October 29, 2010


The New Democrats: The Coalition Pharma and Wall Street Lovey

A Biotech Carve-out

By the time Barack Obama was elected president, the New Democrats had accomplished most of the goals they set out for themselves when they reorganized. They were pulling in impressive amounts of money, helping handpicked recruits get elected in tight suburban districts, and even starting to influence legislation in the House.

The only thing they hadn’t done was occupy the driver’s seat on major legislation. With a Democrat in the White House and health care and financial reforms on the table, that now seemed possible. The question was what the legislation would include and how far it would reach.

Publicly, many Wall Street, pharmaceutical, and even health insurance companies and trade groups supported regulatory overhaul of their respective industries. But privately, they maneuvered to minimize the impact on their bottom line. Their strategy was two-fold: They wanted to limit reform to fixing past trouble spots, and they wanted to steer clear of pre-emptive or sweeping regulations. To do this, they needed groups like the New Democrats and Blue Dogs.

The Blue Dogs took the lead in protecting business interests during healthcare reform. Although the Blue Dogs and the New Democrats have much in common, including 21 members and many of the same K Street backers, there are differences as well. Because of their generally Southern and rural constituencies, the Blue Dogs’ top concerns involve the national debt, energy legislation and social issues. The New Democrats represent suburban districts, some of them solidly Democratic, and are more interested in hi-tech industries, trade policy and finance. They also have tended to be a less cohesive voting bloc than the Blue Dogs.

Throughout the debate over healthcare reform, the New Democrats often split on what policy approach to take, with some pushing for a government-paid health insurance option while others opposed almost every proposal for change. When they worked together, however, they had the clout to help deliver significant wins, as they did last year for the biotechnology industry.

At issue was how long companies would be allowed to hold exclusive patents on a relatively new class of medicines called biologics, preventing cheaper generic versions from entering the marketplace.

Biologics, which are grown within living cells, are used to treat several types of cancer, anemia, and arthritis, and their use is expected to expand greatly in coming years. Annual sales of biologics currently range from $40 billion to more than $100 billion, according to industry analysts.

BIO, the industry’s trade group, argued that these medicines are so difficult and costly to produce that they deserve at least a 12-year monopoly, instead of the five-year monopoly most pharmaceuticals get. They also argued that, due to the complex nature of the drugs, generics could pose safety risks. However, with the industry's ever-increasing profits and the rising cost of medicines, that argument was a hard sell. In June 2009, the Federal Trade Commission issued a report (www.ftc.gov/opa/2009/06/biologicdrugs.shtm saying that the 12-year exclusivity was “too long,” leading the White House to suggest a compromise of seven years.

Among those pushing for the 12-year patent was Matthew Schumaker, a former executive director of the New Democrat Coalition who is now a lobbyist with BIO. Another was John Michael Gonzalez, who had served as chief of staff to one of the New Democrats' rising stars, Illinois Rep. Melissa Bean, and works for the lobbying firm Peck Madigan Jones Stewart, on behalf of BIO and several of its member companies. Neither responded to interview requests for this story.

Rep. Jay Inslee, a New Democrat from Washington state, co-sponsored a measure that set the patent at 12 years. It also included language that consumer groups said would allow near-automatic renewals of exclusivity periods if manufacturers changed dosages or delivery methods.

The New Democrats voted to endorse the proposal, throwing the full weight of the caucus behind it and lobbying party leaders to support it. With consumer groups too busy fighting on multiple fronts over big-ticket items like the public option, the measure became law. BIO won its 12-year patents and named Melissa Bean its "legislator of the year" for 2009-2010. The group’s press release specifically citied her membership in the New Democrat Coalition and praised her leadership on biologics.

Bonuses and Mortgages

In early 2009, the New Democrats worked to win concessions for the financial services industry as well. When Congress took up a bill that would have heavily taxed the bonuses handed out by the bailed-out insurance giant AIG, four of the six Democrats who voted against the measure were New Democrats. The bill passed with overwhelming bipartisan support, 328-93. On other measures to rein in large bonuses, New Democrats, Melissa Bean in particular, sided with Republicans to oppose or weaken restrictions.

The New Democrats also waded into the battle over mortgage legislation.

Since 2007, consumer advocates had been pressing Congress to revise bankruptcy laws so judges could adjust mortgages on primary residences in the same way they could adjust nearly every other kind of loan during bankruptcy proceedings. Bankruptcy law experts and consumer advocates believed the measure would reduce the number of foreclosures, but banks strongly opposed the practice, which they labeled "cramdown." A vote for cramdown, they told lawmakers, would be a vote for a second bailout, this time for irresponsible homeowners.

New Democrats joined Blue Dogs to delay votes whenever the measure came up. After one such delay in March 2009, the New Democrats’ leader, then-Rep. Tauscher, told reporters, "[I]t shows we have bench strength, it shows we can flex." (Tauscher did not return ProPublica's request for an interview.)

Helping coordinate the cramdown opposition was the new executive director for the New Democrats, Adam Pase. Before coming to Congress in 2005, Pase had worked as a low-level lobbyist for 21st Century Group, representing several biotech companies. He had also represented the now-defunct Coalition for Fair and Affordable Lending, a lobbying group set up by the subprime industry.

The New Democrats were never able to fully kill the measure, but after months of delays, they inserted provisions that made it harder for homeowners to qualify for cramdown adjustments, forcing them to exhaust a series of other measures first.

When the bill finally reached the Senate in April, it arrived in the midst of healthcare reform, and cramdown failed to pass. On the eve of its defeat, Democratic Sen. Dick Durbin of Illinois, a staunch supporter of the measure, said that when it came to influencing Congress, the banks "frankly own the place."

Today, homeowners facing foreclosure can try to get their loans adjusted through the federal Home Affordable Modification Program (HAMP), which has been plagued by troubles since it began in 2009 and has been able to modify only half a million mortgages. Or they can simply walk away from their homes.

While cramdown would not have been an overarching solution to the crisis, “there’s no question that bringing loan balances down to home values would have prevented a lot of the foreclosures that have happened,” Alan White, a professor of bankruptcy law at Valparaiso University, told ProPublica in a recent interview.

The New Democrats continued