A Medicare drug benefit has been talked about for a long time. What happened in June, and why did it look like we were going to get there this time?

Well, earlier in the summer it looked like everything was coming together really for the first time in almost a generation. Republicans had taken over the House, [and] the Senate, in addition to the White House, and had promised to do this. They had pledged $400 billion towards it, which Democrats saw as a chance they might not get again. So suddenly, we had Democrats who were saying, "Well geez, we've got $400 billion sitting on the table. Maybe we should work for this." The drug industry, which has been agitating on and off for a drug benefit, decided that it very much liked the idea of a drug benefit when Republicans were in charge in particular, because then they wouldn't have to be quite so worried about government price controls. And obviously senior groups, who had wanted this coverage for a long time, signed on. So you really had sort of a coming together of everybody who'd been working for this for a long time. ...

In June, both chambers passed a different drug benefit. What's the next stage?

Both the House and Senate actually passed their bills on the same night, right before the July 4th recess. And I think everybody really thought that it was about to happen. In fact, the president had wanted them to finish this bill by the end of July, which was Medicare's 38th birthday. Obviously what has to happen is that you need to have a House-Senate conference committee reconcile the differences between the two bills. Basically, each house has to pass the same bill at the end, before it can be sent to the president to be signed into law.

People, I think, underestimated just what a huge paperwork burden that was -- not just that the bills were very different, but that these were thousand-page bills. And actually just doing the paper to put them together, to sit down and try and confer on them, turned out to be an undertaking that, in the best of worlds, wasn't going to only take a couple of weeks.

How would you characterize the core ideological gap?

... I think the major sticking point is that Republicans really considered the drug benefit to be secondary to reforming Medicare. ... They wanted to find ways to slow the growth in Medicare costs over time, particularly as 78 million baby boomers get ready to sign up for the program. Democrats, who are in theory in favor of Medicare reforms, wanted to do the drug benefit first. They wanted to save the tough decisions -- decisions that might involve cutting benefits, raising costs -- they wanted to save those for later. And I think that was a big, big difference that nobody really appreciated was going to affect it this year.

What do these sides fear most?

Well, I think the Senate Democrats in particular are worried that in order to get this drug benefit and to realize this $400 billion that's been put on the table, Republicans are going to try to force them to do some things to Medicare they don't want to do -- for instance, privatize the program or move the program more towards a private program, put a cap on overall Medicare costs. Those are things that the Democrats think are anathema ... that they would undermine Medicare, which they see as one of the crown jewels of government policy. And they're simply not willing to see Medicare destroyed -- and that's the word they've been using -- in order to get this drug coverage. ...

The other issue is that the drug benefit itself just isn't very big. Four hundred billion dollars sounds like a lot of money. Seniors are going to spend $1.8 trillion over the next 10 years on prescription drugs. So $400 billion is, what, somewhere around a fifth of that. I think seniors over the summer realized that it's just not that generous a drug benefit, and were starting to wonder whether perhaps this whole thing was worth it.

What did the conservative House Republicans fear?

The conservative House Republicans went into this with a lot of questions right away. The idea of adding to an entitlement program in general, adding $400 billion to an entitlement program, and even worse, their worst-case scenario was that it wouldn't cost $400 billion, is that it would end up costing $700 or $800 billion or even a trillion dollars. And they certainly didn't come to Washington to expand entitlements. They came to Washington to cut entitlements. So there was a lot of initial resistance from the conservative Republicans. What they had to see was enough other reforms to slow the growth in Medicare spending, to make it worth their while.

A difficult deal to broker. The positions seem quite fixed.

Yes. I think the positions always were quite fixed. Everybody looked like they were willing to compromise because they so wanted to get this done. There was a political imperative. The Republicans had promised to do this. President Bush talked about it as far back as 2000, when he was on the campaign trail. Democrats saw a significant amount of money on the table at a time when deficits are going up, and they're thinking they're never going to see that amount again. So everybody really said that yes, we can do this. But I think they were not looking at some of the real difficulties and the real ideological schisms that were going to make this very difficult.

There was also talk of importing drugs from Canada -- both for the bill itself, and also in the states.

... The whole question of re-importation has really infected the Medicare debate, if you will. There's a big concern about drug prices. There's not a lot about containing drug prices in the Medicare bills. This is really not a partisan issue. You've got Democrats and Republicans on one side, agreeing with the FDA that it's potentially very dangerous to the drug supply. You've got Republicans and Democrats on the other side, saying that "No, we really need to do this, that it's just not fair that people are getting cheaper drugs in other countries," and they really don't think that the safety concerns amount to very much. So you've got a very complicated situation with Democrats and Republicans on both sides of the issue, in both chambers.

Economists say it's a non-issue because it wouldn't do much to reduce prices anyway.

Yes. Certainly when it just comes to Canada, there is a perception that this won't work, or it won't work for very long. What will simply happen is that the drug companies will stop sending Canada enough drugs to send back to the United States. They'll only send Canada enough drugs for the Canadians, and it will basically end. The people who are doing it now are getting away with it because it's just not that big a volume of drugs, but if they made it legal and it were to expand, the supply would be cut off fairly quickly.

Now, in November, how are things looking for this drug bill?

Well, certainly the negotiations have been dragging on for quite a while. I think one of the issues is that the small group of members, which is 10 Republicans and two Democrats, who've been actually trying to work out a deal, have tried to sort of paper over, if you will, some of these ideological differences. Every time they get up to something that's very difficult, they basically move on to something else. And now time is running out. They've resolved everything except these big divisive issues. And the question is not so much whether those people can resolve it amongst themselves, but whether it can be resolved in a way that can get a majority in the House, which will need the conservative Republicans, and a majority in the Senate, which will need the Senate Democrats. And right now both of those groups are standing up saying mutually exclusive things. The House Republicans are saying, "We won't vote for this unless it has X, Y, and Z." And the Senate Democrats are saying, "We won't for it unless it doesn't have X, Y, and Z."

Is there a good chance now that this will just founder?

Well, I certainly think there's a possibility that it will just founder. Now, you have to remember, this is not the end of this Congress. This is only the end of the first session. So the bill technically will live on into next year, if they go home without doing it.

There are a lot of those who think that next year is impossible. It's an election year. You've got four or five senators running for president. It will be too political. But major issues have been in fact resolved in presidential election years. We saw the welfare bill actually passed in 1996, just a couple of months before the presidential election. So there are also those who think that perhaps, if it goes into next year, perhaps compromise can be found maybe on a scaled back bill, maybe something a little bit less ambitious than what they've been talking about.

If the drug bill fails, what is the fallout and what are the consequences?

Well, certainly it won't help the Republicans, who have made this really their number one domestic issue -- particularly President Bush, who's gone out and really vowed to do this. This is something that the Republicans think they must have in order to go into next year's elections.

It will be an interesting question how it affects the Democrats, because they've also promised to do it. On the other hand, they're not in charge, so it will probably reflect a little bit less on them.

From the drug industry's point of view, it's probably not a good thing. They know that eventually there will be a drug benefit in Medicare. And frankly, if the government starts paying for drugs in a major way, they're going to want a major say over how much they cost. So there's a continuing concern about government price controls. They'd much rather have these negotiated by the private sector, where they think they'll be able to cut a better deal. So basically if it doesn't happen, there will be a lot of unhappiness. ...

One of the most problematic parts of this whole reform effort is that nobody's really sure what will work. Short of doing things that would be really political poison, like cutting benefits or dramatically raising costs, the Republicans are hoping that bringing the private sector in might be able to hold down costs better than the government can. That is an untested hypothesis at this point. But as far as the Republicans can tell, it's the most politically palatable of what they have, that they could go for.

The state initiatives will continue, and might get copied. A headache for the drug industry?

Yeah. I think if the federal bill doesn't happen, that you certainly will see more activity in the states. States are in deep budget crises. There's no indication that those are going to end any time soon. Prescription drugs are a major cost for states, through their Medicaid programs, but also for their own state and local employees, people that the state coffers really help pay for. And that's what we're seeing right now, with a number of these states trying to figure out how they can buy Canadian drugs for their own employees and retirees and their families. And I think you may well see more of that. That's going to force the drug industry to fight skirmishes in 50 different states. I think they'd rather sort of get things settled in Washington. ...

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posted november 12, 2003

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