Wednesday, August 12, 2009

Assessing Obama's Deal With the Pharmaceutical Industry

When news broke that President Obama, along with the Senate Finance Committee and AARP, had forged an agreement with the Pharmaceutical Research and Manufacturers of America, the left-most portion of the political spectrum reacted with a predictable level of vitriol and general dissatisfaction. The President, exclaimed leftists, had spent his entire campaign excoriating the pharmaceutical industry and it's ill-conceived profits; empowering his supporters with the idea that, once and for all, the strong arm of Government would bring down it's mighty fist and crush this profiteering segment of corporate America. Ignoring the obvious logistical impediments that stand in the way of such an action, I would propose that a widespread desire for retribution, combined with a short-sighted approach to health care reform, has effectively led these critical voices astray; distracting the left from it's much cherished "end" in favor of a myopic obsession with the "means". By allowing themselves to become so utterly obsessed with a perceived "deal with the devil", liberals have completely missed the political genius inherent to the President's newly forged arrangement. To better convey the totality of my argument, let's begin with a cursory review of the deal's term sheet as it exists today.

The Basics
  • The President agreed that any newly formed government health insurance entity will NOT negotiate with pharmaceutical companies to obtain prescription drug savings in excess of the $80Billion that has already been agreed to.
  • The pharmaceutical industry has agreed to run television ads in support of health insurance reform. Roughly $150Million has been budgeted industry-wide to pay for these ad spots.
To begin with the obvious, any criticism of the deal outlined above assumes that there is a dollar amount of savings - which could be reasonably extracted from the industry - that is substantially in excess of the $80Billion already promised. On this fact it's important to realize that despite popular folklore, the pharmaceutical industry is not a bottomless pit of money. Those corporations commonly referred to as Big Pharma face massive competition from generic drugs, in addition to new drug pipelines that are dangerously dry. I've actually heard people refer to the "Trillions of Dollars" that supposedly exist unencumbered on pharmaceutical balance sheets which are said to be available for extraction of some sort. This is not true.

Having dispelled that fallacy - at least amongst folks open minded enough to change their opinion once in a while - I will turn to what I perceive as the brilliant underlying strategy behind an Obama + Pharmaceutical alliance: Divide and Conquer. We must not forget that there are two very powerful industries - pharmaceutical and health insurance - which stand to be affected by any substantive health care reform. Both of these industries are capable of spending vast amounts of money to fill television ad spots throughout the entire August recess; meanwhile the stalled House and Senate bills sit impotent and prone to attack. An alliance with Big Pharma immediately turns half of those ads into messages of support. Granted, Pharma's ads will be somewhat diluted and feeble messages of support. They will not however be of the mud-slinging nature that has proven itself to be so effective in American politics.

If you can understand the divide and conquer philosophy, then you should also be able to comprehend why the pharmaceutical industry was the correct side to ally with. Simply put, spending on prescription drugs only accounts for 10% of total health care spending. Spending on hospitals (31%) and physician services(21%) account for a far greater share of overall health spending (Source: Kaiser Family Foundation Report). President Obama has conceded a less than 10% portion of the entire health care picture, in exchange for a 50% or greater share of the advertising/public persuasion budget. Therein lies the political genius of the deal.

If after evaluating my argument, you are still angry at the President because of the pharmaceutical industry arrangement, then allow me to make one final claim: Health care reform had zero chance of becoming a reality without the support of a major stake-holding industry. Democrats have a solid majority in both branches of Congress, and they have the Presidency. Despite these numerical advantages however, a bill has not even made it past Committee. That being said, this arrangement must be taken for what it is; a means to an end, and nothing more. Sphere: Related Content

No comments:

Post a Comment