From Michael Belkin
  December 26, 2000   [ -- Politics & Policy]

Bush Nominates Drug-Industry Insider To Head Office of Management and Budget


WASHINGTON -- At a time when issues of enormous concern to the drug
industry are ripe for action, President-elect George W. Bush has ensured
that the industry will have one of its own in an influential position in
his administration.

By nominating Mitchell E. Daniels Jr., a corporate vice president for
Indianapolis-based Eli Lilly & Co., to run the Office of Management and
Budget, Mr. Bush has chosen a well-respected conservative thinker. But he
also has chosen someone from an industry that is sure to be in the hot seat
in Congress as it moves to consider adding prescription-drug benefits to
the Medicare program.

While he won't have direct responsibility for health policy, Mr. Daniels
would assume one of the most powerful jobs in the new administration and
would likely be involved in debates on overhauling Medicare and adding a
drug benefit. During Mr. Bush's campaign, his proposals echoed industry
themes, that drug benefits should be added to Medicare as part of a broader
reorganization that brings more market-based competition to the program.

The first issue is a Bush proposal to add money to his administration's
initial budget to provide funds to states to help poor elderly people buy
prescription drugs -- an idea many in the industry oppose because they fear
it could lead to forced discounts on their products. Other industry-related
issues likely to come to the fore during the next administration include
whether drug patents should be limited to promote price competition, and
how to implement legislation allowing pharmacists and wholesalers to import
lower-priced drugs.

While it's hardly uncommon for business executives to land jobs in
Washington, the president-elect's cabinet picks have been so
corporate-friendly that some Republicans refer to the incoming
administration as Bush-Cheney Inc. Corporate veterans have been named to
several key slots, such as Alcoa Inc. Chairman and Treasury
Secretary-designate Paul H. O'Neill, and Commerce Secretary-designate
Donald L. Evans, who once ran an oil company.

While Mr. Daniels is known nowadays primarily as a powerful health-care
industry executive, he has an extensive background in Republican politics,
having served as chief of staff to Indiana's GOP Sen. Richard Lugar, and as
an adviser to President Reagan. "It's not my first tour of duty in
Washington," Mr. Daniels told the Associated Press on Friday.

But the nomination raised questions among consumer advocates because of Mr.
Daniels's relationship with Lilly and other drug interests. "He'll have to
be careful to bend over backwards to make sure it doesn't appear that he's
favoring his former employer," said John Rother, the top lobbyist for AARP,
the senior citizens' group. James Love, who is affiliated with consumer
advocate Ralph Nader and works extensively on drug patent and pricing
issues, said in an e-mail that the nomination was "distressing."

Democrats and Republicans on Capitol Hill say they have had little direct
contact with Mr. Daniels on the drug-benefit issue. "He's not been visible
on the day-to-day lobbying," said one industry lawyer. But Lilly and other
pharmaceutical companies have shown a keen interest in the matter,
cooperating to develop principles on what an acceptable Medicare-reform
plan might look like.

Those principles are very similar to approaches Mr. Bush championed in the
presidential campaign. In testimony before the Senate Special Committee on
Aging in February, Mr. Daniels said his company "strongly supports" a
Medicare drug benefit, but one "based on competition among private-sector
options where beneficiaries can choose the plan they want."

Mr. Daniels also said that a Medicare drug benefit should be part of an
overhaul of the entire entitlement program. He warned that a
Clinton-administration proposal simply to add a drug benefit would "quickly
translate into price controls" on drugs that would "derail medical
progress" -- though the plan didn't explicitly call for such controls.

Because the incoming administration is still taking shape, it's unclear who
will be the major force in hammering out a Medicare drug benefit. For
example, the Clinton administration's point man on the issue was
Christopher Jennings, a senior White House policy adviser. But whoever
plays such a role in the Bush administration, Mr. Daniels would likely be a
key architect in developing administration policy on such an important and
costly initiative. He also could play a larger role in such matters than
past OMB directors, who have tended to be budgetary and finance experts.

Bush administration officials are already debating drug-benefit proposals,
according to industry insiders. During the campaign, Mr. Bush promised a
two-step approach to the matter. First, his "immediate helping hand"
program would bring aid quickly to poor elderly people through grants to
the states. That would be followed by an overhaul of the Medicare program
to a more market-based approach using competitive health-insurance plans
that would include prescription-drug coverage.

While Mr. Bush's campaign proposals echoed industry themes, a number of
drug companies worry that the state-grants plan would lead to mandatory
discounts on drugs sold to states under the program, as currently occur
under Medicaid. Meanwhile, some governors oppose the grants approach
because they say it would shift the Medicare burden to the states, and many
Democrats dislike it because it would help only low-income people.
Democrats want the drug benefit to go to everyone on Medicare.

Write to Jim VandeHei at <>
and Laurie McGinley at <>