An Open Letter to Jane Smiley: Please Don't Believe Everything You Read

Dear Jane Smiley,

I understand why you are disappointed with President Obama.

First, the New York Times reported that he had made a "deal" with drug-makers. Then, the second blow: the news that the president was "back-tracking" on the public insurance option that in the past, he had said was essential to "provide choices and keep [for-profit] insurers honest."

Earlier this week, you told the Huffington Post's that you felt "jilted":

We on the left can and must come to the conclusion that he used us and our money, but never intended to listen to us . . . Health care has been the real test, and if his administration caves to Republican intimidation and lies and foregoes the public option in the health care bill, Obama is failing that test. If there is no public option and no way of lowering the price of drugs -- if Obama is determined to make back room deals with the same old corporate shills -- then what have I gotten for my campaign contribution? It's not nothing, it's worse than nothing, because if the man who promised hope does the same old thing, then that is the end of hope.

I don't blame you for beginning to lose hope. Based on what the mainstream (and supposedly "liberal") press has been reporting, the president is letting us down.

But the truth is that in recent months, the media has simply begun to sour on the president. The "honeymoon" is over. I am afraid that some reporters are now engaging in a time-honored media sport: first build someone up then tear him down. This gives both journalists and pundits something new to say.

Even within the liberal press, support for health care reform has turned to skepticism -- often without good reason. Many in the media are frustrated that the president has been playing his cards so close to his vest. They would like him to declare where he would "draw a line in the sand" -- even though this would mean telegraphing his strategy to opponents.

In the quest for headlines and certainty, the press has been "punching up" the news, turning scraps of dubious information into scoops. "The White House Made a Deal," or "Obama is Caving" is a headline. "We Really Aren't Sure What's Going on in Obama's Mind" will not sell newspapers. Too often, reporters pretend a certainty they don't possess.

Consider what has been reported, and the quality of the evidence behind the headlines.

The Alleged "Deal" With Drug-Makers

Begin with the story that the President cut a deal with Pharma chieftain Billy Tauzin. (Tauzin, you may remember, is the former Congressman who helped shepherd the Bush administration's Medicare bill through Congress -- legislation that included a startling provision that actually forbid Medicare from even trying to bargain for discounts from drug-makers. Mission accomplished, a few weeks later Tauzin quit Congress--after having assured constituents that his planned to run for re-election -- to take a $2 million job as president of Pharma, the trade organization representing the very drug-makers who benefited so handsomely from the legislation.)

Reportedly, the White House assured Tauzin that, in exchange for Pharma's voluntary contribution of $80 billion over ten years to help defray the costs of health care reform, the president would oppose any attempts by Congress to let Medicare negotiate for discounts on prescription drugs -- no matter how obscene the prices.

Who says so? Billy Tauzin. Hardly a reliable narrator." Granted, the day the Times published the story, White House deputy chief of staff Jim Messina sent the Times an e-mail, confirming the truth of Tauzin's tale.

But Messina, it turns out, is a former aide to Senator Max Baucus, the Senate Finance Committee Chairman who has been obstructing health care reform while doing his best to appease conservatives. It's quite possible that Baucus had a handshake deal with Tauzin. But Baucus does not speak for the president. Indeed, these days, it's fair to say, they are not on the most cordial terms.

Two days after announcing the alleged deal, the Times printed a second story, implicitly retracting much of the first article: "In a telephone interview, Linda Douglass, a White House spokeswoman on health matters, said the question of government drug-price bargaining 'was not discussed during the negotiations.' Asked if that meant such a provision was excluded, as the top drug lobbyists had previously said, Ms. Douglass declined to comment, repeating, 'It was not discussed.'"

The Times elaborated:

White House officials said Friday that Mr. Messina, the deputy chief of staff who sent the e-mail message, had not intended to confirm that the deal ruled out price negotiations. Several people involved in the negotiations of the original drug industry deal with the White House said there had been some ambiguity in the original discussions, conducted primarily through the Senate Finance Committee, over whether the overhaul might include the government negotiations of drug prices.

Understandably, this second story didn't receive nearly as much attention. The sizzle of the first piece gave way to the ambiguity of "he said/ she said." Though if I had to guess who was lying, the White House or Billy Tauzin, my money would be on Billy.

Unfortunately the rumor that the president had cut a deal was revived when a blogger announced that he had a memo outlining the deal. The story quickly circulated through the blogosphere. But the "memo" turned out to be typed and unsigned. Anyone could have written it. And the source for the memo was an unnamed "lobbyist."A document that can't be traced and an unknown source -- this is not evidence.. Both Pharma and the White House denied the story..

$80 Billion Doesn't Warrant a Quid Pro Quo

But there is one hard fact that most of the mainstream media overlooked: for Pharma, $80 billon over ten years is a paltry sum. It's just not enough to warrant any promises from the White House.

$80 billion certainly sounds like a hefty contribution to the cause. Unless you were a financial reporter, you probably would assume that it is worth a quid pro quo. But you need to take a closer look at the $80 billion -- where it is coming from, and what it means to Pharma's bottom line.

At least $30 billion of the $80 billion represents the revenues Pharma will forego by giving Medicare patients a 50 percent discount when they reach the "donut hole" -- the point where they have to begin paying for drugs out-of-pocket. But keep in mind, without the discount, many patients would simply stop buying the drugs altogether -- or switch to generics. And Pharma will still turn a profit on many over-priced drugs, even while selling them at half-price.

The $30 billion also needs to be put in the context of Pharma's annual revenues.. This year, the industry will rake in $252 billion. If sales continue to rise, and drug-makers continue to hike prices at the current rate, Pharma expects revenues to double over the next ten years, to $500 billion in 2019. In that context, giving up $30 billion worth of revenues over ten years -or roughly $3 billion a year -- just isn't a sacrifice.

Unlike most in the mainstream media, Bloomberg's financial journalists understood this. When the deal was announced, Bloomberg quoted Tim Anderson, an analyst with Sanford C. Bernstein & Co. in New York telling clients: "Filling the doughnut hole should help seniors stay on their branded therapies and lessen the tendency for seniors to switch from brands to generics once they hit the donut hole. This is critical because once patients convert to generics, they seldom revert back to the brand and are essentially lost to cheaper generics forever."

Bloomberg acknowledged that the $80 billion contribution wouldn't just trim revenues it also would make a dent in profits. But, bottom line: "Anderson estimated [that giving up $80 billion would] have a 'profit impact' of no more than 4 percent, which he described as 'low.'"

It's also worth remembering that when Pharma announced that it would give up the $80 billion, President Obama said: "this is a first step." At the time, I added, "Pharma is going to have to do more."

Apparently the House agrees. The House healthcare reform bill now contains a provision authorizing Medicare to bargain for further discounts. Reformers in the House realize that ten years from now, patients, employers and taxpayers simply cannot afford to lay out close to $500 billion -or double what we are now spending -- for prescription drugs. Not unless we expect GDP and workers' wages to double over the next decade. Pharma is going to have to cut prices further -- and become much more efficient. (One place to start: drug-makers might think about cutting back on the $5 billion a year that they are now spending on Direct-to-Consumer television ads.)

I think it's fair to say that if I understood that $80 billion is not an enormous sacrifice, President Obama and White House Budget Director Peter Orszag did too.

This is why they didn't try to block the provision in the House bill that would let Medicare negotiate. They never made a deal with Pharma.

Did President Obama Signal That He Is Giving Up on the Public Option?

Why would he? Progressives are in the middle of a long negotiation with conservatives that will end in conference committee late this fall, where politicians will merge the Senate and House versions of the bills, hammering out the differences. We know that the House bill contains a strong public sector plan. It seems likely that the Senate plan will offer, at best, a weak public sector alternative. What will happen then?

No one knows. But conference is what matters. In the end, whatever compromises Senator Max Baucus agrees to in the Senate Finance Committee's version of the bill may not be very important.

So why would the administration throw in the towel now, during this August half-time, when the game is far from over? A few weeks ago, the president spelled out what he expects to happen in conference:

Conference is where these differences will get ironed out. And that's where my bottom lines will remain: Does this bill cover all Americans? Does it drive down costs both in the public sector and the private sector over the long term? Does it improve quality? Does it emphasize prevention and wellness? Does it have a serious package of insurance reforms so people aren't losing health care over a preexisting condition? Does it have a serious public option in place? Those are the kind of benchmarks I'll be using. But I'm not assuming either the House and Senate bills will match up perfectly with where I want to end up.

Nevertheless, the media has been quick to interpret remarks made by President Obama and Health and Human services Secretary Kathleen Sebelius last weekend as proof that the administration is folding -- giving up on the public plan. Why?

The media has been pressing the president to tell them exactly where he will draw that line in the sand: would he sign a bill without a public option? But as the president pointed out to reporters at a press conference not long ago: "You guys are on a news cycle, I'm not." In other words, while the media would like a definitive answer in time for "News at 5," the president is under no such pressure to announce his bottom line. He's playing poker with the conservatives -- why would he show his cards?

Last week-end, frustrated reporters looking for a headline decided that President Obama was sending a "signal" when he told a Town Hall meeting: "The public option, whether we have it or we don't have it, is not the entirety of health care reform. This is just one sliver of it, one aspect of it." Then, during an interview on CNN, Health and Human Services Secretary Kathleen Sebelius suggested that the public option is "not the essential element" for reform. To many in the media, that clinched the story: the administration is backing-tracking on the public option.

Monday, the New York Times ran the headline that summed up the media consensus: "Public Option' in Health Plan May Be Dropped."

What the President Actually Said

But, to the Times' credit, the piece that followed made it clear that most news reports were simplifying the story. At the town meeting the Times' reporters observed, the president "strongly defended the public option" before saying that it's not the "entirety of health care reform."

In fact if you look at the speech, you'll find that the president devoted over 700 words to explaining why the critics of the public option are wrong. Read the speech here. Scroll down to the phrase "So far, so good" to see the president's full argument in favor of a public-sector insurance plan.

Here, he makes it clear that taxpayers will not be supporting the public plan; it will fund itself with the premiums it collects. He explains why the public plan would be less expensive, pointing out that over the past ten years, healthcare spending under Medicare has not been climbing nearly as quickly as spending under private insurance plans. Medicare has been trying to rein in health care inflation, while private insurers have been paying drug-maker and hospitals whatever they ask -- and then passing the costs on in the form of higher premiums.

At the same time, the president stressed, the public plan would not save money by slashing payments to providers. The House bill is clear: the public plan will not simply adopt Medicare or Medicaid rates. It will negotiate rates with hospitals and doctors -- just as private insurers do. No doctor would be forced to accept public insurance. The public plan will have to offer reasonable reimbursements, or it will lose in the competition with private insurers. Finally, the president suggests that the only real reason to oppose the public plan is if you agree with Ronald Reagan: "government is always part of the problem, never part of the solution."

But if you share Reagan's ideology, this means that you are essentially against any type of health care reform. And in fact, that is where most Congressional conservatives stand. They want to preserve the status quo -- and the profits that our exorbitantly expensive health care system generates for those special interests have been contributing to the conservatives' campaigns.

Last weekend, the president's defense of the public plan was clear and articulate. One can only wonder: why did the media ignore that section of the speech and focus almost exclusively on those two sentences that said it was just one part of health care reform--not the whole enchilada? Maybe it's because those two sentences fit so nicely into a sound bite.

The Liberal Reaction

Finally, consider how liberal Democrats have reacted to media reports that the administration might give up on the public plan:

Senator John D. Rockefeller IV, Democrat of West Virginia, affirmed his support for the public option. "I believe the inclusion of a strong public plan option in health reform is a must. I am not interested in passing health care reform in name only."

Senator Russ Feingold of Wisconsin said in a statement issued on Monday. "Without a public option, I don't see how we will bring real change to a system that has made good health care a privilege for those who can afford it."

Former Governor Howard Dean of Vermont was adamant. "I don't think it can pass without the public option. There are too many people who understand, including the president himself, the public option is absolutely linked to reform.You can't have reform without a public option. If you really want to fix the health-care system, you've got to give the public the choice of having such an option."

The Times summed up the progressive reaction: "Dropping the public option might weaken support for a health care overhaul among Democrats in Congress." The paper added that, in an interview on Sunday, Mr. Obama's senior adviser, David Axelrod, assured progressives that the president remained convinced that a public plan was "the best way to go."

Reading about the responses on both sides, I couldn't help but wonder: was Secretary Sebelius asked to float a trial balloon? Was the president also testing the water, to see how many prominent liberals might declare: "I won't vote for a plan without a public option"? If so the White House got its answer. The president's comments rallied liberals around the public sector option.

I suspect that this is what the White House expected -- and hoped for.

(Portions of this post originally appeared on