Contraceptive corporate welfare

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Politics,Beltway Confidential,Timothy P. Carney

Last Thursday, Democrats voted down Roy Blunt’s conscience-protection measure, dishonestly calling it an attempt to ban contraception. That evening, President Obama, who had just finalized a mandate requiring all employer-based health-care plans to cover 100 percent of the cost of contraception, travelled up to New York City to collect $35,800 checks at a fundraiser hosted by the top lobbyist at the nation’s largest drug company—Sally Susman, VP for government affairs at Pfizer.

Author and cronyism critic Peter Schweizer explains why this is relevant:

Forget for a minute the religious question and look at who wins big here: Big Pharma. This mandate is not really about condoms or generic versions of “the pill,” which are available free or cheap in lots of places. This is about brand-name birth control drugs and other devices that some consumers swear off because they are too expensive. The Health and Human Services (HHS) mandate requires health-insurance companies provide contraceptive coverage for all “FDA approved contraceptive methods.” It does not insist on generics. And it does not offer any cost containment.

What’s more, the mandate prevents health-insurance companies from having copays or deductibles for the benefit. This is the perfect set up for Big Pharma. Since the drugs will be paid for by a third party (insurance companies, who will pass the cost on to employers and the rest of us), the consumer won’t worry about the price. Expensive brand names will no doubt see demand rise. Ask more health-care analysts why the cost of medical services continues to rise so rapidly and near the top of the list is the fact that a third-party payment system won’t contain costs.

The contraception mandate isn’t Obama’s first gift to contraception makers. Senator Obama pushed through a measure to increase Medicare’s payments just to contraception makers.

Here’s an adaptation of how I wrote it up in my 2009 book, Obamanomics:

Schering-Plough in recent years lobbied on Medicaid issues, including “Legislative proposals effecting Medicaid ‘average manufacturers’ price.’” 

One such legislative proposal before Congress at the time was Senator Obama’s “Prevention Through Affordable Access Act,” a 2007 bill aimed at boosting the price Medicaid pays Schering-Plough. Obama’s bill never went anywhere until Obama became president. Then it was stuck in the 2009 omnibus appropriations bill, and Obama signed it into law.[2]

The liberal media hailed the measure as a blow for women’s rights. “This victory for common sense follows a string of positive steps already taken by President Obama to dismantle his predecessor’s assault on women’s reproductive health and freedom,” applauded the New York Times editorial page. Other standard media accounts claimed the measure “will allow pharmaceutical companies to once again supply college-health clinics with discounted birth-control pills and other contraceptives.”

But this is misleading. There was no law keeping drug makers from selling their contraceptives to college students at discounted prices—known as “nominal pricing.” The problem for the drug makers was that, under a 2005 law, if a drug maker offered students a discount on contraceptives, they would also have to slightly discount that same drug to Medicaid. Thanks to President Obama, they aren’t “penalized” by Medicare for offering college discounts.

The American College Health Association wrote in 2007: “regulations do not prohibit manufactures from selling contraceptives to college and university health centers at nominal prices, they do prohibit the manufacturer from exempting these sales from the calculation of their ‘best price,’ resulting in a financial disincentive to extend nominal pricing to student health centers.”

Medicaid pays for drugs a price calculated by looking at the price at which the drug actually sells on the free market. Before the 2005 law, Medicaid wasn’t allowed to consider the price at which drug makers sold the pill to colleges—this was in a special discount class. This allowed the manufacturers to sell their contraceptives for cheap to 18-year-olds on campus without taking a knock on the price at which they sell to Medicaid.

While Planned Parenthood was the leading lobbyist for Obama’s 2007 bill, the contraceptive makers also leaned on Congress for this favor, lobbying reports show. Schering-Plough particularly had skin in the game. The company makes NuvaRing, a contraceptive device for which there is no generic.

Recall the factors in pharmaceutical pricing. College girls might not buy the NuvaRing at all were it offered to them at full price, which means Schering-Plough is happy to discount it for them. Even a low price will cover the miniscule cost of production, and, hey, that’s one more college-educated customer you’ve got on the hook before age twenty.

The government—Medicaid—is a different sort of customer. Medicaid is going to buy the products no matter what. The key here for Schering-Plough is getting the maximum price out of Medicaid.

Obama’s 2007 “Prevention Through Affordable Access Act” offered Schering-Plough and the other name-brand contraceptive makers just what they wanted. When he signed it into law in 2009, it was another benefit of Obamanomics to the drug makers.

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