2003-09-05 -- Medicare and the Drug Manufacturers


Here is the first two of a series of three New York Times articles
which are useful on the prescription benefit aspects of Medicare
"reform," though not enough is said about the more significant aspects
of overall restructuring, privatization, and rationing of benefits to
merit the title "Re-examining Medicare."

Nonetheless, the pharmaceutical business is a major economic force,
both for patients struggling to secure medicines and some in the
ruling circles who worry about a lopsided economy as the US prepares
to go on a permanent war footing.  As David Grant, Senior Action
Network Health Policy Analyst, told a recent Health Care for All
meeting, the smallest of the five major drug producers is bigger than
all of Detroit automakers combined.



RE-EXAMINING MEDICARE

New York Times, September 4, 2003

Some Successful Models Ignored as Congress Works on Drug Bill

By ROBERT PEAR and WALT BOGDANICH

By most measures, the Department of Veterans Affairs has solved the
puzzle of making prescription drugs affordable for at least one big
group of Americans without wrecking the federal budget.

Wielding its power as one of the largest purchasers of medications in
the United States, the V.A. has made it possible for millions of
veterans to pay just $7 for up to a 30-day prescription. Thousands are
signing up for the program every month.

Yet for all its apparent success, lawmakers have disregarded the V.A.
model - and others like it that use the government's immense power to
negotiate lower prices - as they try to give older Americans relief
from rising drug costs while reshaping how the elderly get medical
services.

Instead, a Congress deeply divided by ideology has given birth to
legislation that would add prescription drug coverage to Medicare, but
that many experts say would fall short of meeting the needs of the
elderly. The benefits, costing $400 billion over 10 years, are complex
and limited, and the legislation relies in part on cost control
mechanisms that are untested or unproven.

In fact, Congress would exempt the drug industry from the kind of cost
controls that are in place for virtually every other major provider of
Medicare services.

"The legislation pending in Congress does more to deform than to
reform Medicare," said Dr. Paul M. Ellwood, a noted health policy
analyst who was an early proponent of managed care. "Instead of
creating a system of readily understandable choices based on cost and
quality, Congress is writing legislation that will increase the
complexity of Medicare, so it will be more difficult for seniors to
navigate."

The effort to forge a final deal on Capitol Hill, blending separate
House and Senate measures, was high on the agenda as Congress returned
to work this week. Lobbyists and health policy experts say the
likelihood that a comprehensive drug bill will become law this year
seems no better than 50-50. But Thomas A. Scully, administrator of the
federal Centers for Medicare and Medicaid Services, said yesterday
that he was "95 percent sure we will get a Medicare bill out of
Congress."

Politically, the legislation is a marriage of convenience, combining
drug benefits, long sought by Democrats, with a Republican approach to
administering the benefits, through private health plans and insurance
companies. To secure votes, the Senate bill was festooned with
provisions aiding various interest groups. There is language that
would, for examples, aid chiropractors; marriage and family
therapists; doctors in Alaska; hospitals in Iredell County, N.C.;
operators of air ambulance services; and many other groups.

The need for bipartisan support "led to a series of compromises that
resulted in a hodgepodge of a bill," said Senator James M. Inhofe,
Republican of Oklahoma, who opposed the Senate bill.

Michael Valentino, a manager of the V.A.'s drug benefit program,
praised Congress for trying to help Medicare patients buy prescription
drugs. But he added that the coverage could be expanded if Medicare
took full advantage of its purchasing power.

John C. Rother, policy director for AARP, the lobbying group for older
Americans, said the legislation was a "real godsend" for people with
low incomes or high drug expenses.

"But for many others," he said, "the benefits will be seen as
inadequate."

Premiums and drug benefits could vary from plan to plan, state to
state and year to year. The Senate and House bills both establish a
standard drug benefit, with substantial coverage upfront and
catastrophic coverage for high costs. But beneficiaries would have to
pay all drug costs in the middle, until their out-of-pocket costs
reached a certain level - $3,700 a year under the Senate bill and
$3,500 under the House bill.

Robert D. Reischauer, former director of the Congressional Budget
Office, said the gap in coverage "defies rational policy analysis" and
was not found in commercial insurance. Congress engineered the gap to
keep the drug plan's cost under the $400 billion limit.

Political Judgment'

Drug companies say they support covering prescription drugs under
Medicare. But in the last few years, they have invested several
hundred million dollars in campaign contributions, lobbying and
advertising to head off price controls.

The legislation "reflects a political judgment that the pharmaceutical
industry" would block "price controls or any arrangement that used the
concentrated purchasing power of the government to buy prescription
drugs," said Paul B. Ginsburg, president of the Center for Studying
Health System Change, a private research institute.

The V.A. plan, by contrast, owes its relative success to its buying
power - and a willingness to use it. Its doctors and pharmacists
analyze research to establish a list of preferred drugs for various
conditions. The V.A. obtains discounts through bulk purchasing
arrangements - using generic drugs where possible - and competitive
bidding.

"We are so far ahead of anybody else, it's almost ridiculous," Mr.
Valentino said. In 2000, the National Academy of Sciences found that
the V.A.'s methods had achieved nearly $100 million in savings over
the previous two years.

But Congress decided not to adopt the V.A.'s approach; in fact, it was
not seriously considered. Lawmakers also passed up other alternatives,
including vouchers for the purchase of health insurance and proposals
to assist only people with low incomes.

Representative Michael Bilirakis, the Florida Republican who is
chairman of the House Energy and Commerce Subcommittee on Health, said
that if Medicare pooled its purchasing power, it would amount to "a
form of price controls."

"That's not America," Mr. Bilirakis said. "Many of my constituents
would feel that price controls are a great thing. But ultimately some
of us have to be responsible."

The political imperative that seems to have produced today's fragile
consensus stems from complaints that every lawmaker has heard from
constituents: prescription drugs cost too much.

At Medicare's inception in 1965, policy makers chose not to cover
outpatient drugs, because medicines now so indispensable to treating
disease either did not exist or were relatively inexpensive.

Instead, Medicare focused on big-ticket items like hospital care and
doctors' services. For years, Medicare mostly paid whatever bills
health care providers submitted, but by the 1980's Congress decided it
needed to restrain rising costs. In subsequent years, Medicare
prospectively set limits on what it paid major health care providers,
including hospitals, doctors, skilled nursing homes and home health
agencies.

The controls have never been popular with the health care industry.

"In Medicare, the tendency is to set prices too low," said Dr. Donald
J. Palmisano, president of the American Medical Association. Indeed,
Carmela S. Coyle, senior vice president of the American Hospital
Association, said 67 percent of hospitals lose money on Medicare.

By and large, however, the measures have managed to slow the growth of
Medicare costs, say many health policy experts, including Bruce C.
Vladeck and Nancy-Ann DeParle, who ran Medicare under President Bill
Clinton. Drug costs, however, have skyrocketed, and while most of the
elderly get some help from retiree health benefits, Medicaid or state
programs, at least one-fourth of Medicare beneficiaries have no drug
coverage.

Under the bills passed this year, the government would subsidize drug
coverage provided to Medicare beneficiaries by private insurers and
health plans. They would bargain with drug companies to secure
discounts and rebates, a task likely to be delegated to pharmaceutical
benefit managers, or P.B.M.'s, the companies that already perform the
service for many employers. Both bills stipulate that Medicare
officials cannot "interfere in any way" in those negotiations.

For President Bush and Republicans in Congress, the concept makes
sense: let the marketplace set the prices, rather than government. For
years, lawmakers have found fault with Medicare's arcane and
voluminous regulations. Congress has frequently intervened to tweak
the formulas, taking money from some providers while giving more to
others - often to those with the most persuasive lobbyists.

That, in turn, contributes to anomalies in medical care, because
doctors have financial incentives to perform certain services and not
others. Mr. Scully, the Medicare administrator, said such anomalies
were inevitable because Medicare was "a big dumb price-fixer."

Still, Medicare has been a boon to the elderly and their children.
Surveys show that beneficiaries are overwhelmingly satisfied with
their care. Before Medicare, only 56 percent of the elderly had
hospital insurance; the program has contributed to an increase in life
expectancy and a sharp reduction in poverty among the elderly.

Moreover, some studies show Medicare has done better at controlling
medical costs than private health insurance. Cristina Boccuti, a
researcher at the Urban Institute, and Marilyn Moon, a former public
trustee of the Medicare program, said Medicare spending grew more
slowly than private health insurance costs from 1970 to 2000.
Republicans say such comparisons are misleading and contend that
Medicare's cost controls have slowed access to new treatments and
technology.

Negotiated Discounts

But that does not seem to be a problem for the V.A. The study by the
National Academy of Sciences found that its approach had "meaningfully
reduced drug expenditures without demonstrable adverse effects on
quality."

Mr. Valentino said: "When we make our recommendations, it's not
because Doctor A, in his or her opinion, believes it is the best drug.
It is because the evidence says it's the best drug." Echoing the
criticisms of government investigators, he added that P.B.M.'s, by
contrast, sometimes make deals favoring expensive drugs for their own
financial benefit.

Under the House and Senate bills, Medicare beneficiaries would have
access to drug discounts negotiated on their behalf by private
insurers and P.B.M.'s. Supporters of the legislation say these
discounts could reduce retail drug prices by 20 percent. But Congress
consciously decided to disperse Medicare's purchasing power. It did
not want Medicare to establish a uniform nationwide list of preferred
drugs or a price list for those drugs - mechanisms that the drug
industry opposes.

"Price controls cause artificially low prices," said Jeffrey L.
Trewhitt, a spokesman for the Pharmaceutical Research and
Manufacturers of America. And low prices for a government program, he
added, would reduce the money available for researching new drugs and
could prompt drug makers to seek higher prices from patients with
private insurance.

Critics of the drug industry dispute such arguments - and say that
they obscure the obvious.

"The obvious is that if you control prices, you pay less," said Mr.
Vladeck, the former Medicare administrator. "There are some problems
with it, and not all price controls work as well as others. But the
pharmaceutical industry does have enough political juice to prevent
any reasonable price controls."

The idea of giving people a choice between traditional Medicare and
private health plans has deep roots.

"We must promote diversity, choice and healthy competition in American
medicine if we are to escape from the grip of spiraling costs," the
Nixon administration said in 1970, in words similar to those of
President Bush in 2003.

In 1978, Alain C. Enthoven, a Stanford University economist, called
for regulated competition among private health plans. Medicare, he
said, would subsidize premiums, and the most efficient health plans
would pass on their savings to consumers, so patients would have a
financial incentive to enroll.

Prompted by such thinking, the government offered new private
alternatives to the traditional Medicare program in the 1980's, and
Congress encouraged the development of health maintenance
organizations. Enrollment grew, in part because many H.M.O.'s offered
drug benefits not available in traditional Medicare.

Medicare beneficiaries generally praised the care they received in
H.M.O.'s, but the plans did not control costs as their proponents had
hoped. Many H.M.O's began reducing some benefits, including drug
coverage.

They also pressed Congress for more money, saying that their costs
were rising 10 percent a year - five times the increase in payments
from Medicare. Unable to persuade Congress to close the gap, many
H.M.O.'s abandoned Medicare or curtailed their participation.

That track record has heightened critics' skepticism about the current
legislation.

"The myth of the market," said Lynn M. Etheredge, who worked at the
White House Office of Management and Budget from 1972 to 1982, "has a
powerful sway over people's minds, despite evidence that it is not
working in the Medicare program."

The Congressional Budget Office estimates that under the legislation,
many private plans will cost slightly more than traditional Medicare.
Moreover, there is widespread doubt that insurers - who do not now
sell stand-alone drug insurance - will begin to do so.

Even Mr. Scully concedes that such drug coverage "does not exist in
nature" and would probably not work in practice. The elderly are heavy
users of prescription drugs, so few insurers are eager to write
coverage for their drug costs alone, separate from their other medical
expenses.

"It would be like providing insurance for haircuts," Charles N. Kahn
III said several years ago, when he was president of the Health
Insurance Association of America.

Limits of Coverage

Even if President Bush signs a Medicare drug bill in the coming year,
it will not be the last word.

Health policy experts say that costs may well grow faster than the
official projections suggest. That would increase pressure on Congress
to hold down drug costs, just as lawmakers continually try to slow the
growth of Medicare payments to hospitals.

At the same time, when Medicare beneficiaries realize the limits of
the new drug coverage, they can be expected to lobby for more generous
benefits. In supporting the Senate bill, Senator Edward M. Kennedy,
Democrat of Massachusetts, made clear that it was only a down payment,
a foundation for more comprehensive drug benefits.

Ms. DeParle predicts that the legislation will produce a huge demand
for drugs, and she is far from certain that competition will do much
to control costs. "It is pretty much theory, and that is what worries
me about it," she said. The Congressional Budget Office estimates that
per capita drug spending for the Medicare population will increase
about 10 percent a year over the next decade.

Critics of the legislation doubt its cost can be kept to the $400
billion budgeted by Congress. "Utilization will go up dramatically,
and costs could explode," said Senator Don Nickles, Republican of
Oklahoma.

For now, however, politicians have chosen to favor drug companies over
Medicare beneficiaries, said Prof. Uwe E. Reinhardt, a health care
economist at Princeton University.

"On one hand, there is the taxpayer and, in fact, patients who would
benefit from having costs controlled," Dr. Reinhardt said. "But on the
other hand, those people do not finance the campaigns of these
legislators."

Ms. Coyle of the hospital association declined to address the question
of why her industry, but not the pharmaceutical industry, had been
subject to price controls. Her group's biggest concern about the
legislation, she said, is that "we are not addressing the larger
problem: a health care system that is fundamentally broken." The
nation, she said, wants the best care for everyone, but needs to
decide if it is willing to bear the cost.

So who would be the big winners if the legislation is signed into law?

"The short-run political winner is George Bush, because this law will
not be understood by anyone," Dr. Reinhardt said. "It is so complex.
But he can go in 2004 and say, `Look, for 30 years you tried to get a
drug benefit - I got you one.' "

And, he added: "The elderly will benefit, too, relative to nothing.
Who loses? Obviously the people who pay for it."

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New York Times September 5, 2003

Industry Fights to Put Imprint on Drug Bill

By SHERYL GAY STOLBERG and GARDINER HARRIS

In the thick of the 2000 presidential campaign, executives at
Bristol-Myers Squibb, one of the nation's largest drug companies,
received an urgent message: donate money to George W. Bush.

The message did not come from Republican campaign officials. It came
from top Bristol-Myers executives, according to four executives who
say they donated to Mr. Bush under pressure from their bosses. They
said that they were urged to donate the maximum - $1,000 in their own
name and $1,000 in their spouse's - and were warned that the company's
chief executive would be notified if they failed to give.

Bristol-Myers said no one was forced to donate. But elsewhere in the
drug industry, the message about the election was much the same. At
some companies, officials circulated a videotape of Vice President Al
Gore railing against the high price of prescription drugs. A torrent
of contributions for Mr. Bush and other Republicans resulted. And the
money kept flowing, right through the elections of 2002.

Those donations may soon pay off handsomely for the pharmaceutical
business. Four years ago, a Democrat was in the White House and the
industry was bitterly fighting a prescription drug proposal that it
said would have led to price controls. Today, a Republican-controlled
Congress is preparing to send a Republican president a measure with a
central provision - the use of private health plans to deliver
Medicare prescription drug benefits - that is tailor-made to the
industry's specifications.

The story of how pharmaceutical manufacturers helped shape the
Medicare drug benefit is, in part, that of a calculated decision by a
lucrative industry to throw its financial weight behind one political
party - with $50 million in campaign contributions over the last four
years, the vast majority to Republicans. It is also the story of a
dogged, mostly unseen campaign that included a small army of lobbyists
in Washington and a network of industry-financed groups, which carried
the drug makers' message to the public.

Throughout, the industry had a single goal: to defeat any legislation
that would let Medicare negotiate steep discounts on the prices of
medicines for its 40 million beneficiaries.

Instead, if there had to be a prescription drug benefit, industry
executives agreed that it should be administered by the private
sector, where insurance companies would negotiate on their own,
without Medicare's influence. That is precisely what will occur if
bills passed by the House and Senate are reconciled and a law is
signed by President Bush. Both measures envision taxpayers spending
$400 billion over the next 10 years on the drug makers' products,
while banning government officials from even seeking volume discounts.

"The drug lobby has just emasculated Congress with tons of money,"
said Representative Pete Stark of California, the senior Democrat on
the health subcommittee of the House Ways and Means Committee, whose
Republican leaders wrote the House Medicare bill. "They bought
themselves a deal."

But Republicans say that their legislation will lead to discounts and
that the industry gave up as much as it got.

"I think the drug industry would rather not have any bill," said
Senator Charles E. Grassley, the Iowa Republican who, as chairman of
the Senate Finance Committee, is a driving force behind the
legislation. "But they know there is going to be a bill because of
public demand for it, and I think they are just swallowing hard."

For the manufacturers, the stakes could hardly be higher. The United
States, the last industrialized country with unregulated drug prices,
provides half of the industry's revenues, up from less than a third a
decade ago, and most of its profits. And the elderly are its best
customers. Some companies estimate that up to half of their sales in
the United States come from drugs bought by the elderly. Pfizer alone
sells medicines to treat cholesterol, blood pressure and arthritis
problems that brought in $17 billion last year - nearly all from
Medicare-eligible patients.

Some companies, like Merck, are pressing hard for the legislation,
while others are lukewarm. A number of drug executives say they fear
that the proposed benefit is so skimpy that Congress will be forced
over time to improve it - a move that will eventually lead to price
controls. One described the measure as "deeply flawed."

Yet even those drug executives with reservations say they will not
stand in the legislation's way. A spokesman for the Pharmaceutical
Research and Manufacturers of America, an industry trade group, said
that passing a Medicare drug benefit "remains the top priority."

"I kind of hate to say the industry got what it wanted," said Ian
Spatz, vice president for public affairs at Merck. "But I think it's a
fair solution that does give people access to our medicines, and does
it in a way that is least likely to lead to price controls."

The Beginnings Clinton Plan Spurred Industry Into Action

It was the White House - the Clinton White House - that provided the
impetus for the drug makers' long-running campaign to shape the public
discussion about a Medicare drug benefit.

Late in his second term, Mr. Clinton proposed giving elderly Americans
some relief from the cost of prescription drugs. Knowing that a
benefit administered by Medicare would never pass muster with
Republicans, he called for Medicare to contract with private
pharmaceutical benefits managers, or P.B.M.'s - one per region of the
country - to manage drug purchases for the government.

The drug industry hated the idea. Private benefits managers had
muscled their way into positions of considerable power just a few
years earlier, and drug makers were stunned by their ability to drive
down prices and even shift sales to competitors' pills.

So the drug makers took a page from the insurance industry's
successful Harry and Louise advertising campaign, which helped defeat
the Clinton health care plan in 1994.

This time, an arthritic bowler named Flo was featured in a $30 million
ad campaign. Flo's message was simple and direct: "I don't want big
government in my medicine cabinet."

The ads were devastatingly effective - and infuriating to the Clinton
administration, which responded by threatening the industry with price
controls and issuing reports that excoriated drug prices and profits.

With the drug companies being painted as pariahs, a handful of
executives concluded that they could not stand in the way of a
Medicare drug benefit forever. Among them was Raymond V. Gilmartin,
the chief executive of Merck.

"We came to believe that people will deal with the affordability of
medicines one way or another - either through access and competition
or price controls," Mr. Gilmartin said. "We decided that getting
seniors access reduced the risk of price controls."

On Capitol Hill, meanwhile, Senator Edward M. Kennedy, Democrat of
Massachusetts, was quietly reaching out not just to Mr. Gilmartin, but
to Gordon Binder, then the president of the industry trade group.

"It was apparent to me that if they were going to block it, nothing
was going to be achieved," Mr. Kennedy said. "I've been around here
long enough to know that was the case. So the question was whether you
could find any common ground."

Administration officials also had talks with industry officials,
hoping for a compromise. But when news of conciliatory moves between
drug makers and Democrats became public, some Republicans and a few
industry executives were furious. Executives at several companies
suspected that Mr. Gilmartin supported a drug benefit because he had
hopes that Medco, a Merck pharmacy benefits subsidiary, would land a
crucial role in buying drugs.

"Having the whole benefit run through a couple of P.B.M.'s -
especially if one were Merck-Medco - could be a disaster," said one
industry executive, speaking on condition of anonymity. Another, at a
different pharmaceutical company, said, "Gilmartin wrapped himself in
some clever rhetoric of private-sector solutions, and it used to drive
us crazy."

Merck has since spun off Medco, and Mr. Gilmartin said that his
support of a Medicare drug benefit had nothing to do with Medco.

In the end, the talks between the drug industry and Democrats went
nowhere. The industry pinned its hopes on the election of Mr. Bush,
who supported a Medicare drug benefit, so long as it was administered
through the private sector. In early 2000, the pharmaceutical industry
announced it would do the same.

"When Bush came out for it, that nailed it," one industry executive
said. "Where else are we going to go?"

The Contributions A Push for Money, Mostly for the G.O.P.

Republican campaign officials were keenly aware of the drug industry's
growing anxiety about how a drug benefit might be set up.

In a letter dated April 9, 1999, Jim Nicholson, then the Republican
National Committee chairman, wrote to Charles A. Heimbold Jr., then
the chief executive of Bristol-Myers, to discuss plans for a coalition
to lobby for issues important to drug companies.

"We must keep the lines of communication open if we want to continue
passing legislation that will benefit your industry," Mr. Nicholson
wrote in the letter, which has since become public as part of
litigation on campaign finance rules.

He encouraged Bristol-Myers - already a major donor to Republicans -
to give $250,000 to join the national committee's Season Pass program,
which offered donors "premier seating" at a fund-raising gala and
"V.I.P. benefits" at the Republican convention in Philadelphia in
2000.

Bristol-Myers and its employees contributed $2 million to the party
and its candidates during the 2000 campaign, according to the Center
for Responsive Politics, a nonpartisan group that tracks campaign
financing. That ranked Bristol-Myers second, behind Pfizer. Mr.
Heimbold, who was a co-host at a fund-raiser for Mr. Bush, gave
$206,830 to Republicans in the 2000 campaign, according to the center.

In one letter from Richard J. Lane, who at the time was president of
Bristol-Myers's worldwide medicines division and co-chairman of its
employee political action committee, company executives were chided
for failing to contribute in sufficient numbers. "The politically
motivated attacks against our industry have intensified during this
election season and hostile candidates have one goal in mind - to
shackle our industry with price controls," Mr. Lane wrote.

Although the letter said contributions were voluntary, four former
Bristol-Myers executives, all speaking on condition of anonymity, said
the company's huge contributions resulted in part from aggressive
internal solicitations. Each said they were told that a list of those
who did not contribute would be given to Mr. Heimbold.

"The need to gather in money to provide green power for our Washington
activities was spelled out in excruciating detail to all company
officers," one of these executives said.

A spokeswoman for Mr. Heimbold, now the United States ambassador to
Sweden, said she had no comment.

Federal election law bars companies from using coercion to force
someone to make a political contribution. A spokesman for
Bristol-Myers, John Skule, said yesterday that while "we ask for
active participation in the political process," no one was forced to
donate, and the company "takes very seriously its duty" to comply with
election laws.

"There was not one person in the company who lost their job because
they didn't donate," Mr. Skule said.

The push to gather money for Republicans was prevalent throughout the
drug industry during the 2000 campaign. With Vice President Gore
saying that drug makers were gouging the elderly, the industry
contributed $20 million to candidates and parties during the campaign,
79 percent of it to Republicans, according to the Center for
Responsive Politics.

More important, the industry bought $50 million in TV commercials and
millions more in radio, newspaper and direct-mail ads. The ads assured
voters that Republican lawmakers were fighting for a Medicare drug
benefit. Drug makers also gave the United States Chamber of Commerce
$10 million more to run ads under its name. Months before the
election, House Republicans passed a bill along the industry's
preferred lines.

The bill never gained traction in the Democratic-controlled Senate.
And when Mr. Bush won the election, the drug makers celebrated. As one
industry executive said, "There were a lot of high-fives around here."

The Victories A New Congress and a New Outlook

Having a Republican in the White House, however, was not enough to
bring elderly people the relief they were clamoring for. In the two
years after the 2000 election, a Medicare drug benefit remained bogged
down in partisan politics on a divided Capitol Hill.

The drug industry contributed $26 million in the 2002 election, again
mostly to Republican candidates. And it again spent millions on
television ads in crucial districts around the country - this time
telling voters that Republican incumbents had been fighting to add
prescription drugs to Medicare.

"What they did, which was so clever, was run ads in Republican
districts saying, `Thank Congressman X for coming up with a
prescription drug program for seniors,' " said Senator John McCain,
Republican of Arizona, who voted against this year's Medicare bill,
saying it favored drug makers while providing the elderly scant
relief. "They were helping these guys get re-elected who had done
nothing."

Afterward, the drug industry claimed credit for several crucial
victories that helped keep Republicans in charge of the House - and,
more important, helped them win back the Senate. Once again, industry
executives celebrated on election night.

"Having both houses of Congress Republican-controlled was great," one
drug lobbyist said. "Like in Monopoly, when you get to add hotels."

By the time the 108th Congress convened in January 2003, drug makers
no longer faced the danger of a benefit administered by Medicare.
Lobbyists for consumer groups knew not to bother trying. "The whole
question of Medicare being the direct purchaser was off the table at
the beginning of this Congress," said John C. Rother, the chief
lobbyist for AARP, the organization representing retired people.

Changes within the drug industry also increased the likelihood of a
drug benefit delivered through the private sector. Merck's spinoff
this year of Medco assuaged much of the concern in the industry that
any bill would give Merck an unfair advantage.

With the framework of a privately delivered benefit already settled,
industry lobbyists went to work on the details. A critical issue was
ensuring that Medicare administrators could not press directly for
discounts. Both the House and Senate bills have language barring
Medicare officials from interfering "in any way with negotiations"
between insurers and drug companies.

The industry also won a provision in the House bill that puts Medicare
in charge of drug benefits for the elderly poor. That would strip the
responsibility from state Medicaid programs, which have begun to rein
in costs by limiting purchases of high-price drugs.

In addition, several drug companies pressed lawmakers to include
provisions that would allow patients to appeal insurers' decisions to
deny coverage for certain drugs, and they fought an amendment to the
Senate bill, offered by Senator Hillary Rodham Clinton, Democrat of
New York, that would have included money for studies comparing drugs'
cost-effectiveness.

"It seems to me if we are going to move toward a market mechanism -
which I have a lot of questions about - markets thrive on information,
and this is information which is largely within the province of the
drug companies," Mrs. Clinton said.

Her amendment failed, receiving just 43 votes. That was no surprise to
Senator Clinton, or to others who voted against the Senate bill,
including Senator McCain. "There's no doubt in my mind that the drug
industry got everything it wanted and more," he said. "It perhaps
should be called the `Leave No Lobbyist Behind Bill.' "

In fact, the industry did not win every battle. Both the House and
Senate bills contain provisions that would speed generic drug
approvals - a move the manufacturers of brand-name drugs oppose.

And in the House, a provision that would make it easier for Americans
to import cheap drugs from Canada and Europe passed, despite intense
industry lobbying against it. Later, the industry persuaded 53
senators to sign a letter saying they oppose the provision. The matter
must now be settled in conference.

While the lobbyists worked behind closed doors, the industry financed
citizens' groups to bring its message to the public. One such group
was the United Seniors Association, whose national spokesman, Art
Linkletter, took to the airwaves this spring, congratulating lawmakers
who voted to add prescription drugs to Medicare. Gone was the strident
campaign featuring Flo, the bowler. Mr. Spatz, of Merck, said there
was no need.

"Back then it was really about opposing President Clinton's proposal,"
he said. "This wasn't about opposing anything. This was about
supporting something."

The industry's silence could change, of course, as the House and
Senate reconcile their bills. But so far, the behind-the-scenes
strategy seems to have been successful. Industry opponents see the low
public profile as evidence of the drug makers' satisfaction.

"The dog is not barking," said Bill Vaughan, a lobbyist for Families
USA, a consumer group. "I think the dog got what it wanted."