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Discord on Health Care Dulls Luster Of New Pacts
Allies Sour on Effort as Obama Woos Industry

By Ceci Connolly and Michael D. Shear
Washington Post Staff Writers
Thursday, July 9, 2009

The Obama administration, hoping to boost its health-care reform effort with financial concessions from the hospital and pharmaceutical industries, is instead confronting deep dissension on several fronts within Democratic ranks and possible defections among key constituencies.

Rep. Henry A. Waxman (D-Calif.), lead House architect of the landmark health legislation, warned yesterday that he is not obligated to abide by deals struck recently by the White House, Senate Finance Committee, industry executives and interest groups such as AARP.

"The White House is not bound. They tell us they're not bound by that agreement," Waxman, the chairman of the House Energy and Commerce Committee, said at a National Journal breakfast. "We're certainly not bound by that agreement. The White House was involved, and we were not."

Waxman's comments came amid several other warning signs for the administration, including a slipping timetable in the Senate, internal division in the hospital industry and mounting tensions between AARP and the pharmaceutical industry that threaten a temporary detente between the two negotiated last month by the White House.

And a day earlier, President Obama took the unusual step of issuing a statement from Moscow correcting comments by White House Chief of Staff Rahm Emanuel that creation of a government-sponsored insurance program is "negotiable."

No single development appeared likely to kill Obama's signature domestic agenda item, but the relentless barrage of challenges that seemed to hit hourly served to demonstrate why no president since Lyndon B. Johnson has been able to enact large-scale health legislation.

From the outset, Obama has declined to dictate the details of a health-care bill to Congress, but he and his most trusted advisers have worked aggressively to shape its parameters and build political support. At the core of their strategy has been a series of side agreements aimed at extracting revenue, neutralizing potential adversaries and signaling to lawmakers that when the difficult votes come, they will have the political cover of industry support.

"All the constituencies that have been the most vocal critics of any form of health reform in the past are now invested in its success," Emanuel said in an interview.

Yesterday, Biden trumpeted an agreement by the nation's hospitals to contribute $155 billion to the cost of health reform, but it was quickly undermined by skepticism in the industry.

Two public hospital systems left out of the talks suggested the reductions "could severely damage" hospitals that serve the poor. American Hospital Association representatives from Virginia, Wisconsin, Montana, Washington and Oregon also were raising objections internally to the deal's across-the-board Medicare cuts.

"Everyone can say we need to reform the system," said one state hospital official, who requested anonymity to discuss the internal rift. "But when you start to look at the details of how you do that, that's when you get the rats scurrying off the ship. That's what's happening now."

Senate Majority Leader Harry M. Reid (D-Nev.), after warning that some Democrats cannot tolerate taxes on employer-sponsored health benefits to finance comprehensive reform, met with four Republican senators in pursuit of a bipartisan approach.

Reid assured the group that the Senate legislation would not be rushed, said Sen. Charles E. Grassley (R-Iowa).

The White House campaign to disarm industry began two months ago with an announcement by six interest groups -- including doctors, insurers and organized labor -- that they would "do their part" to slow the rate of growth of health-care spending by 1.5 percentage points a year.

"The quid pro quo is 'I'll give you savings if you let me play,' " said Dan Mendelson, president of the consulting firm Avalere Health.

Next came a proffer of $80 billion by the drug industry's Pharmaceutical Research and Manufacturers Association, or PhRMA. Drug companies pledged to increase rebates to the federal government and provide 50 percent discounts on prescription medications for seniors who fall into Medicare's "doughnut hole." Once a senior passes his initial coverage limit, he must pay 100 percent of the cost of prescription drugs before he reaches the threshold of catastrophic coverage.

Enticed by the savings for seniors, AARP, with its 40 million members, blessed the deal with the drug industry in a photo opportunity at the White House with Obama.

"The most significant element of this was AARP," said one administration aide working on health policy.

"The seniors were less than enchanted with the notion of health-care reform," said PhRMA chief W. J. "Billy" Tauzin. The deal "gave them a reason to be supportive."

But both sides now make clear that the accord was on the single issue of the Medicare drug discount, and they remain far apart on several other potentially explosive issues.

In a private meeting at the White House on Tuesday, the chief executives of five pharmaceutical companies informed Emanuel and White House health czar Nancy-Ann DeParle that they have serious concerns about proposals to allow the purchase of imported medications and on regulations on generic biologic drugs, Tauzin said.

The Biotechnology Industry Organization, a trade group, and AARP sparred publicly over the generics issue and how many years of patent exclusivity should be given to those products.

"Now one of the nation's largest health insurers, the AARP, says 'cheap and fast' should drive the biosimilars health-care debate," BIO charged in a radio spot.

BIO, in pushing for a minimum of 12 years of patent protection, is "asking for a protection deal twice as sweet" as those given to traditional drugmakers 25 years ago, said AARP spokesman Jim Dau. "The real question is: How much more money do they think they can wring out of patients and taxpayers?"

The administration had expected a good-news bump yesterday from Biden's event with the hospitals. But several state hospital lobbyists formed the "Value Coalition" to push back against a one-size-fits-all deal. In a document distributed to the 50 state associations that make up the American Hospital Association, the group argues for a different approach.

"America's hospitals and the communities they serve are very concerned about any proposal that relies on payment cuts as the primary means by which to fund reform efforts," the document says. Instead, it argues for an "incentive" system that rewards -- not penalizes -- hospitals that have already cut costs.

That proposal was hotly discussed by state association leaders during a 5 p.m. conference call on Tuesday, according to a participant. The coalition plans to go public with its objections soon.

One state association member who helped draft the alternative proposal said the group is not trying to derail health-care reform legislation.

"Much of the agreement . . . has merit, and we would support those provisions. Where we have a major problem is across the board Medicare cuts," the member said. "Such a move merely penalizes low-cost providers when our lower cost should be recognized and perhaps rewarded."

Even if the side deals between the White House and industry hold, several House Democrats reiterated that they will have limited impact on them.

"The people who write the legislation are the members of Congress," said Rep. Diana DeGette (D-Colo.). "We appreciate these discussions, but everybody is well aware legislation has to come through the House and Senate."

Emanuel, however, thinks the desire for affordable health-care reform will trump concerns over specific legislative provisions.

"It leaves those who oppose reform as the defenders of the status quo," he said.

Staff writer Shailagh Murray contributed to this report.

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