White House Health Proposal May Blow Up PhRMA Deal


This morning the White House released a new health care proposal that may be used as a blueprint for a compromise between House and Senate versions of reform. This new proposal will likely not find a receptive audience at the Pharmaceutical Research and Manufacturers of America (PhRMA)–the chief lobbying arm of the pharmaceutical industry.

Throughout 2009, PhRMA and major pharmaceutical companies crafted a deal with the White House to limit cost cutting by the industry in exchange for the industry’s support, through over $100 million in television advertising, for health care reform. (The entire story behind the crafting of the deal can be read here.) The White House’s new proposal contains deeper cost cuts than previously agreed to and contains regulations on the relationship between brand-name and generic drug companies that the industry opposes.

The deeper cost cuts come from an attempt to further close the “donut hole” in the Medicare Part D prescription drug program. The “donut hole” refers to the gap in coverage that occurs within Medicare Part D. For those purchasing prescription drugs through the program coverage cuts off at $2,700 spent and does not pick back up again until $6,154 is spent by the participant. The current language that was struck in the deal between the White House and the pharmaceutical industry maintains that drug companies would cover 50 percent of the cost for brand-name drugs for participants falling in the “donut hole.” This change would be implemented within the year. The White House’s new proposal would eliminate the “donut hole” by 2020 by making participants pay only 25 percent coinsurance with Medicare covering the other 75 percent. The White House also takes a page from the House health reform bill by providing a $250 rebate to Part D participants who fall into the “donut hole.” (The House bill provides for a $500 reduction in costs for participants who fall into the “donut hole.”)

Another piece of the proposal would allow the Federal Trade Commission (FTC) to regulate the interactions between brand-name and generic drug companies. At issue is the revelation that brand-name drug companies have been paying off generic drug companies for support on patent extensions for certain drugs. This means that consumers will see serious delays in the release of certain generic drugs and therefore still face the higher costs of brand-name drugs. The FTC is filing suit against the drug companies to end this practice and the White House proposal aims to give the FTC authority to regulate and end this practice. The summary of the proposal states that the White House would, “[make] anti-competitive and unlawful any agreement in which a generic drug manufacturer receives anything of value from a brand-name drug manufacturer that contains a provision in which the generic drug manufacturer agrees to limit or forego research, development, marketing, manufacturing or sales of the generic drug.” The White House claims that payouts to generic drug companies cost consumers up to $35 billion over the next ten years.

PhRMA and the brand-name drug companies backing it are adamantly opposed to FTC regulation of payouts to generic companies. A previous statement from PhRMA states:

Patent settlements between brand-name and generics companies can resolve expensive patent disputes to help foster innovation and improve access to medicines so that patients can live healthier, more productive lives.

Law and public policy have always favored settlements, including patent settlements. PhRMA continues to believe that legislation that would impose a blanket ban on certain types of patent settlements or otherwise prevent them could decrease the value of patents and reduce incentives for future innovation of new medicines. This is also unnecessary because the Federal Trade Commission (FTC) and others already have the authority to review and evaluate any patent settlement agreement between a brand name company and a generic company. The courts and enforcement agencies like the FTC are in the best position to review these settlements on a case-by-case basis to ensure that they are not harmful to competition. By imposing a general ban or imposing harsh disincentives, pending legislation would effectively remove the decision-making process from this appropriate venue.

After health care negotiations stalled in January, PhRMA President and CEO Billy Tauzin abruptly resigned. Media reports on his resignation have varied from differences in style that displeased the Board of Directors and displeasure with the failure of the deal struck with the White House to be adopted after a $100 million-plus advertising binge in support of the legislation. Since Tauzin’s departure, board members have continued the refrain that they will back the Senate legislation that contains the $80 billion cost cutting cap agreed to in the deal. PhRMA has yet to release a statement on the White House’s apparent abandonment of the previously agreed upon deal.

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  • ratza fratza

    Its anti trust if nothing else. Some pretty tortured reasoning on big pharmas part.


    I caught your interview on Fresh Air. Thanks for the excellent work. It made my blood boil to hear that Obama’s inner circle was getting fat off of the Baucus disaster of a heath care plan. Of course the only sensible alternative is a single payer Medicare for All program. Any way, I write to ask about a comment you made in the course of your Fresh Air interview about AKP&D, the Axelrod/Plouffle PR and ad firm that got big Pharma ad money to push the passage of the Baucus plan. I think I heard you say that AKP&D, in its most recent incarnation, owes Axelrod 2 million and that it employs his son. In his Wikipedia bio, there is no mention that Axelrod has a son. His daughter is mentioned, but no son. Is his son is on staff or has an equity posisotn at AKP&D , all the more reason to believe that the Obama-Big Pharma connection has a bad odor. What is the story or did it mishear you?

  • shirley worford

    I dont think fox has given the impression that the general public doesnt want some form of health care.Nobody wants it without some sort of tort reform and getting insurance co to be competitive. We need to know how its going to be paid for,and im not sure his plan is not going to be more expensive than what we already have.the governor of florida has a good plan for his state,why couldnt we do something similar?If the presidents proposal is so great why is he having to bribe his on party to vote for it.

  • Alice Fried

    What poll are your referring to when you say that the majority of Americans don’t want healthcare reform? None. You are simply repeating the lie told to you on FOX. Democrats were put into the majority so that we could get healtcare reform. Something the Republicans never did or wanted to do and who are doing everything in their power to keep from happening.
    Democrats, beware of your criticisms. Remember the media likes to report on cat fights. There’s too much at stake to nitpick this opportunity away. There is just so much one man can do. The president’s bill may not have the public option, per se, but it is a bill that can pass, if we can’t persuade Congress to make get out the Public Option vote.

  • Actually the polls suggest that the American people want a health care bill with a public option. In other words they are disappointed that the health care bill does not go far enough to control the out of control costs of health care.

    This back room deal also did not sit well with the country. Kudos to the President for ditching it. Hopefully he can find an effective way to communicate this fact (if this provision ends up in a signed bill) and restore some trust in the system.

  • Zac

    RE: kathy – Insightfulnana;

    With all due respect,
    you got it all ass-backwards,
    the silent majority voted for Obama
    specific on the health care issue
    he campaigned on Public Option,
    this analogy you republicans make
    are OFFENSIVE, and demeaning to
    everyone who voted for Obama,
    which is the majority of the american people,
    that majority, voted for his campaign promises, he didnt just make the health care issue up.

    secondly, the loud minority
    also called Tea-baggers,
    9/12 project or Fox-bots
    are a misinformed and very
    highly unintelligent human-beings
    which is a disgrace to this country,
    nobody should be misinformed
    or scared of death panels.

    Rupert Murdoch and his Newscorp have ruined and misinformed America.

  • jawbone

    Very impressive interview on Fresh Air, but not good for one’s blood pressure to hear about the secrecy and, well, hypocrisy.

    As with whipping for passage of the TARP prior to the presidential election, which Obama seemed proud about after it passed, Obama was actually, it appears, shaping the Senate bill while saying he was hands off. There were hints, but all the problems encountered by the bill have been blamed, by Obama, on Congress and how it works.

  • I don’t trust any Health Care Bill… no matter what they come up with. I’m sure included in any bill will be other backroom deals.

    I don’t think Obama is listening to the American people as well as he thinks he is.

    The polls indicate most Americans don’t want any health care bill right now. The lack of trust is pretty evident.

  • Jon

    Mr. Blumenthal,

    I just listened to your spot on national public radio, excellent job!

    I think the general publics heightened attention to the national health care reform debate provided many with a first time taste of what “sausage making” means inside the walls of Congress.

    Your research and insight into the “secret” back room deals that shaped large portions of that legislation top that meal off with a wonderful dessert!