Trump’s New Trick to Boost Defense Spending

Plus, will Congress force pharma CEOs to take their medicine?

Will Congress Force Drug Industry CEOs to Take Their Medicine?

Tuesday could be a watershed moment in the push to lower U.S. prescription drug prices. Seven top executives from leading pharmaceutical companies will be on the congressional hot seat as the Senate Finance Committee holds a hearing on their prices.

“The Senate Finance Committee hearing is an ominous signal for the drug industry that major legislative reform is on the horizon,” Politico’s Sarah Karlin-Smith writes. “It’s reminiscent of previous hearings with businesses that proved to be turning points, leading to massive reforms of Wall Street banks, the health insurance industry and tobacco companies.”

Who’s getting grilled: Top executives from drug companies AbbVie, AstraZeneca, Bristol-Myers Squibb, Johnson & Johnson, Merck, Pfizer and Sanofi. The Washington Post’s Health 202 provides a detailed rundown of the seven executives who will be testifying and some specific drugs they may be pressed to defend.

What they’re likely to face: Anger, and lots of it, for starters. The Finance Committee members know the public frustration and outrage over rising drug prices. And they know how to play to the cameras.

Sen. Ron Wyden (D-OR), the ranking Democrat on the committee, has reportedly told colleagues that no topic is off limits, according to STAT News. “Democratic lawmakers are preparing salvos that center on what they see as emblems of excess: private jet travel, yearly compensation exceeding $20 million, and drug companies’ penchant for multimillion-dollar sponsorships of sporting events,” STAT’s Lev Facher and Nicholas Florko report as part of a fascinating look at how the CEOs are preparing for the hearing in hopes of avoiding a public relations disaster.

And while Republicans “are expected to strike a softer tone,” Facher and Florko add, they’re also planning their lines of questioning to make sure that “each executive faces an appropriate grilling.”

The New York Times Editorial Board offers up five questions Senate Finance Committee members might want to ask, including, “How do you determine list prices for drugs?” and “What’s a fair profit margin for lifesaving products?”

What they’re likely to say: The pharma executives, prepped by armies of lawyers and communications experts, are likely to try to sound contrite, talk about how their products help people and how their companies try to help patients afford the drugs they need. They might talk about the need to introduce more competition into the drug market via “biosimilar” drugs. And, explicitly or otherwise, they’re likely to shift the blame for high drug prices to other parts of the health care sector, like insurers and the middlemen called pharmacy benefit managers.

Still, they run the risk of sparking some combative criticism if they’re seen to be deflecting all blame — and could face sharp pushback if they claim that high prices are necessitated by their investments in research and development. “That’s because drugmakers spend just a small portion of revenue on research and development, and innovation has slowed,” Politico’s Karlin-Smith says.

Why this hearing might actually matter: Both the Trump administration and Democratic lawmakers have been pounding the issue of drug prices, albeit with some different proposals for addressing the problem. And the top Finance Committee members in each party, Chairman Chuck Grassley (R-IA) and Ranking Member Ron Wyden (D-OR), just launched an investigation into insulin price increases. So it’s clear that lawmakers feel pressure to act — and, after the midterm elections, are keenly aware of the political risks of failing to do so with voters again going to the polls in 2020.

“The hearing demonstrates something of a political sea change in the willingness of members of Congress to really put pressure on big pharmaceutical manufacturers to become part of the solution and to answer for some of their anticompetitive and patent abuse tactics,” Jon Conradi, a spokesperson for the Campaign for Sustainable Rx Pricing, a coalition of physician organizations, hospital associations, health plans and other business groups, told Politico.

On the other hand, Jay Hancock Kaiser Health News points out that Congress held similar hearings on drug prices 60 years ago. Yes, 60. “Health policy scholars say the similar hearings show just how much unfinished business remains and how well pharma companies have protected profits and limited regulation over the years,” he writes.

So the real key will be whether lawmakers follow through on their tough talk once the hearing is over and the cameras are off.

Incredible Health Care Headline of the Day

From Kaiser Health News: “Hospitals Prioritizing People Getting Elective Procedures Over Emergency Patients Because They’re More Financially Attractive”

The Budget Gimmick Trump Wants to Use to Boost Defense Spending

Taking advantage of a loophole in the Budget Control Act, President Trump will propose a big increase in defense spending while cutting discretionary spending in 2020, acting director of the Office of Management and Budget Russ Vought said in an op-ed at RealClear Politics Monday.

The White House’s upcoming budget request will seek to increase Pentagon funding through a special warfighting account that is exempt from budget caps, Vought said. That will allow the administration to avoid matching defense spending increases with discretionary spending increases, as lawmakers have done for several years in negotiated spending deals to lift spending caps.

The Trump administration says it wants to cut discretionary spending by 5 percent across the board in what Vought called “one of the largest spending reductions in history,” while boosting defense spending by more than $30 billion.

How it would work: The White House is expected to request as much as $174 billion in 2020 for the overseas contingency fund, an off-the-books account that is intended to be used for short-term operations — and which some critics have dismissed as a Pentagon “slush fund.” The increase in OCO funding would more than offset the roughly $70 billion in cuts to the defense budget imposed by the caps, should they come into effect. Current OCO funding is about $69 billion.

Embracing a “gimmick:” Last year, then-OMB director Mick Mulvaney argued against using the overseas contingency account to evade budget caps, calling that approach a “gimmick” that threatened budget accountability. But that argument doesn’t seem to hold much sway in the current White House, where Mulvaney is now acting chief of staff.

Congress not likely to play along: House Budget Committee Chairman John Yarmuth (D-KY) and House Armed Services Committee Chairman Adam Smith (D-WA) released a joint statement Monday making it clear that the president’s budgetary maneuver wasn’t going to fly: “If true, this is nothing more than a blatant attempt to make a mockery of the federal budget process, obscure the true cost of military operations, and severely shortchange other investments vital to our national and economic security.”

Republican Rep. Mac Thornberry (TX), the ranking member on the Armed Services Committee, was also critical: "It's ridiculous if that's what they do,” he said. However, Trump ally Sen. Jim Inhofe (R-OK), chair of the Senate Armed Services Committee, has signaled that he might support the move. “We’ve got to have adequate funding. Now, how do you get there? Are you going to be using some OCO to get there? Yeah you are. I don’t know how much it’s going to be, but I think you’re going to have an exaggerated figure there in order to get up to what we have to have to defend America," Inhofe said last week.

The bottom line: The White House is trying an end run around the budget negotiations that have resulted in higher spending in both defense and non-defense areas over the last few years. But the proposal to raise defense spending through a budget gimmick while cutting discretionary spending will likely be dead on arrival in Congress.

58 Former National Security Officials Say There Is No National Emergency

The House is set to vote tomorrow on a resolution to block President Trump’s declaration of a national emergency at the border with Mexico. It is expected to pass easily, setting up a less certain vote in the Senate, but ahead of the vote, a bipartisan group of 58 former national security officials put out a statement Monday saying that there is no national emergency.

“We have lived and worked through national emergencies, and we support the President’s power to mobilize the Executive Branch to respond quickly in genuine national emergencies,” the statement says. “But under no plausible assessment of the evidence is there a national emergency today that entitles the President to tap into funds appropriated for other purposes to build a wall at the southern border.”

The statement also warns: “In the face of a nonexistent threat, redirecting funds for the construction of a wall along the southern border will undermine national security by needlessly pulling resources from Department of Defense programs that are responsible for keeping our troops and our country safe and running effectively.”

Those signing the statement include former Secretaries of State Madeleine Albright and John Kerry and former Secretaries of Defense Chuck Hagel and Leon Panetta. The nearly five dozen signatories include officials who served in the administrations of Presidents George H.W. Bush, Bill Clinton, George W. Bush and Barack Obama.

Separately, 26 former GOP lawmakers signed an open letter to Republican members of Congress urging them to “protect the Constitution and the responsibilities it vested in Congress” by passing the resolution terminating Trump’s emergency.

The president on Monday tweeted: “I hope our great Republican Senators don’t get led down the path of weak and ineffective Border Security. Without strong Borders, we don’t have a Country - and the voters are on board with us. Be strong and smart, don’t fall into the Democrats “trap” of Open Borders and Crime!”

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What else should we be watching this week? Send your tips and feedback to yrosenberg@thefiscaltimes.com. Or connect with us on Twitter: @yuvalrosenberg, @mdrainey and @TheFiscalTimes. And please tell your friends they can sign up here to get their own copy of this newsletter.

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Chart of the Day: High Tax, High Service

Can the U.S. afford to dramatically increase public spending on a whole host of new programs, potentially including Medicare for all, expanded Social Security and a massive Green New Deal? That question is at the heart of the debate over the still-forming agenda for the Democratic Party ahead of the 2020 election.

One school of thought that’s been the focus of strenuous debate, known as Modern Monetary Theory (MMT), holds that worries about increases in public debt are misplaced, and that the federal government can easily take on much larger spending in some key areas without raising revenues through higher taxes. But Matt Bruenig of the People's Policy Project accuses MMT supporters of “using word games to make people believe that the US can have Northern European levels of government spending without Northern European levels of taxation.”

Bruenig’s chart below shows the significant differences between current U.S. government fiscal policies and those of representative countries in Europe — suggesting the inescapable “necessity of taxes in a social democratic system” that provides high levels of public goods.

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