Medical Industry Grumbles, but It Stands to Gain By DUFF WILSON and REED ABELSON

November 9, 2009
News Analysis
Medical Industry Grumbles, but It Stands to Gain By DUFF WILSON and REED ABELSON

For any industry, there has to be at least some good news any time Congress votes to expand the market by tens of millions of customers.

But the business world found plenty to complain about Sunday, as it assessed the House bill that would make sweeping changes in the health care system and extend insurance coverage to millions more Americans.

Insurers do not like the provision to create a new government-run insurance program. Drug makers oppose billions of dollars in rebates they would have to give to the government over 10 years. Makers of artificial hips, heart defibrillators and other medical devices are not particularly happy about the proposed 2.5 percent tax on their products.

And employers large and small oppose rules that, for many of them, would make health care coverage — long a job benefit — become a federally mandated obligation.

That is why, as attention now shifts to the Senate, where Democratic leaders are trying to merge two bills into one, virtually every business group with a stake in the outcome will be hoping to strike at least a slightly better deal than they found in the House version.

And they may indeed get a break from the Senate, where the need for Democrats to compromise to win 60 votes may ensure a more business-moderate outcome.

And yet, many analysts said on Sunday that even the House bill was not as bad for business as many in the health care industry might have feared when the overhaul effort began many months ago.

"All industries stand to gain from this legislation," Steven D. Findlay, senior health policy analyst with Consumers Union in Washington, said in an interview. "They're going to continue to fight their narrow issues and get the best that they can get. But all of them are aware they stand to gain significant new business and new revenue streams as more Americans get health coverage and money flows into the system for them."

Of course, new revenue streams apply only to companies in the business of selling medical goods and services. To employers required to provide worker health benefits or else, in many cases, pay some sort of financial penalty, the House legislation offers little to cheer about.

Employer groups complained on Sunday that the House bill would impose insurance obligations while doing little to rein in the medical costs that help drive premiums higher year after year. In fact, those groups argue, the bill's creation of a government-run insurance program, which may pay doctors and hospitals less than private insurers do, could end up shifting even more medical costs to the private insurance system that employers use.

"This won't just hurt business, it will hurt millions of workers who have coverage through their employers," said John J. Castellani, president the Business Roundtable, a group of chief executives of some of the nation's biggest companies.

And the National Federation of Independent Business, representing many small businesses, said it was furious with the legislation. Susan Eckerly, senior vice president of the federation, attacked mandates, which she called punitive, and "atrocious new taxes." The legislation, she said, was "a failed opportunity to help small-business owners with their No. 1 problem — skyrocketing health care costs."

Another group, the Small Business Majority, praised the legislation but said the Senate needed to take more steps to lower costs.

Employers hope the final Senate legislation ends up looking more like the bill the Finance Committee passed, which does not require companies to insure their workers.

Meanwhile, the health insurance industry has been increasingly vocal about the emerging shape of the legislation, and it was sharply critical of the bill that passed on Saturday night.

"The current House legislation fails to bend the health cost curve and breaks the promise that those who like their current coverage can keep it," Karen M. Ignagni, the chief executive of America's Health Insurance Plans, the industry trade association, said.

The reference to a broken promise refers, in part, to people enrolled in privately offered Medicare Advantage insurance plans, which would lose federal subsidies under the House bill. Ms. Ignagni warned of cuts that would "force millions of seniors out of the program entirely."

But the promise reference also refers to the bill's provision of a new government-run insurance plan that would compete directly with the health plans offered by private insurers. The insurance industry has long opposed such a move and warns that it will eventually force many people with private insurance into the government-run program.

That "public option," as it is known, was also in the Senate health committee bill approved in July. And the Senate majority leader, Harry Reid, Democrat of Nevada, has also signaled that he intends to include some kind of public plan in whatever Senate legislation is reached.

But some observers say the House legislation is much less of a threat than the industry had feared. While insurers were worried that the government plan would be able to piggyback on the Medicare program in being able to demand lower prices than the private insurers get from doctors and hospitals, the House legislation does not give the government plan the same bargaining power as Medicare.

"The ability of that program to gain incredible market share and have the clout to severely undermine the market is minimized," Robert Laszewski, president of Health Policy and Strategy Associates, a consulting firm in Alexandria, Va., said in an interview.

Erik Gordon, a business professor and industry analyst at the University of Michigan, said insurers would find it difficult to price their new risks but might not be hurt too much by the competition — considering how many new customers they would have.

The drug industry expected harsh treatment from the House and got it. The bill would require drug makers to pay much more in rebates and discounts than in the $80 billion, 10-year deal that the industry struck in June with the White House and the chairman of the Senate Finance Committee, Max Baucus. The House bill tacked on $60 billion or so in rebates over 10 years, raising the total to around $140 billion.

But the White House and Mr. Baucus have said they will stay with their deal. It remains to be seen whether it survives the melding of Senate bills being directed by Mr. Reid.

"A good critic doesn't write his review at the end of the first act of a play," Ken Johnson, senior vice president of the pharmaceutical trade group the Pharmaceutical Research and Manufacturers of America, said in an interview. "We're hoping the second act is a lot better."

And while the House legislation allows direct government negotiation of Medicare drug prices — something specifically precluded in the Senate Finance bill — it does not allow Medicare to create a formulary, or list of limited drugs. Mr. Findlay, of Consumers Union, said that largely neutered Medicare's price-negotiating power, although it would represent a first step down the price-setting path that the industry is certain to fear.

In a victory for the biotechnology drug industry, the House bill would give biotech drugs, which can cost tens of thousands of dollars a year, protection from generic competition for 12 years.

Doctors were left holding a mixed bag. The American Medical Association supported the House legislation. But the doctors' group did not get its quid pro quo — the restoration of $210 billion in cuts to physicians' Medicare fees over the next 10 years, which were already scheduled before the current effort. Attempts in the House and Senate to restore those cuts have been set aside at least temporarily because the issue has been seen as a political distraction from the main health care overhaul effort.

Barry Meier and Andrew Pollack contributed reporting.
News Analysis - Medical Industry Grumbles, but It Stands to Gain From Overhaul - NYTimes.com (19 November 2009)
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