Pfizer’s Read Fights Medicare Cuts in Deficit Agreement

Pfizer Inc. (PFE) Chief Executive Officer Ian Read said his company, the world’s biggest drugmaker, will fight attempts to cut Medicare payments for medicines after the industry helped underwrite the U.S. health-care overhaul.

Drug companies contributed $112 billion in discounts and refunds to last year’s health-care law, helping Democrats make up for new spending in the bill. U.S. drugmakers led by Pfizer and Merck & Co. (MRK) are concerned they will be asked to give more in the debt-limit deal President Barack Obama signed Aug. 2 that requires further negotiated cuts in government expenditures.

“We made a contribution to the Affordable Care Act that was substantial and fundamental,” New York-based Pfizer’s Read said in a telephone interview. “We are only 10 percent of the health-care spend in the United States, and we are the most efficient part of that.”

Squeezing drug savings from Medicare, the U.S. health program for the elderly and disabled, may cost makers $20 billion and eliminate 260,000 jobs, according to the Pharmaceutical Research and Manufacturers of America in Washington. Obama endorses a proposal to discount drugs for Medicare patients who also qualify for Medicaid, the federal- state health program for the poor.

The drug industry contributed $80 billion in discounts and refunds to last year’s health-care law, helping Democrats make up for new spending in the bill. Illustration: Bloomberg Close

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The drug industry contributed $80 billion in discounts and refunds to last year’s health-care law, helping Democrats make up for new spending in the bill. Illustration: Bloomberg

Sixty-two percent of investors expect lawmakers to approve the policy this year, according to an Aug. 3 e-mail survey of 391 investors by Mark Schoenebaum of ISI Group in New York.

12-Member Panel

Drugmakers are focusing their lobbying muscle on a yet-to- be-named panel of 12 members of Congress charged with carving savings from all parts of the government. In a July letter to House Speaker John Boehner, an Ohio Republican, and Democratic House Minority Leader Nancy Pelosi of California, 32 House members argued against further drug discounts for the poorest Medicare patients.

The drug companies and other health-care providers spend more on Washington lobbying than any other industry, topping $243 million last year, according to the Center for Responsive Politics, a Washington research group. Pfizer paid for 83 lobbyists and spent $13.38 million, more than any other drug company, while Merck devoted $7.61 million to lobbying.

A U.S. House and Senate rejection of the panel’s recommendations would trigger an automatic 2 percent, across- the-board reduction to Medicare under the accord reached this month, according to the Congressional Budget Office.

Pfizer fell 55 cents, or 3.1 percent, to $17.05 in New York Stock Exchange composite trading at 4:01 p.m. The shares have declined 2.6 percent this year. Merck, which has dropped 17 percent this year, fell $1.41, or 4.5 percent, to $29.81.

Cuts Loom

Medicare is projected to cost $566 billion in 2012, and $922 billion a year by 2020, according to a study in the journal Health Affairs. The program spent about $62 billion for prescription drugs in 2010, according to the trustees of the Medicare trust funds.

Merck, the second-biggest U.S. drugmaker, is arguing that it be spared from Medicare cuts and “will vigorously oppose any targeted, pharmaceutical-industry specific approach to increasing federal revenues,” said Ronald Rogers, a spokesman for the Whitehouse Station, New Jersey-based company.

Drug industry lobbying is centering on Medicare’s Part D drug benefit that the government funds and private insurers such as UnitedHealth Group Inc. (UNH) run. Part D covers Medicare patients as well as so-called dual eligibles, or the almost 8.8 million people who qualify for both Medicare and Medicaid, according to the Kaiser Family Foundation in Menlo Park, California.

Price Controls

Medicare pays higher prices for drugs for this group than Medicaid would. Offering additional discounts to the government to cover the mostly low-income elderly and disabled patients amounts to price controls, industry executives have said.

“Merck will continue to advocate in favor of the highly competitive and efficient Medicare Part D marketplace that exists today,” Rogers said in an e-mail.

Pfizer “would oppose any further changes” to the program, Read said.

Eli Lilly & Co. (LLY), based in Indianapolis, also may see lower revenue from changes to Part D. Its antipsychotic drug Zyprexa is among those responsible for the most spending among dual- eligible patients.

Monitoring Changes

“Programs like Medicare Part D should be considered a model rather than as a potential cut,” said Greg Kueterman, a spokesman for the company. Lilly is monitoring potential changes “to ensure that innovation is protected,” he said.

Bristol-Myers Squibb Co. (BMY) of New York also supports preserving the Part D program, said Laura Hortas, a spokeswoman.

It is doubtful Republican members of the 12-member panel would back new cost controls on the program, Christopher Bowe, a New York-based analyst for research firm Informa Plc of London, in a telephone interview.

“Part D was a windfall for certain companies with products that were very dual-eligible heavy,” Bowe said.

While cuts to Medicare drug prices might find favor with the Democrats, “they are anathema to many Republicans who want less, not more, government involvement,” said Tim Anderson, an analyst at Sanford C. Bernstein & Co., in an Aug. 8 note to clients. “Unfortunately for investors, there is no useful detail yet on what will actually happen to drug spending.”

To contact the reporter on this story: Tom Randall in New York at trandall6@bloomberg.net.

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net.

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