Thursday, December 1, 2011

Pete Sepp: "I don't know who the experts you consulted are or whatever policy agendas they may have"

Pete Sepp, vice president for communications and policy for the National Taxpayers Union, usually interacts with PolitiFact as an expert source.  This month, however, the NTU ran an ad that received the PolitiFact treatment, and Sepp ended up as NTU's spokesperson in defending it.  The ad called the federal government's proposed rebate program for drug purchases a "tax."

Sepp did not publish a public rebuttal to PolitiFact.  Rather, we find his arguments hosted by PolitiFact's Texas affiliate.   PolitiFact combined the bodies of three email messages from Sepp on a single reference page.

Sepp's initial email (bold emphasis added):
Based on our experience, calling this rebate plan anything less than a tax fails to capture all of its effects:

1) With a few exceptions that the Secretary of HHS would be able to approve (an uncertain proposition), drug manufacturers would be required to rebate 23 percent of the average manufacturer price (more if the drug price rose quicker than inflation) for a brand-name pharmaceutical that was distributed to lower-income Part D beneficiaries. Otherwise, the company could not participate in providing drugs to Medicaid, Medicare, or other government beneficiaries. Considering there are already genuine rebates (i.e., negotiated discounts) under several such programs, this latest demand from the government for being able to sell to a huge segment of the entire consumer drug market in the U.S. seems more like a mandatory extraction than a voluntary refund.

2) The money collected from these "rebates" don't wind up in the actual consumers' pockets or the various Part D plans; instead they go to a fund that will defray certain government Medicare program costs. A "rebate" as is commonly understood is something that the consumer of product receives after purchase. This "rebate" is nothing of the kind, and represents deceptive terminology.

3) The "rebate" is based on a percentage of price per unit, a lot like the way some excise taxes on products such as some tobacco items work.

4) This "rebate" will in essence squeeze the price bubble somewhere else. Either other Part D beneficiaries get stuck with higher premiums, people in private, non-Medicare plans pay higher prices for their drugs, or drug development and access gets scaled back, or even voluntary discounts start to dry up.

For a good summary of how this could happen, as well as some previous CBO work on this topic. I'd suggest the following link at American Action Forum, which former CBO Director Douglas Holtz-Eakin serves at:
Sepp from his first followup:
I didn't see a feature yet on your site so I thought I'd send you a couple other good links to commentaries that discuss the rebate scheme: 

Yes, there are several groups like ours (AEI, Galen Institute, American Action Forum) who share concern that this proposal amounts to a tax.
And from Sepp's second followup, registering his apparent incredulity at PolitiFact's ruling:
1) "There's nothing in the proposal that calls this a tax and experts we visited say rebates like the one in Medicaid never have been called taxes." I don't know who the experts you consulted are or whatever policy agendas they may have, but here are people in the health policy field who agree with the ad's contention that the rebate proposal is best described as a tax.
Sepp gave four examples then moved to his second point:
2) In another email you had asked, "There's nothing in the proposal that calls this a tax." My answer: well, of course not! Supporters call this a rebate so they can raise revenues for the federal government without branding their scheme a tax and having to answer a lot of inconvenient questions about it. Just because they don't want to call it a tax doesn't mean it won't function like one (see above). That's exactly the point of our ad, and our mission for the past 42 years -- exposing attempts by the political class to cover up a proposal that walks, talks, and hurts like a tax by calling it something else.
Contrast Sepp's argument with PolitiFact's conclusion:
We see how the Obama proposal could be judged a nearly mandatory give-back in that drug companies that decline to give rebates would do so at risk to their bottom lines. It also makes sense that drug companies wouldn’t swallow the costs of the rebates; they’re not free.

Then again, contrary to the ad's statement, there’s no evidence low-income Medicare beneficiaries would pay a 23 percent "tax." And all told, Obama's urged rebate remains that--money paid in return for a purchase or action/opportunity. One would have to connect more dots to make it a tax. We rate the group’s statement False.
What dots require connecting, other than having the term "tax" appear in the text of the bill to describe the rebate?  Good luck finding it in the story.  I couldn't.  It's hard to know when one has met a secret standard, and other than the absurd standard of requiring the bill to describe the rebate as a "tax" it's hard to see what would serve.

One additional brickbat for PolitiFact:  Where is the full context of the ad?  If there's some reason for not giving readers a copy of the ad to look at then the readers deserve to know what it is.

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