.
The two powerful lobbies remain fundamentally at odds in their agendas: In the most basic terms, drug makers want to make as much money as they can for their medicines, and insurance companies want to pay as little as possible.
But both lobbies have new leaders, who recently met for breakfast at a French bistro in what could turn out to be a tentative step toward an alliance. And both are under a lot of pressure from Congress and the Obama administration to figure out a unified response to high drug prices.
Almost every sector of the health care industry — including insurers and drug makers — eventually got on board with the Affordable Care Act back in 2010. Everybody took a hit, some more than others, but everybody got something in return. The buy-in from those influential groups helped get the law over the finish line. Analysts say the same acquiescence from outside interests is likely necessary for any legislation dealing with prescription drug costs to have a chance of passing.
“Unless there are creative new ideas that cross the two industries, I don’t think we’re going to see a solution,” said Dan Mendelson, a former Clinton administration health official who now heads Avalere Health, a consulting firm based in Washington. “I would believe that something real will happen when the [pharmaceutical] and insurance industries come together and agree on a set of solutions.”
Here’s a guide to the key players — and their agendas.
Marilyn Tavenner, a reserved, unflappable former hospital executive, took over at America’s Health Insurance Plans, the prominent health insurance lobby, in August. Six months earlier, she had resigned as the head of the federal Centers for Medicare and Medicaid Services, which made her one of the top federal officials overseeing the implementation of the Affordable Care Act.
Tavenner provides an undeniable gravitas to AHIP, as one of the biggest names in health policy, with respect from both sides of the aisle. But she also brings some baggage as one of the public faces most identified with Obamacare in a Congress currently controlled by Republicans.
In an interview with STAT, Tavenner described her goals this way: Stop the public relations battle with the drug lobbying group Pharmaceutical Research and Manufacturers of America over who deserves the blame for drug prices. And start a constructive dialogue about how to fix it.
Health insurers want to work with drug makers, but they expect major concessions.
Shortly after Stephen Ubl was named new head of the PhRMA lobby in September, Tavenner reached out to him, offering a sit-down to get acquainted. This month, they met for breakfast at Poste, an upscale French bistro in downtown Washington.
The escalating public anger over drug costs has nudged people on all sides of the issue to look for chances to talk constructively. “It’s forcing a dialogue,” Tavenner said.
In terms of approaching lawmakers with a plan on pricing, she said, “I would want to go to PhRMA first and see if there’s something that we can take together as an initial solution. That would be my preference.”
Not that she’s going to start pulling punches.
Tavenner said the insurance lobby was staffing up, creating a team dedicated to drug pricing at the group’s Washington offices, just a few blocks north of the National Mall. Every time a headline about the latest drug-price hike explodes, her communications team blasts out a release to reporters portraying pharma companies as out of control.
And she expects her potential partners at PhRMA to make some major concessions.
Tavenner’s stance is simple: The insurance industry took a bigger hit under President Barack Obama’s health care law. Its market was significantly overhauled. So this time, it’s pharma’s turn.
“I would argue that [insurance] plans have definitely undergone a fundamental change,” Tavenner said, “and I’m not sure PhRMA’s there yet.”
She pointed to the health care law’s requirement that health plans disclose how much of their premiums are spent on actual health care, as opposed to administrative costs or profits. “Why wouldn’t that apply to PhRMA?” she asked.
Some in Washington think Tavenner could help tip the scales of the debate more in the insurance lobby’s favor.
“It’s the first time that I’ve seen the insurers in a very organized way begin to come after PhRMA,” said Kathleen Sebelius, the former health and human services secretary who worked alongside Tavenner in the Obama administration. “Marilyn is certainly savvy about global politics and parochial politics.”
Ubl, who started his career in Washington working for Republican Senator Chuck Grassley of Iowa, assumed his post at the beginning of November, coming over from the Advanced Medical Technology Association, where he had spent the last five years campaigning vigorously for the repeal of the health care law’s medical device tax.
The cache of goodwill he accumulated in that role could prove useful: He persuaded a bipartisan majority that the tax needs to be repealed. It hasn’t actually happened yet, complicated by the bigger fight over the law, but most observers in Washington think it has a good chance of getting done in the coming years. Ubl can take the credit for that.
“Steve’s very astute in knowing where different members’ interests may lie,” said former Indiana Senator Evan Bayh, a Democrat. Bayh cited Ubl’s success in recruiting Senator Elizabeth Warren, one of the staunchest liberals in Congress, to support medical device tax repeal.
“People around Washington get a reputation for being straight shooters or not, and he clearly is the former,” Bayh said.
But now Ubl is moving into a much bigger spotlight.
The device industry is still new to the Washington scene. Drug makers, by contrast, have one of the most experienced and influential lobbies, with big expectations about getting their way. The independent research firm APCO Insight recently ranked PhRMA, and its $200 million annual budget, as the most effective lobbying group in the nation’s capitol.
PhRMA officials in interviews emphasized their interest in working with insurers to find workable policies. But they also spent a lot of time reiterating how much health plans have changed under the Affordable Care Act, leading to consumers paying more of their own money for drugs.
“Medicines that truly represent value should merit a larger price.”
Lori Reilly, PhRMA
“They are paying more, but not all of that is in relation to us and our products,” said Lori Reilly, PhRMA’s executive vice president for policy and research. “That’s in relation to how the system is changing and how the insurance benefit design has changed in a way that doesn’t always help patients.”
Drug makers want to turn the conversation to one of value — in particular, the value that they say their medicines provide by preventing people from getting sicker. That not only helps the patient but could save money for society in the long run, they argue.
If a breakthrough new drug comes to market, Reilly said, “will it have a big price tag? It might. If we really are moving toward a value-based health care system, then medicines that truly represent value should merit a larger price, and we’re comfortable with saying that should be the case.”
So what now?
Nobody is expecting any major legislation before a new Congress and president are sworn in in 2017. So for now, both sides are publicly posturing, trying to position themselves for backroom negotiations if and when the nitty-gritty work of drafting a bill gets underway.
Political momentum might force the groups into the alliance that Tavenner and PhRMA are weighing. Recent polling has found that drug affordability is Americans’ number-one health care concern, and politicians are responding accordingly.
The Department of Health and Human Services convened a forum on drug prices last week that included top officials from both industries. The star panel featured Merck chief executive officer Kenneth Frazier, who also happens to chair the PhRMA lobby, and Kaiser Permanente chief executive Bernard Tyson, who sits on AHIP’s board.
Their differences were on full display.
Frazier stressed the drug industry’s commitment to value, while cautioning that it’s hard to define that. Tyson argued that the drug market must be overhauled because, in the end, a drug company can price a medication however it wants.
“To me, that says we’re not on a level playing field yet. That’s what the government should be looking at,” Tyson said. “There’s something wrong with the whole ecosystem.”
Rumors are already flying around Washington about possible steps the Obama administration might take in its last year to address drug costs. The drug-price plans from presidential candidates like Hillary Clinton include policies that both insurers and drug makers don’t like — the kind of gut check that might bring them to the table.
Old habits die hard, though. Even as leaders in both lobbies talk about a kumbaya moment, shots are still being fired. Earlier this month, a drug industry-backed group put out a report accusing health insurers of “hiding profits to justify raising prices.”
Just a few hours later, Tavenner’s group released a report of its own, asserting that drug companies “continue to demand a blank check, driving up costs across the board for everyone.”