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SEN. PRYOR’s DRUG COST CONTAINMENT PLAN BLOCKED FROM NEAR-TERM ENACTMENT; ONE-THIRD OF SENATE COMMENTS ON PLAN IN FLOOR DEBATE BEFORE 61-36 VOTE TO TABLE

Executive Summary

Sen. Pryor's (D-Ark.) attempt to attach a Sec. 936 tax disincentive for the pharmaceutical industry to broader tax/economic recovery legislation appears dead for 1992. The 61-36 vote to table the amendment on March 11 takes away the most likely large legislative vehicle for the bill; the eight hours of debate on the proposal before the vote gives the proposal a high degree of visibility among a broad group of senators and makes it unlikely that it can be slipped back onto to another bill. While not an outright rejection of the amendment, a vote to table has much the same practical effect. The amendment cannot be brought up again during debate on the bill in question. The Pryor proposal was portrayed effectively by the pharmaceutical industry as price controls and an unwieldy and inappropriate use of the tax code. The brandname segment of the industry reacted in a unified manner for one of the first times recently on a major bill of direct importance and won a significant political fight. Pryor's proposal was brought up as an amendment to the Senate's tax and economic growth package, which the Senate adopted (50-47) on March 13. The amendment, which is closely modeled on Pryor's S 2000, would have reduced Sec. 936 tax credits available to companies with manufacturing plants in Puerto Rico by 20% for every one percentage point increase in pharmaceutical product prices above the general inflation rate. Tax credits equal to wages paid in the commonwealth would be exempted from the potential penalty. Other provisions of the bill would have established a drug policy review board modeled on the Medicare Prospective Payment Assessment Commission; called for an HHS study of international drug prices and federal "subsidies" to pharmaceutical companies; required companies to report international prices as part of their Medicaid rebate reports; and authorized some of the savings generated by the Sec. 936 provisions to be used for Medicare demonstration projects on drug coverage. The day before the vote Pryor changed the amendment to authorize, but not appropriate, funds for the demonstration projects. Those projects were one of the primary lures drawing the American Pharmaceutical Association to support the Pryor bill. Pryor had chosen to bypass Finance Committee markup of his measure, believing he had more support for the plan elsewhere in the Senate. The substantial airing of the bill on the Senate floor identified several concerns of members with both the concept of the bill and its mechanics, and thus may force Pryor to work out those concerns back in the finance committee. That effort could be slowed by a combination of factors, including members' attention being diverted to this year's elections and Finance Committee Chairman Bentsen's (D-Tex.) apparent objection to using the tax code to get at pharmaceutical prices (see following story). While Pryor suffered a short-term setback on March 11, there is a growing nexus of influential southern Democrats staking out an interest in the drug industry and drug pricing in particular. Pryor was joined in defense of his proposal during debate on March 11 by Sen. Sasser (D-Tenn.). Presidential candidate and Arkansas Gov. Clinton also has made drug prices a prominent part of his campaign rhetoric and repeatedly has endorsed a reduction in special tax breaks for drug companies. Gauging the degree of support for the substance of Pryor's plan is complicated since there was no up-or-down vote on the amendment itself. On one hand, President Bush's threat to veto the overall legislative package due to its tax increasing provisions could have given members a "free vote" in favor of the measure and made it an easier proposal to support. Sen. Simon (D-Ill.) noted that the bill had little chance of becoming law but urged members to send a couple of messages to the pharmaceutical industry." One message, Simon said, is that "the industry as a whole needs to be much more responsive to the concern about drug prices," as have, he said, industry "leaders" such as his home state firm G. D. Searle. On the other hand, Finance Chairman Bentsen argued that the tax package should not be bogged down by any amendments that could prevent Congress from meeting the March 20 enactment deadline set by President Bush in his recent State of the Union address. Three of the 10 original cosponsors of S 2000 voted to table the floor amendment: Sens. Exon (D-Neb.), Kerrey (D-Neb.), and Baucus (D- Mont.). Both Exon and Baucus explained specifically that they were complying with Bentsen's request to pass a clean bill. Baucus said that his vote to table the amendment "is no reflection of my views on the substance of this issue. I will be happy to help Sen. Pryor advance this issue and address the problem of prescription drug costs in a serious and thoughtful way." Pryor is said to be taking the 36 votes as a positive sign for the measure's first legislative outing and believes the number of senators supporting the amendment's substance was closer to the mid-40s based on private conversations with fellow senators. In his concluding remarks in the Senate debate, Pryor said he "will continue in this endeavor, to try to see if we cannot make some degree of common sense together, out of a drug industry that is out of control." The debate also underscored the importance of the pharmaceutical industry as a major employer in many states, particularly in the midst of current worries about the economy. Strong opposition to the Pryor amendment was expressed by New Jersey Democratic Sens. Lautenberg and Bradley. Sen. Helms (R) noted the importance to his North Carolina constituents of Glaxo and Burroughs Wellcome, headquartered in the state, plus another 13 pharmaceutical firms with facilities there. Together, the 15 companies employ more than 16,500 North Carolinians. Sen. Dodd (D) noted that the pharmaceutical firms employing 12,000 of his Connecticut constituents are one of the "few positive signs in a region that has been devastated by defense industry cutbacks." In contrast, both senators from Pennsylvania, Democrat Wofford and Republican Specter, voted against tabling the Pryor amendment. Their vote probably reflects more the saliance of the broader health care cost issue in the state following the issue's key role in Wofford's recent upset election win over former U.S. Attorney General and former state governor Richard Thornburgh. The state's own prescription drug assistance plan has been a highly publicized subject of debate for the last several years and has raised political sensitivity to the issue in the state. Republicans held a strong line against the amendment, with only Specter and Cohen (R-Maine) voting against the motion to table. Cohen is an original cosponsor of S 2000 and the ranking Republican on Pryor's Aging Committee. Twenty-one Democrats joined in the vote to table the proposal. Over the long-term, Pryor has raised further the visibility and Capitol Hill awareness of the drug pricing issue. More than 30 senators addressed the amendment during floor debate. In addition, several senators, such as Arizona Republican McCain, who voted to table the plan, commented that Pryor's "tireless efforts" to highlight drug prices "have produced results, as a great number of companies have taken steps to improve access to drug therapies -- such measures as providing discounts to the government, creating programs to ensure access to drugs for impoverished Americans and holding price increases at or near the inflation rate." McCain noted that these drug access improvement measures "have been taken by such industry leaders as Johnson & Johnson, Searle, Pfizer, Abbott, Bristol-Myers Squibb, Merck, Burroughs Wellcome, Glaxo, SmithKline Beecham, Hoffmann-La Roche, ICI and Genentech." McCain said these "companies ought to be commended. Nevertheless, more must be done, particularly by those companies that have not responded." But McCain added that "price controls" would "have catastrophic consequences," and "have historically done the reverse of what was intended." The Pharmaceutical Manufacturers Association hailed the Senate vote in a March 12 statement advising that "America's pharmaceutical research companies agree with the decision of the Senate March 11 not to impose tax-enforced price controls on the pharmaceutical industry as proposed in Senate bill S 2000." PMA added that "it is clear that many senators were concerned about greater access to health care including pharmaceuticals," and the association "supports Sen. Bentsen's insurance market reforms contained in the tax package as an important step toward broader access to health care" ("The Pink Sheet" March 9, p. 13). Labor & Human Resources Committee ranking Republican Hatch (Utah) noted that HHS Secretary Sullivan advised in March 6 letter to Congress that he would recommend a presidential veto of S 2000 which formed the basis of the floor amendment. Sullivan also asserted that "to escape the tax penalty proposed in S 2000, manufacturers would have substantial incentive to introduce new products at the highest possible price in order to show subsequent reductions in pricing consistent with the Consumer Price Index. We believe these incentives are perverse, unintended and undesirable."
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