Charles Koch at Fortune Brainstorm TECH in July 2016, Aspen, CO. (CC – Flickr)

Koch Group Fights Drug Price Reforms After Taking Big Pharma Money

in Sludge
on May 6, 2021

Addressing the high costs paid by Americans for prescription drugs is back on Congress’ plate, a subject of rising pharmaceutical industry lobbying and appeals by Democratic leaders to President Biden.

A top question on Capitol Hill at the moment is whether Congress will add drug pricing reform measures to the American Families Plan, an approximately $1.8 trillion package of investments in child care, education, and paid family leave that was proposed by President Biden. The bill, like Biden’s $2 trillion infrastructure plan, could be eligible to be passed by Congress using the budget reconciliation process in the Senate, without requiring any Republican votes. 

Americans for Prosperity (AFP), a prominent advocacy group cofounded and funded by billionaire industrialist Charles Koch that has also received funding from the pharmaceutical industry, announced the launch of ads to pressure key moderate House Democrats to not get behind their leaders’ drug pricing bill.

On Tuesday, as the House Energy and Commerce Committee was in a hearing on drug pricing, AFP announced a six-figure digital ad buy hitting Democrats with a campaign claiming that pricing reforms would harm biotech innovation and lead to drug shortages. The six House districts targeted will be those of Democratic Reps. Ann Kirkpatrick of Arizona, David Price of North Carolina, Chris Pappas of New Hampshire, Tom Malinowski of New Jersey, and Elaine Luria and Abigail Spanberger of Virginia. A sample ad reads, “Tell Rep. Spanberger: hands off our prescription drugs!”

All except Price’s are on the National Republican Congressional Committee list of targeted districts; while Price won his 2020 general election handily, with over 67% of the vote, his district encompasses the “Research Triangle,” where numerous biotech companies are based.

Having this latest round of swing-district ads come from the astroturf AFP group, instead of from PhRMA, allows the pharmaceutical industry’s dire claims of widespread drug shortages and stifled innovation to get disseminated while keeping its trade association’s name off the ads. 

AFP is part of the Koch network of “dark money” organizations that do not generally make their funders known publicly (disclosure laws that could change if the Democrats’ major ethics and campaign finance reform package, H.R. 1, is signed into law). AFP has received at least $410,000 in donations from PhRMA, a leading pharmaceutical industry trade association. The contributions from the giant pharma and biotech trade group were made over four consecutive years, according to tax records: in 2014 ($15,000), 2015 ($20,000), 2016 ($150,000), and 2017 ($225,000). 

In a press release announcing its ad campaign, AFP quotes Dean Clancy, its senior health policy fellow, on what he calls the Democrats’ “rationing scheme.” Clancy is a former health care industry lobbyist with law firm Sidley Austin whose clients in 2006 to 2008 included pharmaceutical companies Celgene, Sunovion, Sanofi Aventis, ImClone, Grifols, and Bayer HealthCare, according to Senate lobbying records.

Koch Industries has its own stakes in the pharmaceutical industry. The Koch Disruptive Technologies VC firm counts pharmaceutical companies in its portfolio, including drug discovery company Valo, diagnostics company Sense, and biopharmaceutical manufacturing company Resilience.

The pharmaceutical industry spent a record amount on lobbying in the first quarter of 2021 at $92 million, according to the nonprofit Center for Responsive Politics. The lobbying on topics including drug pricing regulations was led by PhRMA at $8.7 million, followed by Pfizer at $3.7 million and Roche Holdings at $3.6 million, in total a 6.3% increase in spending over the first quarter of last year.

About three in five voters told Politico this week that bringing down health care costs should be a top priority for Congress. A government study commissioned by Senator Bernie Sanders and released last week found that the U.S.—as the only wealthy nation that doesn’t allow its government to negotiate directly with drugmakers—pays two to four times as much as comparable countries for brand-name prescription drugs. 

From 2006 to 2015, the Government Accountability Office found, about two-thirds of drug companies saw their profit margins increase, averaging 17.1%—with Big Pharma’s profit margins breaking the 20% mark, and while nine of ten top drugmakers have spent more on marketing than on research. As of Jan. 2021, the pharma industry’s net profit margin stands at 14.1% according to data maintained by NYU professor Aswath Damodaran, just behind that of water utilities and tobacco and just ahead of computer equipment and alcoholic beverages.

AFP organized rallies during the Obama-era healthcare reform push, sharing “Tea Party Talking Points” on a website and helping to connect supporters. In closed-door negotiations in the spring of 2009, the Obama administration reportedly dropped any effort for drug price negotiations as part of the Affordable Care Act in return for Big Pharma’s support of the bill.

In the previous Congress, House Democrats passed H.R. 3 in Dec. 2019 by a vote of 230 to 192. The bill, which was not taken up last year in Mitch McConnell’s Senate, would reduce prescription drug costs by allowing the U.S. health department to directly negotiate the prices paid for up to 250 drugs every year, potentially saving Medicare up to $450 billion over 10 years, according to the Congressional Budget Office. The bill would also cap out-of-pocket costs covered by Medicare Part D to $2,000 annually, among other measures to curb drug prices. A 2019 poll found that 86% of the public supported allowing the government to negotiate drug prices for Medicare. 

On April 22, ahead of President Biden’s first address to Congress, House Democrats reintroduced H.R. 3, the Elijah E. Cummings Lower Drug Costs Now Act, with Speaker Nancy Pelosi putting forward the measure for inclusion in the American Families Plan. Nearly half (106) of House Democrats are on board as cosponsors—of the six reps targeted by AFP’s campaign, only Pappas and Spanberger are currently cosponsors. However, the drug price provisions, as well as proposals by congressional Democrats to expand Medicare coverage, have not been included in the preliminary versions of the Biden families plan, with indications that the administration plans to address other health care topics as a separate initiative

Recently, “Biden received separate written appeals from 17 senators and more than 80 House representatives to drop the age for Medicare eligibility from 65, expand the services covered by Medicare and allow the government to negotiate drug prescription prices,” Fierce Pharma reported.

The exorbitant cost of prescription drugs has been a top campaign issue in recent cycles, and party leaders like Pelosi are looking ahead to the 2022 midterms after promises made to voters four years ago to bring down drug costs. After a net loss of 13 House seats in the 2020 elections, a net loss of at least five seats in next year’s election would be enough to cost Democrats their House majority. If H.R. 1’s nonpartisan redistricting is not passed by the Senate and current congressional gerrymandering remains legal, one estimate is that with the past election’s margins remaining constant, the Democrats would lose 15-20 House seats.

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