Monday, December 06, 2010

Pharma’s Health Reform Deal: Kindler Departure Facilitates GOP Re-alignment

Jeff Kindler’s departure from Pfizer means that four of the principals in the Big Pharma deal for health care reform are now gone or going: Kindler; retiring Merck CEO Richard Clark; ex-Pharmaceutical Research & Manufacturers of America head Billy Tauzin; and, from the other side of the table, White House chief of staff Rahm Emanuel.

The great experiment of linking pharma’s future with the development of a much larger, government-supported patient population for drugs will go forward without some of the key people who structured the deal.

To pin pharma’s future to a large expansion in the insurance-covered patients (private and public), pharma had to shift its political allegiances more towards the Democrats: publicly signing on early to the Obama health reform effort and more quietly shifting the traditional campaign donation bias of pharma money from Republicans towards the Democrats.

Whatever his direct role in that shift, Kindler became the chief symbol among the pharma top exec ranks of the strategy. From that perspective, the November elections sealed his fate as much as the 52 Democratic House members defeated at the polls. His political dealings may or may not contribute to his “exhaustion” resignation, but he had become a liability to Pfizer and the industry with the shift in political winds.

Pfizer, and the rest of the industry, will find it easier to be heard with Ian Read (moving from head of Pfizer Pharmaceuticals to CEO) at the head of the largest company. No matter what his individual politics or how much or little he supported Kindler’s alliance with the Democrats, Read represents a fresh face to the Republicans in charge of the House.

The same is true for Merck’s incoming CEO Ken Frazier, whose ascension to the top slot was announced by Merck just last week—but in oh-so-different and more orderly a fashion. Merck’s Clark, however, was the public face of the first round of industry-White House agreements, standing aside President Obama along with the CEOs of other major health industry players in kicking off the reform debate.

And of course the trade association PhRMA has already taken that step, with Tauzin announcing his departure even before final enactment of the health care law, and the industry group picking Business Roundtable Director John Castellani to represent its interests in the implementation phase.

The changes do not mean a full-scale retreat by pharma from health care reform (any more than Emanuel’s departure from the White House signals that Obama will work to repeal the law).

For Big Pharma, reversal would be a quixotic and counter-productive change in strategy in the face of an enacted law. The CEO suite changes, however, do mean that pharma will again have a chance to have a seat at the table in any efforts that the Republicans undertake to tailor, refine and cutback provisions of health care reform.

International Taxes, Part D Rebates Are Easier With Changes

The departure of key figures from both sides of the negotiating table for health care reform may mean that some of the side agreements are more at risk. One of the corollary objectives for pharma in negotiating with the Democrats was to be able to define and specify the size of its contributions to health reform (in terms of the industry fee and Part D discounts) and avoid some other threats (primarily changes in taxation of international profits, Medicare rebates, taxes on direct-to-consumer ads).

The attack on pharma’s tax benefits is already under way as a frequently mentioned pay-for on Capitol Hill to balance any new government expenditures. Part D rebates are prominent n the deficit commission’s report on working towards a balanced budget. Few believed that any side agreements would last much beyond enactment of health care reform in any event, but the changeover in key participants means there is even less likelihood that industry can count on ongoing support for some of the unstated agendas behind the reform deal.

That’s another reason to cozy back up to the GOP as a way to deflect those efforts.
Kindler and Clark weren’t the only CEOs directly involved in the reform negotiations; during PhRMA’s March annual meeting, they highlighted the roles of four others, including AstraZeneca’s David Brennan, Johnson & Johnson’s Bill Weldon, Amgen’s Kevin Sharer, and Abbott’s Miles White.

Brennan’s executive team, in particular, was instrumental in developing the close relationship between labor unions and PhRMA that served as the foundation for successful lobbying on Capitol Hill. The Democrats on the Hill were surprised and pleased to learn that pharma was aligned with the unions to support health care reform.

The Republicans, no doubt, were surprised and annoyed by that same shift. Brennan may be less subject to backlash, however, because of geography. As a UK-based firm, AstraZeneca may have less interest in the parochial likes and dislikes of American political parties.

Among the US-based CEOs, Weldon is already in the hot seat, thanks to the ongoing issues with manufacturing quality at the company. In Congress, the pressure has been applied by the House Government Reform & Oversight Committee, whose incoming chair—Darryl Issa of California—has been an active participant even while in the minority. Issa also complained about the lack of transparency behind the PhRMA deal during the reform debate.

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