When the stakes rise in Wash­ing­ton, health­care in­ter­ests seek well-con­nected lob­by­ing firms

Modern Healthcare - - NEWS - By Paul Demko

In Novem­ber 2011, Gilead Sciences of­fi­cials made what looked like a risky bet when they pur­chased Phar­mas­set for $11.2 bil­lion. The 82-em­ployee tar­get company had lost nearly $100 mil­lion the pre­vi­ous year. Its ex­per­i­men­tal hep­ati­tis C drug, though promis­ing in late-stage clin­i­cal tri­als, still hadn’t been ap­proved by the Food and Drug Ad­min­is­tra­tion.

“For Gilead to give up ef­fec­tively one-third of their value for an un­proven as­set still sub­ject to sig­nif­i­cant on­go­ing clin­i­cal risk seems re­mark­able,” an an­a­lyst with San­ford C. Bern­stein & Co. wrote at the time. Gilead’s stock price sank.

But com­pa­nies rac­ing to de­velop break­through treat­ments for the in­fec­tion were far more op­ti­mistic than Wall Street. They fore­saw a $20 bil­lion mar­ket. But it would take more than good sci­ence to turn what would be­come known as So­valdi into a block­buster.

Foster City, Calif.-based Gilead would need co­op­er­a­tion from the fed­eral gov­ern­ment. First, it needed FDA ap­proval. It also needed a rec­om­men­da­tion from the U.S. Pre­ven­tive Ser­vices Task Force for screen­ing of baby boomers, which guar­an­tees the CMS and in­sur­ers would pay for the screen­ing and gen­er­ate a steady stream of cus­tomers for the drug.

About the same time Gilead ac­quired Phar­mas­set, it hired Joseph Gro­gan to lead its lob­by­ing. That was the first sign that the company planned to pump up its lob­by­ing in Wash­ing­ton. Gro­gan had held a sim­i­lar post with biotech­nol­ogy gi­ant Am­gen, which had a track record of in­flu­enc­ing gov­ern­ment pol­icy.

Gro­gan joined Am­gen after serv­ing as a se­nior pol­icy ad­viser to Dr. An­drew von Eschen­bach, who was FDA com­mis­sioner dur­ing the George W. Bush ad­min­is­tra­tion. He also had served as ex­ec­u­tive di­rec­tor of the Pres­i­den­tial Ad­vi­sory Coun­cil on HIV and AIDS, whose ad­vi­sory coun­cil mem­bers in­cluded Gilead CEO John Martin.

Gro­gan’s ini­tial task was to

en­sure the ex­per­i­men­tal drug passed all its reg­u­la­tory hur­dles. “There’s al­ways a feel­ing that work­ing through for­mer staffers gives you a leg up, rather than just walk­ing in your­self,” said John Rother, a for­mer top lob­by­ist for AARP and pres­i­dent of the Na­tional Coali­tion on Health Care, a non­par­ti­san ad­vo­cacy group.

Gilead’s lob­by­ing also in­volved hir­ing more than half a dozen firms to work on “hep­ati­tis C pol­icy,” ac­cord­ing to a Mod­ern Health­care re­view of gov­ern­ment lob­by­ing dis­clo­sure records. The nearly $2 mil­lion spent on out­side lob­by­ists in 2013 rep­re­sented just a small slice of the ex­ten­sive ef­fort by var­i­ous health­care firms and trade groups to in­flu­ence gov­ern­ment pol­icy. De­spite a slight falloff since pas­sage of re­form leg­is­la­tion in 2010, health­care lob­by­ing re­mains a ro­bust in­dus­try in the na­tion’s cap­i­tal.

Providers, in­sur­ers, drug and de­vice man­u­fac­tur­ers, and the ma­jor trade as­so­ci­a­tions are among the largest fun-

ders of the inside-the-Belt­way in­flu­ence in­dus­try. This year, they’re on pace to spend nearly $500 mil­lion seek­ing to ad­vance poli­cies or avoid set­backs on is­sues cru­cial to their in­ter­ests.

To in­flu­ence de­ci­sions on Capi­tol Hill, health­care in­ter­ests rely on the ex­per­tise of their gov­ern­ment af­fairs em­ploy­ees or the con­nec­tions of their mem­bers if they are a trade or pro­fes­sional as­so­ci­a­tion. They also hire lob­by­ing firms to help com­mu­ni­cate their views to Congress and the ex­ec­u­tive branch.

Th­ese firms usu­ally of­fer a roster of lob­by­ists who once held key po­si­tions inside the fed­eral gov­ern­ment. Among the top 10 spenders on lob­by­ing in each sec­tor of the health­care in­dus­try, roughly 20% of their ex­penses last year went to­ward hir­ing con­tract lob­by­ists, ac­cord­ing to Mod­ern Health­care’s anal­y­sis.

Some of th­ese are bou­tique firms spe­cial­iz­ing in health­care is­sues. Tarplin Downs & Young is among the most sought-after, with health­care con­tracts amount­ing to roughly $5 mil­lion last year. About half of that money came from phar­ma­ceu­ti­cal in­ter­ests, in­clud­ing the Phar­ma­ceu­ti­cal Re­search and Man­u­fac­tur­ers of Amer­ica and the Biotech­nol­ogy In­dus- try Or­ga­ni­za­tion, the in­dus­try’s two main trade as­so­ci­a­tions.

For other firms, health­care is just a piece of their lob­by­ing port­fo­lio. Al­ston & Bird booked more than $5 mil­lion in health­care con­tracts last year, but the firm also had dozens of clients in the de­fense, en­ergy and trans­porta­tion sec­tors. The firm’s largest health­care con­tracts were with HealthSouth Corp. ($480,000) and Cel­gene Corp. ($350,000).

While hir­ing Gro­gan gave Gilead an in­sider’s per­spec­tive on how to ne­go­ti­ate the myr­iad bu­reau­cratic hur­dles be­tween the firm and a suc­cess­ful drug launch, the company didn’t stop there. Gilead also hired some of the most in­flu­en­tial lob­by­ing firms in Wash­ing­ton.

In 2011 and 2012, the company spent just un­der $3 mil­lion on lob­by­ing, ac­cord­ing to re­ports. Last year, that fig­ure in­creased to just over $4 mil­lion, a jump of more than 40%. And through the first two quarters of 2014, the company spent $2.6 mil­lion on lob­by­ing, putting it on track to top $5 mil­lion for the year.

Gilead spent $1.2 mil­lion of its 2012 to­tal on five firms, which regis­tered 19 in­di­vid­u­als to lobby on its be­half. That jumped to $1.8 mil­lion on 26 lob­by­ists at seven firms in 2013 and, in just the first half of 2014, $1 mil­lion on 27 lob­by­ists at seven firms.

The lob­by­ing shops hired by Gilead sprang from both sides of the aisle and in­cluded some of the most pow­er­ful names in Wash­ing­ton, in­clud­ing the Podesta Group; Akin Gump Strauss Hauer & Feld; and BGR Group, headed by for­mer Repub­li­can Na­tional Com­mit­tee Chair­man and for­mer Mis­sis­sippi Gov. Ha­ley Bar­bour. Their job, ac­cord­ing to fed­eral dis­clo­sure re­ports, was to in­flu­ence “hep­ati­tis C poli­cies” and pro­vide “ed­u­ca­tion on hep­ati­tis C is­sues.” Each of those firms ranked in the top 10 in terms of the dol­lar amount of their lob­by­ing con­tracts with health­care groups in 2013.

Many of the lob­by­ists with those firms have held prom­i­nent po­si­tions within the fed­eral gov­ern­ment. Among the Akin Gump lob­by­ists regis­tered to ad­vo­cate on Gilead’s be­half, for in­stance, was Ar­shi Sid­diqui, a for­mer se­nior pol­icy ad­viser to House Mi­nor­ity Leader Nancy Pelosi. BGR lob­by­ists work­ing for Gilead in­cluded Josh Lamel, who served as le­gal coun­sel to Se­nate Fi­nance Chair­man Ron Wy­den (DOre.), and Ryan Long, for­mer chief health coun­sel for the House En­ergy and Com­merce Com­mit­tee un­der Repub­li­can lead­er­ship.

The lob­by­ists’ role be­gan a few months after the ac­qui­si­tion. In Au­gust 2012, Gro­gan and Bill Guyer, Gilead’s vice pres­i­dent of med­i­cal af­fairs, met with John Tay­lor III, who at the time served as coun­sel to the FDA com­mis­sioner, and Denise Es­pos­ito, the FDA’s deputy chief coun­sel for pro­gram re­view for drugs and bi­o­log­ics. It was the first of two meet­ings the company held with the agency.

In June 2013, the USPSTF, which does not dis­close pub­lic com­ments made on its rec­om­men­da­tions, gave univer­sal hep­ati­tis C screen­ing for ag­ing baby boomers a weak rec­om­men­da­tion. Six months later, it re­versed course, giv­ing it

“It’s con­fus­ing as hell. It’s very dif­fi­cult to nav­i­gate.” Thomas Scully, who served as CMS ad­min­is­tra­tor un­der Pres­i­dent George W. Bush on why health­care or­ga­ni­za­tions turn to hired guns for help on Capi­tol Hill

the B rat­ing nec­es­sary to guar­an­tee CMS re­im­burse­ment for screen­ing. In the first half of this year, So­valdi racked up $6 bil­lion in sales, mak­ing it the most suc­cess­ful drug launch in U.S. phar­ma­ceu­ti­cal in­dus­try his­tory and a poster child for out-of-con­trol pric­ing on spe­cialty drugs.

But the job was far from over. The $1,000-per-pill price tag on So­valdi stirred a back­lash on Capi­tol Hill. The company’s newly ac­quired lob­by­ing army swung into ac­tion.

In March, Rep. Henry Wax­man (D-Calif.), the rank­ing mem­ber of the House En­ergy and Com­merce Com­mit­tee, and two other Democrats sent a let­ter to Gilead seek­ing doc­u­men­ta­tion ex­plain­ing the ra­tio­nale for the head­line-grab­bing cost of the hep­ati­tis C drug. Then in July, Wy­den and Sen. Chuck Grass­ley (R-Iowa), the rank­ing mem­ber of the Se­nate Ju­di­ciary Com­mit­tee, sent a let­ter seek­ing a trove of data re­lated to the pur­chase of Phar­mas­set and the pric­ing of So­valdi.

“Although So­valdi has the po­ten­tial to help peo­ple with HCV, at $1,000 per pill, its pric­ing has raised se­ri­ous ques­tions about the ex­tent to which the mar­ket for this drug is op­er­at­ing ef­fi­ciently and ra­tio­nally,” the let­ter from Wy­den and Grass­ley read.

That scru­tiny helps ex­plain why

So­valdi’s lob­by­ing ex­penses have con­tin­ued to grow even after it re­ceived FDA ap­proval.

The power play­ers

De­spite Gilead’s surge in lob­by­ing ex­penses in re­cent years, the company re­mains a mi­nor player in the over­all health­care lob­by­ing scene. In 2009, health­care in­ter­ests spent $555 mil­lion on lob­by­ing, ac­cord­ing to the Cen­ter for Pub­lic In­tegrity, a non­par­ti­san watch­dog group, more than any other business sec­tor. Last year, health­care in­ter­ests spent $484 mil­lion on lob­by­ing ac­tiv­i­ties. Through the first six months of this year, that pace has picked up slightly, with $247 mil­lion in lob­by­ing ex­penses.

While the bulk of lob­by­ing ex­pen­di­tures by health­care in­ter­ests are for in­house ef­forts, they of­ten turn to lob­by­ing firms that spe­cial­ize in their sec­tor when they need help. In 2013, Al­ston & Bird had the largest share of health­care business, with more than $5 mil­lion in con­tracts. The firm’s roster of lob­by­ists in­cludes Thomas Scully, who served as CMS ad­min­is­tra­tor un­der Pres­i­dent George W. Bush.

“It’s con­fus­ing as hell,” Scully said about why health­care or­ga­ni­za­tions turn to hired guns for help on Capi­tol Hill. “It’s very dif­fi­cult to nav­i­gate.”

Tarplin Downs & Young, the lead­ing drug in­dus­try lob­by­ing firm ac­cord­ing to Se­nate lob­by­ing dis­clo­sure records, had roughly $5 mil­lion in con­tracts last year. Linda Tarplin served in key health­care posts in the ad­min­is­tra­tions of George H.W. Bush and Ron­ald Rea­gan. Raissa Downs’ re­sume in­cludes serv­ing as health pol­icy ad­viser to Sen. Mike Enzi (R-Wyo.), who at the time was the rank­ing mem­ber of the Com­mit­tee on Health, Ed­u­ca­tion, La­bor and Pen­sions.

The BGR Group (for­merly known as Bar­bour, Grif­fith & Rogers) also took in roughly $5 mil­lion last year through health­care lob­by­ing con­tracts. The firm rep­re­sents clients across all sec­tors of the econ­omy, but its health­care business in­cluded the Amer­i­can Health Care As­so­ci­a­tion, which rep­re­sents longterm-care fa­cil­i­ties, and Se­lect Med­i­cal, a Me­chan­ics­burg, Pa.-based hos­pi­tal net­work made up largely of long-term and re­ha­bil­i­ta­tion hos­pi­tals.

Round­ing out the top five were the Podesta Group and Capi­tol Coun­sel, each with at least $4.5 mil­lion in health­care lob­by­ing con­tracts last year. The for­mer was started by Tony Podesta, one of the most in­flu­en­tial Democrats in Wash­ing­ton and brother of one of Pres­i­dent Bill Clin­ton’s chiefs of staff. Capi­tol Coun­sel’s roster of lob­by­ists in­cludes for­mer Rep. Jim McCr­ery (R-La.), who spent 21 years in the House.

Five other firms—the Nick­les Group, Akin Gump Strauss Hauer & Feld,

Mehlman Vo­gel Castag­netti, Wil­liams & Jensen and Hart Health Strate­gies— took in at least $3 mil­lion from health­care lob­by­ing business last year. At least 11 other firms had con­tracts worth more than $2 mil­lion.

“We don’t make wid­gets,” said Dean Rosen, a part­ner with Mehlman Castag­netti Rosen Bingel & Thomas who was chief health­care ad­viser to then-Se­nate Majority Leader Bill Frist (R-Tenn). “It’s a lot about who you know and what you know.”

Among the health­care in­ter­ests that hire lob­by­ists, the phar­ma­ceu­ti­cal and de­vice in­dus­tries, whose core in­ter­ests in­volve the FDA for reg­u­la­tory ap­provals and the CMS for re­im­burse­ment, rep­re­sent the largest share. Last year, those com­pa­nies spent at least $226 mil­lion on lob­by­ing, ac­cord­ing to the Cen­ter for Pub­lic In­tegrity. The big­gest player: PhRMA, which spent about $30 mil­lion.

Among in­di­vid­ual phar­ma­ceu­ti­cal firms, Eli Lilly & Co. spent the most money seek­ing to in­flu­ence pol­icy in Wash­ing­ton, with nearly $12 mil­lion in ex­penses. Pfizer fol­lowed close be­hind, with $11.5 mil­lion in lob­by­ing ex­pen­di­tures last year.

Hos­pi­tals and nurs­ing homes ac­counted for the sec­ond-largest share of health­care lob­by­ing ex­penses last year, with at least $92 mil­lion in ex­pen­di­tures, ac­cord­ing to the CPI. The Amer­i­can Hos­pi­tal As­so­ci­a­tion, the largest in­dus­try group, was the dom­i­nant player, with $18.8 mil­lion in lob­by­ing ex­penses. The Fed­er­a­tion of Amer­i­can Hos­pi­tals, which rep­re­sents the smaller for-profit hos­pi­tal sec­tor, spent less than a quar­ter of that amount.

Among in­di­vid­ual providers, Se­lect Med­i­cal Hold­ings had the big­gest pres­ence on Capi­tol Hill, rack­ing up $4.1 mil­lion in lob­by­ing ex­penses. That was fol­lowed by Kin­dred Health­care ($2.8 mil­lion), Part­ners Health­Care ($2.1 mil­lion) and the UPMC health sys­tem ($2 mil­lion).

Or­ga­ni­za­tions that rep­re­sent health pro­fes­sion­als spent at least $85 mil­lion on lob­by­ing last year. The Amer­i­can Med­i­cal As­so­ci­a­tion ac­counted for more than 20% of that amount, with $18.5 mil­lion in lob­by­ing ex­penses. The other top pro­fes­sional or­ga­ni­za­tions in terms of lob­by­ing ex­penses last year were the Amer­i­can Col­lege of Ra­di­ol­ogy ($4.1 mil­lion), the Amer­i­can Den­tal As­so­ci­a­tion ($3.4 mil­lion) and the Amer­i­can Col­lege of Emer­gency Physi­cians ($2.9 mil­lion).

In­surance com­pa­nies racked up more than $70 mil­lion in lob­by­ing costs in 2013. The main in­dus­try group—Amer­ica’s Health In­surance Plans—was the big­gest spender, with $11.5 mil­lion in ex­penses. The Blue Cross and Blue Shield As­so­ci­a­tion was close be­hind, with lob­by­ing ex­penses of $10.9 mil­lion last year. Among in­di­vid­ual plans, Wel­lPoint was the big­gest spender, with $6.2 mil­lion in ex­pen­di­tures.

All of those in­ter­ests find their fi­nances in play when­ever Congress con­fronts post­pon­ing the sched­uled cuts con­tained in Medi­care’s sus­tain­able growth-rate for­mula, which sets physi­cian pay. The never-end­ing bat­tle over tem­po­rary fixes has be­come a full em­ploy­ment act for con­tract lob­by­ists. “It’d be hard to find a lob­by­ing firm in town that didn’t work on SGR,” noted one veteran lob­by­ist.

Last March, with the dead­line for re­solv­ing the is­sue ap­proach­ing, a list drafted by Se­nate Fi­nance Com­mit­tee staffers of pos­si­ble ways to pay for the $140 bil­lion per­ma­nent fix be­gan cir­cu­lat­ing on Capi­tol Hill. Phar­ma­ceu­ti­cal com­pa­nies, de­vice man­u­fac­tur­ers and skilled-nurs­ing fa­cil­i­ties were among the sec­tors po­ten­tially af­fected by the list of rev­enue sources.

“The town went nuts,” one lob­by­ist said.

Se­nate lead­er­ship quickly dis­avowed the list and the prospect of a per­ma­nent re­peal faded. That even­tu­ally led to pas­sage of a 17th con­sec­u­tive SGR patch to avoid a sig­nif­i­cant re­duc­tion in Medi­care pay­ments to doc­tors. But the fi­nal bill was weighed down with nu­mer­ous ex­tra­ne­ous pro­vi­sions, in­clud­ing a de­lay in the con­ver­sion to ICD-10 di­ag­nos­tic and pro­ce­dure codes for at least one year and a post­pone­ment of cuts to the dis­pro­por­tion­ate-share hos­pi­tal pay­ment pro­gram, which rep­re­sented vic­to­ries for the lob­by­ists rep­re­sent­ing physi­cian groups and safety net hos­pi­tals, re­spec­tively.

“The lob­by­ing com­mu­nity has con­tin­ued to be a lit­tle bit starved for health­care ve­hi­cles,” said John Jonas, a health­care lob­by­ist with Akin Gump. “When one does move it tends to pick up a bunch of pro­vi­sions that are in search of a ve­hi­cle.”

But the day-to-day fo­cus of most lob­by­ists, whether in-house or hired guns, tends to be on reg­u­la­tory pol­icy and spe­cific reg­u­la­tory ac­tions. Bun­dled pay­ments, re­duc­tions in Medi­care Ad­van­tage pay­ments, changes to the 340B drug dis­count drug pro­gram—all re­quire ex­ten­sive rules and reg­u­la­tions from an ar­ray of fed­eral agen­cies.

But some­times the mere threat of in­ter­ven­tion by gov­ern­ment—such as when Gilead set an un­prece­dented price on its new block­buster drug—can press lob­by­ists into ac­tion. The company is still com­ply­ing with the vo­lu­mi­nous data re­quest from Sens. Wy­den and Grass­ley, ac­cord­ing to a staffer with knowl­edge of the in­ves­ti­ga­tion.

Last month, Gilead hosted a fo­rum, “Cur­ing hep­ati­tis C—the pa­tient’s per­spec­tive,” for leg­isla­tive staffers at the Ray­burn House Of­fice Build­ing. The event fea­tured a hep­ati­tis C pa­tient; Dr. Natara­jan Ravendhran, a liver dis­ease spe­cial­ist and chief of gas­troen­terol­ogy at St. Agnes Hos­pi­tal, Bal­ti­more; and a Gilead vice pres­i­dent. Ravendhran earned over $20,000 in 2013 in fees and other ben­e­fits from Gilead, ac­cord­ing to the CMS Open Pay­ments data­base.

The word went out across Capi­tol Hill. Roughly two-dozen in­di­vid­u­als at­tended the event. “It was a rel­a­tively soft sell,” said one at­tendee. There was no dis­cus­sion of con­gres­sional in­quiries into the cost of So­valdi or ac­knowl­edge­ment that there was any­thing con­tro­ver­sial about the drug.

“The mes­sage was that pa­tients want So­valdi and that it works,” said the Na­tional Coali­tion on Health Care’s Rother, who at­tended the fo­rum. “This was an at­tempt to put the pa­tient face on the con­tro­versy that has been mostly so far about eco­nomics.”

“We don’t make wid­gets. It’s a lot about who you know and what you know.” Dean Rosen, a part­ner with Mehlman Castag­netti Rosen Bingel & Thomas who was chief health­care ad­viser to then-Se­nate Majority Leader Bill Frist


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