America's Bitter Pill

by Steven Brill

  Senate majority leader Harry Reid immediately turned his attention to making sure that happened. Baucus, however, still wanted a bipartisan deal. He was worried about some of the most conservative Democrats. Besides, Max Baucus loved doing bipartisan deals in his Finance Committee.

  There was also great concern that there would soon be one less Democrat. Ted Kennedy had been told in late May that he had maybe three or four months to live.

  Baucus’s bipartisan spirit was not in evidence in mid-June when the other Senate committee concerned about healthcare—Kennedy’s Health, Education, Labor and Pensions, or HELP, Committee—began to edit, or “mark up” the draft bill that Kennedy’s staff had circulated. With Kennedy now ailing, he had designated Chris Dodd of Connecticut, a close friend, as his stand-in on the committee to pull the bill together. But Dodd had been unable to duplicate Kennedy’s legendary ability to bring Republicans along. By the end of the spring, the HELP meetings had become exclusively Democratic staff conversations.

  Their draft included the three-legged Romneycare stool and generous subsidies for people to buy insurance in compliance with the mandate. However, there was no public option. There were also no provisions for the financial givebacks negotiated with the hospitals or insurers or for any proposed taxes on the device makers or on insurance benefits provided by employers; that would all be the province of the Finance Committee, which had jurisdiction over all of the bill.

  Beginning on July 17, 2009, the HELP Committee members met in sometimes-marathon sessions to mark up their bill. Dodd was constantly on the phone consulting Kennedy, who was confined to his Cape Cod home. Seven hundred and eighty-eight amendments were offered, “three quarters of which were filed by the ten Republican members,” according to an account in the book written by Kennedy aide John McDonough. Of those, McDonough wrote, 161 were adopted in whole or part.

  The final product added a mild version of the public option, the kind that—because it purportedly would not allow the new government-run insurance provider to have any price advantages over private insurers—seemed pointless to harder-line reformers. The House’s bill, which had emerged three weeks earlier after the three House committees with jurisdiction successfully merged their drafts, had a far stronger public option and included a new tax on millionaires.

  Both the HELP and House bills also set the “age band” at two to one, meaning that the oldest people could be charged only twice what the youngest would be charged for insurance.

  Insurers routinely charge a five to one age band, because older people had so many more healthcare needs than the youngest beneficiaries. Lead insurance lobbyist Ignagni and her insurance company members had told Fowler that there was no way she could agree to that. They would either be forced to charge older people so little that they would lose money, or charge the youngest so much that they would not enroll, creating a pool of mostly old, high-cost customers, which would negate the goal of getting lots of people contributing into the risk pool. Fowler assured her that the Finance Committee bill would try to fix the age band.

  A MASTER LOBBYIST WORKS HIS MAGIC

  One of the more dramatic confrontations in both Henry Waxman’s House committee and in the HELP Committee during their July markup sessions involved that arcane multibillion-dollar issue of how long to protect biologics from biosimilars.

  In both the House and Senate committees, the result featured a virtuoso display of lobbying by representatives of one giant biologics company—Amgen, a Thousand Oaks, California–based creator of medicines targeted at treating serious illnesses, from cancer to kidney disease to rheumatoid arthritis.

  Amgen deployed the kind of muscle on Capitol Hill that had become standard: More than $1.1 million in contributions from individuals associated with the company and its lobbyists had been doled out to the members of the Senate Finance and HELP committees in just the 2008 election cycle (with higher totals on the way for the 2010 cycle). Amgen also spent lavishly on lobbyists, deploying dozens (including some who had worked for Baucus) from multiple firms. Its total lobbying bill from 2007 through 2009 alone was more than $38 million.

  But Amgen had more than that. The company had David Beier, its senior vice president for global government affairs.

  As Beier prowled the halls of the Capitol in July 2009, his company was being investigated by fifteen state attorneys general for conspiring to provide kickbacks to hospitals and clinics by overfilling Medicare-paid-for vials of an anemia drug so that the overfill could then be sold separately, giving the hospitals and clinics a secret bonus for using its product. The company would later settle that case along with at least two others that also involved illegal sales and marketing tactics.

  However, despite Amgen’s run-ins with the law, Beier was not the fast-talking, unscrupulous influence peddler that had become a Washington prototype in the popular press.

  For starters, everyone seemed to like and respect him, and not because he had Tauzin-like charm. A lawyer and former chief domestic policy adviser in Vice President Al Gore’s office, Beier, who was sixty in 2009, was soft-spoken, didn’t argue, and, in the view of members and staffs on both sides of the aisle, always presented the other side of an issue so they would not be blindsided. He tried to make sure that the lobbying team he directed was willing and able to do the same. Fascinated by the regulatory and intellectual property issues a company like Amgen faced in Washington, he even ran bootcamps for the team to train them on Amgen’s issues.

  Beyond that, Beier seemed to know everyone, be everywhere, and know everything in a way that stunned some of those who dealt with him. During the frantic deliberations on healthcare through 2009 and into 2010, some members of the White House staff sometimes found themselves calling him to find out what had happened at a House or Senate meeting. Staffers on the Hill often used him to find out what the White House was up to.

  Henry Waxman was Beier’s chief nemesis on biologics. Waxman thought Amgen and the other drug companies should get zero years of protection—that makers of biosimilars should be turned loose to copy Amgen’s products immediately. Because biologics could not be patented, Waxman thought, they didn’t deserve patent-like protection to preserve the drugmakers’ outrageous profits.*8

  Beier had worked hard to turn this into a broader Silicon Valley debate about entrepreneurship, innovation, and protecting valuable (and lifesaving) inventions. He had enlisted the support of Democrat Anna Eshoo, the congresswoman representing Silicon Valley, while broadening that base with support from groups representing patients with diseases treated by products invented by Amgen and other biologic companies—groups that were often, though not always, funded by the drug companies.

  Beier had another argument. Since biologics had come on the healthcare scene there had been a stalemate over biosimilars; contrary to Waxman’s view, the law didn’t specify whether they could be copied or not following any period of protection or no period, and therefore many companies feared the uncertain legal consequences of making them. Thus, Beier’s side argued, some deal—like his twelve-year deal—would save money by allowing for the production and marketing of cheaper biosimilars under a clear set of rules, something his own company wanted to do.

  Chairmen don’t often lose a vote in their own committees; if they think they might lose, they use their prerogative to avoid the vote. So Waxman was stunned when Beier won a twelve-year provision in Waxman’s committee 47–11. In the HELP Committee on the Senate side Beier first orchestrated the defeat of a seven-year bill sponsored by Sherrod Brown, a liberal Ohio Democrat. Then he won a twelve-year provision. Both votes were bipartisan: 17–5 in favor of Amgen.

  KENNEDY GETS HIS BILL, WHILE BAUCUS ROMANCES SNOWE

  With Ted Kennedy happily watching the proceedings on C-SPAN from his Cape Cod home, the HELP Committee voted on July 14, 2009, to send the fully marked-up bill to the Senate floor, which, of course, would not actually happen until it was reconciled with the bill Baucus was working on.

  No Repu
blican on the HELP Committee voted yes. A New York Times report noted Kennedy’s absence, which the paper wrote “has been especially painful to Mr. Kennedy … who has spent much of his career trying to expand health coverage.” The Times story then quoted Republican Orrin Hatch as saying “It is a very one-sided, very liberal bill. I know that Ted would not have done that had he been able to be here.” But Kennedy and his staff, as well as other Democrats, regarded that as a convenient excuse from a party that seemed to be drawing the line against any reform bill, even one modeled after Romneycare.

  Despite repeatedly promising DeParle, Rahm Emanuel, and Obama himself that his committee, too, would begin a markup, Baucus had been holding off. Meanwhile, the list of Republicans willing to entertain the prospect of a bipartisan deal was gradually shrinking—almost as if the Republican political leaders who had attended the Frank Luntz inauguration night dinner were giving them the hook, one by one. The original bipartisan gang of eleven senators from the Finance and HELP committees had become a Gang of Seven, all from Finance. It now included only three Republicans: Grassley, Mike Enzi of Wyoming, and Olympia Snowe of Maine. Baucus’s staff suspected Enzi was really there to report back to Republican leader McConnell.

  Baucus insisted to the White House people and other worried Democrats, including Senate majority leader Harry Reid, that if he worked on Grassley and Snowe a bit longer he could bring them along. Everyone else on the Democratic side wanted to get the bill voted on before the August recess.

  “Timeline is slipping, but Baucus and Grassley are going to cut a deal today, we think,” wrote someone who took notes of a July 13 White House meeting of healthcare reform staffers. By now Obama had joined the team courting Grassley. “He must have called me half a dozen times on my cell phone, usually out of the blue,” Grassley would later recall. “He said he was just checking in and hoping I was working things out with Max [Baucus].”

  Still, Grassley did not sign on.

  Later on July 13, the president met with Reid, Baucus, and House Speaker Nancy Pelosi to resolve who should get subsidies to help them buy insurance on the exchanges: Should it be families with incomes up to 400 percent above the poverty level (about $92,000 for a family of four) or 300 percent above poverty (about $72,000)? The difference was tens of billions of dollars in federal outlays, but limiting the subsidies to 300 percent would likely put insurance out of reach for millions of families. As it was, the formulas being developed by Gruber (who was now consulting for the Department of Health and Human Services) and others were likely to put good coverage out of the range of even many families making up to 400 percent.

  Obama chose 400 percent and the group agreed, though Baucus was worried that Republicans Snowe and Grassley would object.

  Reid and his staff were more worried about getting something ready for a vote that would pass muster with what were now fifty-nine Democrats, plus Vermont’s Sanders. Through July, Baucus kept on promising he was on the verge of winning over Grassley and/or Snowe, yet he seemed never able to get either Republican over the goal line. Reid and his staff had especially little use for Baucus’s romancing of Snowe, with whom Reid had a frosty, often dismissive relationship. When Baucus was heard one morning complimenting Snowe on her perfume, people on Reid’s staff and even Fowler and her colleagues thought the effort was getting ridiculous.

  Still, Baucus persisted. His effort was complicated by the fact that Snowe was thought by some around the Senate to be difficult to work with—hard working (she carried around thick briefing books that she constantly pored through), but stubborn, painstaking, and sometimes inconsistent. “Yes, I carried around thick books,” she later told me. “Because I thought I was sent here to do real work. A lot of people thought being here was about broad strokes—talking points—to appeal to a base, not legislating. When you’re rejiggering sixteen percent of the economy [going to 19 or 20%], the details actually count.”

  By midsummer, Fowler had counted seventeen items or tweaks that Snowe had insisted on. Some made good sense, like tightening a provision for penalizing hospitals with high infection rates. Others—including a separate program for small businesses to buy insurance for their employees on separate exchanges—seem overly complicated and not worth the trouble. Nonetheless, Baucus put all of them into the bill. Still the Maine Republican would not commit. She kept coming back with more asks and looking for more details. She was particularly concerned about seeing exactly how the premiums and subsidy formulas would work—details that she told me she never got to her satisfaction.

  GRASSLEY CLAMPS DOWN ON “NONPROFIT” HOSPITALS

  Grassley, too, persuaded Baucus to make dozens of changes in the draft that Fowler and her team were working on. Most of what the Iowa Republican suggested strengthened the bill. For example, he persuaded Baucus to remove a provision allowing Medicare to establish a billing category for doctors to bill patients for counseling on end-of-life and hospice decisions. Grassley told Baucus that having even a mention of that in the bill would allow opponents to scare people by charging that the government was trying to save money by having people agree to die sooner than later.

  Grassley had long been focused on accountability and transparency among nonprofit institutions, particularly hospitals, that enjoyed tax exemptions from the IRS. He often cited a study demonstrating that the tax-exempt hospitals provided charitable care representing less than 5 percent of their fast-rising revenues, which was barely higher, if at all, than the for-profit hospitals provided. So he inserted a provision requiring hospitals, as a condition of keeping their tax-exempt status, to issue annual public reports detailing the charitable care and other “community benefits” they had provided in the prior year, which the IRS would review.

  Emilia Gilbert—the woman who fell in her Connecticut backyard and then had to pay off Yale–New Haven Hospital’s exorbitant chargemaster fees under a court order in $20 weekly increments—would have appreciated another of Grassley’s changes. The Iowa Republican added a requirement that before nonprofit hospitals could hand over their overdue bills to lawyers or debt collectors, they had to use aggressive methods to solicit patients to determine if they needed financial aid. Most important for Gilbert and hundreds of thousands, maybe millions, of patients like her, Grassley added a provision allowing the IRS to take away a hospital’s tax exemption if it tried to charge patients who needed financial aid more than the average amount paid for those services by insurance companies and Medicare. In other words, hospitals would not be able to make people like Gilbert pay their inflated chargemaster prices.

  Baucus’s efforts to accommodate Grassley and Snowe seemed to be working. Even DeParle thought so. In mid-July, the White House health reform chief met with Grassley. He seemed friendly, even encouraging. He mused about going back to his farm in Iowa, which DeParle took as a possible sign that he might retire rather than run for another term in 2016. That boded well in the sense that he might want to add bipartisan healthcare reform to his legacy.

  DeParle also met with Snowe, with whom she and Fowler had formed something of a bond. Snowe, too, seemed on the verge.

  Still, as the Senate’s summer recess loomed, neither Republican had signed on to Baucus’s bill. Obama met again with Baucus and Reid on July 23, 2009. “Sad mood,” is how one White House staffer summarized everyone’s exasperation in a journal entry.

  A “BOMBSHELL” FROM THE BEAN COUNTERS

  Despite the stall, the staff—and even Obama himself—were now heavily engaged in the nuances of the various drafts of bills circulating on Capitol Hill. A lot of the effort involved scrounging for money. Should they lower the subsidies being drafted in the Baucus bill? Could they raise the penalties on employers who didn’t provide health insurance?

  Sixty people from the White House and the Department of Health and Human Services attended a July 15, 2009, “innovation” meeting that Summers’s and Orszag’s people considered a bust, because it was mostly taken up with the HHS and Medicare people explaining
why they couldn’t make better use of data and didn’t have the computer systems that could implement bundled payments.

  The economic team also met with officials from the Justice Department and Federal Trade Commission to explore one of Zeke Emanuel’s pet issues: better antitrust enforcement against hospitals that were gobbling up neighboring hospitals, doctors’ practices, clinics, and laboratories and then raising prices in the less-competitive market. The regulators rebuffed them, saying this was a complicated problem that needed lots of further study before anything might be done. Besides, there was another Washington process obstacle in their way: meddling with antitrust laws would require the involvement and approval of the Senate Judiciary Committee and its turf-conscious chairman, Patrick Leahy of Vermont.

  On July 17, the Congressional Budget Office announced what one of Obama’s healthcare aides called “a bombshell,” when he interrupted another of those meetings to report it. The CBO had just scored the House bill and declared that it would not result in any significant long-term healthcare savings.

  Orszag, the former CBO director now running Obama’s Office of Management and Budget, and Nancy-Ann DeParle “rushed up to Capitol Hill to reassure them that it would save money, but it’s not really true,” wrote a White House aide in a journal.

  Orszag and Larry Summers and their staffs had been lobbying the House and Senate staffs to include something that they argued would be a real cost cutter: provisions that would allow Medicare to make decisions based on comparative effectiveness. But so far they had been rebuffed not only by the legislative staffs but by the White House healthcare policy people.

  They were also pushing to have the status of an independent agency called MedPAC, which was already in place advising Medicare on cost savings, upgraded so that if costs increased more than a set amount in a given year, the agency’s determinations would be binding. “Med-PAC on steroids” was how they referred to it. This was basically the kind of independent control board that the Republicans and Democrats at Baucus’s June 2008 summit had warmed to—and which they had said could be like the independent agency that decides which military bases to close.