How The Blue Dogs Cost Pharma $14 Billion

As Speaker Nancy Pelosi sat down to put the finishing touches on the House health care bill Wednesday night, the California Democrat was stuck between four competing directives.

The first three, handed down by President Obama, required that the bill must not cost more than $900 billion over ten years, must not add "one dime" to the deficit and must not require the pharmaceutical industry to pony up more than $80 billion, in accordance with a deal struck between the White House, the Senate Finance Committee and the Pharmaceutical Research and Manufacturers of America (PhRMA).

The fourth, foisted on her by her conservative Democratic members, required the public health insurance option to negotiate rates with health care providers. She had been unable to find 218 votes for a more "robust" version of the public plan -- with reimbursements tied to Medicare rates -- which would have saved taxpayers $85 billion over ten years.

That meant Pelosi had to find $85 billion somewhere. The speaker went looking -- and found Big Pharma.

"We just added something Wednesday night," she said on Thursday in response to a question from HuffPost about the deal drug makers cut with the White House. "In order to go to negotiated rates [for the public option] we had to have some changes in coverage because that cost more," she said. "We had always been predicating on the robust, and we took -- How can I say this? Well, it cost PhRMA $14 billion more," Pelosi said. "Fourteen billion dollars to help us keep our coverage, but taking it out of PhRMA."

Pelosi also cut tens of billions more by expanding Medicaid coverage, which is less expensive than most other health care, and billions more trimming subsidies to help people pay for coverage.

The irony here is considerable. Blue Dog Democrats, PhRMA's favorites, demanded the more expensive public option, which the drug makers then had to help pay for.

And PhRMA has been the closest industry ally of the White House during the health care debate -- spending millions on ads supporting reform as well as Democratic candidates. Yet it was the White House's ceiling of $900 billion -- which apparently is more politically palatable than a number that begins with a 't' -- that led to Pelosi's decision.

"We took our costs down by insisting that they give a rebate, demanded a price rebate for low income people," said Pelosi. "In order to go forward today, the coverage, the bill paid for [and] not adding a dime to the deficit, we had to look not only in the close-in years, but the out-years and this additional $14 billion helped us achieve the fiscal place that we wanted to arrive at."

Pelosi said the drug makers were looking at $4.5 to $5 trillion dollars in revenue over the next ten years and could afford to chip in more. "I considered [the $80 billion] an ante. I didn't consider it the full pot that they were going to be participating in," she said, guessing they are "able to do at least double of what that $80 billion was to help us get this all balanced out."

PhRMA senior vice president Ken Johnson said such a critique of the industry misunderstands the costs of research and development. "Industry analysts would disagree with that assessment. They peg the net impact of health care reform on industry revenues as modest at best, ranging from a potential gain of 1% to a loss of 2%," said Johnson. "The number no one on Capitol Hill is talking about is the one pegged to job losses. We are still reviewing the 1,990-page House draft bill, but if enacted -- as is -- it has the potential to kill tens of thousands of jobs in America before the ink is dry at the signing ceremony. That's not a political scare tactic. That's an economic reality. When you start trading someone's job for someone else's health insurance, what have you really gained?"

Things are getting tense. Johnson is also arguing that taking too much from drug makers would mean that cancer, heart disease and diabetes never gets cured. (Baldness remedies would presumably still be found.)

"We can live in a world where there's only generic drugs, if that's what people want. But the sacrifice is the hope of ever curing cancer or diabetes or heart disease. I would not want to be a politician who tells his constituents, 'The good news is, we're saving you some money on your drug bills. The bad news is, we're probably never going to cure cancer in your lifetime.' For patients, in many cases, hope is the only thing they have," Johnson said.

Pelosi has little respect for the White House deal with PhRMA and said she'll fight the Senate -- which is still abiding by the deal -- in conference committee negotiations.

"There's very little interest in our caucus in protecting a deal that we were not a part of and did not approve of," she said.