WASHINGTON, April 6, 2006 — Fighting a flurry of legislative and public policy initiatives aimed at reducing prices and slicing drug budgets, the pharmaceutical industry spent more than $44 million on lobbying state governments in 2003 and 2004, a Center for Public Integrity analysis of lobbying records has found.

The industry also funneled more than $8 million to the campaigns of candidates for various state offices over the same period, according to a Center analysis of state campaign money. (See Deep Pockets Contribute to Success)

At the time, many state governments were seeking to reduce spending on prescription drugs, one of their fastest-growing expenses. States are among the pharmaceutical industry's biggest customers; through Medicaid and other aid programs they purchase about 16 percent of all prescription drugs sold in the country, and also finance drug coverage for state employees, retirees and prison inmates.

"The industry spent tremendous sums to defeat [legislative efforts in states] because they have so much at stake," said Bernie Horn, policy director for the Center for Policy Alternatives, a Washington, D.C.-based nonprofit that works with state legislators.

According to a 2003 study by management consulting group A.T. Kearney, drug industry revenues could drop by $2 billion to $4 billion by 2008 if states were to take full advantage of their purchasing power to push for price reduction.

A top-dollar effort

States that have expensive prescription drug programs were hotbeds of industry lobbying activity. More than 40 percent of all of the reported lobbying expenditures over the period were in California, Texas and New York; together, those states' combined Medicaid drug spending accounts for almost 30 percent of the nationwide total.

The governments of states where the pharmaceutical industry's presence is prominent, such as Massachusetts, New Jersey and Indiana, also were among the most heavily lobbied.

The trade group Pharmaceutical Research and Manufacturers of America (PhRMA) led the lobbying efforts, alone spending more than $4.5 million. Four pharmaceutical giants — Eli Lilly, GlaxoSmithKline, Pfizer and Johnson & Johnson — each spent at least $3 million. The combined $38 million spent by PhRMA and 14 large drug firms accounted for more than 80 percent of the nationwide total.

Lobbying disclosure filings, PhRMA documents and the Center's interviews with current and former state representatives revealed that most of the lobbying efforts were directed at blocking the implementation of cost-saving plans, which the group dubbed "attempts to impose price controls" in its 2003-2004 annual report.

According to legislative data compiled by the National Conference of State Legislatures, 33 states have enacted at least 66 separate pieces of legislation related to cutting drug costs since 2003. In addition, almost every state has tried to implement one or more pharmacy cost-saving measures since 2000.

It was in 2000 that Maine adopted Maine Rx — a program that requires companies to provide rebates on medication to state residents who don't have prescription drug coverage. In 2004, Illinois implemented I-SaveRx, which allows consumers to buy three-month supplies of prescription drugs from other countries; the program later was expanded to include Wisconsin, Kansas, Vermont and Missouri residents.

Other cost-saving measures have included bulk purchasing of medication, promoting the use of generic drugs and creating "preferred drug lists" (PDLs) — inventories of drugs that are found to be the most cost-effective — for programs such as Medicaid.

With the industry facing many such efforts, PhRMA designated 15 states as "priorities" where the trade group would "advocate against any attempt to impose price controls or other onerous restrictions on drugs that dilute the incentives to discover and develop new medicines," its annual report stated.

PhRMA would not identify which states those were when asked and declined the Center's request for an interview. However, lobbying spending records show its primary targets were the states where most prescription-drug dollars were at stake.

The most industry lobbying reported was in California, the state with the largest prescription drug budget in the nation. Medi-Cal, the agency that administers the state's Medicaid program, doles out about $4 billion a year for prescription drugs. Drug interests reported spending $8.9 million lobbying in the state in 2003 and 2004, 20 percent of their nationwide total.

Pharmaceutical interests also spent $1 million or more in 10 other states over the two-year period the Center analyzed, including $6.1 million in Texas and $4.3 million in New York. The Medicaid programs of those 10 states and California spent a combined $11 billion in 2003, about 40 percent of the total spent by all states that year.

Drug firms also lobbied heavily on their home turf, disclosure filings show.

In New Jersey, where nearly half of the major U.S.-based drug companies have headquarters, companies disclosed spending $2.3 million. In Massachusetts, home to a number of biomedicine firms and research facilities, the industry spent nearly $3 million. In Indiana, more than $1.1 million was spent by drug interests — roughly half of it by Indianapolis-based Eli Lilly.

Legislative roadblocks

State lawmakers told the Center that such targeted lobbying blitzes helped the industry block or slow down legislative efforts.

"We are being backed up and squashed by the pharmaceutical industry money. They have killed lots and lots and lots of legislation in Massachusetts and across the country," said Massachusetts state Sen. Mark Montigny, who last year chaired the National Legislative Association on Prescription Drug Prices. The group is a consortium of legislators from more than a dozen states that campaigns for low-cost drugs.

Montigny said the drug industry has defeated at least 10 different bulk-pricing and fair-pricing bills during his stints both on the Massachusetts Senate's now-defunct health care committee and on the Ways and Means Committee.

West Virginia was another state where pharmaceutical interests lobbied heavily to thwart cost-saving measures. Its Legislature passed the landmark Pharmaceutical Availability and Affordability Act in March 2004 after a string of budget shortfalls threatened the state's ability to deliver health care services to needy residents.

The law's provisions included creating a discount plan and a "state prescription drug assistance clearinghouse program" to help low-income and uninsured residents, and forming a "pharmaceutical cost management council" to explore lower-cost drug options — among them importation from Canada. But the state has been slow to implement the legislation in the face of heavy industry opposition.

PhRMA's chief lobbyist in West Virginia is Phil Reale, who also represents Wyeth. Reale, who also serves as general chairman of the state party's Democratic Legislative Council, declined to grant an interview about his work, saying that his PhRMA contract does not allow him to speak with reporters.

In the opinion of Del. Don Perdue and other lawmakers, Reale has been quite effective in his lobbyist role. "He has done a good job of obstructing what we do," said the Democrat, who chairs the House Health and Human Resources Committee.

The frustration of Perdue and other West Virginia legislators was echoed by their counterparts in many other states.

"They kill everything when it comes to [the] bottom line," said Connecticut state Sen. Edith Prague, who has tried unsuccessfully to pass legislation legalizing foreign drug importation. "We can't get anything done because of [lobbying by] Pfizer, Squibb and Bayer."

PhRMA is hardly secretive about its lobbying successes. In its 2003-2004 annual report, the organization claimed that it defeated "legislative proposals that would have restricted Medicaid patients' access to medicines by creating preferred drug lists and imposing supplemental rebates" in at least seven states — New York, New Jersey, Maryland, North Carolina, South Carolina, Kansas and Washington.

Profitable victory on Medicare

The industry's statehouse successes were not the only hurdles for lawmakers; its federal lobbying campaigns also routinely have impacted their efforts.

Securing approval of the Medicare Prescription Drug Improvement and Modernization Act of 2003, legislation termed "historic" and "breakthrough" by PhRMA, is considered to be among the pharmaceutical industry's most substantial victories. The law yielded the first prescription drug coverage under Medicare — a benefit that according for 2006 through 2015 is likely to cost the government more than $1 trillion according to March 2006 Congressional Budget Office estimates. The legislation was passed after a sustained lobbying campaign in the states and in Washington, D.C.

One of the law's controversial aspects is a provision that bars the federal government from negotiating price discounts with drug companies. An October 2003 study by two Boston University researchers found that 61 percent of Medicare money spent on prescription drugs becomes profit for pharmaceutical companies.

Lawmakers contacted by the Center said state governments had very little input in drafting the Medicare Modernization Act. As a result, its passage left states scrambling to be able to comply with the federal legislation that was to go into effect Jan. 1, 2006, to ensure a smooth transition. According to the National Conference of State Legislatures, 14 states passed Medicare-related laws in 2004; another 31 enacted legislation last year.

Yet, when the drug coverage began in January, the process was anything but smooth. Within the first month at least half the states were forced to bypass the new system, pay the bills themselves and seek federal reimbursement.

Low disclosure standards

The Center for Public Integrity has used a stringent methodology for calculating lobby spending totals, excluding expenditures by all firms that are not primarily drug manufacturers, by wholesale pharmacy dealers and by pharmacy benefit managers. For this reason, as well as because of minimal lobby reporting required by some states, the actual totals might be larger.

The quality of lobbying disclosure rules varies by state. Several states have very loose reporting standards: 21 do not require lobbyists or their employers to report compensation or fees paid to lobbyists, and 14 do not include executive branch lobbying in their spending totals.

Alabama requires lobbyists to report spending only if more than $250 was spent in a 24-hour period, and doesn't require salaries or compensation to be reported. As a result, the pharmaceutical industry didn't report spending any money on lobbying there in 2003 and 2004.

In neighboring Tennessee, lobbyists or employers had not been required to disclose lobbying activities beyond their campaign donations, but stricter rules will take effect later this year that require more disclosure — including reporting of expenditures for meals and gifts, as well as compensation for lobbying. Such minimal disclosure requirements make it difficult to paint an accurate picture of the lobbying activities in many states.

In West Virginia, passage of a landmark prescription drug law in 2004 triggered a heavy industry lobbying campaign. But because the state requires limited lobbying disclosure, the industry reported spending little more than $7,000 on lobbying in 2003 and 2004.

That amount hardly reflected the reality, state legislators say.

"It's far, far more than that amount," state Sen. Dan Foster, a physician and one of the legislators behind West Virginia's 2004 law. "It's clearly the tip of the iceberg. Clearly a lot of what they spent is not being reported."

Similarly, the industry reported spending only a combined $17,000 in Ohio for 2003 and 2004, and $26,000 in Illinois, according to the disclosure documents reviewed by the Center. However, Illinois implemented a drug importation program in 2004 that drug companies strongly opposed; that year the industry also campaigned successfully against an Ohio ballot initiative, which PhRMA had said was one of its major focuses.

Grassroots efforts a key strategy

PhRMA spent a total $4.5 million on lobbying in states in 2003 and 2004, according to disclosure documents submitted by its lobbyists. But citing PhRMA's internal documents, The New York Times reported in June 2003 that the trade group had planned to allocate almost $49 million for lobbying efforts in states for that year alone. It is not clear, however, how much was actually spent.

Grassroots lobbying efforts, a key part of the industry's strategy, are also not reported in state lobbying disclosures. In its 2003 annual report, PhRMA claimed to have:

• organized "more than 800 state and local allies and more than 40 national organizations to support the industry's federal legislative agenda"
• formed "more than 20 state-based patient coalitions"
• organized "support for state legislation to enhance patient protections in the Medicaid program"
• held "more than 60 events with lawmakers to promote access to quality health care and generate media coverage of the topic."

Statehouse 'revolving doors'

The disclosure forms filed by lobbyists also offer a glimpse into the pharmaceutical industry's strategy in the states — one that mirrors its federal lobbying in many ways.

As the Center reported in its July 2005 report "Drug Lobby Second to None," a third of the federal lobbyists hired by the pharmaceutical and health product industries from 1997 through 2004 were former federal officials. The drug industry has used the same "revolving door" strategy at the state level, hiring numerous former government officials — including dozens of former lawmakers — to lobby on its behalf.

In September 2004, Massachusetts state Rep. Thomas Finneran was serving as House speaker when he resigned to take the job of president of the Massachusetts Biotechnology Council, a trade group that represents the state's biomedical companies. State law kept him from registering as a lobbyist for a year.

Before joining the organization, Finneran had been one of the industry's biggest legislative allies. During his multiple terms as speaker, the conservative Democrat had helped to torpedo several drug cost-saving bills.

"Every piece of fair-pricing [legislation passed by the Senate] was killed by the House leadership under Tom Finneran," said Montigny, the Massachusetts state senator.

In 2002, the trade group the Biotechnology Industry Organization even honored Finneran as its "State Legislator of the Year," recognizing him for his help in defeating "harmful pharmaceutical price control measures."

In Georgia, meanwhile, the drug industry worked both sides of the state Senate aisle, tapping former Majority Leader Pete Robinson (1992 through 1993; president pro tem, 1994) and former Minority Leader Arthur "Skin" Edge IV (1992 to 1996) to become lobbyists. Robinson, a Democrat, is registered to lobby for Merck. Edge, a Republican, represents PhRMA.

Former legislators who went on to work for the industry rejected the charges that their new jobs posed a conflict of interest.

"There's no law prohibiting the former speaker from taking a position in the private sector," Stephen Mulloney, a spokesman for Finneran and director of policy for Massachusetts Biotechnology Council, told the Center.

"Conflict of interest is in the eyes of the beholder," Mulloney said, noting that he himself has been a lobbyist for several years since having worked as a legislative staffer in the state capital. "It's part of the way we do business in the United States."

Lobbying largesse

Another practice common in Washington, D.C., that the industry is employing in the states is the use of expensive meals and gifts to help woo legislators.

In analyzing disclosure statements from the handful of states that require lobbyists to submit itemized expenditures — a group that includes California, Maryland and Illinois — the Center found that dozens of lawmakers, their aides and other top government employees were treated to lunch and dinner at posh restaurants, flown to resorts and given tickets to sporting events, as well as invited to receptions, and to golf and bowling outings.

For example, a PhRMA lobbyist reported flying then-Del. John A. Hurson of Maryland, who until October 2005 was chairman of the House Health and Government Operations Committee, to Harbor Beach Marriott Resort in Ft. Lauderdale, Fla., to participate "in a panel or speaking engagement." Hurson could not be reached for comment.

In California, where 20 percent of all reported lobbying nationwide occurred in 2003 and 2004, drug interests seemed to be competing with each other in showering lawmakers with gifts. Disclosure documents show a wide array of perks for Golden State officials:

• Pfizer reported hosting meals and receptions for no fewer than 50 California lawmakers, aides and other state officials.
• Pfizer reported that it took Republican Caucus Chairman Russ Bogh (the Assembly's second-highest ranking Republican) and his wife; GOP colleague Assemblywoman Sharon Runner, her daughter and her husband, then-candidate for state Senate George Runner; and two aides to a New York Yankees baseball game during the lawmakers' trip to New York City as delegates to the 2004 Republican National Convention. Just days before the outing, Runner called a news conference to denounce drug importation. "Importing drugs not subject to our countries regulations is a dangerous practice," she said echoing the drug industry's campaign on the subject.
• Pfizer also reported buying Sacramento Kings playoff game tickets for Assemblywoman Rebecca Cohn, her chief of staff, and the aide of another lawmaker. At the time Cohn chaired the Health Committee; the Democrat now serves as assistant majority leader.
• Eli Lilly paid $1,050 in entry fees and other expenses for four state officials to play in a golf tournament in Lahaina, Hawaii.
• AstraZeneca, which reported spending $465,000 on lobbying in the state, paid for the food and beverage expenses of dozens of state officials, including meals for Medi-Cal officials and for several groups of prison physicians and social workers. The total includes hosting a May 2004 lunch at a Phoenix, Ariz., restaurant for state Sen. Deborah Ortiz. She had been named one of three "Legislators of the Year" in March 2003 by the Biotechnology Industry Organization trade group and received more than $26,000 from the industry in campaign donations from 2001 through 2004.
• Amgen reported hosting a dinner for top Medi-Cal officials, including heads of its pharmacy policy and contracting units.

Drawing more scrutiny

At the federal level, lobbyists' gifts have received increased scrutiny since the Jack Abramoff scandal, with both Democratic and Republican lawmakers pushing for stricter regulation of lobbyists. But some states are already ahead of the curve. Some, such as Florida, have enacted more aggressive ethics laws that ban gifts from and travel sponsored by lobbyists.

But state lawmakers contacted by the Center denied that such perks had any influence on their decisions.

"In my mind, there's no connection between the gift [Runner] received and her position [on pharmaceutical issues]," David Lynch, a spokesman for the lawmaker told the Center. "Any gift that she received, that was equally distributed; it is safe to assume that others also received similar gifts."

Companies also maintain that such gifts were not meant to curry favor. But Theis Finlev, a policy advocate for the watchdog group Common Cause California, said that the offer of perks raises serious concerns no matter how lobbyists and legislators rationalize it.

"Anytime any industry is treating legislators whose actions are impacting that industry's operations, it raises eyebrows," Finlev said.

Victoria Kreha contributed to this story.