The Treatment

More on the Administration's Drug Deal

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What kind of deal did the administration and Senate Finance Chairman Max Baucus make with the drug industry? And was it a good deal? I (try to) answer those questions in an article that appears in TNR's latest print edition--and is running on our (new!) home page today.

As I note, albeit briefly because of the print edition's space constraints, three other articles advanced this story before I came along. One was a New York Times article, in which PhRMA chairman Billy Tauzin first spilled the beans about a key concession his group had secured. By that point, it was public knowledge that PhRMA was volunteering to give up $80 billion in revenue--or, at least, what it said was $80 billion in revenue--in order to help finance reform. What wasn't known until then was that PhRMA had secured a promise that neither the administration nor Baucus would seek more than $80 billion.

That article raised as many questions as it answered. Did the administration agree explicitly not to pursue certain policy options, like having the govenrment negotiate directly with drug makers over prices--or letting people buy drugs from Canada and Mexico? Would the administration stick by this deal, even if Congress pushed for stronger concessions? (It was the possibility of such a push that, by all accounts, got Tauzin talking to the Times in the first place.)

That's where two additional pieces of reporting--and a little controversy--come into play. The first story was a Huffington Post article by Ryan Grim, in which Grim published a memo he'd obtained from a health care lobbyist. The memo, which Grim said was produced by "a person directly involved in the negotiations," seemed to detail several more administration concessions. Among other things, it suggested, the White House promised not to seek either govenrment negotiating authority or reimportation.

The administration promptly denied that the memo was correct. So did PhRMA. And they did so in strong terms, on the record and in background conversations. But a subsequent story by The Atlantic's Marc Ambinder--that's the third article--suggested the issue was at least partly one of semantics: While the administration hadn't taken price negotiation and reimportation off the table per se, Ambinder reported, it had indicated it would not aggressively pursue those options right away, at least as part of health care reform. As for the memo itself, most likely it was prepared by somebody affiliated with PhRMA and used for internal purposes, to pacify members concerned that Tauzin had given away too much. It was certainly authentic, although it may not have reflected the bargain's actual terms.

To be brutally honest, even after extensive interviews with highly placed sources spanning the administration, Congress, and the drug industry, I'm still not sure exactly who agreed to what--and when. Even among parties to the agreement, there seems to be some confusion--or at least dispute--over the terms.

But there's no argument about the broad outlines. And based on those basics--plus what I learned in my reporting--I've become convinced of two things.

One is that the drug industry got off easy. Really easy. Included in the $80 billion is $30 billion in "lost revenue" because of a 50 percent discount PhRMA promised to seniors who hit the infamous Medicare "donut hole." But without the discount, a lot of those seniors wouldn't have bought the drugs in the first place. So it's not really lost revenue so much as a lower windfall. Meanwhile, credible analyses suggest the industry could easily give up far more, as Tim Noah recently explained in Slate. This isn't surprising, given that--as you can see below--the drug industry is consistently among the nation's most profitable and its record of innovation is not as great as you may think.

And the second thing I've decided? That the deal, however lousy, was probably worth making. To find out why, you'll have to read the article.

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