How healthcare's Washington lobbying machine gets the job done

In November 2011, Gilead Sciences officials made what looked like a risky bet when they purchased Pharmasset for $11.2 billion. The 82-employee target company had lost nearly $100 million the previous year. Its experimental hepatitis C drug, though promising in late-stage clinical trials, still hadn't been approved by the Food and Drug Administration.

“For Gilead to give up effectively one-third of their value for an unproven asset still subject to significant ongoing clinical risk seems remarkable,” an analyst with Sanford C. Bernstein & Co. wrote at the time. Gilead's stock price sank.

But companies racing to develop breakthrough treatments for the infection were far more optimistic than Wall Street. They foresaw a $20 billion market. But it would take more than good science to turn what would become known as Sovaldi into a blockbuster.

Foster City, Calif.-based Gilead would need cooperation from the federal government. First, it needed FDA approval. It also needed a recommendation from the U.S. Preventive Services Task Force for screening of baby boomers, which guarantees the CMS and insurers would pay for the screening and generate a steady stream of customers for the drug.

About the same time Gilead acquired Pharmasset, it hired Joseph Grogan to lead its lobbying. That was the first sign that the company planned to pump up its lobbying in Washington. Grogan had held a similar post with biotechnology giant Amgen, which had a track record of influencing government policy.

Grogan joined Amgen after serving as a senior policy adviser to Dr. Andrew von Eschenbach, who was FDA commissioner during the George W. Bush administration. He also had served as executive director of the Presidential Advisory Council on HIV and AIDS, whose advisory council members included Gilead CEO John Martin.

Grogan's initial task was to ensure the experimental drug passed all its regulatory hurdles. “There's always a feeling that working through former staffers gives you a leg up, rather than just walking in yourself,” said John Rother, a former top lobbyist for AARP and president of the National Coalition on Health Care, a nonpartisan advocacy group.

Gilead's lobbying also involved hiring more than half a dozen firms to work on “hepatitis C policy,” according to a Modern Healthcare review of government lobbying disclosure records. The nearly $2 million spent on outside lobbyists in 2013 represented just a small slice of the extensive effort by various healthcare firms and trade groups to influence government policy. Despite a slight falloff since passage of reform legislation in 2010, healthcare lobbying remains a robust industry in the nation's capital.

Providers, insurers, drug and device manufacturers, and the major trade associations are among the largest funders of the inside-the-Beltway influence industry. This year, they're on pace to spend nearly $500 million seeking to advance policies or avoid setbacks on issues crucial to their interests.

To influence decisions on Capitol Hill, healthcare interests rely on the expertise of their government affairs employees or the connections of their members if they are a trade or professional association. They also hire lobbying firms to help communicate their views to Congress and the executive branch.

These firms usually offer a roster of lobbyists who once held key positions inside the federal government. Among the top 10 spenders on lobbying in each sector of the healthcare industry, roughly 20% of their expenses last year went toward hiring contract lobbyists, according to Modern Healthcare's analysis.

Some of these are boutique firms specializing in healthcare issues. Tarplin Downs & Young is among the most sought-after, with healthcare contracts amounting to roughly $5 million last year. About half of that money came from pharmaceutical interests, including the Pharmaceutical Research and Manufacturers of America and the Biotechnology Industry Organization, the industry's two main trade associations.

For other firms, healthcare is just a piece of their lobbying portfolio. Alston & Bird booked more than $5 million in healthcare contracts last year, but the firm also had dozens of clients in the defense, energy and transportation sectors. The firm's largest healthcare contracts were with HealthSouth Corp. ($480,000) and Celgene Corp. ($350,000).

While hiring Grogan gave Gilead an insider's perspective on how to negotiate the myriad bureaucratic hurdles between the firm and a successful drug launch, the company didn't stop there. Gilead also hired some of the most influential lobbying firms in Washington.

In 2011 and 2012, the company spent just under $3 million on lobbying, according to reports. Last year, that figure increased to just over $4 million, a jump of more than 40%. And through the first two quarters of 2014, the company spent $2.6 million on lobbying, putting it on track to top $5 million for the year.

Gilead spent $1.2 million of its 2012 total on five firms, which registered 19 individuals to lobby on its behalf. That jumped to $1.8 million on 26 lobbyists at seven firms in 2013 and, in just the first half of 2014, $1 million on 27 lobbyists at seven firms.

The lobbying shops hired by Gilead sprang from both sides of the aisle and included some of the most powerful names in Washington, including the Podesta Group; Akin Gump Strauss Hauer & Feld; and BGR Group, headed by former Republican National Committee Chairman and former Mississippi Gov. Haley Barbour. Their job, according to federal disclosure reports, was to influence “hepatitis C policies” and provide “education on hepatitis C issues.” Each of those firms ranked in the top 10 in terms of the dollar amount of their lobbying contracts with healthcare groups in 2013.

Many of the lobbyists with those firms have held prominent positions within the federal government. Among the Akin Gump lobbyists registered to advocate on Gilead's behalf, for instance, was Arshi Siddiqui, a former senior policy adviser to House Minority Leader Nancy Pelosi. BGR lobbyists working for Gilead included Josh Lamel, who served as legal counsel to Senate Finance Chairman Ron Wyden (D-Ore.), and Ryan Long, former chief health counsel for the House Energy and Commerce Committee under Republican leadership.

The lobbyists' role began a few months after the acquisition. In August 2012, Grogan and Bill Guyer, Gilead's vice president of medical affairs, met with John Taylor III, who at the time served as counsel to the FDA commissioner, and Denise Esposito, the FDA's deputy chief counsel for program review for drugs and biologics. It was the first of two meetings the company held with the agency.

In June 2013, the USPSTF, which does not disclose public comments made on its recommendations, gave universal hepatitis C screening for aging baby boomers a weak recommendation. Six months later, it reversed course, giving it the B rating necessary to guarantee CMS reimbursement for screening. In the first half of this year, Sovaldi racked up $6 billion in sales, making it the most successful drug launch in U.S. pharmaceutical industry history and a poster child for out-of-control pricing on specialty drugs.

But the job was far from over. The $1,000-per-pill price tag on Sovaldi stirred a backlash on Capitol Hill. The company's newly acquired lobbying army swung into action.

In March, Rep. Henry Waxman (D-Calif.), the ranking member of the House Energy and Commerce Committee, and two other Democrats sent a letter to Gilead seeking documentation explaining the rationale for the headline-grabbing cost of the hepatitis C drug. Then in July, Wyden and Sen. Chuck Grassley (R-Iowa), the ranking member of the Senate Judiciary Committee, sent a letter seeking a trove of data related to the purchase of Pharmasset and the pricing of Sovaldi.

“Although Sovaldi has the potential to help people with HCV, at $1,000 per pill, its pricing has raised serious questions about the extent to which the market for this drug is operating efficiently and rationally,” the letter from Wyden and Grassley read.

That scrutiny helps explain why Sovaldi's lobbying expenses have continued to grow even after it received FDA approval.

Five other firms—the Nickles Group, Akin Gump Strauss Hauer & Feld, Mehlman Vogel Castagnetti, Williams & Jensen and Hart Health Strategies—took in at least $3 million from healthcare lobbying business last year. At least 11 other firms had contracts worth more than $2 million.

Despite Gilead's surge in lobbying expenses in recent years, the company remains a minor player in the overall healthcare lobbying scene. In 2009, healthcare interests spent $555 million on lobbying, according to the Center for Public Integrity, a nonpartisan watchdog group, more than any other business sector. Last year, healthcare interests spent $484 million on lobbying activities. Through the first six months of this year, that pace has picked up slightly, with $247 million in lobbying expenses.

While the bulk of lobbying expenditures by healthcare interests are for in-house efforts, they often turn to lobbying firms that specialize in their sector when they need help. In 2013, Alston & Bird had the largest share of healthcare business, with more than $5 million in contracts. The firm's roster of lobbyists includes Thomas Scully, who served as CMS administrator under President George W. Bush.

“It's confusing as hell,” Scully said about why healthcare organizations turn to hired guns for help on Capitol Hill. “It's very difficult to navigate.”

Tarplin Downs & Young, the leading drug industry lobbying firm according to Senate lobbying disclosure records, had roughly $5 million in contracts last year. Linda Tarplin served in key healthcare posts in the administrations of George H.W. Bush and Ronald Reagan. Raissa Downs' resume includes serving as health policy adviser to Sen. Mike Enzi (R-Wyo.), who at the time was the ranking member of the Committee on Health, Education, Labor and Pensions.

The BGR Group (formerly known as Barbour, Griffith & Rogers) also took in roughly $5 million last year through healthcare lobbying contracts. The firm represents clients across all sectors of the economy, but its healthcare business included the American Health Care Association, which represents long-term-care facilities, and Select Medical, a Mechanicsburg, Pa.-based hospital network made up largely of long-term and rehabilitation hospitals.

Rounding out the top five were the Podesta Group and Capitol Counsel, each with at least $4.5 million in healthcare lobbying contracts last year. The former was started by Tony Podesta, one of the most influential Democrats in Washington and brother of one of President Bill Clinton's chiefs of staff. Capitol Counsel's roster of lobbyists includes former Rep. Jim McCrery (R-La.), who spent 21 years in the House.

“We don't make widgets,” said Dean Rosen, a partner with Mehlman Castagnetti Rosen Bingel & Thomas who was chief healthcare adviser to then-Senate Majority Leader Bill Frist (R-Tenn). “It's a lot about who you know and what you know.”

Among the healthcare interests that hire lobbyists, the pharmaceutical and device industries, whose core interests involve the FDA for regulatory approvals and the CMS for reimbursement, represent the largest share. Last year, those companies spent at least $226 million on lobbying, according to the Center for Public Integrity. The biggest player: PhRMA, which spent about $30 million.

Among individual pharmaceutical firms, Eli Lilly & Co. spent the most money seeking to influence policy in Washington, with nearly $12 million in expenses. Pfizer followed close behind, with $11.5 million in lobbying expenditures last year.

Hospitals and nursing homes accounted for the second-largest share of healthcare lobbying expenses last year, with at least $92 million in expenditures, according to the CPI. The American Hospital Association, the largest industry group, was the dominant player, with $18.8 million in lobbying expenses. The Federation of American Hospitals, which represents the smaller for-profit hospital sector, spent less than a quarter of that amount.

Among individual providers, Select Medical Holdings had the biggest presence on Capitol Hill, racking up $4.1 million in lobbying expenses. That was followed by Kindred Healthcare ($2.8 million), Partners HealthCare ($2.1 million) and the UPMC health system ($2 million).

Organizations that represent health professionals spent at least $85 million on lobbying last year. The American Medical Association accounted for more than 20% of that amount, with $18.5 million in lobbying expenses. The other top professional organizations in terms of lobbying expenses last year were the American College of Radiology ($4.1 million), the American Dental Association ($3.4 million) and the American College of Emergency Physicians ($2.9 million).

Insurance companies racked up more than $70 million in lobbying costs in 2013. The main industry group—America's Health Insurance Plans—was the biggest spender, with $11.5 million in expenses. The Blue Cross and Blue Shield Association was close behind, with lobbying expenses of $10.9 million last year. Among individual plans, WellPoint was the biggest spender, with $6.2 million in expenditures.

All of those interests find their finances in play whenever Congress confronts postponing the scheduled cuts contained in Medicare's sustainable growth-rate formula, which sets physician pay. The never-ending battle over temporary fixes has become a full employment act for contract lobbyists. “It'd be hard to find a lobbying firm in town that didn't work on SGR,” noted one veteran lobbyist.

Last March, with the deadline for resolving the issue approaching, a list drafted by Senate Finance Committee staffers of possible ways to pay for the $140 billion permanent fix began circulating on Capitol Hill. Pharmaceutical companies, device manufacturers and skilled-nursing facilities were among the sectors potentially affected by the list of revenue sources.

“The town went nuts,” one lobbyist said.

Senate leadership quickly disavowed the list and the prospect of a permanent repeal faded. That eventually led to passage of a 17th consecutive SGR patch to avoid a significant reduction in Medicare payments to doctors. But the final bill was weighed down with numerous extraneous provisions, including a delay in the conversion to ICD-10 diagnostic and procedure codes for at least one year and a postponement of cuts to the disproportionate-share hospital payment program, which represented victories for the lobbyists representing physician groups and safety net hospitals, respectively.

“The lobbying community has continued to be a little bit starved for healthcare vehicles,” said John Jonas, a healthcare lobbyist with Akin Gump. “When one does move it tends to pick up a bunch of provisions that are in search of a vehicle.”

But the day-to-day focus of most lobbyists, whether in-house or hired guns, tends to be on regulatory policy and specific regulatory actions. Bundled payments, reductions in Medicare Advantage payments, changes to the 340B drug discount drug program—all require extensive rules and regulations from an array of federal agencies.

But sometimes the mere threat of intervention by government—such as when Gilead set an unprecedented price on its new blockbuster drug—can press lobbyists into action. The company is still complying with the voluminous data request from Sens. Wyden and Grassley, according to a staffer with knowledge of the investigation.

Last month, Gilead hosted a forum, “Curing hepatitis C—the patient's perspective,” for legislative staffers at the Rayburn House Office Building. The event featured a hepatitis C patient; Dr. Natarajan Ravendhran, a liver disease specialist and chief of gastroenterology at St. Agnes Hospital, Baltimore; and a Gilead vice president. Ravendhran earned over $20,000 in 2013 in fees and other benefits from Gilead, according to the CMS Open Payments database.

The word went out across Capitol Hill. Roughly two-dozen individuals attended the event. “It was a relatively soft sell,” said one attendee. There was no discussion of congressional inquiries into the cost of Sovaldi or acknowledgement that there was anything controversial about the drug.

“The message was that patients want Sovaldi and that it works,” said the National Coalition on Health Care's Rother, who attended the forum. “This was an attempt to put the patient face on the controversy that has been mostly so far about economics.”

Follow Paul Demko on Twitter: @MHPDemko