Lots of industry CEOs traveled to the White House and shook hands with President Obama during the spring and summer of 2009, and while the specifics of those conversations haven’t been made public, the result was industry support of healthcare reform, and a pledge of $80 billion in savings on drug spending over ten years.

Industry support, political and financial, comes at a price, and in some respects, the Patient Protection and Affordable Care Act was notable for what it didn’t contain: shortened data exclusivity periods, Medicare and Medicaid dual eligibility rebates, pay for delay restrictions on generic market entry, and most importantly, no recourse for price negotiations to leverage the market power of the Centers for Medicare & Medicaid Services (CMS) under the Medicare part D drug benefit.

Those hard-won omissions protected industry profits, but now they’re back on the table, as reducing the national deficit has become one of the noisiest political issues in the US, just in time for the start of election season. The Obama Administration’s proposed budget for 2012, and a new deficit reduction framework that “builds on the Affordable Care Act by including new reforms aimed at further reducing the growth of health care spending – a major driver of long-term deficits,” both target the very practices that industry thought it had safeguarded during healthcare reform negotiations.

PhRMA is crying foul. “Unfortunately, the President’s approach to reducing our deficit fails to consider the impact on the entire policy tapestry – local and federal – that influence our industry’s current and future health,” said John Castellani, PhRMA president and CEO, in a statement following Obama’s budget speech last Wednesday. “Specifically, proposals to expand rebates, saddle seniors with higher premiums and slash data protection for biologics are bad for patients and are bad for innovation.”

Obama’s speech at George Washington University last week didn’t directly address shortening biologic data exclusivity protections from 12 years to seven years, for example, but industry read between the lines when the President said things like “We will cut spending on prescription drugs by using Medicare’s purchasing power to drive greater efficiency and speed generic brands of medicine onto the market.”

However, a description of terminations, reductions, and savings included with the proposed budget for 2012, released in February, was explicit: “Under the Administration proposal, beginning in 2012, innovator brand biologic manufacturers would have 7 years of exclusivity and would be prohibited from receiving additional exclusivity by ‘evergreening’ their products.” That change would reduce federal spending by $2.3 billion, between 2012 and 2021, according to the budget document. Prohibiting “brand and generic drug companies from delaying the availability of new generic drugs” would save the government $8.8 billion during the same period, the document says.

As detailed in the deficit reduction framework released last week, Obama will also strengthen the Independent Payment Advisory Board (IPAB), created by the Affordable Care Act. Specifically, the IPAB will set a target cost for Medicare beneficiaries, based on GDP per capita data plus 0.5 percent, and recommend actions to Congress if costs rise above that target. The IPAB will also get additional enforcement mechanisms, such as “an automatic sequester as a backstop” to other Medicare reforms, to keep costs in check, according to the framework.

On top of that, new price negotiations between CMS and industry are likely to occur around the issue of the notorious dual-eligibles, those nine million beneficiaries eligible for both Medicare and Medicaid that consume 40 percent of total Medicaid spending, according to the deficit reduction framework. An Obama 2012 budget proposal would also “enforce Medicaid rebate agreements,” and “increase penalties on drug manufacturers for fraudulent non-compliance with Medicaid drug rebate agreements.” The budget doesn’t attempt to predict how much money those two proposals would save the government, but the HHS Office of Inspector General’s December 2010 report on industry fraud and abuse did impose significant multi-million dollar fines on several companies for violations of the rebate rules. A report from The National Commission on Fiscal Responsibility and Reform, which also came out in December, estimated that $49 billion could be saved through 2020, and $7 billion through 2015, by extending the Medicaid drug rebate to dual-eligible beneficiaries.

So what did industry get for its support of healthcare reform and $80 billion? Well, no one is talking about importing drugs from Canada, at the moment. Nor is there as much interest in a proposal recently floated by legislators in both parties to tighten or eliminate the tax deductibility of promotional ads for prescription medicines. But the move to gore the industry asset ox is definitely on in Washington, and big pharma will need all its lobbying clout to keep that $80 billion “contribution” from moving into the triple digits. At some point, it’s going to add up to real money.

The Obama Administration’s signal achievement to date — passage of comprehensive health reform legislation — continues to inspire confusion and contradictions across the political spectrum. Despite its scope, the bill is dismissed by many Democrats for what it does not do, while the GOP references “Obamacare” as a decisive step toward the apocalypse of socialized medicine. Howard Dean, 2008 presidential candidate, former Vermont governor and chair of the Democratic National Committee [DNC], added some additional twists to the reform debate in a talk to senior pharma executives hosted by the Gerson Lehrman Group [GLG] in New York last Thursday.

Dean, now of counsel to the law firm McKenna Long & Aldridge, dismissed Obama ‘s position that the 2010 reform would “bend” the cost curve. Why? Because little has been done to change the economic incentive of providers to charge by procedure rather than on the basis of a full episode of care. Fee-for-service remains the payment bedrock of the US system. Until it changes, costs will continue to rise.

Dean reiterated his view that Obamacare will accelerate a transition away from the current employer-based approach to financing health care. “There is a negative incentive in the law for small business to continue providing health benefits to workers,” Dean said. “I expect that once the state insurance exchanges are up and running small businesses will opt to pay the penalty for not providing coverage and simply give workers a bonus or subsidy of a few hundred dollars to help them purchase insurance under the individual mandate.” Conversely, the largest employers are likely to keep to the status quo as they prefer to control their exposure to insurance costs. Hence, like so much of the reform package, the outcome is a mixed bag: there will be less diversity, flexibility and choice in the system as the government role increases, but US industry will be more competitive in global markets due to having to shoulder less of the burden of covering workers for essential health care services.

Perhaps due to his new role as an adviser toMcKenna’s biotech clients, Dean professed some views that are anathema to his own party caucus. These included support for the 12-year period of data exclusivity agreed by the Administration, PhRMA and BIO to advance the registration of follow-on biologics. Dean predicted that despite some backtracking from congressional Democrats to push the protection period down to seven years, the pledge will be kept – at 12 years. Next, while noting the financial impact of malpractice on providers has been overstated, Dean said he parts with his caucus by supporting tort reform, the centerpiece of which should be allowance for arbitration panels as an alternative to the constitutional right of victims to trial.

Finally, Dean pushed for actions to raise the “certainty index” for investors in big pharma and biotech. This includes mediating more directly between the FDA and Congress, the agency’s most hostile stakeholder. “Pressures from Congress against the FDA have created an overly politicized decision-making chain on the licensing of new therapies, to the detriment of the industry’s long-term future in the US,“ Dean said. Other actions he suggested industry pursue focused squarely on educating around the following issues: that medicines actually save money, when assessed in comparison to most other health interventions; explaining how the average price tag of financing a clinical trial has doubled over the past five years; drug companies, not academia or the NIH, do the heavy lifting in bringing new treatments to market; that manufacturing the next generation of large biologics is complex, risky and expensive; and why tax incentives in the US emphasize less productive short-term objectives rather than the long-term payout responsive to biotech’s development cycle of more than a decade. That education should begin with Congress, which is “increasingly anti-science and ignorant about what is needed to seed drug innovation.”

Dean flipped a question illustrative of one of the biggest challenges to implementing health reform: how strictly should evidence be applied to drive decisions on access to the most costly new medicines? The power given in countries like the UK to formal cost-effectiveness evaluation in deciding who gets a new drug is “unlikely to find a receptive audience here,” Dean said in response to a question from J&J. “Action to force suppliers to bear some or all of the risk in meeting the cost of a new treatment is a drag on innovation too. “But is it worth paying $100,000 or more for a new drug that will extend the life of a cancer patient for a few months? This is a societal debate that must involve more players than industry and the insurers.”

However, Dean admitted that politicians like him are unlikely to initiate that discussion, even if as a result some drug investors might find a better place for their money by purchasing a new Porsche.

And the verdict on the staying power of health reform? To Dean it has everything to do with employment. “If the jobless rate falls below eight per cent by early 2012, Obama gets his second term and the reform law is here to stay.”

Daschle seemed like a shoe in for the HHS position from the start because of his close congressional ties and well-chiseled plan for getting the job done. He was also asked to oversee a new White House Office of Health Reform.

But with the recession getting deeper and a vacant HHS top spot, the outlook for change in 2009 is starting to look grim. According to a report released today by analysts at Miller Tabak, Daschle’s withdrawal “effectively terminates any chance of healthcare reform in 2009.”

“Given the time it will take to choose and vet a new HHS secretary it appears not likely that person will be able to impose meaningful change in the near-term,” the report said. “If we are correct in this view, to fix healthcare, the administration will have to pick a leader with strong congressional ties and a great deal of moral authority who knows healthcare in order to spearhead reform.”

The names floating around as replacements include former Gov. Howard Dean of Vermont, Govs. Kathleen Sebelius of Kansas, Edward Rendell of Pennsylvania, Jennifer Granholm of Michigan, and John Kitzhaber of Oregon, according to the New York Times. Governors are being considered because of their experience with running state Medicaid programs.

Without a strong-headed health reform leader in the executive branch—as Daschle was thought to be—the responsibility to produce change may fall on Congress’ shoulders. Senator Max Baucus of Montana, chairman of the Finance Committee, and Senator Ted Kennedy of Massachusetts, have been working on health reform plans since last November and plan to propose a bill later this year.

Although a congressional bill is likely to be introduced, analysts at Miller Tabak expect push-back from the executive branch: “Although it appeared that the administration was willing to let the congress lead a healthcare reform effort, in contrast to the Clinton effort, given the wrangling over the recent stimulus package the administration will most likely want more of a say in future large-scale legislation.”

Demand for drugs is on the rise, yet FDA remains undermanned, underfunded, and misunderstood. If President Obama is serious about healthcare reform, he needs to make a concerted effort to improve drug safety in this country. Priority number one should be a renewed commitment to educating the public about drug safety. FDA should be the public’s number-one source for information on pressing drug safety issues. Every regulatory action the agency takes should be seen as an opportunity to speak to a larger public health issue.

FDA should also increase its support for the Reagan/Udall Foundation, a joint public-private partnership that supports innovation in the pharmaceutical industry. The new FDA commissioner should work with foundation administrators to develop the regulatory tools appropriate for today’s medical technologies.

Secondly, key drug regulations need to be clarified. Too often, regulators love ambiguity. Why? Because ambiguity is power. But ambiguity can lead to regulatory inconsistencies, hampering the drug approval process. Oftentimes, safety trial protocols are approved by one FDA committee and carried out by drug manufacturers, only to be derided by another agency committee after the fact. Likewise, FDA has been known to send warning letters to companies over marketing materials that have already cleared another branch of the agency. It will be much easier for industry to follow FDA regulations if those regulations are well-defined and applied equally.

Thirdly, FDA needs to reform its information management system. The agency sits atop a vast accumulation of vital public health information, yet most of it is unusable because FDA has yet to develop a reliable means for determining which information is important. The new commissioner should immediately appoint an information technology czar charged with modernizing and streamlining existing systems. Solid information management will allow the agency to do its job faster, cheaper, and more effectively.

The agency’s food safety and security programs are also in need of substantial reform. Witness the case of bisphenol A, an industrial ingredient often used in plastics that has been the source of health concerns for decades. Yet only after a significant controversy arose over the use of bisphenol A in consumer products did FDA decide to order an expert review of the chemical. Behavior like that cements the perception that the FDA is ineffective – or worse, apathetic.

Similarly, rather than proactively stepping forward with regular and transparent risk communications programs, FDA has been driven by the winds of crisis. The agency has implemented certain programs that provide risk information, but without any context. The effect is confusion among patients and physicians.

Drug labels – the most important piece of communications material the agency regulates – also need to be improved. The agency must ensure that new labeling rules are adopted for all products, even those licensed prior to the new rules’ implementation. The agency also needs to educate physicians about how to use drug labels, particularly when it comes to “safe use” recommendations that deal with administration – rather than composition – of pharmaceuticals.

These are urgent reforms that must be carried out with determination, creativity, and passion by the new administration. I look forward to continuing to work with President Obama to ensure that the new commissioner can hit the ground running, and take important steps to set the tone for a newly confident FDA.

Peter Pitts is president of the Center for Medicine in the Public Interest and a former FDA associate commissioner.

Daschle’s familiarity with health policy issues is evident in the book he co-authored earlier this year: Critical: What We Can Do about the Health-Care Crisis. But with less administrative experience than the governors who preceded him, Daschle will need capable deputies to oversee key HHS agencies, including the Food and Drug Administration, the National Institutes of Health and Medicare and Medicaid.

The former Senator from South Dakota lost his seat in a hard-fought battle in 2004. He was criticized then as too much of a Washington insider, and his nomination provoked similar comments from some parties. But most observers regard the appointment as realistic assessment that consummate political skill is needed to reform the nation’s health care system.

Reporting to you from Chicago at the Sixth Annual Healthcare Businesswomen’s Association leadership conference, where the story—set in this city of the new US President—is all about change.

The Pharm Exec crew arrived in a surprisingly tranquil Windy City—the only explanation that it was the calm after the storm of Tuesday’s election. Certainly, many HBA members had been up all night watching the election, with a dozen members who took to the streets and joined the rally for Barack Obama at Grant Park.

“It was like being at Woodstock,” said Nancy Larsen, President of PROmedica Communications, who was part of a group that attended the rally. “Even though we were standing shoulder-to-shoulder in this massive crowd, it felt serene to be with all these people—it gave me goose bumps.”

“It’s not watching history—it’s actually being a part of it,” said Eve Dryer, Principal and President of Vox Medica Public Relations.

Yet even with the election front-and-center in the nation’s consciousness, executives here seem more focused on pharma’s patent cliff crisis and the latest round of layoffs, instead of major healthcare reform.

“We get the sense that there is some pent-up demand for talent,” said one attendee. “We think people might begin hiring after the election—we’ll be able to tell by year end if that is happening. People may begin hiring because we don’t get the sense that Obama will get to healthcare first.”

The focus of the conference is leadership development, and many conversations and presentations were peppered with concern over how tough times will affect careers in pharma, particularly for those who have been traditionally underrepresented.

“Many of the banks were at the forefront of setting up on-ramping and off-ramping career tracks for women—they had to—and really paved the way for other industries,” said Meryl Zausner, CFO of Novartis. “But now, those efforts will be hampered.”

Still, it seems that many companies are trying their best with programs to bring up women and other minority groups. Novartis CEO Ludwig Hanston accepted the HBA’s 2nd Annual ACE Award on behalf of the company for  its Empowering Women Impacting Novartis and Women in Leadership program.

Meanwhile, Johnson & Johnson (the 2007 ACE Award winner) had a chance to take the stage to talk about how it is seeking to expand its workplace program for women, all 60,000, with new efforts to focus on its European affiliates, sales force in Japan, and even to its group in Cape Town, South Africa while Adrian Sax, who heads business development for King Pharmaceuticals, spoke about the grassroots efforts for inclusion happening at smaller companies.