MOYERS: Welcome to NOW. When Congress passed the Medicare prescription bill that was a big priority for President Bush, it was a very close vote. Opponents said "buyer beware." Well, it turns out they were right. Election year politics has produced a pig in a poke. Sylvia Chase set out to find out what went wrong. Like millions of you — and me — she has a personal stake in the results. Here's her report, produced by Brenda Breslauer.

CHASE: Tommy Thompson leaves the Capitol at dawn after a long, but triumphant night's work, yet the sweet smell of early morning success will shortly take on the sour odor of scandal for the Secretary of Health and Human Services. The President's man has helped strongarm a reluctant Congress to pass a new Medicare law. Left in the secretary's wake, a House floor littered with bruised egos, twisted arms and political IOU's written in red ink. All on behalf of a White House courting the elderly vote for a Republican President.

Nearly half a century ago, Medicare was a brainchild of Democrats, signed into law by President Lyndon B. Johnson with former President Harry Truman sitting beside him — the sort of big tax-supported program for which liberals have always been criticized.

Now a conservative President has proudly signed a measure to grow Medicare. It adds hundreds of billions of dollars in debt for U.S. taxpayers over the next ten years and delivers huge chunks of those funds to corporations.

The story of how that came about is a long and twisting tale, laced with the kind of intrigue that gives Washington politics a bad name. We'll get to that.

But first you need to know that "new Medicare" provides prescription drug benefits for all seniors, regardless of financial need. Some conservatives say that just means more red ink for the nation. Former official in the Reagan administration, Dr. Robert Moffit:

MOFFIT: One of the difficulties that we're facing with the Medicare program is that we're going to treat the retired librarian or the retired teacher the same way we treat Donald Trump and Bill Gates. It's a mistake.

CHASE: Moffit, now shapes health policy at the conservative Heritage Foundation. One in five voters is over 65, a reality he says motivated fellow Republicans to compromise principle.

MOFFIT: Overwhelmingly their political advisors said "Look, if you're gonna get out and make an argument for Medicare expansion, don't exclude anybody. Cover everybody. That is the way you get votes. This is an attractive thing to do. And you will steal the issue from the Democrats." And that's what's happened.

CHASE: So this is politics, this is politics.

MOFFIT: It's always been politics. Medicare is about politics.

CHASE: And from left to right and in between, there's profound exasperation. Congressman Charles Rangel, a Democrat.

RANGEL: I voted no because I thought in the long run this would be the end of Medicare.

CHASE: Republican Congressman Dan Burton also voted "no" on new Medicare.

BURTON: This is one thing I hope you'll put in your interview. I am a very strong supporter of President Bush. And I hope he's reelected. However, I think the passage of this bill was a major mistake.

CHASE: Some disclosure now, I am a card carrying member of the Medicare generation. Like most seniors, I knew little more than the vague outlines of the new Medicare law when I took this assignment. I've learned the good thing is almost 5 million seniors will benefit immediately from this bill. They're low income people, expected to apply next week for subsidized drug discount cards.

But parts of the program that go into effect in 2006, well after the election, ought to have taxpayers — and that includes most seniors — fearful for their checkbooks.

First, there's the so-called doughnut hole, a wacky coverage gap that will be discovered by seniors who decide to buy into the new drug plans. For the majority of seniors, it will work like this.

After you pay a monthly fee and annual deductible, the plan pays 75% of prescription drug costs until your drug expenses reach $2250.

Then coverage stops; you're on your own paying 100% of drug costs. That's why they call it the donut hole, because the center of the benefit is cut out. Until you reach $5100 in drug spending.

Then the plan kicks in again, paying 95% of drug costs.

If you get to this level of coverage, add in monthly fees and deductible you've paid out a total of $4020.

MOFFIT: The question was, how could you provide a universal benefit without the donut hole? And the answer is, you couldn't. Because if you didn't have the donut hole, the cost of the benefit would explode beyond the budget allocated amount.

CHASE: And there's an unintended consequence of the new law. Retirees who today have prescription coverage from former employers are in jeopardy of losing it.

MOFFIT: Employers are going to look at this. They're gonna say, "Look why should I pick up the tab for retirees if the taxpayers are gonna pay for the drug benefit?"

CHASE: So what did Congress do? It tacked on an $89-billion subsidy to encourage employers to continue retiree medical coverage, but nothing in the law prevents companies from taking the subsidies and scaling back benefits anyway.

MOFFIT: The coverage will be lower. The value of the drug benefit will be less. And the blame for this will go on the Congress.

CHASE: Well, do they deserve the blame?

MOFFIT: Yes, they do.

CHASE: It isn't only what is "in" the law that is controversial. When Medicare started to promote the new law to seniors, paying for advertising with taxpayer money, there was more than met the eye.

Exhibit A: Medicare's "Video News Release." It's really a commercial, dressed up to look like a news report with no indication it came from the government. Taxpayers paid for it. Television news directors around the country received it. And forty stations actually used it; in this case, introducing it as if it were a reporter's work.

Frank Clemente of the watchdog group Public Citizen calls it Bush propaganda.

CLEMENTE: And so, this is almost like free advertising for him. And the taxpayer paying for free advertising for him.

CHASE: The Government Accounting Office is investigating. There were headlines when it was revealed that the paid narrator is a public relations consultant, posing as a reporter. The public had no way to know it was a fake news story.

But savvy media watchers weren't fooled. This is Comedy Central's DAILY SHOW.

CORDDRY: Jon, in my 25 years as THE DAILY SHOW's senior media ethicist, I have never seen anything like this. It's more than a little embarrassing.

STEWART: You're embarrassed for this White House?

CORDDRY: No, Jon. I'm embarrassed for us. I mean, we're the ones who are supposed to know how to do the fake news. I saw that Medicare piece. They are kicking our a**.

STEWART: Well, I don't…

CORDDRY: Jon. They created a whole new category of fake news, a hybrid. "Info-ganda."

CHASE: There is nothing fake about the anger some conservative Republicans feel about the high costs of this new Medicare law and their unsuccessful attempts to limit them.

BURTON: In the Medicare prescription drug bill, the government of the United States, the Health and Human Services Agency cannot negotiate with the pharmaceutical companies for lower prices. In other words, we have to pay the price that they want to charge. There's no negotiation whatsoever.

CHASE: Congressman Burton believes in free markets, and in making the best deal you can. He reasoned that lower costs would result if the government used its enormous purchasing power to negotiate the best price on prescriptions for seniors. But thanks to drug-industry lobbying, the bill forbids it, says Burton.

CHASE: Do I understand you to say that it was the pharmaceutical and drug industry that put that measure into the bill which forbids the United States government from negotiating prices?

BURTON: The pharmaceutical industry has over 600 lobbyists in Washington. We only have 535 members of the House and Senate. There's more than one per member. And they're up here all over the place, lobbying.

EMERSON: It's very frustrating to have to deal with an army of lobbyists. It's very frustrating to deal with an industry that refuses to put people before profit.

CHASE: Missouri Republican Joann Emerson helped lead the fight in the House against the drug lobby on another cost-cutting issue, making it legal and safe to buy prescription drugs in Canada and Europe.

EMERSON: A bottle of Tamoxifan used to fight breast cancer costs $360 in the United States. It costs $60 in Germany.

EMERSON: My goal was pretty simple. And that was to try to give the senior citizens an ability to buy their prescription drugs at the same cost as people in Canada or the European Union buy their drugs

EMERSON: Our seniors deserve better.

CHASE: Emerson lost.

And so, say other critics, did seniors pointing out new Medicare's intention to change profoundly the way many seniors get their health care. 88% today go to doctors of their own choice. The administration expects to spend $46-billion over the next decade, though, to subsidize managed care companies so that seniors find the benefits in the private plans more attractive — even though they often end up limiting your choice of doctor. These managed care companies, known as HMO's and PPO's, are mostly for-profit corporations.

CLEMENTE: They're getting a huge windfall out of this legislation.

CHASE: Doesn't private enterprise work better than the government?

CLEMENTE: The ironic thing about the Republican administration which, you know, feels very strongly about free enterprise… and they're… This to me is total corporate subsidy.

CHASE: Frank Clemente is a former Democratic congressional aide. As a director of Public Citizen, he now scours public records on lobbying. His forthcoming report shows that in 2003, the managed care industry employed 207 lobbyists to work on Medicare, spending, according to a preliminary estimate, more than $32 million. Only the tip of the iceberg, according to this tally. The drug industry spent an estimated $100 million to send 750 lobbyists to try to influence Congress.

CLEMENTE: It's the most powerful lobby in Washington DC. They're like a giant octopus. They've got their tentacles everywhere.

Was money talking when new Medicare entered its final passage last fall? It ended up in a conference committee, a forum where Senators and Representatives from both parties traditionally hammer out differences, but when it came time to meet, House Democrats like Charles Rangel were shut out.

RANGEL: They would move the meetings around. They would not say that there were conferences. They did make some public statement that the only Democrats that would be invited to participate in the conference which I was appointed to would be those Democrats that were willing to cooperate.

CHASE: That was only the beginning of a peculiar series of events.

The conference committee posted a final version of the bill on a Web site at midday, November 21st, the printed version took up 678 pages. There was little time to read it, though, much less analyze it. Within hours, the Republican leadership was already calling for debate. It was nearing midnight on a Friday.

RANGEL: This must be a very important piece of legislation, Mr. Speaker. It is ten minutes to 12. When else would the majority bring out an important piece of legislation in the middle of the night?

CHASE: Next, the voting didn't begin until 3 a.m.

Normally voting ends at 15 minutes, but by 3:16, the bill was losing, 209 to 194, with a number of Republican conservatives joining the no column. But the Republican leadership wanted to deliver a Medicare victory to the White House, despite conservative resistance. Voting continued for another two and a half hours.

BURTON: It's extraordinary to keep the machine open, the voting machine open for more than 10, or 15 minutes, unless you have leadership or somebody coming back from the White House.

CHASE: The vote-courting was relentless.

EMERSON: When it comes down to one vote, two votes and you need to find every single person you can, obviously the leadership will look for all 'no' votes to see if they can switch them.

RANGEL: I've never seen anything like it in my life and I come from the hard ball school from the state of New York.

CHASE: On his way home from London, President Bush had gotten into the act earlier in the day, personally phoning members of Congress from Air Force One. No sooner had he hit the ground than he was at it again.

At 5 a.m. on Saturday, when the bill was still in trouble, he got on the phone again from the White House. The pressure from the President and his allies was fierce.

Jo Ann Emerson took refuge from fellow Republicans.

EMERSON: I was actually on the floor over on the Democratic side standing behind the back rail.

CHASE: So you were trying to stay out of harm's way?

EMERSON: I was just hiding a little bit, yeah.

BURTON: I sat there, because I wanted to try to help my colleagues, who might be swayable, if you will, to hang tough. And I talked to some of them about that when they were surrounded, and they were trying to change their votes.

CHASE: One target: Congressman Nick Smith of Michigan. He said he was caught between House Speaker Dennis Hastert and Medicare's boss of bosses, Secretary Tommy Thompson.

Smith later wrote on his Web site that the pressure from lobbyists and fellow Republican congressmen that night went over the line.

CHASE: "Bribes and special deals were offered to convince members to vote yes," he wrote. "I was targeted by lobbyists and the congressional leadership to change my vote. Other members and groups made offers of extensive financial campaign support and endorsements for my son Brad."

Brad Smith is running for his father's House seat this fall. Nick Smith told a Kalamazoo radio station there was a $100 thousand offer on the table to help Brad win.

NICK SMITH [on radio]: I said "No, I'm gonna stick to my guns on what I think is right for the constituents in my district." They said, "Well, if you don't change your vote — this is about 4 a.m. Saturday morning — then some of us are gonna work to make sure your son doesn't get to Congress."

CHASE: Nick Smith held fast that night but the House ethics committee has launched an investigation into the bribery allegation.

Other Republicans yielded to the fierce pressure. It took until 5:53 a.m., but the bill finally passed by a splinter-thin margin 220 to 215, with 16 Democrats joining the majority.

All told, it had taken nearly three hours, the longest vote in the history of the house.

HOYER: Democracy is about voting. And just as you cannot say on Tuesday of Election Day, "We'll keep the polls open for 15 more hours until we get the result we want," you ought not to be able to do it here, Mr. Speaker.

CHASE: There was more fallout to come and it was scandalous.

The pricetage on the Medicare bill the President signed was $395 billion. That was an important figure, because several fiscal conservatives said they wouldn't vote for a bill costing over 400 billion dollars.

But it turns out, higher estimates had been calculated by the Medicare administration six months earlier.

BJORKLUND: We had suspected for many, many months that the administration had known all along that its estimates were significantly higher.

CHASE: Cybele Bjorklund is a senior staffer for Democrats on the House Ways and Means Committee. She regrets that members of Congress didn't know the full story about the cost of the bill when they voted on it.

BJORKLUND: They should've known that there was a higher estimate out there from a credible group of professional analysts.

CHASE: The man behind the higher estimate holds one of those jobs in Washington that seldom gets any attention but that makes the government run. Richard Foster is what's called an actuary. He estimates costs for Medicare and traditionally shares his knowledge with Congress. Last June, calculating an early version of the bill, Foster wanted to tell Congress its estimates were too low, that the bill would actually cost 500 billion dollars or more. But Richard Foster was muzzled.

BJORKLUND: Foster confirmed for me that at least some of the analysis was complete. But said that he was unable to give it to me and that if he did so he might be fired.

CHASE: Foster had been threatened, he said, by Thomas Scully, then head of the Medicare administration.

So Cybele Bjorklund called Scully up.

BJORKLUND: When Mr. Scully and I eventually talked later that night, he said if Foster gave me the information he would fire him so fast his head would spin.

CHASE: And this internal email, made public by the WALL STREET JOURNAL, makes the point even clearer. A Scully deputy tells Foster, "Please work up the numbers and share them with Tom Scully only, no one else. "The consequences for insubordination are extremely severe."

And that's not all you need to know about Thomas Scully. Just a month before he muzzled Foster, Scully had consulted his agency's ethics office and was granted a waiver of rules that forbid negotiating for a job in the private sector, rare for a senior policy official. It was signed by Secretary Tommy Thompson. Scully would ultimately talk to at least three law firms and two investment firms.

CLEMENTE: All five of those companies had very substantial clients or investments in health-related products or they were lobbying for the drug industry, for drug companies.

CHASE: Scully has been in and out of high-level government jobs. As a Washington lawyer and lobbyist, he has focused on healthcare. He had been running Medicare for more than two years when he asked for the ethics waiver — a questionable move, if not a conflict of interest, in Clemente's opinion.

CLEMENTE: That was his point of maximum influence. He could have waited. And he could have come out and any company would have snatched him up in a matter of days.

CHASE: Scully resigned from Medicare three weeks after the bill passed and a week after the new law was signed, announcing he had accepted a job at Alston and Bird, a law firm that lobbies on behalf of several health industry clients that will be affected by the Medicare legislation.

PRESIDENT BUSH: I appreciate Tom Scully, the Administrator of the Centers for Medicare and Medicaid Services, for his good work.

CHASE: Remember, it was Scully who suppressed Medicare's internal estimate of the cost of the bill. The suppressed estimate came to light after the bill was already law.

BURTON: After we passed it, we found out it wasn't gonna cost $400 billion over ten years, it was gonna cost $534 billion. And so had that been known, I'm sure it wouldn't have passed.

BJORKLUND: I work for politicians but I'm hired to provide them with advice and technical assistance on policy matters. And for me the matters in this bill are very serious on a policy level. And what's upsetting to me having worked on these issues is to see something in law that I think is very dangerous and detrimental to the program and to the people it serves.

CHASE: And the actuary who calculated Medicare's higher estimate, he finally got to share his story with Congress last month.

RANGEL: Did you feel that this type of response from Mr. Scully in any way interfered with your professionalism in terms of what traditionally had been your job as related to responding to members of Congress and their staff?

FOSTER: Yes, sir. I thought it was inappropriate. It struck me as a political basis for making that decision. I considered that inappropriate and, in fact, unethical.

CHASE: Foster's ultimate boss, Secretary Thompson told reporters, "There seems to be a cloud over this department because of this," and announced his inspector general would investigate Foster's charge that he was muzzled.

Tom Scully has since said that he hadn't threatened to fire Richard Foster, that he was only joking. He also said the furor over the exact cost of the Medicare bill was "all politics."