[Senate Hearing 108-923]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-923
 
             EXAMINING THE IMPLICATIONS OF DRUG IMPORTATION

=======================================================================

                                HEARING

                               before the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 14, 2004

                               __________

                          Serial No. J-108-89

                               __________

         Printed for the use of the Committee on the Judiciary



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                       COMMITTEE ON THE JUDICIARY

                     ORRIN G. HATCH, Utah, Chairman
CHARLES E. GRASSLEY, Iowa            PATRICK J. LEAHY, Vermont
ARLEN SPECTER, Pennsylvania          EDWARD M. KENNEDY, Massachusetts
JON KYL, Arizona                     JOSEPH R. BIDEN, Jr., Delaware
MIKE DeWINE, Ohio                    HERBERT KOHL, Wisconsin
JEFF SESSIONS, Alabama               DIANNE FEINSTEIN, California
LINDSEY O. GRAHAM, South Carolina    RUSSELL D. FEINGOLD, Wisconsin
LARRY E. CRAIG, Idaho                CHARLES E. SCHUMER, New York
SAXBY CHAMBLISS, Georgia             RICHARD J. DURBIN, Illinois
JOHN CORNYN, Texas                   JOHN EDWARDS, North Carolina
             Bruce Artim, Chief Counsel and Staff Director
      Bruce A. Cohen, Democratic Chief Counsel and Staff Director


                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Grassley, Hon. Charles E., a U.S. Senator from the State of Iowa, 
  prepared statement.............................................   184
Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah......     1
    prepared statement...........................................   187
Kennedy, Hon. Edward M., a U.S. Senator from the State of 
  Massachusetts, prepared statement..............................   245
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont.     3
    prepared statement...........................................   248
Feingold, Hon. Russell D., a U.S. Senator from the State of 
  Wisconsin, prepared statement..................................   168

                               WITNESSES

Breaux, Hon. John, a U.S. Senator from the State of Louisiana....    12
Catizone, Carmen A., Executive Director/Secretary, National 
  Association of Boards of Pharmacy Boards.......................    36
Disch, Joanne, Board Member, American Association of Retired 
  Persons........................................................    40
Dorgan, Hon. Byron L., a U.S. Senator from the State of North 
  Dakota.........................................................     9
Durant, Elizabeth G., Executive Director of Trade Compliance and 
  Facilitation, Office of Field Operations, Bureau of Customs and 
  Border Protection..............................................    20
Giuliani, Rudolph W., Former Mayor of New York City, and Chairman 
  and Chief Executive Officer, Giuliani Partners, LLC............    49
Hubbard, William K., Associate Commissioner for Policy and 
  Planning, Food and Drug Administration and John Taylor, III, 
  Associate Commissioner for Regulatory Affairs, Food and Drug 
  Administration.................................................    14
Jaeger, Kathleen D., President and Chief Executive Officer, 
  Generic Pharmaceutical Association.............................    43
Nickles, Hon. Don, a U.S. Senator from the State of Oklahoma.....     8
Sanders, Hon. Bernard, a Representative in Congress from the 
  State of Vermont...............................................     6
Schondelmeyer, Stephen W., Professor of Pharmaceutival Economics, 
  University of Minnesota College of Pharmacy....................    41
Wennar, Elizabeth A., President and Chief Excutive Officer, 
  United Health Alliance, bennington, Vermont, and Principal, 
  HealthInova, Manchester Vermont................................    38

                         QUESTIONS AND ANSWERS

Responses of Carmen A. Catizone to questions submitted by 
  Senators Hatch and Leahy.......................................    60
Responses of Joanna Disch to questions submitted by Senators 
  Leahy and Hatch................................................    67
Responses of Elizabeth Durant to questions submitted by Senators 
  Hatch and Leahy................................................    71
Responses of Rudolph W. Giuliani to questions submitted by 
  Senator Hatch..................................................    77
Responses of William K. Hubbard and John Taylor to questions 
  submitted by Senators Hatch and Leahy..........................    83
Responses of Kathleen D. Jaeger to questions submitted by 
  Senators Hatch and Leahy.......................................   113
Responses of Elizabeth A. Wennar to questions submitted by 
  Senators Hatch and Leahy.......................................   126
Questions submitted by Senator Leahy to Stephen W. Schondelmeyer 
  (Note: At the time of printing, after several attempts to 
  obtain responses to the written questions, the Committee had 
  not received a response from the witness.).....................   129

                       SUBMISSIONS FOR THE RECORD

American Pharmacists Association, Washington, D.C., statement....   130
Biotechnology Industry Organization, Washington, D.C., statement.   136
Catizone, Carmen A., Executive Director/Secretary, National 
  Association of Boards of Pharmacy, statement...................   145
Disch, Joanne, Board Member, American Association of Retired 
  Persons, statement.............................................   153
Dorgan, Hon. Byron L., a U.S. Senator from the State of North 
  Dakota, statement..............................................   165
Giuliani, Rudolph W., former Mayor of New York City, and Chairman 
  and Chief Executive Officer, Giuliani Partners, LLC, letter and 
  attachment.....................................................   170
Healthcare Leadership Council, Washington, D.C., statement.......   190
Hubbard, William K., Associate Commission for Policy and 
  Planning, Food and Drug Administration, statement and 
  attachments....................................................   192
Jaeger, Kathleen D., Generic Pharmaceutical Association, 
  President and Chief Executive Officer, Arlington, Virginia, 
  statement......................................................   238
Sanders, Hon. Bernard, a Representative in Congress from the 
  State of Vermont, statement....................................   251
Wennar, Elizabeth A., President and Chief Excutive Officer, 
  United Health Alliance, bennington, Vermont, and Principal, 
  HealthInova, Manchester Vermont, statement and attachments.....   254


             EXAMINING THE IMPLICATIONS OF DRUG IMPORTATION

                              ----------                              


                        WEDNESDAY, JULY 14, 2004

                              United States Senate,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:03 a.m., in 
Room 2156, Hart Senate Office Building, Hon. Orrin Hatch, 
presiding.
    Present: Senators Hatch, Kyl, Leahy, Kohl, Feinstein and 
Feingold.

 OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM 
                       THE STATE OF UTAH

    Chairman Hatch. I am happy to begin this hearing.
    Many Americans, especially senior citizens, are 
understandably seeking more affordable prescription drugs and 
are wondering if drugs imported from Canada and other countries 
may be the answer. Several bills have been introduced on this 
topic, including those by respectively Senator Grassley, 
Senator Gregg and Senator Dorgan, from whom we will be hearing 
shortly.
    The purpose of today's hearing is to begin the Judiciary 
Committee's deliberation over the many issues related to drug 
importation that fall under our Committee jurisdiction. Today's 
hearing will largely focus on whether amending the 
longstanding, carefully crafted law, the Prescription Drug 
Marketing Act of 1988, that established a tightly regulated, 
closed system of prescription drug distribution in our country, 
will open the door to counterfeit and otherwise adulterated or 
misbranded drugs being widely distributed to an unwitting 
public.
    Representative John Dingell, the dean of the House of 
Representatives and a prime sponsor of the 1988 PDMA law, 
succinctly summarized the problem: ``The very existence of a 
market for reimported goods provides the perfect cover for 
foreign counterfeits.''
    Now, we will hear today from the FDA, and the Bureau of 
Customs and Border Protection on the problem of counterfeit 
drugs. The FDA has documented many cases of what appear to be 
FDA-approved imported drugs that, in fact, were contaminated or 
counterfeit, contained the wrong product or the incorrect dose, 
were accompanied by inadequate directions or had outlived their 
expiration date. Unfortunately, the FDA has witnessed a sharp 
spike in such counterfeiting and their partners at Customs will 
tell us that this is not an easy crime to detect or to prevent.
    Later in the hearing, we will hear from Rudy Giuliani, a 
former tough-nosed prosecutor, who will tell us why we should 
think twice before we do away with the protections in current 
law.
    I am mindful that on several occasions the Senate has 
adopted an amendment offered by Senator Cochran that requires 
the Secretary of Health and Human Services to certify the 
safety of imported drugs before they can enter the United 
States. Neither Secretary Shalala nor Secretary Thompson--one a 
Democrat, one a Republican--could make that simple, but 
prudent, certification with respect to the additional risk to 
public health.
    Given the testimony submitted by the Agency today, it seems 
that the safety of imported drugs remains in doubt in the minds 
of the experts at FDA and a strong case can be made that 
Congress would be well advised to retain the protection 
afforded by the Cochran Safety Amendment.
    Frankly, it may be beneficial for Congress to receive the 
report from the Secretary's Task Force on Drug Importation 
before legislation is considered in this area. I recognize that 
the report is not due until after the election and that the 
strategy of the same is to attempt to use Election Day politics 
as leverage for legislation and that sound policy will not win 
out.
    We all want medicines to be safe and affordable, yet we do 
not want to take steps that stifle the innovation that has made 
the United States the world leader in pharmaceutical 
development. Importing drugs from other countries in order to 
take advantage of other countries' price controls has other 
potential repercussions, including the prospect of diminished 
research into future lifesaving treatments. We need to think 
carefully about the long-term effect of this trade-off.
    In this regard, I commend the efforts of Senators Kyl and 
Thomas for a hearing they recently held in the Finance 
Committee that examined the critical, yet almost totally 
overlooked, question of whether U.S. trade policy can be used 
to see that the citizens of our trading partners are paying 
their fair share of pharmaceutical R&D. The fact is that 
American taxpayers are putting up $28 billion of their hard-
earned money this year for biomedical research at the National 
Institutes of Health, while year in and year out many other 
countries essentially free-ride on U.S. research and 
development activities, and then set price controls on the 
approved drug products that are the fruits of this U.S.-
financed research. It is the American taxpayer and consumer 
that is paying dearly.
    Consideration of pharmaceutical importation raises many 
complex issues beyond the problem of counterfeiting. For 
example, concerns have been raised about the manner in which 
Senator Dorgan's bill, S. 2328, affects patent and antitrust 
law. The bill appears to alter current law with respect to 
domestic patent rights once overseas sales occur. One of the 
areas that this Committee should explore as this debate moves 
forward is how the doctrine of international exhaustion of 
patent rights might be altered by the Dorgan legislation.
    I would note that last year this Committee played a 
constructive role in correcting the excesses in the proposed 
changes to patent damages by the Gregg-Kennedy-McCain-Schumer 
bill even after it passed the Senate by an overwhelming 
majority. It can take time to fully analyze and refine 
inherently intricate pharmaceutical-related statutes. For 
example, I think that most objective observers would now agree 
that last year's Senate-passed bill contained a blatantly 
unconstitutional provision relating to declaratory judgments 
that was corrected in large part by this Committee's 
involvement.
    In short, as drug importation legislation is crafted and 
considered, this Committee must remain vigilant in examining 
not just the counterfeit problem, substantial as it is, but 
also patent issues and other matters under our jurisdiction 
such as any potential antitrust and Takings Clause issues. For 
example, the extent to which the Dorgan legislation appears to 
preclude manufacturers from charging exporters market-based 
prices for drugs, if they are higher than the lowest price-
controlled price of the exporting country, deserves the 
scrutiny of our Committee. As a defender of, and believer in, 
property rights, including international property rights, I am 
always leery of systems that impose Government-mandated prices, 
sales or licenses.
    Finally, I must note that I am far from certain that 
importation is the magic bullet that will, instantly and 
without repercussions, lead to lower drug prices. I am 
concerned that importation may eventually provide the bullet in 
a grand-scale game of pharmaceutical Russian roulette.
    I am willing to continue to work with my colleagues on ways 
to make prescription drugs more affordable for the American 
public and to devise ways to do so that do not jeopardize 
patient safety or undermine the incentives for the discovery of 
the next generation of therapies.
    This is an important hearing. Everybody who testifies here 
today is an important human being and person, and we look 
forward to hearing the testimony on both sides of these issues.
    With that, I will turn the time over to the distinguished 
Ranking Member.

  STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM THE 
                        STATE OF VERMONT

    Senator Leahy. Well, thank you, Mr. Chairman. And I agree 
with you that this is an important issue, actually one that has 
profound implications for the American public. Actually, 
Vermonters were among the first to throw a spotlight on this 
whole issue of prescription drug importation. We followed this 
issue closely for years. We have been pushing for a consumer-
friendly solution.
    I am pleased that we on this Committee have the opportunity 
to restate the very compelling case for the establishment of a 
safe legal system to import portable drugs into the United 
States. I wish we might actually have a chance to vote on it on 
the Senate floor. We spend week, after week, after week 
debating issues that we know will go nowhere, but are designed 
to be used in campaign ads. It would be nice to actually debate 
something that might help the American people. Americans pay 
some of the highest prices for prescription drugs of any 
country in the world, despite the fact that many of these drugs 
are made right here. And we talk about research oftentimes as 
taxpayer-supported research that goes into these drugs. 
Prescription drugs become a lifeline not a luxury.
    Now, when we were faced with this dilemma, and with 
Washington's unwillingness to help, many Vermonters and other 
Northern border citizens were among the first to take matters 
into their own hands. Congressman Sanders, who is going to 
testify, started leading trips to Canada 5 years ago, and he 
used it this way. I think, Congressman, you remember having 
these to go. He wanted to let Vermonters safely buy affordable 
medicines on the other side of the border, where struggling 
seniors are able to find savings of anywhere from 50 percent to 
70 percent, and buses like this were powerful early symbols in 
opening this debate. They have been effective, much like 
Senator Dorgan's use of his famous orange rubber pylon in 
demonstrating the lack of security along the Northern border.
    Incidently, another issue, it would be nice if we could 
take time to pass the bill for homeland security. I understand 
the Justice Department now is turning loose a lot of the people 
that are picked up at the border who are illegal aliens because 
they do not have the people to hold them.
    Now, American consumers did not take long to figure out the 
deck is heavily stacked against them. They found ways to vote 
with their pocketbooks and with their bus tickets. But 
meanwhile the White House, big drug companies and many in 
Congress have done all they can to thwart this. Now, those 
trips worked for a while. But for seniors who could not easily 
make the trek across the border, there had to be another 
option. That is where mail-order entered the equation. And now 
mail-order has drastically transformed the importation of 
medicine.
    The fact is, again, to use a symbol of the bus, I think 
Congressman Sanders, and I and everybody else would agree this 
is not the way Americans should have--they should not have to 
get on a bus to go and get affordable medicine prescribed by 
their doctors. And the fact that they have had to resort to 
creative solutions like that should have shamed the Congress 
and the White House into acting long before now.
    In my home State of Vermont, our Republican Governor, our 
Democratic attorney general, the mayor of our largest city have 
all spoken out on the unmet needs of the people of our State, 
but their pleas and those of State and local Governments have 
not been heard. At the same time, American consumers are moving 
ahead with or without us. They know they have been dealt a raw 
deal. They see this raw deal in black and white each month when 
they sit down at their kitchen tables to pay the bills. It 
boils down to access.
    A prescription drug is neither safe nor effective if you 
cannot afford to buy it. And we have to recognize this imposes 
real dangers on American consumers when they cannot follow what 
their doctors have prescribed. And while we have to do more to 
bring affordable health care to the millions of Americans who 
are currently uninsured or do not have good coverage, we cannot 
deny them this immediate market-based solution.
    And for many Vermonters purchasing drugs from Canada, it 
literally means the difference between following their doctor's 
orders or having to roll the dice with their health and 
sometimes with their lives by not having prescription 
medication. It makes a difference for the woman who has maxed-
out her health plan's annual prescription drug benefit only 3 
months into the year. It makes a difference for the elderly man 
on a fixed income who is unable to afford both the heart 
medicine he needs to live and the fuel bills he needs to keep 
warm.
    As regulators and policymakers sit idly by in Washington, 
the pharmaceutical industry, in one of the most obscene moves I 
have seen, moving to cut off supplies to Canadian pharmacies in 
order to prevent Americans from purchasing their drugs at 
affordable prices. I wonder how these people sleep at night. 
Are we prepared to tell those in dire need that they have to go 
back to choosing between paying gas, food and heating bills or 
their medicine?
    We owe it to the American consumers to stop asking whether 
we can set up a system to provide safe importation. Of course, 
we can. We should be coming together without further delay to 
establish a self-financed system and give FDA and Customs the 
resources they need. We put our stamp of approval in allowing 
American consumers to purchase prescription drugs from Canada 
three times over the past 4 years. Of course, it gets blocked 
by the Executive Branch. Let us hope someday we might actually 
do what the American people want us to do. The administration 
fought every effort we made during debate on the Medicare 
prescription drug bill to give some leverage to consumers and 
taxpayers.
    In the last few days, we also have another thing which 
shows what the administration is doing to block this and to 
actually get in bed with the big drug companies. We have some 
very troubling and unpublicized provisions in the proposed Free 
Trade Agreement with Australia. That agreement that is 
negotiated by the White House seems to pose real threats to 
drug importation. It has new provisions not found in earlier 
agreement with other countries. It appears to have been written 
by the pharmaceutical companies.
    We have a lot of capable witnesses this morning, and I will 
put my whole statement in the record, but I know Senator 
Dorgan, Senator Breaux, Senator Nickles here, and Senator 
Dorgan worked so hard on this. And Mr. Hubbard, Mr. Taylor and 
Mr. Durant will be coming here, Mr. Giuliani, Mr. Catizone, Ms. 
Jaeger, Ms. Disch, Professor Schondelmeyer, of course a fellow 
Vermonter, Dr. Elizabeth Wennar, who is the CEO and executive 
director of United Health Alliance in Bennington, Vermont. Her 
organization, which is really reflective of community 
physicians, rural hospitals, nursing homes, home health 
agencies in Southwestern Vermont, is a model for the rest of 
the country. They were a pioneer in importing prescription 
drugs from Canada by mail, and she has done extensive research 
on this.
    Doctor, I thank you for being here.
    So, Mr. Chairman, I will put my whole statement in the 
record, so we can get on with the hearing.
    [The prepared statement of Senator Leahy appears as a 
submission for the record.]
    Chairman Hatch. Thank you, Senator.
    I would like to welcome our first panel of witnesses. 
First, we have one of our colleagues from the House of 
Representatives, Congressman Bernie Sanders. We are happy to 
have you here.
    Representative Sanders. Thank you very much.
    Chairman Hatch. Next to testify will be Senator Don 
Nickles, who has been a strong supporter for protecting the 
health of the general public and has raised some serious 
concerns about imported drugs.
    Next, we will have Senator Byron Dorgan, who is the sponsor 
of S. 2328, the Pharmaceutical Market Access and Drug Safety 
Act of 2004.
    And, finally, we have Senator John Breaux, who led efforts 
on the Senate floor to advocate for consumer safety and drug 
effectiveness.
    It is a diverse panel, and we are happy to have you here 
with us today, and we will begin with you, Representative 
Sanders.

STATEMENT OF HON. BERNARD SANDERS, A REPRESENTATIVE IN CONGRESS 
                   FROM THE STATE OF VERMONT

    Representative Sanders. Senator Hatch, thank you very much 
for allowing me to say a few words. Senator Leahy, thank you 
for your strong efforts on this issue.
    Senator it seems to me that we are dealing with two issues 
here this morning. Number one, at a time when millions and 
millions of Americans are unable to afford the prescription 
drugs they need to stay alive or keep them healthy, the key 
question is whether the American people will be forced to pay, 
by far, the highest prices in the world for the prescription 
drugs they need or whether Congress will finally end that 
obscenity and allow Americans to pay world prices for the drugs 
that they need. That is Issue No. 1.
    And the second issue, equally important, is whether 
democracy will prevail on Capitol Hill or whether the 
pharmaceutical industry, which has spent hundreds and hundreds 
of millions of dollars in recent years, with lobbyists, with 
advertisements, with huge amounts of campaign contributions, 
will be able to continue to force the American people to pay 
these outrageously high prices.
    Senator this is not just about prescription drugs. It is 
about democracy. It is about whether senior citizens in the 
State of Vermont, who live on $12- or $15,000 a year, will get 
justice or whether big money will continue to prevail.
    As Senator Leahy indicated, some 5 years ago, I became the 
first member of the U.S. Congress to take constituents over the 
Canadian border, and we border on Canada, as you know. And I 
will never in my life forget that trip, Senator. I had on the 
bus with me a number of women who are struggling with breast 
cancer, and many of these women took Tamoxifen, which as you 
know is a widely prescribed breast cancer drug, but a lot of 
these folks just do not have a lot of money. And when they went 
to Montreal and were able to purchase Tamoxifen for one-tenth 
of the price that they were paying in the United States, when 
they were able to purchase a drug which was keeping them alive, 
they could not literally believe that reality. They were 
stunned.
    And all over this country, people are asking why is it that 
right across the Canadian border, in Europe, people are able to 
purchase the same, exact medicine, manufactured by the same 
companies, produced in the same factories, why are they able to 
purchase those medicines abroad for a fraction of the price 
that we pay in this country?
    Now, the truth is the evidence I believe is overwhelming 
that the safety issue, the so-called safety issue, is a bogus 
issue. Senator, when we go out to lunch this afternoon, I am 
going to have--and I am happy to take you out to lunch this 
afternoon--and I will treat you to a salad.
    Chairman Hatch. Oh, no, I have to eat a lot if I go to 
lunch.
    [Laughter.]
    Representative Sanders. And we will have some lettuce and 
tomatoes that probably come from Mexico or somewhere in Latin 
America or maybe we will have some grapes that come from Chile 
or we will have some pork that comes from someplace. In the 
United States, we eat food that comes from all over the world, 
from farms and ranches, frankly, that we know very little 
about, and yet what we say is that is not a problem or it is a 
problem that we can deal with because we have confidence in our 
Government agencies to protect the safety of Americans, health 
safety.
    Now, if we can eat food from all over the world, how is it 
that the Food and Drug Administration cannot regulate a handful 
of pharmaceutical industries and track the medicine that goes 
abroad and comes back? And obviously the answer is that in the 
House bill, which by the way, as you know, passed 
overwhelmingly with bipartisan support, in the Dorgan bill we 
have strong legislative language that makes sure that the FDA 
is watching and approving the medicine that comes back into 
this country.
    Now, people say, well, we have a potential safety problem 
here. And it is a problem, but it is a problem that I am 
absolutely convinced the FDA and the U.S. Government can 
address. But, Senator, let us talk about another safety problem 
that does not get the discussion that it needs. Let us talk 
about elderly senior citizens in Vermont living on $12,000 a 
year or $14,000 a year who get sick, and in some cases die, 
because they cannot afford the medicine that they need. How 
many thousands of people are needlessly suffering, and in some 
cases dying, because they cannot acquire the medicines that 
their doctors prescribe?
    Now, I do not know if you have had the same experience that 
I have had. But I talk to physicians in Vermont, and what they 
tell me is why should I bother making out a prescription for a 
patient when that patient cannot fill that prescription? They 
do not have enough money to go to the drug store to buy it?
    So let me just conclude by saying this: The pharmaceutical 
industry is the most powerful lobby in the United States of 
America. They lie very often, they set up phony organizations 
very often, they put out misleading campaign literature very, 
very often, they contribute huge amounts of money to members of 
the House and the Senate. In Europe and all over the world 
parallel trading has been going on for a very long time. It 
seems to me that the evidence is overwhelming that we can stand 
up for the senior citizens of this country. We can stand up for 
the sick of this country. We can lower prescription drug costs 
by 25 to 50 percent by simply saying that for all those folks 
here who believe in free trade for every item in the world, why 
can we not have free trade for prescription drugs?
    Senator Leahy was right. We have been talking about this 
issue year after year, after year. The American people have 
made it clear in poll after poll this is what they want. And 
the spotlight right now is on the U.S. Senate, where I 
understand the votes are there to pass strong reimportation 
legislation.
    Senator let us stand up for the American people. Let us 
have the courage to take on the big-money interests. Let us 
lower prescription drug costs by 25 to 50 percent, and let us 
give the American people the help that they are crying out for.
    Thank you very much.
    [The prepared statement of Representative Sanders appears 
as a submission for the record.]
    Chairman Hatch. Thank you, Representative Sanders.
    Senator Nickles?

STATEMENT OF HON. DON NICKLES, A U.S. SENATOR FROM THE STATE OF 
                            OKLAHOMA

    Senator Nickles. Mr. Chairman and other members of the 
Committee, thank you for having this hearing and for having a 
divergent view of opinions on your first panel, and I expect on 
your subsequent panels as well.
    And I compliment Representative Sanders. He is an 
articulate spokesperson for his party. I happen to have a 
different view, a strongly different view. I do not want to 
import the Canadian health care system or pharmaceutical system 
or price control system into this country. He does. I respect 
that, but I disagree.
    He said that there would be savings of 25 to 40 percent. 
CBO did an analysis of H.R. 2427, the Pharmaceutical Market 
Access Act of 2003, which passed the House last year, and they 
determined the savings would be ``The reduction in drug 
spending from importation would be small,'' 1 percent maybe. 
What would we get for that 1-percent savings? We would get a 
lot of safety problems. We would probably get a lot of 
counterfeit drugs. We would probably have a lot of people 
eventually die as a result of getting the wrong drugs or the 
wrong dosage, and probably more importantly than that, we would 
probably see a real deterioration of the research and 
development that we do in the pharmaceutical in this country.
    Many, many of our colleagues, many, many of our family 
members have had very serious illnesses. Many of their lives 
have been saved because we have advance medicines in this 
country. I am excited to think what advances will be made in 
the next 5 or 10 or 20 years. Whether you are dealing with 
cancer or heart disease or Alzheimer's, you name it, there is a 
lot of progress in a lot of areas that will save lives.
    I am really concerned that if in this effort to save not 25 
or 50 percent, but maybe 1 percent, that we will jeopardize 
safety, and we will also very much jeopardize the improved 
quality of drugs that we are now in the process of making in 
this country. That would be a very shortsighted, and I think a 
very significant, serious mistake.
    So I just wanted to mention that. I am concerned about 
quality. I am concerned about Canada's law. I do not want the 
import Canadian law. I read the Canadian Food and Drug Act, and 
I will just quote Section 37.1. It says, ``This act does not 
apply to any packaged food, drug or cosmetic device not 
manufactured for consumption in Canada and not sold for 
consumption in Canada if it is marked with export.''
    Then, the Canadian deputy health minister stated, ``Canada 
has never stated that it would be responsible for the safety 
and quality of prescription drugs exported from Canada into the 
United States or any other country for that matter. Health 
Canada is first and foremost concerned about the health and 
safety of Canadians.''
    And we dealt primarily with Canada in previous iterations 
of drug importation bills. Now, I believe in Senator Dorgan's 
bill that has expanded to another 19 or 20 countries. I do not 
know what the laws are in those other 19 or 20 countries. I do 
not know that I want to know what the laws are in those 19 or 
20 countries, but I am concerned. Do those countries allow or 
do they provide for safety and quality inspections for drugs 
that are imported into their country for export? Canada did 
not. And so if Canada was importing drugs from other countries 
that maybe had less quality control or maybe from countries or 
companies that had a significant counterfeit experience, but 
yet saved money, would we be importing those drugs? Canada has 
already said it is not going to be responsible for it.
    So I think you could have a real deterioration of quality. 
We will hear from FDA or this Committee will hear from FDA 
shortly. They have repeatedly stated that we could not certify 
for the safety and quality of drugs that are imported from 
other countries. And so there was a reason why we put in 
language in the past that said, yes, importation is okay as 
long as the Secretary would certify that it was safe and cost-
effective.
    Both Secretary Shalala of the previous administration--
Democrat administration under President Clinton--and Secretary 
Thompson under President Bush have said that was not the case. 
Their neck was on the line, that they were responsible, and 
they stated that they could not certify that those drugs would 
be safe.
    I do not think we should ignore FDA nor do I think we 
should set up a system to be so intrusive to mandate companies 
that they have to sell any quantity to these 20 countries. You 
talk about an interference in free enterprise, I cannot think 
of anything. And I also understand that that was in the bill. I 
was reading that in Section 27, ``Restraint of Free Trade,'' 
basically mandating that U.S. manufacturers have to sell 
whatever quantity some importer for export might have in these 
20 countries. That is such a violation, such an intrusion into 
the marketplace. It is almost an invitation for everybody to 
leave the United States. I hope, and expect, that that will not 
become law, and I will work to see that it does not.
    Mr. Chairman, thank you very much for your allowing us to 
testify.
    Chairman Hatch. Thank you, Senator Nickles.
    Senator Dorgan?

  STATEMENT OF HON. BYRON L. DORGAN, A U.S. SENATOR FROM THE 
                     STATE OF NORTH DAKOTA

    Senator Dorgan. Mr. Chairman, thank you very much. I am 
wondering if we should close the loop and tell Congressman 
Sanders that you are not going to have lunch with him?
    [Laughter.]
    Chairman Hatch. Actually, it sounded like a pretty 
interesting lunch--salad, pork, just about everything.
    Representative Sanders. It is on me.
    Chairman Hatch. We will do it someday, Bernie.
    Senator Dorgan. Mr. Chairman, this is a serious issue and 
requires, I think, thoughtful discussion. A man in North 
Dakota, about a week ago, came up to me and said, ``You know, 
my wife has purchased Tamoxifen for 5 years in her battle 
against breast cancer, and she has traveled to Canada during 
the entire 5-year period to buy this Tamoxifen. She received an 
80-percent discount on the price of Tamoxifen by driving across 
the border to buy the same pill, put in the same bottle, made 
by the same company, FDA-approved.'' Five years they did that.
    The question I have is if she drove across the border for 5 
straight years, why should her pharmacist not have been able to 
access that same supply of drugs and pass those savings along 
to that woman who was battling cancer?
    Now, my colleague talks about importing Canadian law. Lord, 
we import everything from everyplace. We import Chinese law, 
incidently. Fruit of the Loom left America, as you know, to go 
to Mexico and China. So, if you are wearing Fruit of the Loom 
briefs, I assume you are importing part of Chinese law with 
whatever conditions existed with the production of Fruit of the 
Loom briefs.
    But this is not about importing anybody's law. It is about 
using a market system to access a product. There is, in fact, a 
price control system in this country. There are price controls 
in the United States. It is just that the pharmaceutical 
industry controls the price, and the question is why should 
there not be a free market that is determining what pricing is 
with respect to pharmaceutical products.
    Now, I hear all of this discussion about how difficult this 
might be. This is a pretty inventive country. Europe has done 
this for 20 years, and today if you are in Germany and want to 
buy a prescription drug from France, no problem. There is 
something called parallel trading within Europe. They do it 
every day. You are in Italy and want to buy something from 
Spain, no problem, parallel trading. They do it, and we have 
had them testify before our committees. It is routine. This is 
not some huge problem. It is routine, and it is done routinely 
in Europe.
    Now, I have gone to a one-room drug store in Emerson, 
Canada with senior citizens. I have seen the savings that they 
receive by buying an FDA-approved drug put in the same bottle. 
So the savings are not a fiction. I have brought two bottles 
with me today, one Canadian and one U.S.
    This happens to be Lipitor, but I could have brought any 
one of a dozen other bottles. Lipitor is the best-selling drug 
in our country. As you can see, not only the same size bottle, 
essentially the same colors. This is the same pill made by the 
same company, made in an FDA-approved plant. The only 
difference is--and, incidently, both made in Ireland--the only 
difference is one was sent to Winnipeg and one was sent to a 
drug store in North Dakota. Well, this costs $1.01 per tablet 
in Winnipeg and this is $1.86 per tablet in North Dakota. Why 
almost double the price for the North Dakota consumer or for 
the American consumer? Because, under the current pricing 
scheme, the U.S. consumers pay the highest prices in the world.
    Senior citizens are 12 percent of our population. They 
consume one-third of our prescription drugs, and many of them 
take multiples of prescription drugs. We all know these are 
wonderful drugs, but miracle drugs offer no miracles to those 
who cannot afford them. So our bill is an attempt to allow 
reimportation under safe conditions.
    I introduced the first bill on this 5 years ago in the U.S. 
Congress, and we are not there yet. The debate is largely over 
in the public's mind. Mayors, Governors, Republicans, 
Democrats, Senators, Congressmen, are all supporting 
importation. It is just those who are at this point blocking it 
that do not yet understand it. The only way this continues to 
be blocked is the White House and the leaders of the House and 
the Senate. The votes exist in both the House and the Senate to 
do this. Mayors and Governors around the country are already 
moving full steam on this issue.
    Now, at midnight, on the floor of the Senate, the Majority 
Leader, Senator Frist, in exchange for my allowing a vote on 
Dr. McClellan, has given me his commitment that we will be 
considering legislation that will lead to the reimportation of 
prescription drugs on the floor of the Senate. I read a 
statement in the paper yesterday that suggested some deviation 
from that, but that is a statement in the paper. I have not 
talked to Senator Frist about his statement, but my expectation 
is that he will keep the commitment he has made to me and that 
we will be voting on this issue in the Senate.
    Again, this is not, Mr. Chairman, a small issue. And I do 
not denigrate the pharmaceutical industry. I understand, if you 
are in that industry, your responsibility to your shareholders 
is to extract the best prices you can, keep the profits as high 
as you can. But the need to take prescription drugs is not an 
option for some. Some take 5, 10, and 15 different prescription 
drugs every day, and especially some senior citizens who are 
reaching that time of life where they have less income simply 
cannot afford it.
    And we believe an approach that is used in Europe routinely 
called ``parallel trading,'' we call it ``reimportation,'' is 
something that could be helpful in bringing down, putting 
downward pressure on the price of prescription drugs in this 
country.
    And so, Mr. Chairman, let me thank you for holding a 
hearing. I know there is wide disagreement about this subject, 
but the fact is this issue is largely over. Ultimately, those 
who are now blocking importation legislation will not be able 
to continue to block it, and we will have reimportation and let 
the market system be the arbiter of these pricing policies on 
all FDA-approved drugs just as it is in Europe. And so, Mr. 
Chairman, thank you very much.
    I have to leave, and my understanding is that you are not 
going to do questions of this panel.
    Chairman Hatch. That is right.
    Senator Dorgan. But let me thank my colleagues as well and 
understand that, while we have a disagreement, it is a 
respectful one, and I hope that this hearing will lead to 
movement on this legislation that Senator Snowe and I and so 
many others have introduced.
    [The prepared statement of Senator Dorgan appears as a 
submission for the record.]
    Chairman Hatch. Thank you. We will not hold any of you here 
who need to leave. We know how busy you are.
    Senator Breaux, you will be our last--
    Senator Leahy. Mr. Chairman, may I just ask consent, we 
have a statement by Senator Kennedy on this.
    Chairman Hatch. Without objection, we will put that in the 
record.

STATEMENT OF HON. JOHN BREAUX, A U.S. SENATOR FROM THE STATE OF 
                           LOUISIANA

    Senator Breaux. We will send each other copies of our 
statements so we can read them as soon as we get back to our 
offices.
    [Laughter.]
    Senator Breaux. Thank you very much, Mr. Chairman, Senator 
Leahy, and Senator Feinstein, and Senator Kyl. Thank you for 
allowing a Congressional panel to present testimony.
    I think I want to make three points:
    First is: Why are we here? Well, we are here because a 
substantial number of American citizens, particularly senior 
citizens, are complaining loudly, longly, and very effectively 
to the Congress of the United States that their prescription 
drugs are unaffordable, that they cost too much. And they point 
out to us that some countries have drugs that are cheaper than 
ours. So what are you going to do about it, Congress?
    Well, Congress has acted. Congress has acted responsibly. 
Just this year, the Congress passed, and the President signed, 
legislation that is going to spend approximately $400 billion. 
For what? To help seniors in particular who have the biggest 
problem be able to afford adequate prescription drugs in a 
timely and safe manner. Four hundred billion dollars of tax 
dollars have been put into a Medicare program to assist 
American citizens to be able to buy their prescription drugs at 
an affordable price. We now have a discount card program in 
effect. If you are a poor senior couple, you can make as much 
as $1,200 a year on going to your prescription drug bill. When 
the program is fully implemented, we are talking about 
prescriptions costing as little as $1 to $3 for seniors who 
have a difficult time paying for their prescription drugs.
    Senator Leahy showed us the Vermont bus. I would suggest 
that people in that bus were not going to Canada to see a 
doctor, even though doctors in Canada are much cheaper. I would 
suggest that people on that bus were not going to Canada to go 
to a hospital, although hospitals in Canada are much cheaper 
than in the United States of America. Why? Why? Because they 
have insurance that covers their hospital bills. They have 
insurance that covers their doctor bills.
    And I would suggest that when the Medicare prescription 
drug legislation fully is implemented, it will, for the first 
time, provide seniors a prescription drug insurance plan just 
like they have today with regard to doctors and hospitals, 
greatly alleviating the need to get on a bus and go to Mexico 
or Canada or import drugs from anywhere else in the world. 
Congress has responded. Congress has acted responsibly. Four 
hundred billion dollars will help solve the problem so that we 
do not force our seniors to go to foreign countries for our 
health care. I think that is very significant.
    Second point. Are drugs cheaper in Canada or in Mexico? Of 
course, they are. Drugs are substantially cheaper in Canada. 
Why? Not because of a U.S. drug conspiracy by the companies to 
sell products cheaper in another country, but because Canada 
and other countries arbitrarily, through Government policies, 
fix prices. They are forcing the United States' consumers to 
pay more for our products in this country because our citizens 
are forced to pick up the burden of what other countries should 
be sharing with us in terms of research and development. We are 
forcing American constituents and consumers to pay more because 
of flawed policies in other countries.
    This is a trade problem, and it should be addressed through 
trade negotiations to tell other countries that we are not 
going to be buying your products or allowing you to market your 
products in this country if you continue arbitrary price-fixing 
policies that we condemn in this country. It is obvious that 
the answer to this problem is not to accept policies of foreign 
Governments that we criticize in our own country.
    I would suggest that when Canada fixes wheat prices, which 
they do through a monopolistic system, do we say, ``Bring all 
the Canadian wheat into the United States with no restrictions 
because, by golly, it is good for our consumers?''
    When the timber that is grown in Canada is fixed because of 
governmental policies, do we say, ``Sell all the lumber that 
you want in the United States at any price you want because it 
is cheaper than we can produce it in this country?'' Of course, 
not.
    When a dairy producer in another country can, because of 
fixed prices and subsidies in a foreign country, can sell milk 
in this country cheaper than we can produce it here, do we say, 
``Bring it all in''? Of course, not. We address it through 
tariffs and trade negotiations, and this is what we should be 
doing as well with regard to pharmaceuticals. We should not 
say, ``Come on in. Bring it in because it is fixed prices, and 
we love it.''
    Not only does this legislation that is before us say, ``You 
can bring it in,'' we actually demand that companies sell more 
than they need for the consumers of Canada so that they can, in 
reverse, bring it back to this country. A great shareholders' 
liability suit would I think prevail in that circumstance. That 
is not the way to address the problem.
    Third and final point. It is a question of safety. My good 
friend Byron Dorgan brought out his two bottles. I am going to 
bring out two bottles as well. This bottle sells for $2 a 
bottle. This bottle sells for about $40 a bottle. It is a high 
blood pressure medicine. It looks the same, does it not? Same 
label. Same good marks on it. Same numbers on it as when it 
expires, when it was produced. It has the same company label on 
it. But this one, the real thing, which costs more, is real. It 
actually solves a person's high blood pressure problem and 
keeps them perhaps from dying because they are taking the 
proper pharmaceutical medicine.
    This, on the other hand, is filled with something that if 
you eat enough, it may fill you up, but it is not going to take 
care of your high blood pressure because it is fake. It has not 
one single safe ingredient in it that this one does. Is it 
cheaper? Yes, it is a lot cheaper, but it is not real. It is 
fake.
    If we get one mad cow that comes across the border form 
Canada, this country goes berserk. We stop imports. Other 
countries stop exports because one cow came over which had mad 
cow disease. Should we not at least say to people who are 
taking medicine to save their lives that they are going to have 
the same belief and certainty that it is safe as if that 
medicine was produced in our country, and FDA said it was safe? 
Why make a special exception if it was produced in another 
country? Drugs come in from Canada, not just those that are 
made in Canada. They are made in Singapore, Ecuador, Thailand, 
Indonesia, Pakistan. Canada is and will become a great funnel 
for foreign drugs which are unsafe, and in many cases 
counterfeit if we take that approach.
    I would suggest that Congress has already done what is 
right. Let us make it work.
    Thank you.
    Chairman Hatch. Thank you. We appreciate all four of you 
and appreciate the testimony each of you have given. As you can 
see, there is a wide disparity of agreement and disagreement 
here.
    We will put a statement by Senator Grassley into the record 
at this point or at the appropriate point, and let me introduce 
our second panel.
    We have Mr. William K. Hubbard, the associate commissioner 
for policy and planning for the Food and Drug Administration; 
Mr. John Taylor, the associate commissioner for regulatory 
affairs for the Food and Drug Administration; and Elizabeth G. 
Durant, director of trade programs for the Bureau of Customs 
and Border Protection.
    We want to welcome all of you here. Senator Kyl, if you 
will take over for a few minutes. I will be right back. I just 
have to step out for a minute. But we will begin with you, Mr. 
Hubbard and then go right across the table.
    I will be right back.

  STATEMENT OF WILLIAM K. HUBBARD, ASSOCIATE COMMISSIONER FOR 
  POLICY AND PLANNING, FOOD AND DRUG ADMINISTRATION, AND JOHN 
  TAYLOR, III, ASSOCIATE COMMISSIONER FOR REGULATORY AFFAIRS, 
                  FOOD AND DRUG ADMINISTRATION

    Mr. Hubbard. Thank you, Mr. Chairman. If it is acceptable 
to the Committee, Mr. Taylor will make a couple of brief 
remarks about FDA's policy in this area, and then I have got 
some exhibits that I would like to show the Committee about 
some of our concerns.
    So, with that introduction, Mr. Taylor?
    Senator Leahy. Excuse me, if I might, Mr. Chairman. Are 
those these things that were just handed to us a couple minutes 
ago?
    Mr. Hubbard. Yes, those are our exhibits, essentially.
    Senator Leahy. I will tell you what, I will read them, if 
that saves you the time, but go ahead.
    Mr. Hubbard. Thank you. Go ahead.
    Mr. Taylor. Thank you. Mr. Chairman and members of the 
Committee, I am John M. Taylor, associate commissioner for 
regulatory affairs of the Food and Drug Administration. With 
me, is Mr. William K Hubbard, associate commissioner for policy 
and planning.
    We appreciate the opportunity to discuss with you issues 
relating to counterfeit drugs and importation of prescription 
drugs into the United States.
    FDA shares with Congress its concern for senior citizens 
and other patients who have difficulty paying for prescription 
drugs. That is why the administration worked closely with 
Congress to enact the new Medicare prescription drug law, and 
that is why FDA has made it a priority for its medical and 
scientific experts to establish and expand programs that 
promote access to innovative treatments and affordable 
medications.
    Nonetheless, FDA continues to have serious public health 
concerns about the importation of drugs outside the current 
safety system established by Congress under the Food, Drug and 
Cosmetics Act. When it comes to buying drugs, absent our 
existing regulatory protections, FDA has consistently concluded 
that it is unable to endorse a buyer beware approach.
    Currently, the new drugs market in the United States, 
regardless of whether they are manufactured here or in a 
foreign country, must be approved by FDA based on demonstrated 
safety and efficacy. They must be produced in inspected 
manufacturing plants that comply with good manufacturing 
practices, and the shipment and storage of these drugs must be 
properly documented and, where necessary, inspected.
    Unfortunately, the drug supply is under unprecedented 
attack from a variety of progressively more sophisticated 
threats. This is evident in the recent increase in efforts to 
introduce counterfeit drugs in the United States market.FDA's 
counterfeit drug investigations have risen fourfold since the 
late 1990s. Although once a rare event, we are now seeing 
greater numbers of counterfeit Finish drugs being manufactured 
and distributed by well-funded and elaborately organized 
networks.
    At the same time, inadequately regulated foreign Internet 
sites have also become portals for unsafe and illegal drugs. 
Fifteen years ago, after safety concerns were identified with 
the importation of significant volumes of adulterated and 
counterfeit drugs, Congress responded by passing the 
Prescription Drug Marketing Act. History has shown that the 
protections provided by Congress, coupled with FDA's regulatory 
system, have worked well. However, the very concerns that 
prompted Congress to pass the PDMA still exist today.
    For example, FDA recently worked with domestic and 
international authorities to shut down a website advertising 
FDA-approved and safe European birth control pills and other 
drugs, but they were actually importing ineffective counterfeit 
products.
    In addition, the Agency, in February issued a press release 
warning the public about an Internet site selling contraceptive 
patches that contained no active ingredient. The website that 
sold these products appeared to be a United States site. 
However, FDA determined that it was registered in New Delhi, 
India. FDA sought and obtained the cooperation of the U.S.-
based Internet service providers in discontinuing this site and 
three other related sites that were purporting to sell FDA-
approved products, but in fact were selling drugs from unknown 
sources and of unknown safety and efficacy.
    FDA believes that these four websites are indicative of the 
dangers consumers face when they purchase drugs off the 
Internet. Evidence strongly suggests that the volume of these 
foreign drug importations is rising steadily, presenting an 
even more difficult challenge for Agency field personnel at 
ports of entry, mail facilities and international courier hubs.
    Consumers are exposed to a number of potential risks when 
they purchase drugs from foreign sources or from sources that 
are not operated by pharmacies properly licensed under State 
pharmacy laws. These outlets may dispense expired, sub-potent, 
contaminated or counterfeit products, the wrong or 
contraindicated product and incorrect dose or medication 
unaccompanied by adequate directions for use. The drugs may not 
have been packaged and stored under proper conditions to 
prevent degradation, and there is no assurance that these 
products were manufactured under good manufacturing practice 
standards.
    When consumers take such medications, they face the risk of 
dangerous drug interactions and/or suffering adverse events, 
some of which can be life-threatening. More commonly, if the 
drug are sub-potent or ineffective, patients may suffer 
complications from the illnesses that the prescriptions were 
intended to treat without ever knowing the true cause.
    To help assess the extent of the problem posed by imported 
drugs, FDA and Customs conducted import blitzes at four 
international mail facilities last summer. We found that 88 
percent of the drug products we examined were unapproved or 
otherwise illegal. Examples of the potentially hazardous 
products encountered during the blitz included drugs never 
approved by FDA, drugs withdrawn from the market, drugs 
requiring careful dosing, drugs without adequate labeling, 
drugs with clinically significant drug interactions, drugs 
inappropriately packaged, drugs requiring initial screening 
and/or close physician monitoring and controlled substances.
    Clearly, many of these imported drugs may pose safety 
problems.
    Chairman Hatch. What percentage was that again?
    Mr. Taylor. Eighty-eight percent.
    Chairman Hatch. Eighty-eight percent.
    Mr. Taylor. Yes.
    Chairman Hatch. In other words, you found 88 percent to 
have some problems one way or the other.
    Mr. Taylor. Well, what we found were 88 percent of the 
products were unapproved, and then a subset of those had the 
safety problems that I just outlined in my testimony.
    Chairman Hatch. Do you know what the subset percentage is?
    Mr. Taylor. No, but I can certainly get that for you, sir.
    Chairman Hatch. Okay.
    Mr. Taylor. In conclusion, FDA firmly believes that we can 
and should do a better job of making safe and innovative drugs 
more affordable in the United States, but to succeed we need to 
find safe and affordable solutions that do not put consumers at 
risk. The standard for drug review and approval in the United 
States are the best in the world, and the safety of our drug 
supply mirrors these high standards.
    We believe that U.S. consumers should not have to settle 
for less. FDA would urge Congress to ensure that any change to 
our drug regulatory system does not require consumers to give 
up the gold standard in drug safety that they have come to rely 
on. FDA's scientists, doctors, health care experts and 
regulators must be empowered to protect us from bad medicine. 
We owe it to patients today and tomorrow to make our medical 
future brighter, healthier and more affordable.
    Thank you for this opportunity to testify. We look forward 
to responding to any questions that you may have, and I will 
now turn to my colleague, Mr. Hubbard.
    Mr. Hubbard. Senator Hatch, you know from your long 
experience with FDA that one of our main missions is access to 
pharmaceuticals for citizens, and we are very proud of the fact 
that, thanks to recent laws passed by Congress, Americans have 
access to the important new breakthrough drugs before anyone 
else in the world. But FDA's job is not a price-control job, it 
is a safety job, and we do have great concerns about 
importation as it currently exists because we do not believe we 
can safely look at these drugs. And I would like to show you a 
few examples.
    When drugs come in, in huge volume into mail facilities, 
they come to a Customs inspector like this and are X-rayed to 
examine to determine whether there were are drugs in there. 
Then, they go into these bins, in massive numbers per day, and 
there might be one FDA inspector there who is incapable of 
opening all of these packages and making medical judgments 
about the quality of these products.
    And, in fact, we also believe, because of this volume, 
enormous numbers of controlled substances are coming in. This 
mountain of controlled substances up at JFK is just a few 
weeks' worth that Customs has held pending disposition.
    The Agency is totally incapable of screening all of these 
small Internet purchases. Now, Internet purchase of drugs can 
be fine if done legally. We are all familiar with legal 
Internet sites, such as cvs.com, and if you ask where are these 
people, for a legitimate site, it is easy to find out. You can 
inquire. Where do they say they are? They are in Rhode Island. 
Who runs that site? We know the name of the person. Where is 
that person? We know, by tracing back down the pipeline of the 
computer Internet system, that they are in Rhode Island. So it 
is very transparent.
    We recently did a survey, however, of a thousand sites that 
appeared to be Canadian and found all sorts of problems that 
these sites are carrying out, such as selling controlled 
substances and such as saying they are FDA approved, when they 
are not. And of particular concern to me is the fact that they 
ask patients to disclaim any liability. They say, ``If you are 
injured, we are not responsible. And if you do decide to sue 
us, you have got to come to our country and sue us there.''
    And that tells us that you have got a business that is not 
operating the way an American business was. No American drug 
store would ask you to sign away your rights before you picked 
up a drug in an American drug store.
    Chairman Hatch. So, now, when you say there are 47 sold 
controlled substances, are these sold over-the-counter or--
    Mr. Hubbard. No, they are sold over the Internet. They 
allow you to purchase a controlled substance from the Internet, 
and then it arrives in the mail--
    Chairman Hatch. Is that with a doctor's prescription?
    Mr. Hubbard. In some cases, yes, but in many cases no 
prescription at all is required.
    Chairman Hatch. So anybody can get these controlled 
substances.
    Mr. Hubbard. Absolutely. And we understand that teenagers 
are, in fact, using their parent's credit card to do just that.
    Chairman Hatch. So, if somebody wanted to get Percocet or 
Percodan or--
    Mr. Hubbard. Absolutely, Vicodan, whatever, absolutely, 
Oxycontin.
    And let me look at a couple of these sites that we 
examined. This is one, Pay Less Canadian Drugs. Looks fine, 
does it not? It has got all the right messages about being in 
Canada. So we ask, well, where do they say they are? They say 
they are in British Columbia. Well, when we go back and do the 
investigation of who they are, this one is registered to a 
gentleman named Anton Dvorak, the same name as the famous 
composer. Well, where is Anton Dvorak? Well, he is in the Czech 
Republic. You know, why, if that is a legitimate site, are they 
registered in the Czech Republic?
    Another one, Canada Drug Store. When you ask, well, where 
do they say they are, they are in Winnipeg, but who is the 
registrar there? It is a Mr. Thuong. Where is Mr. Thuong? Well, 
he is in Vietnam. Now, why is he in Vietnam if this is a 
Canadian business? What is going on here?
    Now, these sorts of problems suggest a sketchiness that 
raises real concerns for us. And in many of these sites, just 
in the last few weeks, they have decided not to sell drugs from 
Canada. They have decided to sell other things, such as 
sunglasses. Again, it raises questions about the legitimacy of 
these businesses.
    Now, here is one that we took particularly interest in 
because it appeared to be selling Chinese counterfeits, because 
when we searched for the Internet site, we learned that they 
were registered in Dandong, China, which is just on the border 
of North Korea. So we ordered the drugs from this business. 
When they came in, they had a postmark address of Dallas, 
Texas, but the return address was an address in Miami, Florida. 
Well, we asked the credit card company, well, who did you pay 
for this, and they paid a business on the Island of St. Kitts. 
And then we looked for a reorder number and found an 800 
number, and we said, well, where is that 800 number, and we 
tracked it down to the country of Belize.
    Well, now the important thing about this list is Canada is 
not involved at all, although the citizen was told you are 
getting a Canadian generic, and in fact none of those drugs on 
that website sell--there are no Canadian generics for those 
drugs.
    So we actually purchased these drugs and did an analysis of 
them--of Lipitor, Viagra, and Ambien, Ambien being a powerful 
sleep aid. We found that, in fact, there was some drug in 
there. These people had attempted to make the real drug. But in 
potency, they all failed, and in the case of Ambien, some of 
the tablets were more than double strength. So a senior citizen 
taking this powerful sedative could take one thinking they were 
getting the right thing and may not wake up at all because they 
are getting way overdosed with that drug, and of course 
underdosed with the others.
    They, also, these drugs did not properly dissolve in some 
cases, which meant the body was not able to take them up and 
have the medicinal effect. And we found impurities, which is 
not uncommon for foreign drugs--cadmium, lead, things like that 
are a problem.
    Here is an example of the dissolution issue. This is a 
calcium tablet that if you did a chemical analysis of would 
show as the very same drug as the approved marketed product, 
the legal product. But because it was made improperly, it did 
not dissolve. And as you can see, these tablets are going 
through this woman's body completely undissolved. She is eating 
rocks, but the chemical analysis would show this is a good 
drug. And that is an example of why dissolution to us is very 
critical. You take the pill, it dissolves in your stomach, 
enters your bloodstream. It has the medicinal effect you are 
looking for.
    Now, I will close with a couple of comments about 
counterfeiting. These are dyes that fake counterfeiters use. 
They are very similar to what the Secret Service finds for 
counterfeit currency. People make up an imprinting dye. As you 
can see, there is the Pfizer name upside down. You pour your 
chemical in, and press it, and it makes the tablet. There is 
the other side of the tablet showing the code for the Pfizer 
brand.
    And then we see at JFK these things pouring in from 
countries all around the world, looking just fine, because they 
were made on a machine that could duplicate the real drug.
    And then, lastly, this is an example of one of the 
investigations Mr. Taylor has recently completed of a drug 
called Serostim for AIDS patients. As you can see, the 
authentic and the fake drugs were virtually indistinguishable. 
In fact, the drug companies tell us in some cases they cannot 
even tell themselves, on any sort of visual examination, 
whether a counterfeit drug is real or not. They have got to 
take it back and do sophisticated testing. So the possibility 
of counterfeiters using importation is a real concern for FDA.
    So, with those remarks, Mr. Chairman, I would like to take 
questions or turn to Ms. Durant.
    [The prepared statement of Mr. Hubbard appears as a 
submission for the record.]
    Chairman Hatch. Ms. Durant?
    Could I just ask one question? Those dyes look like they 
were contaminated themselves.
    Mr. Hubbard. Well, and, Mr. Chairman, I think we could show 
you, if there was time, photographs of some of these 
organizations and where they operate that are just 
unbelievable, in back-room toilets, using contaminated water. 
We ran across one recently that was a fertility drug for women 
seeking to have a child, and they used contaminated water. So, 
instead of getting the proper drug, the woman would be 
injecting into her veins bacteria which would give her 
septicemia, blood poisoning. In other words, she would be 
killing herself. And that is sort of the level at which these 
people operate. Not only are they not selling a legitimate 
drug, but they are selling a dangerous drug. But visually that 
drug looks just fine. It is a clear liquid in a vial. It is 
packaged well. It is a very good product in terms of its 
appearance, but a very dangerous product in terms of its 
reality.
    Chairman Hatch. Ms. Durant?

 STATEMENT OF ELIZABETH G. DURANT, EXECUTIVE DIRECTOR OF TRADE 
COMPLIANCE AND FACILITATION, OFFICE OF FIELD OPERATIONS, BUREAU 
                OF CUSTOMS AND BORDER PROTECTION

    Ms. Durant. Mr. Chairman, members of the Committee, thank 
you for this opportunity to testify. I am Elizabeth Durant, 
Director of Trade Compliance and Facilitation in the Office of 
Field Operations at the Bureau of Customs and Border 
Protection.
    Today, I would like to discuss with you CBP's efforts to 
address the ever-increasing trend of personal and bulk 
importation of pharmaceutical products and controlled 
substances into the United States. Although the main focus of 
the CBP has shifted to protecting the United States from 
terrorist attacks, we also enforce over 400 requirements from 
more than 40 other Federal agencies at U.S. borders. These 
include the laws that prohibit the importation of illegal or 
unapproved pharmaceuticals that fall under the jurisdiction of 
the Food and Drug Administration, as well as those controlled 
substances that are under the jurisdiction of the Drug 
Enforcement Administration.
    The issue of U.S. consumers buying prescription drugs from 
foreign sources has become a significant concern. A growing 
number of Americans obtain their medications from foreign 
locations. However, the safety of drugs purchased from these 
sources cannot be ensured. Drugs produced outside the United 
States may be counterfeit. Counterfeiting can apply to both 
brand name and generic drugs, where the identity of the source 
is deliberately and fraudulently mislabeled in a way that 
suggests that it is the authentic approved product.
    The CBP is concerned with three avenues by which 
pharmaceuticals are imported: those that are purchased through 
the Internet and shipped through our international mail or 
express courier facilities, those carried into the United 
States by individuals transiting our land borders and bulk 
shipments of adulterated or counterfeit pharmaceuticals.
    During the course of the past year, we have taken several 
steps to address each of these areas. Millions of packages come 
through the mail and express courier facilities every year. 
Thousands of packages, particularly in the mail, are found to 
contain illegal and unapproved pharmaceuticals. We also 
estimate that 10 million people cross the land border annually 
carrying unapproved products.
    Additionally, we have found bulk pharmaceutical shipments 
that were attempted to be imported through the mail, 
potentially indicating that these products could be making 
their way to pharmacy shelves. In order to address what is 
clearly a growing threat to the public's health, CBP has been 
working cooperatively with the DEA, the FDA, our own U.S. 
Immigration and Customs Enforcement, ONDCP and the Department 
of Justice attorneys in an interagency working group directed 
at addressing issues related to the importation of prescription 
drugs and miscellaneous pharmaceuticals.
    The working group has conducted regular meetings since 
January 2004 and has achieved several key accomplishments since 
its inception, including conducting a joint interagency 
enforcement operation known as Operation Safety Cap, which was 
designed to look at passenger importations of pharmaceuticals 
from Mexico. Operation Safety Cap was an interagency plan to 
enforce the laws related to the importation of prescription 
drugs at the border.
    Both FDA and ICE participated in the enforcement operation. 
The plan began with a public outreach, followed by an 
enforcement effort at the Ports of Andrade, Yuma, Tecate, San 
Luis and Calexico. The purpose was to evaluate compliance with 
laws related to the importation of prescription drugs.
    During the course of the operation, there were several 
troubling instances of returning U.S. residents receiving 
different medications than the ones they thought were being 
prescribed. In one instance, there was no active ingredient on 
the unmarked, undeclared bottle that was brought into the U.S. 
The overall seizure detention rate was nearly 7 percent of the 
number of individuals inspected, which was significant enough 
to warrant additional enforcement efforts at our land borders.
    Based on an operation nicknamed Operation Safeguard that we 
have carried out over the last couple of years, we have found 
the volume of pharmaceuticals shipped through international 
mail to be enormous. We have also found a significant number of 
these products do not contain an active pharmaceutical 
ingredient, but merely contain substances such as starch or 
sugar.
    Other problems include expired materials, unapproved 
products, improper use instructions and products made in 
facilities not under proper regulation. The vast majority of 
the pharmaceuticals that enter the United States via the mail 
do so in a manner that, according to FDA, violates present FDA 
and other requirements.
    It is clear that the importation of pharmaceuticals and 
controlled substances remains an overwhelming problem for CBP. 
We are working with the FDA, the DEA, ICE and other regulatory 
agencies to develop a more practical and workable approach to 
solve this huge problem.
    I want to thank you and the members of the Committee for 
considering Customs and Border Protection in your review of the 
importation of pharmaceuticals and controlled substances. This 
is an issue that speaks directly to our mission. We will 
continue to make every effort possible to work with the 
Congress and our fellow inspection agencies to address the 
health and safety concerns of the American people.
    Thank you, Mr. Chairman. I look forward to responding to 
any questions.
    [The prepared statement of Ms. Durant appears as a 
submission for the record.]
    Chairman Hatch. Well, thank you. I appreciate all that you 
three do and other people at your respective agencies do to try 
to protect the health and safety of our people in this country.
    Just a few questions. I take it that you do not think that 
checking lettuce, and pork, and some of the items that 
Congressman Sanders said were so easy to do is the same as 
checking for pharmaceutical ingredients.
    Mr. Hubbard. It is a far different matter, Mr. Chairman, 
but perhaps Mr. Taylor could elaborate on that.
    Mr. Taylor. Sure. It is a challenge, and it is not easy to 
do. However--
    Chairman Hatch. Well, he seems to think all you have got to 
do is just do what you do for lettuce, and pork, and other food 
products that come into this country from all over the world. 
And if you can do it for them, why can you not do it for 
pharmaceuticals?
    Mr. Taylor. Well, I think an important point to keep in 
mind is that a few years ago Congress passed the Bioterrorism 
Act, and in that act they provided strengthened statutory 
powers, both for the Bureau of Customs, and Border Protection, 
and FDA, to ensure that the food that is coming in from 
overseas is indeed safe.
    One of the provisions requires prior notice of food before 
it is shipped here to the United States so that both FDA and 
Customs have an opportunity to check any packages that look 
like they could be potentially dangerous. It also provides 
requirements that all food processors throughout the world who 
are planning to ship food to the United States are registered, 
so that we have an inventory of facilities that we need to 
inspect if, Heaven forbid, there is a recall or something went 
awry with the food, and we need to determine the ultimate 
source.
    So we have additional authorities that help us with this 
difficult task of dealing with imported food.
    Chairman Hatch. I suspect it is a lot easier to check food 
substances than it is to check complex--
    Mr. Taylor. That is absolutely right. A mere visual 
inspection of a drug, as each of us have discussed today, does 
not ensure that a product is safe and effective or that it is 
going to work as intended. One of the things that concerns the 
Agency is that the counterfeiters that we have seen recently 
have become more savvy not only in terms of how they 
manufacture the product, but also in terms of how they label 
the product and how they introduce that product into domestic 
commerce.
    Mere visual inspection is not going to be able to discern 
in many cases whether a product is the authentic innovator 
product or counterfeit product.
    Chairman Hatch. I have two bottles. This one is fake. This 
one is real. The fake is much heavier, probably two or three 
times heavier than this one. It could be lead pills, as far as 
I know. I mean, the fact of the matter is, is that it is 
clearly fake, and it clearly could damage somebody who is 
relying on the efficacy and the safety of these drugs. That is 
what the FDA is all about is safety and efficacy.
    And some have said, well, we can just give you enough 
money, and enough facilities, and enough people, and you ought 
to be able to solve these problems for us. What do you think 
about that, Ms. Durant?
    Ms. Durant. Well, you saw the boxes. I would like to add to 
what Mr. Taylor said about the lettuce. They are largely 
commercial shipments. They are in commercial quantities, in 
commercial shipments, and they are manifested, and automated, 
and brought in by brokers, and commercial operations. And we 
have a much better way to target suspect shipments because of 
our automation.
    Our findings, at least in CBP, with this problem and one of 
the challenges for us is that most of this stuff is coming in 
for individuals, number one, of which there are many more 
smaller ones, and coming in through the mail, where we do not 
have a manifest. And so our targeting is--
    Chairman Hatch. Coming in from hidden countries, and hidden 
distributors--
    Ms. Durant. Correct.
    Chairman Hatch. --and people that you have no control over 
or any kind of--
    Ms. Durant. And no method of automating rules, and 
targeting and those things that we use with commercial 
shipments.
    To answer your direct question, just the visual that was 
presented by Mr. Hubbard can show you that it would take 
millions of people, and then we would probably still be holding 
up a lot of the mail in order to segregate it. It is an 
overwhelming problem in our mail courier facilities at this 
point.
    Chairman Hatch. Now, in your testimony, Mr. Hubbard and Mr. 
Taylor, you maintain that the public may be assured that the 
quality of drugs that consumers purchase from U.S. pharmacies 
remains high, but that the FDA cannot offer the same assurances 
about the safety, and efficacy, and quality of drugs purchased 
from foreign sources. That seems to be your testimony.
    So what happens if a drug importation bill is signed into 
law this year? How will the FDA overcome that obstacle of 
reassuring the public that drugs purchased from foreign 
entities or Governments will be safe and effective? And how 
much will it cost the Federal Government to guarantee the 
safety of drugs imported into this country?
    Mr. Hubbard. Well, unfortunately, Mr. Chairman, the bills 
that are before Congress now, we fear, will not solve that 
problem, will not give FDA adequate authority to assure the 
safety of those products. So we would not be able to give the 
consumer the level of confidence that they would get. I mean, 
at an American drug store today, you have got a 99.9-percent 
chance of getting a good drug, virtually 100 percent. With 
these foreign purchases, we do not even know, but it is 
certainly not 100 percent, and it is a crap shoot.
    Mr. Taylor. And, sir, I also might add that if, indeed, 
Heaven forbid, there is a problem with the drug domestically, 
we obviously have the ability, because we have jurisdiction 
here in the United States, to follow up, determine where that 
product originated from, we have an opportunity to go to 
District Court and bring civil or criminal remedies against 
whoever is responsible for introducing the counterfeit drug or 
the unapproved drug into the marketplace.
    For many of these products that are coming in, in these 
individual packages from overseas, one of the main challenges 
is figuring out where those products come from. We obviously 
have several counterfeit drug cases that have originated from 
overseas. It is enormously difficult to figure out where the 
products originate from, for the reasons we have discussed. And 
then even if you do identify who is responsible, without the 
help and concurrence of the regulatory body of a country where 
the suspects are identified, we do not have the jurisdiction to 
address them the way we do for those defendants who are located 
here in the United States.
    Chairman Hatch. Just one last question. When we did this 
once before, they put $23 million to defray the costs of 
protecting all of America from these type of knock-offs and 
counterfeits. What do you think about that? We could put up 23 
million bucks. That is a lot of money, is it not?
    Mr. Hubbard. We once calculated that you could give us the 
U.S. Army, us and Customs, to look at this stuff, and it 
probably would be inadequate because you have got to literally 
open millions of small packages, and then you have got a bottle 
of pills in your hand. And so now that you have gone to all of 
the trouble of opening the box, and opening the bottle of pills 
to see what is in there, it does not tell you much.
    Chairman Hatch. And if they look the same, they may be 
sugar pills, they may be lead pills--
    Mr. Hubbard. That is right.
    Chairman Hatch. --they may be the real thing.
    Mr. Hubbard. Right. And then how do you know at that point 
that you opened it, it is any good? As you say, it could be a 
sugar pill. So you could spend a thousand dollars testing one 
pill and far outweigh the benefit of that pill. So that is the 
dilemma with these sorts of personal imports.
    Chairman Hatch. Well, my time is up.
    Senator Feinstein?
    Senator Feinstein. Thanks, Mr. Chairman.
    I must say I think your testimony was very powerful this 
morning, and it certainly concerns me. I come from California. 
A lot of people go to Mexico for their drugs because they are 
cheaper, specifically Tiajuana. I wanted to ask you whether 
that presented the same problem.
    I also want to just make a couple of things clear. You have 
one chart that says Canadian generics. This is off the 
Internet; is that right?
    Mr. Hubbard. Yes. That arrived by so-called spam e-mail to 
one of our employees. So we traced it back to that site to 
determine where it was. And as I said, the registrant of the 
Internet site was in China, but we believe the drugs actually 
come from the South American country Belize.
    Senator Feinstein. But they are sold, all of these drugs 
then on this site are sold in Canada.
    Mr. Hubbard. No, there is no Canadian connection at all. 
The point of that, Senator Feinstein, is--
    Senator Feinstein. It says, ``Canadian generics.''
    Mr. Hubbard. I know it does, and it is a lie, and that is 
the point because these websites pretend to be something else. 
The consumer is led to believe they are getting a Canadian 
generic of a drug regulated in Canada that is the same as they 
would get here. It is a total falsification. There is no 
Canadian connection, to our knowledge, with that website.
    Mr. Taylor. And, Senator, what has happened is that the use 
of the term ``Canadian'' has become a marketing tool for many 
of these Internet sites, knowing that consumers are more likely 
to purchase a product if it is from what they believe to be a 
Canadian website, as opposed to a Thai website or a Nigerian 
website. And in actuality, what we are finding in some of these 
websites is that the products are originating from countries 
all over the world just like the contraceptive patches that I 
noted earlier in my oral testimony.
    Mr. Hubbard. And that is not unique, Senator. There are 
many sites that pretend to be in Canada and are not.
    Senator Feinstein. Well, that is I think a real problem.
    Let me ask you, you know, clearly, I think you know what 
the issue is. You know what people are doing today. They are 
probably going to continue to do it. I mean, it is easy for me 
to say because I would not want to take a chance with one of 
these drugs. But I think if people do not have money, and they 
are desperate, they may. The question is what can we do about 
it?
    And my question is, is it possible to take high-selling 
drugs, say, like Lipitor and work out an agreement with the 
Canadians that if it comes through Canada that the Canadian FDA 
test it before it goes on the market for American use; is that 
a possibility?
    Mr. Hubbard. We have said repeatedly that for us to be able 
to assure the safety of these products, FDA would need to be 
given the statutory authority and the resources to assure the 
consumer that those are good drugs. Your suggestion may be one 
way. We have not examined that. I do not think the Canadians 
would necessarily want to take responsibility for American 
citizens, but--
    Senator Feinstein. But I would think the Canadian people 
would be a little upset when they see drugs being pushed as 
Canadian generics that are not. That is fraud. I mean, I am 
amazed. Why does the Canadian Government not crack down on 
that? This is where life is affected. You just pointed out 
where you have tested Ambien. It is sometimes double the dose. 
There is no consistency.
    Mr. Hubbard. That is right.
    Senator Feinstein. Somebody could die by taking an Ambien 
pill. It would seem to me that the Canadian Government should 
be interested in that. It would also seem to me that we ought 
to clearly bring this to the attention of the Canadian 
Government. My question is have we?
    Mr. Taylor. Yes.
    Senator Feinstein. And what is the response?
    Mr. Taylor. I think it is fair to say that we have had a 
modest level of success in working with them, and they 
certainly acknowledge the concerns that we have. The blitz 
results that I noted earlier and the background information 
that we found, we shared with the Canadian Government.
    And to the extent that there is not greater involvement on 
their part, I think it is largely a question of competing 
priorities and resources and the fact that their organizations 
are focused on protecting Canadian citizens, just like FDA is 
focused on protecting U.S. citizens, and is not focused on 
ensuring that products that are coming to the United States are 
safe and effective.
    Senator Feinstein. No, but would these drugs not be 
available to Canadians as well?
    Mr. Hubbard. No. That website has no Canadianconnection at 
all. It only pretends to be in Canada.
    Mr. Taylor. That is right. It is marketed here to U.S. 
customers. It has no Canadian connection at all.
    Senator Feinstein. Wow.
    Mr. Taylor. It just uses the Canadian name, quite frankly, 
as an imprimatur of legitimacy so that customers--
    Senator Feinstein. Well, let me ask you this. What do we do 
about going out and getting these registrants who have 
falsified and perpetrated a major fraud on Americans?
    Mr. Taylor. Well, we open up criminal investigations, and 
we often work with our colleagues at Customs, but they are 
enormously complex because, using the example in my oral 
testimony the contraceptive patches, with the Internet 
technology being what it is, and even Mr. Hubbard's illustrates 
this, you need to--your preconceived notions about where the 
product originates changes as you move from one website link, 
to a website link, to another website link. The contraceptive 
patches, there were four or five website links between the site 
that was selling the drug and the site that was registered.
    So we do work to try and determine who is responsible and 
bring them to justice. It is just that the investigations are 
very complex and often require the cooperation of the foreign 
body where the site is registered. And we have had some 
success. It is just very difficult to do.
    Senator Feinstein. Well, if we have an extradition treaty 
with that nation, it would seem to me the individual could be 
extradited.
    Mr. Taylor. You are absolutely right, and they are. 
However, for some of our defendants, they are residing in 
countries where we do not have extradition treaties, knowing 
that we do not have extradition treaties, which is of course 
one of the challenges of bringing these people to justice.
    Senator Feinstein. Well, let me ask you this. Does the FDA 
make this information available on these sites or other sites 
that people should not use this site?
    Mr. Taylor. Yes, we do. The information that Mr. Hubbard 
discussed was part of an FDA talk paper that was released last 
night warning people about this site. In the context of the 
contraceptive patches, not only did we put out two talk papers 
warning people about purchasing contraceptive patches, as well 
as any other products in those websites, we also put up links 
to our talk papers so that people could see what the actual 
websites look like.
    We have an on-line, what we call an on-line pharmacy link 
at FDA's website, and it is one of the most-often used parts of 
our website. It gives people an opportunity to see what cases 
we have brought, what websites pose potential concerns. It also 
gives people guidance on how to purchase products over the 
Internet safely.
    Senator Feinstein. Let me ask you one other question. These 
drugs here that you have--Ambien, Lipitor, Nexium, Paxil, et 
cetera--are not like Tamoxifen, for example. Is there evidence 
of bogus Tamoxifen?
    Mr. Hubbard. Absolutely. As a matter of fact, one of the 
examples that Senator Dorgan gave was of a woman with breast 
cancer who would travel to Canada to get Tamoxifen. And that 
may be an accurate example that he gave.
    We have another example of a woman in Oregon who purchased 
Tamoxifen over the Internet from a Canadian website to treat 
her breast cancer. They did not give her Tamoxifen. They gave 
her something different, and she continued to take it. Her 
breast cancer continued to grow, and she did not know that she 
had been defrauded by this Canadian drug store.
    So, for every example of a good drug, we can show you an 
example of a bad drug.
    Senator Feinstein. Now, supposing the American goes through 
a bona fide Canadian drug store--
    Mr. Hubbard. Well, in this case, it was a licensed Canadian 
drug store. The Canadian Government is not going to assure the 
safety of drugs for Americans. That is not their job. They have 
a very small FDA--
    Senator Feinstein. A Canadian could have bought that drug 
in a--
    Mr. Hubbard. Right.
    Senator Feinstein. Well, does not the Canadian Government 
assure the safety of drugs for its own citizens?
    Mr. Hubbard. Yes, I think generally they do. And I think--
    Senator Feinstein. Then, how would phony Tamoxifen be sold?
    Mr. Hubbard. Well, in some cases, the Canadian pharmacies 
do not bother to license themselves in Canada because they do 
not sell to Canadians. They only sell to Americans, and that 
way they can avoid licensure requirements in the provinces.
    Mr. Taylor. And also, unfortunately, cancer treatments and 
HIV treatments are some of the most often counterfeited 
products because they are so expensive. And so we have seen 
instances where counterfeit cancer treatments have been 
introduced in the distribution chain. The reason I use that as 
an example is that you can have the proper practice of 
pharmacy, you can have a valid prescription. However, if steps 
are not taken to ensure that the product that you are getting 
is the FDA-approved product and is safe and effective, you can 
still, despite those protections being in place, receive a 
product that is not necessarily going to treat your condition.
    Senator Feinstein. What a surprise for all these men that 
use Viagra over the Internet.
    [Laughter.]
    Mr. Hubbard. Well, if I may, Senator, even Viagra, you can 
argue that that Viagra, because it was subpotent, was not 
really a risk. The person just would not have the effect. But 
imagine if they decided, well, I did not get the effect with 
one, I will take two. And then the next prescription they fill 
has the American drug, which is fully potent, and they think, 
well, I needed to take two, and so then they take two with the 
American drug and have a heart attack or a stroke, that is a 
serious health risk.
    Mr. Taylor. And in the Viagra that Mr. Hubbard highlighted 
as a part of this Canada generic site, Viagra is not supposed 
to be taken with Erythromycin. And on the approved label, that 
contraindication is actually on the label. On the product that 
I believe that was ordered pursuant to this website, they did 
not have that warning about using the Erythromycin with Viagra, 
so there is a potential danger there by using the non-FDA-
approved product.
    Mr. Hubbard. If you got Viagra from an American drug store, 
and the pharmacist had also given you Erythromycin, he would 
say to you, I cannot give you this because you are on 
Erythromycin. Those two will interact and harm you. But in this 
case, we actually told the Canadian generics firm, I am on 
Erythromycin, and they still sold the Viagra. So it is another 
example of the risk that these businesses put our citizens 
through.
    Senator Feinstein. Thank you. Very helpful.
    Thanks, Mr. Chairman.
    Senator Kyl. [Presiding.] Thank you, Senator Feinstein.
    Your questions and the testimony that has been presented 
here I think just make an overwhelmingly compelling case that 
it would be totally unsafe for us to rely on this importation, 
but that we have got a problem even today because we probably 
do not have the resources or the capability to inspect 
everything. And even though you may put on your website a 
warning to people about importing over the Internet, how many 
people are actually going to get that warning and how can you 
keep up with all of the different sites that pop up. I mean, 
can you?
    Mr. Taylor. No, we cannot. We cannot. And make no mistake 
about it, we are only, as Ms. Durant said, FDA is only able to 
look at a very small number of these packages. I think Ms. 
Durant made an excellent point. The Food, Drug and Cosmetics 
Act was designed to deal with commercial shipments of drugs. I 
mean, the very language in it contemplates being able to look 
at and deal with big drums of active pharmaceutical 
ingredients, in quantities that are easier for the Agency to 
look at as part of our importation scheme.
    With the advent of the Internet and with the increasing 
number of people seeking products from overseas, we now, 
estimates are 2 million, 5 million, 10 million, 20 million 
packages a year coming in just through the mail. We do not know 
the exact number, but I can tell you whatever number you use 
between that range, we simply are not able to look at all of 
those packages. And so, unfortunately, there are a large 
majority of packages that are coming in that concern us, but we 
just do not have the resources to deal with it.
    Senator Kyl. We have gone to a lot of trouble and expense 
in this country to create literally a gold standard, and the 
three of you are part of that. There are many public servants 
in the United States whose life is devoted to the safety of 
drugs, so that when an American buys a product in this country, 
you can count on it, and you have to be able to count on it 
because there is such a risk if there is something wrong with 
it because it relates directly to your health and perhaps your 
life, which is why we have devoted so much effort to this.
    And I cannot imagine that if it were not for the fact that 
some people are having a hard time paying for drugs, I mean, 
this would not even be an issue, if you look at the Alar or it 
was mentioned the mad cow situation, those were both situations 
in which the whole world seemed to panic over what seemed to be 
a relatively minor matter. And yet, with drugs, there seem to 
be a willingness to overlook all of these compelling safety 
warnings and concerns because of the cost issue.
    And I just want to make a point again that was made by 
Senator Breaux earlier. Congress has already addressed the 
price issue. The Medicare bill that we passed last year has 
three very important provisions in it to provide pharmaceutical 
products to Americans and to reduce the cost of them. The first 
one has already taken effect. It is the drug discount card. And 
I have forgotten the average that it reduces the cost by, but 
it is something like by about 20 percent. And for those who are 
in the lower income brackets, it is essentially provided free. 
They get a $600-per-person credit, and when the full bill kicks 
in, I think the total cost is somewhere between $1 or $3 per 
prescription.
    So we have enabled people in this country, and when the 
full bill kicks in, in about another 12 or 14 months, we will 
have I think gone a long way toward reducing the cost of drugs. 
It seems to me, for that period of time, with the drug discount 
card available, we are exposing the citizens to a huge safety 
risk if we are not very, very careful.
    Now, two things that have not been discussed here, and one 
was alluded to, and I would like to, in my time, get into:
    One is the potential terrorist threat. I mean, we have had 
ricin scare here in Washington, the anthrax scare, and it seems 
to me, and I could point to some testimony and some material 
that has been written about the potential for terrorists to 
finance their activities through this kind of scheme, this 
counterfeit drug scheme, but also the ability to create panic, 
to sell panic in this country with some kind of counterfeit 
importation.
    And, secondly, the liability question has been just barely 
touched on. And Senator Feinstein broke the code when she said 
why does not Canada be concerned about this, and of course the 
response was because Canada has nothing to do with it. The 
website says Canada, but there is no connection to Canada 
whatsoever. And so then what about liability? If you are taking 
both an American product and a product that you have gotten 
elsewhere, and you get sick how do you prove which one made you 
sick? How do the American companies protect themselves? Who 
could you go after if there is a problem with it?
    The yellow light is on. So let me just ask you, just 
generally, all three of you, about the potential terrorist 
problem and the potential liability problem to be able to hold 
somebody accountable if something goes wrong?
    Mr. Hubbard. Perhaps Mr. Taylor can answer this question.
    Mr. Taylor. As you said, in the past, counterfeit products, 
products across the broad spectrum have been used or linked to 
the funding of terrorism. So, obviously, we think it is a 
legitimate concern. We also know that products again just 
outside the pharmaceutical arena have been diverted and again 
used for terrorism funding. So we were concerned about that.
    We were also concerned, as we always have been, about the 
tampering of products by anyone who wants to intentionally 
inflict harm on the American public. The Tylenol situation is 
something that we're all aware of. In that case, someone 
purposely tampered with a drug. We have had other situations 
where people have tampered with all kinds of products that FDA 
regulates. So it is something that concerns us.
    Mr. Hubbard. And on the liability question, Senator, you 
are absolutely right. These websites usually require the 
patient to sign away any responsibility of that business for 
the safety of the drug, which as I said would never happen in 
an American drug store. And then they also asked people to 
promise not to sue them if they are injured, and then they say 
we want you to promise, if you do sue us, you will come to our 
country and sue us under our laws. You know, it is just almost 
ridiculous. These are provisions that would never appear in an 
American drug store, and so the patient is really hanging out 
there in terms of responsibility because what these businesses 
are really saying to patients are, ``You are on your own. You 
take responsibility for your judgment in buying these drugs,'' 
and that is not fair.
    Mr. Taylor. And just to give you one other tangible 
example. In the example of contraceptive patches that I noted 
earlier, the reason we found out about that is because a 
consumer purchased a product over what they thought was an 
American site, and the product came in a plain plastic bag, 
which caused the consumer to be concerned.
    The consumer tried to figure out how to gain some type of 
recourse, how to figure out how to get her money back, how to 
figure out where to go to complain. Could not find anyone to 
complain to, and therefore notified the pharmaceutical company 
that manufactured the approved product and FDA, and that is how 
we found out about it, and it led to shutting down those four 
sites. But that was based on a consumer's desire to get some 
type of recourse, but not being able to find any forum for her 
complaints.
    Senator Kyl. Her case, before she used the product she took 
recourse.
    Mr. Taylor. Absolutely.
    Senator Kyl. But for all of those who used the product 
first and then suffered the consequences, no recourse, bad 
situation. My time is up.
    Senator Kohl?
    Senator Kohl. Thank you, Senator Kyl.
    Almost every day I hear from people in Wisconsin who are 
frustrated, very upset about the high cost of prescription 
drugs. And of course we know they have a legitimate right to 
feel this way because we are paying some of the highest prices 
in the world for medicines that are manufactured right here in 
America.
    We often talk about the United States health care system as 
being the envy of the world, but that is just an empty promise, 
as we all know, if our lifesaving drugs are priced out of 
reach. Faced with the untenable choice of going broke or going 
without medicine, many Americans are going to Canada in search 
of affordable prescription drugs. Some States and local 
communities are doing the same thing. Wisconsin launched a 
website in February that connects consumers with three Canadian 
pharmacies. The website has had more than 145,000 visits this 
year alone. The Coalition of Wisconsin aging groups also has a 
prescription drug information center to help people find more 
affordable drugs, often in Canada.
    It is my understanding that the results of both programs 
have been very positive, but as long as importation remains 
illegal under Federal law, we will not have a safety structure 
in place to prevent unscrupulous people from trying to taint 
the drug supply in the future.
    As we debate here in Washington, it is clear that in 
reality drug importation is already happening. It is time to 
stop asking the outdated question of should we allow it and 
start finding solutions that will give consumers the price 
relief and the safety assurances they need.
    The Pharmaceutical Market Access and Drug Safety Act 
introduced by Senators Dorgan and Snowe, of which I am a 
cosponsor, represents a real chance to finally make both of 
these goals a reality.
    The drug industry continues to enjoy some of the highest 
profits of any industry in the world, as we know. In 2003, 
profits were more than three times the median Fortune 500 
company. So it is time for Americans to stop footing the bill, 
although drug importation is, by itself, not the whole answer 
for high health care costs, I believe, and many people believe, 
it is an important part of the solution.
    So members of the panel, as I have said, people do not 
understand why they must continue to pay the highest prices in 
the world for their medicines. They do not understand why the 
administration appears to stand in the way of fixing this 
problem. Most people in my State believe they are smart enough 
to utilize the free market to find the best price for their 
products. They believe that the Government should be smart 
enough to set up a system that allows them to safely shop 
around for the best price, whether that price is here or in 
Canada. After all, we import food from other countries with far 
fewer inspections than we are talking about for imported drugs 
under this bill. So why can we not assure people that just as 
we are in a position to set up safety standards for the 
importation of food, that we cannot also set up safety 
standards for the importation of these medicines.
    Mr. Hubbard?
    Mr. Hubbard. It is just very difficult, Senator Kohl. These 
drugs were regulated by Congress in 1938 because they were 
considered to be special. You needed very precise 
manufacturing, very precise quality controls. And the source of 
inspection processes that you would do for produce or beef or 
whatever are far different and, in many ways, far easier.
    With pharmaceuticals, you need a bubble around them that 
oversees their approval, their manufacture, their shipping, 
their dispensing to the patient, and that exists in the United 
States. When you go outside the country, you have broken that 
bubble, and you have made it far, far harder to understand how 
those products were made, and where they have come from, and 
whether they are made under quality control procedures.
    I am not saying it is impossible, but unfortunately we have 
not heard a proposal yet that, in our view, gives as safe a 
system as we have now. It might be you can devise ways of 
importing drugs and ameliorate some of the safety concerns, but 
in our view, you are not going to have as safe a system as you 
have now because you are simply going to be relying on drugs 
made outside of our control in most cases.
    Senator Kohl. But it is true, is it not, that we have a 
satisfactory system to check on foods that are imported into 
this country?
    Mr. Taylor. That is true, sir. But as I noted earlier, I 
guess to answer your broader question, I mean, what we think is 
necessary to set up the very system that you are contemplating 
are steps to add additional authorities that will add to the 
protective measures that are already in place, as opposed to 
detract from them.
    And in the context of foods, a couple of years ago, 
Congress recognized that we were struggling with the increase 
of food shipments here to the United States, and they 
recognized the threat that was posed to the United States 
population by our limited resources to inspect that food, and 
that is one of the reasons why Congress passed the Bioterrorism 
Act, which gave us additional tools to check the food shipments 
that are coming in, it gave us additional tools to prioritize 
our inspections of those foods based on risk criteria, as well 
as giving us other opportunities to find more information about 
the food producers who are marketing products to American 
citizens.
    So what I am saying is that, in order to do this correctly, 
what the Agency has said is we want to emphasize that to do 
this correctly and ensure that Americans are getting safe and 
effective products, that we need to make sure that any 
legislative proposal or any legislative discussion that is 
being engaged in recognizes the need to strengthen our 
protective measures and not to detract from them.
    Senator Kohl. Well, I think my time is up, but I just want 
to make this point. Again, you appear, and I do not want to 
believe it is true, but you appear to be supporting an overall 
system that winds up costing American consumers more for drugs 
than people all around the world pay. Often, these are products 
manufactured right here in this country.
    So it seems to me that instead of defending this system, 
you all need to come up with a way to work with us. I believe 
Snowe-Dorgan begins to move us in that direction, and the bill 
is going to reduce the cost of prescription drugs for 
Americans. I think we all agree with that, and yet you appear, 
and I do not believe you really intend to, but you appear to be 
supporting a system, whether it is a Medicare prescription drug 
bill that prohibits the Government, as you know, from 
negotiating with pharmaceutical companies on behalf of Medicare 
recipients--which is almost un-American in the sense that large 
consumers everywhere in our society negotiate for discounts on 
their purchases--so in that area, and in this area, saying that 
we have to have 100-percent safety certification before we can 
move forward, which is almost impossible to get, you appear to 
be supporting a system that is causing Mr. and Mrs. American to 
pay the highest prices, in many cases, in the world for 
products manufactured in this country.
    Now, I am sure you recognize that there is a real, real 
problem here that we cannot just debate, but we have to come up 
with some answers.
    Mr. Taylor. Senator, we absolutely agree, and we are 
completely sympathetic to the price issue. Our concern, though, 
here at the FDA, and my concern, I mean, I run the enforcement 
and regulatory arm of FDA, is just to make sure that Americans 
have safe products.
    I mean, any action that I took that would detract from 
achieving that goal would be equally responsible, and all we 
are saying is that, to the extent that there is a contemplation 
of additional legislative steps, that people keep in mind to 
ensure that these protections stay in place and are 
strengthened in light of the advent of the Internet, in light 
of the practice that we are seeing and not detract from those 
protections.
    And even the State of Wisconsin, with their program, is 
facing some of the same challenges we are facing. I mean, I 
know that they have written a letter to their pharmacies who, 
outside the contractual relationship that Wisconsin has with 
those pharmacies, were sending in products that the State of 
Wisconsin deemed to be inappropriate. And that is the same 
challenge that FDA is facing, and we are sympathetic, but it 
just goes to show you that you just need to be terribly 
vigilant, no matter what program is being contemplated, to 
ensure that the public is getting what they think they are 
getting when they are purchasing products from these overseas 
sites or locations.
    Senator Kyl. Senator Feingold?
    Senator Feingold. Thank you, Mr. Chairman. Thank you for 
holding this hearing on a topic that is very important to the 
people of Wisconsin. It is no accident that in the middle of 
all of this that is going on in the Congress today that both 
Senators from Wisconsin would be here because of how important 
this is to our constituents.
    Each year, I travel to all 72 counties in Wisconsin, and I 
hold a town meeting in each county. For the past 12 years, the 
high cost of health care and specifically the skyrocketing 
prices of prescription drugs has been one of the top issues 
raised at these meetings by my constituents all across 
Wisconsin.
    I am a strong supporter of the bipartisan bill introduced 
by Senators Dorgan and Snowe that will help Americans purchase 
prescription drugs at reduced prices. Without it, Americans are 
at the mercy of the pharmaceutical companies, which are raising 
the prices of the most commonly prescribed brand-name drugs at 
twice the rate of inflation. It is our duty in the Senate to 
provide some relief. People in the United States pay 
substantially more for prescription drugs than people in any 
other industrialized country. I have long supported efforts to 
create a competitive marketplace for prescription drugs. Drug 
manufacturers are free to move their factories to countries 
that have cheaper labor or greater tax incentives and to buy 
supplies from countries with lower costs, but Americans cannot 
purchase the drugs they need that are offered at lower prices 
in other countries, and I do not think that makes sense.
    A growing number of American seniors, including a growing 
number of Wisconsinites, are obtaining their prescription drugs 
from Canada, whether they cross the border in person, order 
their prescriptions on-line or go to one of the Canadian 
company storefronts that have opened up in this country.
    I have heard from senior groups in Wisconsin that are 
concerned about the announcements by certain pharmaceutical 
companies that they will discriminate against Canadian 
pharmacies that provide Americans the same discount that they 
provide to Canadians. To address this issue, I have introduced 
Senate bill 477, the Preserving Prescription Drug Discounts 
Act, along with Senators Leahy and Dayton, which would deny tax 
breaks to drug companies that limit supplies of prescription 
drugs to Canadian pharmacies that provide Americans with 
prescription drugs. If these drugs companies actively 
discriminate against American seniors, we should no longer 
provide them with tax breaks.
    At least six major pharmaceutical companies have announced 
that they are going to take steps to curb the reimportation of 
prescription drugs from Canada into the U.S. by limiting 
supplies provided to Canadian pharmacies. I am concerned the 
drug companies are only starting with Canada and will then 
extend these discriminatory practices to other countries that 
Americans now or in the future will turn to for cheaper 
prescription drugs.
    Seniors are forced to go to Canada because the price of 
prescription drugs in this country is out of control. The 
Congressional Budget Office estimates that brand-name drugs 
cost, on average, 35- to 55-percent less than other 
industrialized countries than they do in this country. Drug 
companies say they need to charge high prices to recover the 
enormous research costs involved in bringing new medicines to 
market. Yet that argument overlooks the fact that Americans 
already fund much of the research and development of 
prescription drugs through taxpayer-funded research conducted 
at the National Institutes of Health and through tax breaks to 
the drug industry.
    It is simply unfair that some Americans cannot afford 
prescription drugs that their tax dollars helped develop. And 
when they try to go to obtain these drugs from Canada, they are 
discriminated against by the drug companies. It is far past 
time for Congress to allow Americans access to safe 
prescription drugs at the prices that the rest of the 
industrialized world enjoys.
    Mr. Chairman, I just have one question for the panel. The 
U.S. General Accountability Office recently conducted an 
investigation that found that all of the prescription drugs 
they purchased from legitimate Canadian websites were safe, 
packaged correctly and required prescriptions from physicians. 
S. 2328, the Dorgan-Snowe bill, would provide consumers with 
access to Canadian websites that are regulated and assured to 
be legitimate and safe. This bill would also require the FDA to 
post the list of approved Canadian pharmacies on its website 
and through a toll-free phone number so Americans can check to 
see if they are dealing with a legitimate pharmacy, not a rogue 
website.
    I would just ask the members of the panel, would not 
passing legislation such as S. 2328 be an improvement over the 
status quo?
    Mr. Hubbard?
    Mr. Hubbard. As I have said to other members, we have said 
repeatedly that if Congress gave FDA the authority and the 
resources to set up a drug importation program, we would 
implement that as well as we could. Our concern is that the 
bills that have been introduced do not go far enough. They do 
not really solve the problem. In the case of the bill you are 
mentioning, we are concerned about its very broad scope. It 
allows drugs in that we do not think should be allowed in, and 
it allows drugs in from many countries. It would just make it 
difficult for FDA to set up a meaningful program to screen 
those drugs. But we are happy to talk with you or other members 
about our concerns.
    Senator Feingold. But is it not the case, the provisions 
that I just outlined, not the broader elements, but those 
particular provisions would be an improvement over the current 
system; is that--
    Mr. Hubbard. Certainly a limit to Canada only would be one 
limitation that would be positive, but that still raises 
serious concerns for us, and again we would be happy to talk 
with you about those concerns.
    Senator Feingold. Mr. Taylor?
    Mr. Taylor. Just two points. One, we are by no means saying 
that every single product that is purchased over the Internet 
or is purchased from Canada is unsafe or potentially harmful. 
But what we are saying is that you need to be vigilant, and you 
cannot assume that you are getting the same benefits as the 
FDA-approved product.
    And then to your other point, generally, we are supportive 
of any attempt to provide us more information about the website 
or about an importer or exporter who is shipping products to 
the United States. I think I noted earlier that one of the main 
challenges we have is determining if, for example, a 
problematic product is shipped to the United States, figuring 
out where it originated from, figuring out who actually is 
behind the website.
    So, to the extent that we are able to get more information, 
whether it is through the provision that you noted or through 
other steps, that is going to be beneficial to our enforcement 
and regulatory efforts.
    Senator Feingold. Thank you.
    Ms. Durant?
    Senator Kyl. I want to thank the panel--oh, I am sorry. Did 
you have a comment, Ms. Durant? I am sorry.
    Ms. Durant. I just wanted to echo Mr. Taylor's comments. 
For Customs, this is a bit of a selfish thing for us. We want 
to be able to identify the good from the bad. We will work with 
FDA to do that. Today, it is just, as was noted in Mr. 
Hubbard's overheads it is overwhelmingly difficult for us to do 
that. So the more that we can refine it and be able to 
determine the risk of those that are not approved, the easier 
it is for us to enforce whatever is passed. So we could work--
    Senator Feingold. I take that to mean these specific 
provisions that I just outlined would be helpful in that 
direction.
    Ms. Durant. They would certainly help, yes.
    Senator Feingold. Thank you to the panel, and thank you, 
Mr. Chairman.
    Senator Kyl. Thank you, Senator Feingold.
    Again, thank you to the panel for a very enlightening 
presentation. I appreciate your testimony. You are excused.
    I am not sure that we have all of the members of the next 
panel present, but I would like to introduce them and please 
come forward for the ones who I think are here. And if I 
mispronounce your name, please correct me.
    First, we have Mr. Carmen Catizone, who is the executive 
director of the National Association of Boards of Pharmacy and 
secretary of the Association's Executive Committee.
    After Mr. Catizone, we have Dr. Elizabeth Wennar, who is 
the president and CEO of United Health Alliance of Bennington, 
Vermont, and principal of HealthInova of Manchester, Vermont. 
This says Manchester, and I am not sure that is correct.
    Next, we have Ms. Joanne Disch, who is a board member of 
the AARP.
    After Ms. Disch, we have Dr. Stephen Schondelmeyer, who is 
a professor of pharmaceutical economics at the University of 
Minnesota College of Pharmacy.
    And, finally, we have Ms. Kathleen Jaeger, who is the 
president and CEO of the Generic Pharmaceutical Association, 
and I guess we have all five of the names I read. I welcome all 
of you here. As I said, if I mispronounced your name, please 
correct it at this time.
    Let me mention to those in the audience and also those on 
the panel, as you can see by the in and out of members here, 
there are several conflicting hearings. I am supposed to be 
making a quorum in the Energy and National Resources Committee, 
as we speak, but I will stay here. At noon, there is supposed 
to be a vote ont Senate floor, and so we will probably have to 
recess the hearing for a brief period of time at that time. 
Presumably, Senator Hatch will return at that time.
    Let us begin. Let us just go left to right and start with 
you, Dr. Catizone, and did I pronounce your name correctly?
    Mr. Catizone. Yes, you did, Senator.
    Chairman Hatch. Thank you.

STATEMENT OF CARMEN A. CATIZONE, EXECUTIVE DIRECTOR/SECRETARY, 
           NATIONAL ASSOCIATION OF BOARDS OF PHARMACY

    Mr. Catizone. Thank you. Thank you for the opportunity to 
be here before the Committee this morning. As mentioned, I 
represent the National Association Boards of Pharmacy, whose 
members are the State provincial jurisdictions which license 
pharmacies and pharmacists in the United States, Canada, 
Australia, New Zealand, and South Africa. We do not represent 
the pharmaceutical industry. We do not represent pharmacists or 
pharmacies and, in fact, less than 1-percent of our funding is 
obtained from funding from pharmaceutical companies.
    Our written testimony which was submitted in advance of the 
hearing provides critical information on the implications of 
the illegal importation of drugs from the perspective of the 
public health and patient safety. This morning, my comments 
will summarize that testimony and update the Committee members 
on the status of one of the most complex and emotional issues 
being debated today.
    Frankly, the illegal importation of drugs is thriving. 
Despite the efforts of States to enforce the law and protect 
the public health, the flow of drugs across our borders is 
growing and is undeterred by warnings from the FDA and State 
agencies. Even though some 32 States have successfully 
prosecuted storefront facilities, pharmacies and disciplined 
the license of pharmacists and physicians, millions of packages 
still enter the U.S. from Canada, Bulgaria, India and Pakistan.
    What is most frustrating and disturbing to the State 
agencies that are charged with protecting the public health is 
that their efforts are thwarted by political ambitions in a 
desperately flawed solution to the public policy issue of 
access to medications.
    Is the illegal importation of medications endangering 
patients in the U.S.? Yes. Do we have hard data to support that 
assertion to ``qualify the bodies,'' as so many like to 
characterize the seriousness of this issue? Yes, but not to the 
quantity that people are requiring.
    NABP has quantified complaints from patients who have 
received the wrong or counterfeit medications from illegal 
importation and included that in the written testimony 
submitted to this Committee.
    NABP is also receiving new complaints every day as the 
problems from the illegal importation permeate and manifest 
throughout the U.S. medication distribution and health care 
systems. Unfortunately, the bodies, which so many have 
indicated must appear in emergency rooms before enforcement of 
existing laws can occur, are slowly surfacing and reports to 
the FDA and NABP. We will continue to monitor this situation 
and share our findings with this Committee.
    Besides concern for public safety, NABP is also alarmed by 
the impact on State regulation the illegal importation of drugs 
is having. In States where Governors, mayors and other public 
officials are ignoring State and Federal laws and facilitating 
the illegal importation of drugs, State boards of pharmacy and 
the regulatory framework that protects U.S. patients are being 
ignored, bypassed and possibly destroyed. Again, more detailed 
explanation of this implication is included in our written 
testimony.
    It does bear note to discuss recent actions in Rhode 
Island. Just last week, legislation requiring the Rhode Island 
Department of Health to license Canadian pharmacies became law. 
In a short time, the Rhode Island Department of Health will 
license Canadian pharmacies who are violating State and Federal 
laws and are acting based upon a law which the FDA has deemed 
unconstitutional. The only requirements for licensure in Rhode 
Island of the Canadian pharmacies is licensure and registration 
in the province where they reside, a fee, and a promise to 
follow the requirements of that province.
    If other States follow Rhode Island's lead and their 
failure to require compliance with U.S. laws in patient safety 
standards, a race to the bottom will soon occur as States seek 
out the country with the lowest prices, ignorant or ignoring 
the standards in that country. Once one State has pushed the 
race to the bottom and has adopted drug approval and patient 
standards to a level far below the current U.S. standards, all 
States will be subject to those bottom standards because there 
will be no way to contain the imported drugs to that one State.
    Can the situation be avoided? Can importation occur safely? 
The answer to both questions is, yes. The how requires the 
change in the current laws and support to establish an inter-
border regulatory framework, organized through the FDA and the 
State boards of pharmacy. NABP respectfully requests that the 
Committee recognize that allowing and encouraging illegal 
importation, without the appropriate regulatory safeguards, is 
a serious threat to State regulation and patient safety.
    NABP requests further that if importation is legalized, the 
appropriate inter-border regulatory framework, as defined by 
the FDA and the State boards of pharmacy be first established.
    And, finally, NABP does not believe that even one patient 
should suffer or be harmed as a consequence of disregarding 
Federal and State laws that ensure the dispensing of safe and 
effective medications to U.S. patients.
    Thank you.
    [The prepared statement of Mr. Catizone appears as a 
submission for the record.]
    Senator Kyl. Thank you, Dr. Catizone.
    Dr. Wennar?

STATEMENT OF ELIZABETH A. WENNAR, PRESIDENT AND CHIEF EXECUTIVE 
   OFFICER, UNITED HEALTH ALLIANCE, BENNINGTON, VERMONT, AND 
          PRINCIPAL, HEALTHINOVA, MANCHESTER, VERMONT

    Ms. Wennar. Thank you. I have introduced my written 
testimony, and I am not going to read from it. What I am going 
to do is also summarize mine and just try and make the relevant 
points.
    It was mentioned earlier that United Health Alliance, which 
is an organization that exists in Southwestern Vermont, is 
organized and was organized many years ago for a multitude of 
reasons. It is made up physicians, a health system, a rural 
hospital, a nursing home and a home health agency. And we, 
although involved in facilitating importation of prescription 
drugs, this was not our major goal when we started things many 
years ago. One of our guiding principles, which is to help the 
people we serve become the healthiest in the Nation, became 
quite impossible for us to succeed at when we began to realize 
that the people we were serving could not comply with their 
treatment plans.
    And compliance is a safety issue. It is a quality issue, 
and we looked at it from the perspective of, if an individual 
cannot take their medications as prescribed, then we were 
losing the battle. Physicians began to realize that they had an 
obligation. So these groups of physicians in this health system 
took it upon themselves to try and facilitate the process, 
exclusively from Canada. We are not talking about any country 
other than Canada. We became involved with pharmacies, 
legitimate pharmacies, in Canada and began to work with them in 
terms of bringing medications into the United States.
    We were not looking at this from the perspective of whether 
it was legal. We were looking at it in terms of an ethical 
dilemma that we had. Writing prescriptions for things that 
people cannot afford was an ethical dilemma for the physicians.
    So, as we began to see things become more and more 
successful, what started out as a very small program or 
initiative to serve individuals in the communities that we were 
serving, which are Massachusetts, Vermont and New York, began 
to grow. It grew hugely and very fast. To sort of cut to the 
chase, we ended up, this map that you see here, we ended up 
serving, wherever those dots are, those were where the people 
ended up. It practically overwhelmed us. We were a small 
organization. We have now transferred that organization to 
another entity because it did overwhelm us. But having said 
that, I want to just make some quick observations, because when 
I became originally involved in importation, it was really from 
a research standpoint. I was looking at it in terms of a piece 
of policy under the Clinton administration that was being 
considered--
    MEDSA, which was passed, but never was implemented. And 
here comes the issue again from the standpoint of considering a 
piece of legislation. My one piece of advice and hope is, if 
you do pass something, make sure it is something that can be 
implemented. It is a waste of everyone's time to work so hard 
and then have something that cannot be implemented and that is 
not meaningful.
    Now, having said that, I am going to just quote some facts 
and observations over the last 7 years. These are my personal 
observations.
    Number one, parallel trade has existed safely in the EU for 
years. There is no evidence that parallel trade promotes 
counterfeiting when the appropriate controls and regulatory 
processes are established.
    Secondly, reimportation or importation from Canada exists. 
It exists because the U.S. consumer has taken it upon 
themselves to demonstrate it and to prove that it does work. 
Millions are currently utilizing this as a means to comply with 
their treatment plans now.
    The Canadian system is well regulated and safe.
    Canada, as does other countries, have an FDA or the 
equivalent of the FDA to do oversight.
    Customer satisfaction and compliance for those that are 
utilizing mail-order from Canada appears very high.
    Physicians are engaged in the process. They are engaged 
with their patients in the U.S. and with additional physicians 
in Canada. This helps with compliance, and it does help with 
oversight and quality. Compliance results in better outcomes 
and potentially lower cost to the overall health system result.
    Guidelines and standards can be, and have been, established 
for oversight of mail-order. Accreditation processes must be 
much broader than just marketing via the Internet. In other 
words, the Internet is only a marketing tool. You cannot reach 
in there. There is no pharmacy that legitimately exists on the 
Internet. It is a marketing tool like anything else on the 
Internet.
    The fact is U.S. consumers have created the mail-order 
industry in Canada. Legitimate mail-order in Canada welcomes 
standards and the regulatory processes that need to be put in 
place to provide safety controls for U.S. citizens, to protect 
them from unscrupulous providers via mail-order, particularly 
around the lifestyle and me-too drug medications that are being 
promoted along with controlled substances. Because what we are 
talking here are really about maintenance drugs, drugs for 
chronic disease management, the community-based pharmacist must 
be reintegrated into the health management plan. Mail-order in 
general, even in the United States, has successfully carved out 
the community-based pharmacist from quality oversight. We 
propose that they must be reengaged.
    Recent reports that have been referenced already here, with 
relationship to the GAO and AARP's report and the Sagar report, 
which I have included as an exhibit in my testimony, are 
available for you to read.
    Legislation is necessary to provide standards and oversight 
for what already exist.
    The American consumer has already proved that importation 
from Canada can work. Millions of people are using it, have 
been using it for years, and are complying with their treatment 
plans.
    Thank you.
    [The prepared statement of Ms. Wennar appears as a 
submission for the record.]
    Senator Kyl. Thank you. And your full statement and any 
other written statements will of course--
    Ms. Wennar. All of the exhibits are included, yes.
    Senator Kyl. You bet. Thank you.
    Ms. Disch?

 STATEMENT OF JOANNE DISCH, BOARD MEMBER, AMERICAN ASSOCIATION 
                       OF RETIRED PERSONS

    Ms. Disch. Senator Kyl, I am Joanne Disch, a registered 
nurse, a professor and a member of AARP's board of directors. 
Thank you for including AARP in your discussions about the need 
for safe importation of prescription drugs.
    Americans need affordable prescription drugs, but for too 
many people the price of drugs is beyond their means. Recent 
AARP studies that have been alluded to this morning reveal that 
drug prices continue to rise much faster than the rate of 
inflation. Our members tell us that these high prices are the 
single greatest barrier to obtaining needed medications.
    Importation is not the sole solution to soaring drug prices 
in the United States, but it will create downward pressure on 
drug prices and provide consumers some immediate relief. The 
simple fact is that importation is already happening. The 
examples that Mr. Hubbard gave earlier are frightening and 
actually, in my mind, they underscore the need for us to do 
something in this country to make safe what millions of people 
are doing on a daily basis.
    Many Americans already purchase their drugs from other 
countries. This legislation would only make it safer for what 
they are currently doing on their own. The trend is growing, 
and we have a responsibility to ensure that Americans can 
access lower-cost drugs safely.
    Safety is critical. It is possibly the most important 
factor, along with efficacy, in any importation system. The 
drafters of S. 2328, the Dorgan-Snowe bill, have improved their 
legislation to include additional safety measures and consumer 
protections, including anticounterfeiting, antitampering 
requirements, mandatory labeling and chain-of-custody 
requirements. My written statement outlines these safety 
protections.
    I would also like to add that we believe a system of safe 
importation cannot be realized if the industry curtails supply. 
We believe that a vital component of the Dorgan-Snowe bill are 
the provisions that seek to prevent the drug industry from 
cutting off supply to countries engaging in importation to the 
U.S. As we delay voting on this bill, we see this occurring on 
a daily basis.
    As a result of these changes, AARP has endorsed the Dorgan-
Snowe importation legislation. We believe it meets the 
challenge of designing a prescription drug importation program 
that will ensure the integrity of pharmaceuticals and provide 
consumers access to lower-cost drugs. Our members want Congress 
to enact bipartisan legislation this year to allow for legal, 
safe importation of lower-cost prescription drugs.
    AARP is pleased to see this Committee and Members of 
Congress from both sides of the aisle moving forward on this 
issue. We understand the challenges that Congress faces in 
designing a program that ensures the integrity of 
pharmaceuticals, but does not create an overly burdensome 
process that would prevent consumers from gaining access to 
lower-cost prescription drugs. However, this must be done. We 
must find a way to do this safely and effectively. Americans 
deserve our support through this important legislation. The 
Dorgan-Snowe legislation meets AARP's criteria, and we urge its 
enactment this year.
    In conclusion, this morning, like millions of women across 
the country, I took my Tamoxifen. I am one of the fortunate 
ones who is covered by a comprehensive health plan, so I do not 
experience outrageous health care costs at this point in time. 
I am appalled, however, what other women face, whom I know, who 
are middle income and not just seniors, but women of all ages 
in this country who cannot afford their Tamoxifen.
    I have spoken with women who have discontinued it 
knowledgeably and prematurely, knowing the likely consequences. 
I cannot imagine, from my own experience, what kind of a 
decision that must have to be. It is time to bring cost-
effective drugs safely and affordably to all Americans.
    Thank you again for inviting AARP here, and I will be 
pleased to answer any questions.
    [The prepared statement of Ms. Disch appears as a 
submission for the record.]
    Senator Kyl. Thank you, Ms. Disch.
    Professor Schondelmeyer?

      STATEMENT OF STEPHEN W. SCHONDELMEYER, PROFESSOR OF 
 PHARMACEUTICAL ECONOMICS, UNIVERSITY OF MINNESOTA COLLEGE OF 
                            PHARMACY

    Mr. Schondelmeyer. Thank you, Senator Kyl.
    I will provide a written statement as a follow-up. I was 
out of town last week and just received the invitation on 
Monday and worked the details out.
    I am glad to be able to present to the Committee. I want to 
try to add an economic perspective to this, as well as the 
safety perspective. Safety does have a cost, and safety also is 
an issue that is driven by cost. If one cannot afford a 
medicine that they need and does not have access to it, then 
their health care will get worse, and that adds a cost.
    And I think I have not seen good evaluations done of this 
issue, but just giving the number of people who express 
concerns about ability to afford a medication and not getting 
it because of the cost, it would appear that the safety and 
cost problems are far greater from lack of access due to 
pricing issues than they would be from reimportation of 
legitimate products from legitimate sources to legitimate 
pharmacies and suppliers in the U.S. marketplace. So I think we 
need to evaluate how to try to make that system work better. 
But let us step back a minute and ask what are we seeing in the 
U.S. market?
    First of all, from the things I hear today, and I have 
heard these before in other circumstances, this is a very scary 
marketplace, and this is the marketplace today without 
reimportation. Reimportation, I do not see anything in the 
legislation proposed that would authorize any of the 
counterfeits that were talked about today by FDA, that would 
authorize any of the Internet sites that fraudulently proposed 
to sell drugs that are not good- quality medicines, none of 
these bills authorize any of those behaviors. In fact, they 
give tools to FDA and tools to Customs and tools to other 
Government agencies to help address and solve some of those 
problems.
    So I think, also, we have to step back and say we cannot 
draw upon the importation problems from illegal activities and 
assume that that is what the experience will be with legal 
importation with appropriately authorized tools and 
appropriately authorized resources for our Government agencies 
to address those issues.
    But what is happening? Why are consumers going to Canada? 
Are these seniors who wantonly want to defy American law and 
importation issues? No, these are consumers who are very price 
sensitive and trying to make a market work. They are trying to 
express their concern about prices in the marketplace and 
saying, yes, drugs are very valuable to me; yes, drugs affect 
my very life and health, but I do not have the resources, given 
the current system, but I see an alternative, and that is 
because of the convenience of Canada or because of the 
convenience of the Internet I can order these medicines. And, 
yes, it is possible for people to prey upon and take advantage 
of people in those circumstances as long as they remain 
unregulated, as they are in the marketplace today.
    So consumers are trying to make a market work, but we must 
also step back and remind ourselves that the pharmaceutical 
market is not a normal economic market. This is one of the most 
highly regulated industries we have. We grant monopolies, we 
grant extensions on exclusivities and multiple patents. And 
while those things do reward innovation, those are good, 
positive, in general, for society. Innovation that is not 
accessible to the public is of little or no value. And I would 
argue that in some cases we have pharmaceutical innovations 
that may be very beneficial medicines, but are not achieving a 
beneficial purpose in society because they are not reaching 
people due to lack of resources, a variety of other reasons why 
the pharmaceutical market does not work as a normal market. But 
let me address a couple of other points I have heard today.
    First of all, coverage, the Medicare Coverage Act is a 
laudable program, but it does not solve the problem. First of 
all, the $600 that seniors can receive in the interim period 
goes faster as drug prices go up, and $600 covers about 4 to 6 
months' worth of a brand-name prescription drug, not even one 
drug for a whole year. So it does not really address the 
problem.
    Generics do not solve the problem. Americans are not going 
to Canada to buy generic medications. We have, in general, the 
lowest-price generic medications in the world available in the 
U.S. already, and generics are an important part of this 
solution. We need to encourage and increase generics in every 
way we can, but they are not the problem either.
    Counterfeits need to be addressed. Internet pharmacy needs 
to be addressed. But if we allow importation of legitimate 
prescription products from already inspected FDA plants to 
legitimate purchasers in the American market and especially 
pharmacies and wholesalers and if those drugs are available at 
the corner drug store, how many Americans would be going to 
Canada or the Internet to buy their prescription drugs? I would 
argue allowing reimportation will solve more of these problems 
than it will create.
    Thank you, sir.
    [The prepared statement of Mr. Schondelmeyer appears as a 
submission for the record.]
    Senator Kyl. Thank you.
    And, finally, Ms. Jaeger?

STATEMENT OF KATHLEEN D. JAEGER, PRESIDENT AND CHIEF EXECUTIVE 
          OFFICER, GENERIC PHARMACEUTICAL ASSOCIATION

    Ms. Jaeger. Yes, thank you, Senator.
    I am Kathleen Jaeger, and I serve as the president and CEO 
of the Generic Pharmaceutical Association. On behalf of GPhA 
and its members, we thank you for the opportunity to testify on 
the issue of drug importation.
    Twenty years ago, when Senator Hatch and Congressman Waxman 
wrote the Hatch-Waxman amendments, the Nation faced a health 
care crisis similar to the one it faces today. Since that time, 
generic pharmaceuticals have played a critical role in the 
effort to contain rising prescription drug costs.
    Senator Kyl, GPhA and all of its members are proud of our 
commitment to and our success at helping Americans access 
affordable, high-quality medicines. Today, generics account for 
more than 51 percent of all prescriptions filled in the United 
States. Yet generics represent less than 8 cents of every 
dollar Americans spend on prescription drugs.
    Clearly, the existence of a healthy generic drug industry 
has enhanced access to affordable medicines, something all 
purchases should want to continue to encourage. Nonetheless, we 
well understand the frustration that consumers, businesses and 
health plans have with ever-increasing drug costs. As members 
of Congress struggle to respond to this frustration, it is 
critical to make certain that any policy option considered does 
not inadvertently undermine incentives for generic competition 
or sacrifice safety or quality of our medicines.
    Unfortunately, as currently drafted, we believe the 
legislation before Congress on importation has the potential 
for these unintended consequences. Many of the members we have 
worked most closely with in ensuring greater access to more 
affordable generics are now seeking to develop a workable 
approach to import less-expensive prescription drugs from 
abroad. We have great respect for these bipartisan efforts, 
whether it be initiatives drafted by Senators Dorgan, Snowe, 
Kennedy and McCain, by Chairman Gregg of the Health Committee 
or by Chairman Grassley of the Finance Committee.
    GPhA, however, has serious concerns about the impact of 
proposed importations bills will have on the safety of the U.S. 
drug supply system and the unintended consequences they may 
have on the cost-saving opportunities that are already 
available to consumers. Because of these concerns, GPhA 
currently opposes importation. However, if Congress believes it 
is necessary to pursue legislation in this area, we believe the 
following issues need to be addressed:
    First and foremost, the Food and Drug Administration must 
be provided with adequate resources and the authority to ensure 
the safety of this Nation's drug supply. GPhA recommends that 
oversight of safety issues related to importing drugs be the 
responsibility of FDA and that Congress ensure that any 
importation bill is accompanied by the necessary Agency funding 
to do this effectively.
    Consumers should be confident that the same strict 
standards that the regulators require for domestic brands and 
generic drugs will be in place for imported drugs as well, 
otherwise this Nation's drug supply chain will be vulnerable to 
influx of inferior and potentially dangerous medicines, 
including counterfeit products.
    Secondly, GPhA recommends that the importation program be 
limited in scope and actually provide cost savings to health 
care consumers. Permitting the importation of generic drugs has 
the great potential to be counterproductive. As you have heard 
today, U.S. generic drugs are not only cheaper than potential 
imported brand drugs, but as several reports suggest, U.S. 
generic drugs are more affordable than generics in Canada and 
other industrialized countries. If we permit the importation of 
generic drugs and their brand counterparts, we will, in effect, 
be encouraging the use of prescription drugs, which may be more 
costly than the generic drugs available in this country while 
substantially adding to the burden placed on FDA by 
importation.
    Thirdly, while we prefer that the imported drugs be 
required to be therapeutically equivalent, we strongly 
recommend that the imported drug, if it is not therapeutically 
equivalent to the domestic brand here, consumers should be made 
aware of this difference through product labeling. FDA requires 
generics to be therapeutically equivalent to the reference 
brand drug before the Agency considers the two products 
interchangeable. Thus, if the imported product fails to meet 
this standard, FDA should have the authority to label drug 
products accordingly to ensure that health care professionals 
and consumers can make well-informed decisions about switching 
between products.
    And, lastly, any importation programs should protect the 
important balance between innovation and access to generics by 
prohibiting importation during the 180-day exclusivity period 
for generic companies. If importation of foreign drugs is 
permitted during the 180-day period, it will undue the 
carefully crafted balance between innovation and access that 
Congress has worked so hard to achieve.
    Although the debate about importation continues, there are 
steps that now can be taken immediately to lower prescription 
drug costs. Generic pharmaceuticals are a safe, reliable 
solution to the problem of increasing costs of prescription 
drugs. Increasing access to, and utilization, of generics would 
benefit all consumers and health care providers.
    And as Senator Hatch and this Committee recognized last 
month, one way to increase savings is to solidify a definitive, 
efficient pathway for affordable biopharmaceuticals. Another 
way is to increase generic utilization by substantially 
improving the funding for and the propriety of the timely 
approval of generic drugs.
    So, in summary, if Congress is to pursue importation 
legislation, we strongly believe that it must address some of 
the flaws of the current pending bills, and we look forward to 
working with you and all interested members from both parties 
in this regard.
    Thank you, Senator.
    [The prepared statement of Ms. Jaeger appears as a 
submission for the record.]
    Senator Kyl. Thank you. And I want to thank all of you for 
being very conscious of the time constraints. The vote that I 
announced would occur has already begun. I am going to have to 
leave for that vote, and in consultation with Senator Hatch's 
staff, I have concluded that the best way for us to proceed is 
to recess the hearing at this time. I would hope that as many 
of you as possible could stay because it is very possible that 
Senator Hatch and other members of the Committee could be 
returning within just a few minutes to reconvene the hearing. 
And therefore, if it is convenient for you to remain, I am sure 
there will be members who will want to ask questions.l
    So, if you could please indulge us, I would appreciate 
that. For the time being, this hearing will be recessed.
    [Recess from 12:18 p.m. to 12:29 p.m.]
    Chairman Hatch. [Presiding.] We are going to continue. I 
apologize for not having been here, but I had to manage the 
floor for about an hour.
    Let me just ask you this question, and it may be the only 
one I ask. The AARP support of the Medicare Modernization Act 
was greatly appreciated by me, as one who worked very long and 
hard on that, along with others on the Conference Committee and 
elsewhere.
    As you may recall, when we were drafting this law, the high 
cost of prescription drugs was heavy on everyone's mind. We 
made good progress on this issue by including provisions that 
not only expedited approval of generic drugs, which I know you 
appreciated, Ms. Jaeger, and the generic drugs are 
significantly less expensive than brand-name drugs, but also we 
required the Secretary of Health and Human Services to permit 
imported drugs into the country if the safety of these drugs 
could be guaranteed.
    Now, to help with this monumental task, we asked HHS to 
submit a report to Congress on whether the safety of these 
drugs can be guaranteed, and Secretary Thompson has created a 
task force to review this matter. Now, these recommendations 
should be provided to Congress no later than the end of this 
year.
    My question to you is do you not think that it makes sense 
to wait to see what the task force recommends to Congress 
before we approve drug importation legislation, especially in 
light of what we have heard from the FDA today? I hate to have 
it on my conscience to vote for a piece of legislation that 
might lead to harm to a lot of Americans because of the crooks 
and vicious people out there and because of what we have heard 
today from the FDA, much of which I think a lot of us knew 
before, just to score cheap political points.
    So I guess what I am saying is do you not think it is 
better for us to wait until we have the recommendations and see 
what they say, the experts say, before we rush pall-mall into 
this type of a situation, where we allow the reimportation of 
drugs in the way that has been proposed by the House yesterday, 
and of course maybe Senator Dorgan today?
    Ms. Disch. Well, I do want to affirm the fact that safety 
is of paramount concern to AARP, and this is why we worked very 
closely with not only Senators Dorgan and Snowe, but with the 
other several dozen who are supporting this bill.
    Our concern is that we need to keep moving expediently 
forward, and I would respectfully disagree with the phrase 
``pell-mell'' because we feel we have been working on this 
issue, with many others, and giving it due diligence. New 
information is always going to be helpful. We look forward to 
the findings from that because maybe it would indicate some new 
directions we should move, in addition to this bill. But we 
feel very supportive and very strong that the practices that 
are built into the current proposal in the bill really address 
our concerns about safety.
    Chairman Hatch. Are you not a little bit concerned, though, 
with what the FDA just told us and Customs just told us today?
    Ms. Disch. Well, a comment that I had made in my earlier 
comments was it is very frightening, when I heard some of those 
stories. However, where it led me, when we heard about 
compelling evidence, it led me to the thought that we should do 
something today and vote this bill in because what it showed me 
is what the millions of Americans, who are currently using 
perhaps a rogue Internet access, what they are experiencing.
    But the provisions of this bill are very clear in how they 
limit some of the horrifying examples that were given earlier 
today. This bill has addressed a lot of those and we feel 
really create a very focused first steps. Let us get more 
information, let us build on it, but we feel that the testimony 
today actually would suggest we need to act sooner than we even 
thought.
    Chairman Hatch. But during that time, while we experiment 
with this type of legislation, without the full bureaucracy 
that it would take, that I think one witness said would be 
millions of people, what if we had a lot of people die because 
of knock-offs, because of out-of-date drugs and because of 
downright criminal activity with regard to this? I mean--
    Ms. Disch. Well, as a registered nurse, I am very concerned 
about not only people living and dying, but people with chronic 
illness who cannot either keep their disease under control or 
have at least some functional life. What I think we have in our 
country is a lot of creativity. We have some models that some 
of the States have used with protections built in place. We 
have heard testimony this morning about some ways that we could 
learn from either other industries or other programs that, on 
an even smaller basis, have had very good effect in assuring 
safety and efficacy.
    So I do not see us, and I do not believe the AARP board 
sees this, as just de novo starting from scratch. We have 
things upon which we can build.
    Chairman Hatch. Ms. Jaeger, let me ask you this question. 
You testified that GPhA does not currently support the Dorgan 
bill. Now, are there any circumstances under which you would 
support it and, if so, what are those circumstances?
    Ms. Jaeger. Well, as I said in our testimony, GPhA opposes 
all the importation bills that are currently before it. We 
think they are flawed because of some potential unintended 
consequences within. And, first and foremost, we think that FDA 
has to have the requisite authority and the necessary funding 
to ensure that our drug supply system remains safe. And until 
that occurs and until we can assure that the products coming 
into our country is being looked after and examined by FDA and 
are sure to meet the same strict standards that the domestic 
brands and the domestic generics meet, then we are going to 
have some concern about patient safety.
    Our products, as mentioned in my previous testimony, 
generic drugs have to be therapeutically equivalent. And that 
means they have to be pharmaceutically equivalent and bio 
equivalent before they can be interchanged with a brand 
counterpart. Imported products coming in, as they stand right 
now, cannot, I mean, there are no standards there.
    There are standards for pharmaceutical equivalents, but 
there are not the standards for interchangeability. And our 
concern there is that without interchangeability and without 
FDA providing some assurance to the consumer that these 
products are indeed interchangeable, you could potentially see 
some adverse events in patients, especially with products that 
are a narrow therapeutic index, a mental drug. There are a 
number of products on the market that swing one way or the 
other with respect to a drug blood level that could actually 
impact negatively the consumer and the patient.
    Chairman Hatch. Well, let me just say that I am very 
concerned about it because it now takes up to 15 years of 
patent life and up to a billion dollars to develop a marketable 
drug, and we are the best in the world at doing this. And if I 
have my way, we will move into bio, and we will also move into 
embryonic stem-cell research that will open the door to even 
more, hopefully, beneficial therapeutics.
    But I know one thing, I cannot ignore the testimony of the 
FDA here and the Customs people. I do not think there is any 
absolute way you can be sure, with the crooks that we have in 
the world today, that drugs imported, especially over the 
Internet, and even imported in bulk, are going to be what they 
claim to be. I sure do not want to risk our seniors. That is 
one reason why I work my guts to get the $400 billion to $530-
plus billion bill through, to help those who are literally on 
the bottom of the totem pole.
    I totally disagree with the distinguished Congressman from 
Vermont. It sounds good what he was saying, but the problem is 
that is what we are trying to do is take care of those people 
who are making $16,000 a year and cannot afford their 
pharmaceuticals and take care of them with real pharmaceuticals 
that will help them with their health care.
    And as Ms. Jaeger knows, I am the author of the Hatch-
Waxman Act, which basically has brought drug prices down at 
least $10 billion a year--they tell me even more now--since 
1984. Some have called it the most important consumer bill in 
the last century, and it is certainly one of the most important 
consumer bills. And that was not an easy thing to do. It took a 
long time to get us to that point.
    I just have to caution everybody. I would be very, very 
concerned, after hearing what the FDA has had to say, what 
Customs has had to say, that a generic bill is going to solve 
this problem, when you do not put the probably tens, if not 
hundreds, of billions of dollars in, with a huge upswing in 
Federal employment, to try and take care of it, which will not 
do it anyway because they will never have the capacities that 
the pharmaceutical companies themselves do to make sure that 
the drugs are efficacious and safe.
    So it is a matter of great concern to me. It is a nice, 
easy political thing to do, but I think it could really 
backfire on those who are pushing these types of legislation 
because all you need is to have just one really bad episode, 
and I think people in this country are going to get up in arms.
    But, in any event, I think it is important for us to try 
and bring that safety and efficacy process down from 15 years, 
maximum generally, down to a more reasonable level. That is one 
reason why we passed the FDA revitalization bill a little over 
10 years ago, to create a central campus with state-of-the-art 
equipment, state-of-the-art facilities, to be able to bring all 
of these FDA top scientists together so that we can save money, 
save time, save costs and, in the end, hopefully, still have 
even better safety and efficacy in our domestic drugs and 
hopefully bring down costs.
    These are some of the things that we are now doing. We just 
dedicated the first building last fall--last winter I guess it 
was in November--and I hope that we will proceed with that and 
continue to build that facility because we set the standards 
for the world. We have the greatest pharmaceutical companies in 
the world--no reflection on others that are co-equal. We have 
some great foreign companies as well. But I hope we will all 
think this through because I am very, very concerned about it.
    I just want to thank each of you for being here. I 
apologize that I could not be here for all of your testimonies, 
but I will read them and pay very, very close attention to 
them. This is an area that I take a great deal of interest in. 
I would like to bring the cost of drugs down, but I want to do 
it in a way that makes sense not just because somebody, in a 
populist way, pops off about, well, we ought to do this. I 
think you have got to think it through, and it has got to be 
done right.
    So, with that, I want to thank you all for being here, and 
we will release you from the witness table.
    Ms. Wennar. Mr. Chairman, may I just point out one thing?
    Chairman Hatch. Sure.
    Ms. Wennar. I know we keep focusing on seniors. I would ask 
you to please consider the facts that we have had a large 
growth in people that are underinsured--
    Chairman Hatch. I agree with that.
    Ms. Wennar. --and individuals that do not have any coverage 
for this. And so they are significantly at risk, also, and the 
Medicare bill does nothing for them, and we are seeing these 
numbers grow. In the provider network, we have more and more 
individuals that are coming in and telling us that they cannot 
afford or that they have maxed out on their benefits, and we 
are really only focused on Canada, in terms of things right 
now.
    Chairman Hatch. Oh, no, we are focused on a number of other 
countries.
    Ms. Wennar. I understand that, but from the standpoint of 
what exists right now in this country, individuals, under 
personal importation, are bringing things in.
    Chairman Hatch. I think your point is well taken. I have to 
say that Canada is probably the safest of the importing 
countries in his hemisphere, but there are lots of others 
through which these types of pharmaceuticals or knock-offs or 
false drugs or whatever they are can come.
    So let us all work on it, and let us see if we can resolve 
these problems, but they are a lot tougher to resolve than 
meets the eye.
    But thank you all for being here. We appreciate it.
    If we can have order, we are going to call on Hon. Rudy 
Giuliani, former mayor of New York, former assistant attorney 
general of the United States, to testify before us today.
    Mr. Giuliani, we are grateful that you took time to come 
down from New York today or I think it was New York. I know you 
had some difficulty with the weather and had a difficult time 
getting here, but we are grateful to have your testimony.
    As you know, I have a great deal of respect for you. I knew 
you when you were an assistant attorney general of the United 
States and have watched you as the U.S. attorney in New York, 
plus as mayor. We are all very proud of your service and the 
great service you gave to the City and State of New York and to 
this country.
    I have watched the various committees you have been on and 
so forth, and we are just grateful to have you here, and we 
look forward to taking your testimony here today.

  STATEMENT OF RUDOLPH W. GIULIANI, FORMER MAYOR OF NEW YORK 
   CITY, AND CHAIRMAN AND CHIEF EXECUTIVE OFFICER, GIULIANI 
                         PARTNERS, LLC

    Mr. Giuliani. Thank you very much, Senator, and thank you 
to the Committee. I appreciate the opportunity to testify.
    Chairman Hatch. I apologize there are not more Senators 
here, but we just had a major vote, and we will see if some of 
them will come, but if they do not, you and I are going to have 
a dialogue because this is a very important hearing.
    Mr. Giuliani. I will briefly summarize the findings that we 
have been able to achieve to date and then leave the maximum 
amount of time for questions.
    There is no question that the availability of safe, 
effective, and reasonably priced medications is a very, very 
critical one for Americans, and for people all over the world. 
The cost of medications is extremely high, and a lot of 
solutions have to be found to not only reduce the cost, but 
increase the access and availability of medications.
    The concern that I have, however, is that in trying to find 
those solutions we do not take a situation that is already one 
that is dangerous, if not out of control, which is the 
importation of medicines into the United States and make it 
even worse, particularly at a time when we are trying very hard 
to establish some kind of orderly system for the movement of 
people and the introduction of goods and merchandise into the 
United States.
    A couple of months ago, my firm, Giuliani Partners, was 
retained to do a study of the risks associated with the 
importation of medicines--how importation exists today, what 
would happen if it were expanded based on what the findings are 
to date. And maybe the best way to summarize it is to give you 
one experience, and that is inspecting the mail facility at 
Kennedy Airport, where a significant amount of merchandise that 
is coming into the United States is sorted and processed.
    I visited Kennedy Airport, actually on March 17th of 2003, 
which was not an unusual day; in fact, it was described as a 
fairly light day, given I think some of the weather the weekend 
before. Generally, they have something like 40,000 packages a 
day that come in that should be inspected, packages that 
apparently contain drugs, medicine, and things like that.
    Given the number of Customs and FDA officials that they 
have available at the Kennedy facility, which is one of the 
largest in the country, they are only able to inspect 4- to 
500, maybe in a really intense day 600. So that is 4- to 600 
out of 40,000 packages that are coming in. So it is not an 
exaggeration to say that most of the medicines and drugs that 
come into the United States are totally uninspected. No one has 
any idea what is actually in the packaging, since you are 
looking at 1 percent of the medicines that are brought in.
    But then if you look at that 4- to 600 as a sample of what 
might be in that 40,000, in other words, the medicines that are 
put aside, what you find is that the overwhelming majority of 
them are FDA unapproved. Many of them have packaging that 
appears to have been tampered with, they come from an 
assortment of countries that would be as many as maybe 18 or 20 
different countries around the world, and in some cases the 
medicine is expired.
    In that particular examination we did on March 17th of 
2004--what we found were antibiotics that were expired by a 
year, 2 years, and 3 years that were being sent in as 
efficacious medication today. We found a significant number of 
medicines that appeared to have been tampered with, appeared to 
be tampered with meaning the coloration of the medicine was 
different from the actual medicine.
    It looked like the packaging had been opened. And you 
cannot really tell whether they are correct medications or of 
the right potency because there really are no field tests that 
can be done for determining whether or not a medicine that is 
coming in as an antibiotic is actually that antibiotic or a 
medicine coming in as a medicine for cholesterol, a statin, is 
actually the right medication. All of these tests take a very 
long time to produce.
    But by physical examination, they appear to be incorrect 
medications, and then some are clearly incorrect because they 
are expired by 2, and 3, and 4 years and, in some cases, they 
are medications that never should be self-administered.
    I was particularly shocked to see hormone medications that 
are used for prostate cancer treatment, a treatment that I 
underwent, which were sent in what appeared to be packaging 
that had been tampered with, but it also contained the syringe 
so that it seemed like somebody was going to self-administer 
this medication. And this would be medication that really has 
to be done under the direction of a doctor. It has to be done 
on a scheduled basis, and it has to be done in a way to test 
whether or not the medication is actually working and what side 
effects it might have.
    All told, I would have to say somewhere between 80 and 90 
percent of the 4- to 500 packages that were put aside on that 
day appeared to have something either technically wrong or 
substantially wrong with them.
    Chairman Hatch. What was that percentage again?
    Mr. Giuliani. Four- or five hundred packages, out of a 
total of 40,000, which would be 1 percent, actually get 
inspected, and of that somewhere between 80 and 85 percent 
appear to be incorrect, tampered with--
    Chairman Hatch. Have some defect or some tampering.
    Mr. Giuliani. They have something wrong with them, anywhere 
from something substantially wrong with them, like they are out 
of date by a year or 2 or 3 years or they have been opened, or 
from just physical examination, when you look at them, they are 
a different color or a different shape than the actual 
medication. So you would have to wonder whether they have been 
tampered with or something has been substituted for the real 
thing.
    That is not an unusual situation. I conducted this 
examination with my colleague, the former police commissioner 
of New York City, Bernard Kerik, and with Senator Coleman, who 
was with us that day. But what we were told is this was not an 
unusual day. This is typical for what goes on. And when you 
look at other tests that have been done, other inspections and 
examinations, including in Miami, which had been done by, I 
believe, the FDA, almost the same results, almost the same 
percentages.
    So it raises real concerns that as we presently sit here, 
without any opening for any further foreign importation of 
drugs, the system that we presently have is a system that is 
unreliable, it is a system that is dangerous, and it is a 
system that creates the real danger that we are polluting the 
drug supply system in the United States, since these 
compromised, imported drugs can be mixed with drugs here in the 
United States.
    Now, the kind of thought is that you could safely get most 
of these medications in Canada, but the problem is that 
medicines in Canada that are exported to the United States are 
not subjected to any of the inspections that go on for 
medications that are purchased in Canada. The Canadian 
government basically takes the position that it will inspect 
medications for domestic use, but it is not going to waste the 
resources, the time and the energy, nor does it have the 
capacity--and from what I saw at Kennedy Airport and these 
other inspections, neither do we--to examine the medications 
that are for export.
    So, in many cases, if you deal with some pharmacies in 
Canada, you may not be getting medication that really comes 
from Canada. It may be a reimportation of an importation that 
is coming from Pakistan or from Spain or from some other part 
of the world.
    And in many cases, or at least I should say in the 
pharmacies that we have been able to look at in the 2 months 
that we have been doing this, the Internet pharmacies in Canada 
will require you to sign a waiver in which you agree that you 
will not proceed against them if they sent you the wrong 
medication, which of course would be kind of extraordinary if 
that same thing happened in an American pharmacy.
    If you went into an American pharmacy with your 
prescription from your doctor for a serious medication or any 
medication, and the pharmacist filled the prescription and then 
handed you a waiver to sign saying that you would not proceed 
against him if he gave you the wrong medication or if he did 
damage or harm to you, that would raise real suspicions as to 
whether or not the system that you are using is a reliable one.
    But that is essentially what the Canadian system is telling 
us. They are telling us that the medicines that we get, the 
pharmacies cannot really stand behind, and they cannot really 
vouch for because, in fact, many of those medications may be 
coming from somewhere else. They are coming from other parts of 
the world where the factories are not inspected in the same 
way, where the same kind of reliability does not exist.
    So the whole thrust of this report, and it was a 
preliminary report--we are still conducting an analysis and 
investigation--that before we open up our borders to even more 
importation of drugs from foreign countries or on some kind of 
vast scale, we should straighten out the system that we 
presently have. We should have a system in which we inspect 
more, we inspect more effectively, we develop technology so 
that we can trace medication, and so that we have pedigrees. 
Everyone wants to see more access to medications, but we do not 
want to see a system in which we create enormous risk and 
danger to health. That would be counterproductive.
    It reminds me when I was the mayor there was a tremendous 
desire for affordable housing because people could not afford 
housing, but that did not lead us to then create a system of 
housing that was dangerous. It led us to try to find creative 
ways to build housing that was safe and secure and satisfied 
the need of people for affordable housing, as opposed to 
running to a solution where you end up putting people in homes 
that are dangerous, homes that are poorly built, homes that 
might create other risks for their health. That is, 
essentially.  .  . I mean, the pressure is understandable, but 
the solution has to be looked at very, very carefully.
    So there is a great deal more that I could discuss, but I 
think I have summarized it. I am open to any questions that you 
have, Senator.
    Chairman Hatch. Thank you. That means a lot to me, to have 
your testimony, because you have been there, you have studied 
it, you have lived in one of the most complex, difficult cities 
in the world, difficult-to-manage cities in the world, and you 
managed it very, very well.
    But you discussed a paper you wrote with interim findings 
on prescription drug importation from foreign sources. In that 
report, in your report, you state that the weaknesses in our 
existing system could potentially open the door for individuals 
interested in supplying drugs through illegal means, 
specifically, organized crime and terrorist organizations. Now, 
why do you believe that these types of activities would appeal 
to those groups, in particular?
    Mr. Giuliani. Because it is an easy, unfortunately, it is 
an easy and safe, from their point of view, and unaccountable 
way of getting things into the United States. You almost hate 
to repeat this, but of course they know it, so you are not 
really emphasizing anything they do not already know. If you 
have a system that people are using and relying on to get 
medications that are enormously important to them, and valuable 
to them, something that they are going to take, and you are 
sure they are going to do that, and it is a system that is 
virtually uninspected, which this system is, then it is one 
that can easily be exploited by organized criminals, drug 
dealers, and even by terrorists as a way of harming particular 
individuals. It can create confusion with our drug supply, 
polluting the drug supply in the United States, particularly if 
it were to be opened to even more foreign importation.
    And that is the basic analysis of the people that I rely on 
to give me advice on this, people who have had a lot of 
experience with organized crime and terrorism. If the borders 
are porous and able to be exploited, then that is an invitation 
not just to terrorists, but to organized criminals and to drug 
dealers to take advantage of that.
    Right now, that is the case. If you open it up to even more 
foreign importation on a vast scale, then it becomes even more 
of a temptation and even more difficult.
    Chairman Hatch. How knowledgeable do you think, well, in 
your opinion, do you think our law enforcement agencies are 
about counterfeit prescription drugs, illegal Internet sales, 
et cetera?
    Mr. Giuliani. I think the law enforcement agencies are not 
extremely knowledgeable about that for understandable reasons. 
There are not the kind of tests, either chemical or 
technological devices, that make it easy to detect this. My 
experience, and that of Bernie Kerik, who was my partner in 
doing this, who was not only the former police commissioner, 
but was formerly a detective who investigated large-scale drug 
importation cases, is with heroin, and cocaine and illegal 
drugs like that, where there are field tests available. You 
have a very quick, immediately available test that you can use 
that at least will give you a fairly good indication of whether 
you are actually dealing with heroin, whether you are actually 
dealing with cocaine and roughly the potency of it.
    Chairman Hatch. But that is a little bit different from 
the--
    Mr. Giuliani. That is a lot different than this.
    Chairman Hatch. --complex pharmaceutical drug.
    Mr. Giuliani. There are no field tests that tell you that 
the Lipitor is actually Lipitor or that the antibiotic is 
actually an antibiotic. So it becomes very, very difficult when 
you have 40,000 packages a day and no field test for law 
enforcement to create that kind of security for us. So it is 
not their fault, but the processes do not exist to allow them 
to really secure our borders.
    Chairman Hatch. It seems like, to me, you would almost have 
to produce a small pharmaceutical inspection companies that 
know everything there is in these pharmaceutical drugs, and 
there is, what, 60,000 pharmaceutical drugs in our society 
today?
    Mr. Giuliani. When we do the test, that is exactly the way 
it is done. The medicine is actually sent to the pharmaceutical 
company that manufactured it, and then they have to actually do 
the test to determine is this actually the medication that it 
purports to be? Sometimes it turns out that it is not.
    Chairman Hatch. And who pays for that?
    Mr. Giuliani. That ultimately is paid for by the 
Government, I imagine. Actually, I do not know the answer to 
that, Senator. I would have to check.
    Chairman Hatch. I cannot imagine pharmaceutical companies 
who will want to get in a daily inspection routine that they 
have to pay for.
    Mr. Giuliani. I will get the answer to you, but actually 
what I imagine is the Government pays for the part of it where 
it kicks it out, sends it over. I imagine the pharmaceutical 
companies do it as a way of protecting their brand.
    Chairman Hatch. Sure. In the paper that we have mentioned, 
your paper, you mentioned the distribution chain being fairly 
straightforward, but there are chances for exploitation or 
abuse within the distribution chain; namely, there are no 
uniform standards for wholesalers you say or distributors, and 
there are thousands of secondary pharmaceutical wholesalers. 
There is no uniform mechanism to track the medicine from the 
point of being manufactured to the point of sale and 
repackaging these products. Of course, these are all points of 
vulnerability.
    Could you talk about how we can make improvements in this 
distribution chain for pharmaceuticals or really is it even 
possible for us to do that?
    Mr. Giuliani. I believe that is possible. I think it is 
impossible, as you know, to create a perfect system, but it is 
certainly possible to create a much better system than we 
presently have to determine pedigree, to keep track of it.
    Chairman Hatch. Do you have any idea what that would cost 
to do that?
    Mr. Giuliani. I do not know how much it would cost. I know 
it would cost a lot of money. But given modern technology, the 
ability to sort information, to track information, I think it 
is conceivable that you could develop a system that is a lot 
better than the system we have now, to check the pedigree of a 
medication, to check the points where it has been, to make sure 
it has come out of the right factory so that those factories 
have been inspected, and to create devices that would much more 
easily be detectable at the border. That is the kind of thing 
that really should be the emphasis of what we are doing in the 
next year or two.
    Chairman Hatch. And you would have to have a lot of 
cooperation from the exporting country and companies.
    Mr. Giuliani. You would have to have a great deal of 
cooperation from the companies that--
    Chairman Hatch. It would cost them a lot of money, too, 
right?
    Mr. Giuliani. You would have to have a lot of cooperation 
from the companies that are producing the medications. I expect 
that most of them would want to do that because they have a 
real interest in making sure that their medication is 
protected, and you would have to have cooperation from the 
countries through which the medicines pass.
    Chairman Hatch. But would that not then raise the costs 
even more of the medications?
    Mr. Giuliani. It would probably raise the cost of some 
medications, but at the same time it would make it a lot more 
available. It would also make it a lot safer, in terms of 
determining whether or not you are actually using the 
medication that you are using.
    The other thing about these Internet sales is very, very 
often people are not saving a great deal of money on the 
medication. It appears as if they are, but the fact is that 
when they get into repetitious purchases, they are often 
expending a good deal of money getting the medication, and it 
is not terribly different from what they would spend if they 
got themselves into a plan, into the right plan.
    The savings are sort of unfairly distributed. Some people 
get them. Some people do not get them.
    Chairman Hatch. What would be your biggest concern that you 
might have with regard to importation of drugs being legalized 
or legislation to legalize?
    Mr. Giuliani. My biggest concern with the present system, 
even before you get to the open it up even more, the present 
system is a system in which we are not inspecting anywhere near 
enough of the medications that come into the United States. We 
have not worked out systems for determining pedigree, for 
determining whether it is the proper medication. To add on top 
of that significantly more importation would take a system that 
is already, if not out of control, pretty close to it, and 
drive it to a much worse level of vulnerability to really 
exploit it.
    Chairman Hatch. Now, I was interested to read in your 
report that the Canadian Government is not inspecting drugs 
that have been imported to Canada and then exported to the 
United States. In fact, the Canadian Government, as I 
understand it, has stated that it will not be held responsible 
for the safety and quality of drugs exported from Canada to 
other countries, including our country, the United States.
    Personally, I find that to be quite disturbing, since most 
believe that drugs imported from Canada to the U.S. are safe. 
Do you care to comment on that?
    Mr. Giuliani. Well, I think it is something where people 
should be absolutely aware of this. I mean, they should 
understand they are taking this risk because I think there is 
an assumption, as you say, that if you are getting medicines 
from Canada, they must be safe because, by and large, for 
Canadians getting medications in Canada, their system is as 
safe as ours. If you are a Canadian citizen, you go to a 
Canadian pharmacy, you get medicines in a Canadian pharmacy, it 
is roughly the same system that we have getting medications in 
an American pharmacy.
    So people who are getting medicines through the Internet or 
by mail from Canada think they have the same protection as they 
would have if they were actually buying those medications in 
Canada in a Canadian pharmacy. They do not because the Canadian 
Government says we are basically going to save our resources to 
protect the domestic population in Canada, not to deal with all 
of this tremendous amount of exportation that is going on.
    So they do not inspect the medications that are being 
exported, and they are being honest with us. They are being 
honest with the American public by telling us that, if we pay 
attention to it. They are telling us not to expect the same 
level of reliability and safety if you buy medications by mail 
or over the Internet from us as you would if you bought those 
same medications in a pharmacy in Canada because we simply do 
not inspect the medications that are going outside the country, 
and we cannot. We do not have the resources to do it.
    Chairman Hatch. I understand that even some of the 
pharmacies they require a disclaimer.
    Mr. Giuliani. The pharmacies, I cannot say that all of them 
do because we have not looked at anywhere near all of them, but 
the ones that we did look at require written waivers to do 
business with them, so that you will not hold them responsible. 
So if there is something wrong with the medication, if you 
order one medication, but you get another or you get a 
medication that is not of the right potency, you cannot hold 
them accountable for that the way you would if you were dealing 
with the medication domestically.
    I suspect--although I do not know the answer to this, it is 
a good question so we will find out--I imagine if a Canadian 
citizen goes into a Canadian pharmacy to buy that same 
medication, he or she does not have that waiver.
    Chairman Hatch. I think that is right.
    Mr. Giuliani. The same way that we do not have it if you 
buy something in an American pharmacy.
    Chairman Hatch. Right. That means Americans would have no 
legitimate legal right to pursue the pharmacy that sold them a 
dangerous drug.
    Mr. Giuliani. It means that Americans who do that have no 
right to pursue them. It also means that the system is not 
accountable. It means that those selling under a system like 
that knows that they are not going to be held accountable.
    Chairman Hatch. Yes, that is right.
    Mr. Giuliani. So that if they have two available supplies 
of medication, the reliable one they are going to save for the 
domestic public in Canada, and theoretically, the less-reliable 
one they are going to sell by mail or over the Internet because 
there is no accountability for that.
    Chairman Hatch. Yes, and sell that with impunity because 
there is no way you can have redress for that.
    Now, as part of your investigation, you traveled to mail 
facilities to review the flow of prescription drugs into the 
facilities. What, if anything, surprised you or concerned you 
with these visits?
    Mr. Giuliani. Well, there were a couple of things. I guess 
the main thing would be the lack of resources. If you are going 
to be dealing with 40,000--that is the number they gave us for 
JFK, and I assume that is the correct number--40,000 packages a 
day coming in, it would seem to me that you would have to have 
more than two or three inspectors, that more resources have to 
be put into doing inspections.
    And then the technology is outdated. They do not have 
modern tracking equipment. They do not have the kind of 
computer technology that a major multinational corporation 
would have if it had to deal with having to even spot inspect 
some portion of 40,000 packages a day. You would expect to see 
much more advanced technology being used to profile where you 
are going to look, to categorize different packages and kinds 
of packages you are going to look at more carefully. Even 
knowing what is going on in the area of inspection of 
passengers who are now traveling by air or inspection of cargo, 
which is now beginning to increase, the technology in both 
those areas is much more advanced than the technology that is 
being used for drugs.
    And I think that is where some very useful things can be 
done. That is where a lot of improvements could be made so that 
you would have a safer system, and then if anybody wanted to 
consider expanding it, they would be able to expand from the 
base of a safe system rather than one that is exploited as much 
as this one is.
    Chairman Hatch. Why do you believe that opening the borders 
for wholesale importation of drugs will increase the number of 
counterfeit drugs?
    Mr. Giuliani. Well, because you are just going to, by some 
very, very large amount, take that inspection percentage and 
reduce it dramatically. If 40,000 packages a day becomes 80,000 
or 90,000 or 100,000 or 200,000, then, number one, there is 
even less safety and, number two, it is even more of an 
invitation to somebody trying to get things into the country to 
just play the odds and say to himself I can engage in a 
business of sending in ineffective or even dangerous 
medications, and nobody is going to catch me. Nobody is going 
to find out about it.
    Chairman Hatch. There is a lot of money in this business, 
too.
    Mr. Giuliani. There is a tremendous amount of money in the 
business, and very often in some of these situations people 
think they are saving money, as I said before, but they are not 
because they are being charged sometimes very large amounts of 
money, and sometimes they are being charged that money for 
drugs that are not even working.
    Chairman Hatch. That is the point or maybe are not even 
drugs.
    Along that same line, what is your opinion about incentives 
for counterfeiting and diversion of prescription drugs compared 
to illicit narcotics?
    Mr. Giuliani. I think that the penalties for prescription 
drug diversion abuse probably should be increased. Because when 
most of the penalties were passed, this was not a major problem 
in the United States. Our major focus, when most of those 
penalties were passed, decided and amended, was back in the 
days in which our major problem was illegal drugs, and that was 
the real focus of not only the Congress, but State 
legislatures. All during the time I was assistant U.S. 
attorney, United States attorney, the real focus was on heroin, 
cocaine, marijuana, illegal drugs like that.
    Some of our drug abuse problem now, a much more significant 
percentage of it, is diversion of prescription medications, and 
it seems to me it would probably be a good time to take a look 
at, number one, the penalties, should they be increased because 
the problem is worse than it was 10, 15, 20 years ago, and, 
number two, it probably is a good time to even divert some of 
our resources to that area because that is an area now where 
abuse is growing.
    Chairman Hatch. Just one last question. Why do you suppose 
that investigating and prosecuting illegal drug Internet sales 
or counterfeit drug cases are a lower priority for both Federal 
and State law enforcement agencies?
    Mr. Giuliani. I think it is, Senator, because we grew up in 
the era in which the dramatic focus was on heroin, cocaine, 
marijuana, and some of the other illegal drugs. It is really 
just a question of conditioning and culture, as it was when 
those illegal drugs were the real problem. And it takes a 
while, even for law enforcement, to catch up with the fact 
that, sure, that is still a problem, but this new problem has 
now become much, much worse; namely, the diversion and misuse 
of prescription medications, and particularly those that are 
controlled substances. That can create a real problem.
    Chairman Hatch. Well, I will tell you, it is a scary area 
because there is such a desire of a lot of people to try to be 
able to try and reduce the costs of their pharmaceuticals 
because, let us face it, it is expensive in this country, and 
they are almost willing to do anything to reduce those costs.
    But the testimony we have had here today is I think pretty 
frightening, and your testimony is as well because you and I 
both know that it does not take organized crime long to catch 
on to how they can make big, big bucks quickly. And diluting 
pharmaceuticals or selling knock-offs or even false drugs, 
fraudulent drugs, could be--and is in some areas--big business.
    I just want to personally thank you for the efforts that 
you have made. Not only do you understand these areas very, 
very well, because you have been there. You have prosecuted 
cases. You have been a principal law enforcement official in 
this country for many, many years, but as a mayor you saw some 
of these things happening as well.
    Let me just say that I want to thank you for your testimony 
and for your willingness to take the time to come down and be 
with us and help enlighten us on this particular set of 
subjects. And before concluding, I would just like to ask for 
unanimous consent to submit the written testimony of BIO, 
Health Care Leadership Council and the American Pharmaceutical 
Association into the record. I am also going to leave the 
hearing record open for one week for follow-up questions and 
other statements.
    But above all, I think all of the witnesses here today have 
been excellent, but in particular, I am very grateful that you 
would take the time to come and discuss this with this 
Committee because these are important issues, and a lot of 
people in this country just buy off on the populist explosive 
comments of some people about how wonderful this is all going 
to be, without having the necessary safety and efficacy 
concerns that we have got to have if we are going to make sure 
that our seniors and others receive fully potent and reliable 
pharmaceutical prescription drugs in our society.
    So I, personally, appreciate all of the work you have done 
in this area, and I appreciate you being with us today.
    Mr. Giuliani. Thank you very much, Senator.
    Chairman Hatch. With that, we are going to, I have nobody 
else to question, so we will recess until further notice.
    Thanks for being with us.
    Mr. Giuliani. Thank you, sir.
    [Whereupon, at 1:17 p.m., the Committee was adjourned.]
    [Questions and answers and submissions for the record 
follow.]

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