Magazine August 13, 2012, Issue

Who Gave Us Obamacare?

The medical industry provided crucial support

‘We can no longer afford to put health-care reform on hold.”            

It was on February 24, 2009, a little over a month after he assumed office, that President Obama spoke these words to a joint session of Congress. What happened next — behind the curtain, in the effort to pass Obamacare — is not pretty.

Negotiations started almost immediately. In his speech, the president had promised to bring together “businesses and workers, doctors and health-care providers” in order to shape the massive legislation. Bill and Hillary Clinton’s attempt to remake the health-care sector was thought to have failed because of industry hostility to their efforts. The Obama administration, therefore, would welcome health-industry lobbyists to the White House with open arms.

“After promising to conduct the health-care negotiations on C-SPAN,” a House Energy and Commerce Committee staffer tells National Review, “President Obama worked behind closed doors to cut deals with the various special-interest groups.” The health-care industry, for its part, was no longer focused on resisting a government intrusion into the private economy. It knew that an alliance between big business and big government could bear big fruits, so it loaded up with policy experts and lobbyists who would help it shape the legislation to its advantage. The American Hospital Association (AHA), the American Medical Association (AMA), and the Pharmaceutical Research and Manufacturers of America (PhRMA) have their fingerprints all over Obamacare.

On May 15, 2009, the AHA, the AMA, and PhRMA teamed up — along with the labor union SEIU, the insurance group AHIP, and the medical-device manufacturers’ association AdvaMed — to release a joint statement in support of the developing plan. “Health-care reform will not be sustainable,” it said, “unless the nation brings down the rate of growth of health-care spending. . . . To be successful, we must take action in a public-private partnership. We look forward to offering cost-savings recommendations in the weeks ahead.” What the public didn’t see was the furious wheeling and dealing between the industry and the Obama administration over these “cost-savings” recommendations. It was a “public-private partnership” that allowed both sides to get much of what they wanted from Congress.

Earlier this year, the House Energy and Commerce Committee concluded an investigation that revealed a startling degree of coordination between the White House and health-industry groups in these efforts. Representative Marsha Blackburn (R., Tenn.), vice chairman of the Subcommittee on Oversight and Investigations, did a lot of the legwork on that investigation. She tells National Review that “throughout 2009 and early 2010, the White House did engage in these closed-door negotiations.”

The key White House players were Nancy-Ann DeParle and Jim Messina. DeParle was head of the Office of Health Reform (which was created by President Obama) and was colloquially known as the “health-care czar.” Messina, a White House deputy chief of staff, acted as a liaison between health-industry groups and the president. DeParle and Messina were at the beck and call of lobbyists, working behind the scenes to secure the goodies that the groups wanted in exchange for their support.

The White House held a series of meetings with the major groups in April and May 2009, trying to discern which concessions would win them over. While every group was opposed to the idea of a government-run insurance plan (a “public option”), they were all cautiously hopeful that they’d somehow be able to protect their interests. Cultivating this attitude was an important goal for the White House: If President Obama could convince people that health-care reform was inevitable, he would be able to peel off opposition groups by offering specific provisions they desired. The industry was being given a choice: Join the team and try to get something out of the legislation or stay on the sidelines and lose.

#page#The American Hospital Association was among the first to take the deal. In negotiations in late June and early July, the White House sought a $155 billion reduction in subsidies and payments to hospitals for Medicare, Medicaid, and uncompensated-care programs. The AHA agreed, but the sides soon began sniping at each other, and the AHA started separate negotiations on the same issues with the Senate Finance Committee. This caused Nancy-Ann DeParle to complain to Linda Fishman, one of the AHA’s top lobbyists. DeParle wrote: “We are taking all sorts of incoming from press about specific things you have sought in the [Senate Finance Committee] deal. . . . We are saying that we are not party to such an agreement — we agreed to a number, $155 billion. I know you understand that you are much more likely to end up where you want to be if you don’t box us in.” This veiled threat worked: The AHA suddenly insisted to the press that it wasn’t pushing for anything outside of the White House agreement and would continue to support the administration.

What the AHA wanted most was to preserve the flow of government money to its member hospitals, especially through Medicare and Medicaid. In exchange, the AHA agreed to the $155 billion in payment cuts, spent incredible sums of money on lobbying, and steered most of its campaign donations toward Democrats. Despite supporting the White House through the legislative process, the AHA never issued an official endorsement of the final Obamacare legislation, but two weeks after President Obama signed the bill, it unrolled an unusual million-dollar ad campaign in the districts of 16 Democratic House members, most of them in vulnerable seats in red states, thanking them for their “yes” votes.

The American Medical Association also walked a tightrope. Like the other groups, it was steadfastly against a public option, but otherwise it tried to cast itself as a partner of the administration. And there was a laundry list of items it wanted in the bill. As outlined in a memo from Richard Deem, its head lobbyist, to DeParle, its priorities included medical-liability reform and the so-called doc fix, a permanent repeal of the payment structure under which doctors are underpaid for services to Medicare and Medicaid patients.

The AMA was more trusting than other industry groups in the Obama administration’s willingness and ability to deliver what it promised. “It was a bit of naïvety on the part of the AMA,” Dr. Marcy Zwelling, an AMA member and former president of the Los Angeles County Medical Association, tells National Review. “They did not understand the politics. They did not understand that they were being used. And they were used.”

Negotiations got off to a rocky start. In early May 2009, AMA representatives met with Senate Finance Committee chairman Max Baucus but found him unhelpful. “[I] don’t think it went well from a health-sector-community perspective,” Deem wrote to DeParle. He also observed that “we are taking grief from our members because the perception is we are serving them up for payment cuts. . . . It seems like the goal posts are being moved.”

AMA members were becoming uncomfortable with the direction their board of trustees was taking. The AMA’s position on Obamacare “was not representative of the AMA as a whole,” Dr. Zwelling says. Doctors were worried that their organization was being politicized in the White House’s push for health-care reform.

#page#After its abortive talks with Baucus, the AMA turned to the White House. On July 7, they struck an informal deal, but secrecy was of the utmost importance. “There is some chatter in the health-policy world about a possible physician agreement [a deal under which the AMA would support Obamacare],” Deem wrote to DeParle. “We [are] treating our discussions with you as highly confidential. If asked by reporters we are providing low-key generic responses.” The way the AMA subsequently went about campaigning for Obamacare, however, was anything but low-key. In the following weeks and months, it funded ads explicitly backing President Obama. When the reform approached passage in October, the AMA helped the White House identify which senators were persuadable and deployed its lobbyists and members to influence them.

But it also became clear in October that the AMA had been cheated on the doc fix. In order for Obamacare to receive a good score from the Congressional Budget Office, the fix — which would have added more than $200 billion to the deficit over the next ten years — would have to be removed. Privately, Democratic leaders were assuring the AMA that separate doc-fix legislation would still be passed, and the AMA took them at their word. But the Senate passed a provision that created the Independent Payment Advisory Board, an unelected commission that would have power over physician-payment rates for Medicare. IPAB would be empowered to cut doctors’ payments, and as the legislation was written, IPAB would be tasked with cutting them drastically.

The AMA had a chance to stand up for its doctors as, after the IPAB provision was included in the Senate’s bill, it went back to the House for approval. In January 2010, however, Richard Deem wrote to DeParle, “We expected and are getting a lot of flak from individual physicians,” but “we do not totally reject the concept of an advisory board.” Publicly, the AMA was against the IPAB provision of Obamacare as written, but the organization was refusing to throw its weight behind the doctors’ opposition. AMA support for Obamacare would move forward.

On March 19, 2010, two days before the final vote in Congress, the AMA reiterated its endorsement of the bill. James Rohack, the association’s president, expressed reservations about IPAB and hoped that a permanent doc fix could be agreed upon, but claimed that “this bill will help patients and physicians.” For its trouble, the AMA got a six-month doc fix in a separate piece of legislation. Another short-term fix was passed before the end of 2010, but it will expire this year. AMA lobbyists are still pushing for a permanent solution.

Perhaps the biggest health-care prize for the White House was the support of the drug industry. PhRMA spends tens of millions of dollars on lobbying every year, and the administration knew that its support would be hugely influential.

In the spring of 2009, the White House’s courtship of PhRMA began. After a meeting in May between Joel Johnson, a lobbyist who represents drug companies, and White House chief of staff Rahm Emanuel, Johnson established the terms of their relationship in an e-mail: PhRMA needed “a direct line of communication, separate and apart from any other coalition.” The drug companies promised to work with the White House to control drug-price inflation, and in exchange they would have a seat at the table to help craft the legislation.

It was a rocky road, but the White House would eventually deliver for PhRMA as it had not for the AMA. On June 22, 2009, President Obama announced that the White House had reached an agreement in which the drug industry would concede $80 billion in projected future revenues on drugs sold to the government (mostly for Medicare). What the president did not announce were the provisions that PhRMA demanded as a condition of its agreement.

#page#The drug lobby had two main policy goals: It wanted to make sure that price controls and a “public option” were not forced onto Medicare Part D, and it wanted to make sure the bill didn’t include a provision allowing drug reimportation. Reimportation would allow health-care providers and consumers in the United States to bring in American pharmaceutical products from other countries — such as Canada — in which drugs are sold at lower prices. This would force pharmaceutical companies selling in the United States to compete with lower-priced versions of both foreign drugs and their own products. This was something that PhRMA obviously wanted to avoid.

The fight over the public option was long and difficult. Liberal Democrats in the House worked tenaciously to get one into the bill, but lobbying by the AMA, PhRMA, and other health-care groups, combined with the White House’s hands-off approach, prevented them from succeeding. On reimportation, though, the Obama administration strongly backed the drug companies. DeParle wrote to PhRMA lobbyists that Obama’s policy would be, “based on how constructive you guys have been, to oppose importation on the bill.” The administration also supported PhRMA on price controls on Medicare Part D.

In the weeks after the June 22 deal was announced, however, it seemed likely to fall apart. Henry Waxman, chairman of the House Energy and Commerce Committee, balked at the deal and claimed that the House’s developing version of the health-care legislation needn’t be bound by it. Waxman wanted more than the $80 billion in concessions that the drug industry had already made. He considered both drug reimportation and price controls to be on the table. And he claimed the White House didn’t feel particularly beholden to the deal either.

Bryant Hall, one of PhRMA’s lead lobbyists, leapt into action and worked with Jim Messina to get the White House and PhRMA on the same page. Multiple media outlets had confirmed that President Obama had backed off of the previous PhRMA deal, but within hours the storyline changed again. Hall convinced Messina to tell both Politico and the New York Times that the White House was standing behind the deal and didn’t support Waxman’s attempt to push for more. It was an incredible display of PhRMA’s political clout, and even Hall’s colleagues were stunned after he bragged, “I pushed Jim Messina to do it.”

Just when it seemed everything had been smoothed over, the Obama team muddied the waters. On July 21, 2009, President Obama read a speech off a teleprompter that implied that drug companies were part of a cabal of “special interests” working to delay or kill reform efforts. Messina, according to the congressional investigation, asked the president why he was suddenly hostile to PhRMA again, and Obama replied, “I was wondering the same.” It turned out that someone on the speechwriting team hadn’t gotten the memo that the White House and the drug companies were on the same side.

“I guess we didn’t give enough in contributions and media ads,” read an internal e-mail from a drug-industry lobbyist at the time. “Perhaps no amount would suffice.” Messina and Emanuel reassured Hall that the president’s newest attack on drugmakers was merely a teleprompter mistake. Yet at the end of July, President Obama gave a speech implying that drug makers had gotten a sweetheart deal and that they might be asked to make additional concessions. Hall complained that the president “beat the piss out of us again” and worried that White House senior adviser David Axelrod was pushing a new, tougher line against the drug companies.

His fears were confirmed as, in the first week in August, Bloomberg reported that Axelrod had told Democrats there was no deal between the White House and PhRMA. Afterward, a furious Hall had to be talked down by Messina once again. They then conducted a joint PR campaign, outflanking Axelrod.

#page#Messina told a New York Times reporter to reiterate that the White House was standing behind the original deal, and Hall had a PhRMA spokesperson persuade CBS News not to run a story reporting that the White House wasn’t sticking by its end of the deal and drug reimportation would be back on the table. These efforts finally sealed the deal: While reimportation and the public option would continue to be mentioned occasionally, by the fall the White House had gotten PhRMA behind Obamacare.

Now they just had to sell the thing to the American people.

With the White House’s blessing, a 501(c)(4) organization was set up to run a pro-health-care-reform ad campaign in April 2009. Explicit in PhRMA’s deal with the White House was PhRMA’s promise to donate significant amounts of money to this organization, known as Healthy Economy Now. It received over $10 million from PhRMA, alongside smaller donations from the AMA, the Federation of American Hospitals, the AARP, and Blue Cross/Blue Shield. Throughout the spring and summer of 2009, Healthy Economy Now spent tens of millions on ads in states whose congressional representatives were thought to be persuadable.

Another group, Americans for Stable Quality Care, was set up in a joint effort by health-industry groups and received and spent even more money than Healthy Economy Now had. PhRMA poured almost $60 million into it. Because the legislation had started to come together in its specifics, this group was even more explicit in its advocacy of particular measures in Obamacare, including the individual mandate, the Medicare expansion, and the requirement that insurers cover individuals with preexisting conditions.

Part of PhRMA’s deal with the White House was that it would team up with Families USA, an SEIU-connected 501(c)(4) group, to bring back “Harry and Louise,” a series of advertisements run against the 1993–94 Clinton health-care plan. This time Harry and Louise would be staunchly pro-reform, and they would be supported by PhRMA and Families USA to the tune of $4 million.

The American Medical Association, increasingly concerned that its doc fix wouldn’t make it into the final legislation, took to the airwaves with some major ad buys separate from the campaigns it helped run with Healthy Economy Now and Americans for Stable Quality Care. The AMA ran two multimillion-dollar campaigns, in October 2009 and January 2010, upping the pressure on Congress for the permanent doc fix. With no pressure from the White House, however, the campaigns failed, and the AMA was denied one of its key policy goals.

President Obama signed his health-care legislation on March 23, 2010, 13 months after his address on the subject to the joint session of Congress. The process had been messy, but he had succeeded where President Clinton had failed, because he had learned the lessons of the 1990s reform fight. He bought off big business, he played the media, he demanded that the health-care industry pony up millions of dollars to support his message — and he won. But he has not owned up to his backroom tactics. “The administration essentially told the American people that how the law was written was none of their business,” a congressional staffer tells  National Review. Representative Blackburn notes that “everybody but the White House has cooperated” with her investigation.

Industry groups paid up big time, got some things they wanted, and failed to get others. Big business has long tried to steer government policy, but in this instance the stakes were greater than usual. The AMA, the AHA, and PhRMA — all of which declined interview requests for this piece — saw a future with an expanded government role in the health-care industry, and they worked to shape that future with an eye to their own interests. Their efforts helped bring about a new system in which the government has more power than ever before over the health-care industry, from macro issues to the smallest minutiae. They must accordingly bear a large portion of the blame for this massive and unprecedented intrusion of government into private life.

Mr. Glass is the managing editor of

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