[House Hearing, 109 Congress]
[From the U.S. Government Printing Office]



     INCREASING GENERIC DRUG UTILIZATION: SAVING MONEY FOR PATIENTS

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

                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 18, 2005

                               __________

                           Serial No. 109-16

                               __________

      Printed for the use of the Committee on Energy and Commerce


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house


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                    ------------------------------  

                    COMMITTEE ON ENERGY AND COMMERCE

                      JOE BARTON, Texas, Chairman

RALPH M. HALL, Texas                 JOHN D. DINGELL, Michigan
MICHAEL BILIRAKIS, Florida             Ranking Member
  Vice Chairman                      HENRY A. WAXMAN, California
FRED UPTON, Michigan                 EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida               RICK BOUCHER, Virginia
PAUL E. GILLMOR, Ohio                EDOLPHUS TOWNS, New York
NATHAN DEAL, Georgia                 FRANK PALLONE, Jr., New Jersey
ED WHITFIELD, Kentucky               SHERROD BROWN, Ohio
CHARLIE NORWOOD, Georgia             BART GORDON, Tennessee
BARBARA CUBIN, Wyoming               BOBBY L. RUSH, Illinois
JOHN SHIMKUS, Illinois               ANNA G. ESHOO, California
HEATHER WILSON, New Mexico           BART STUPAK, Michigan
JOHN B. SHADEGG, Arizona             ELIOT L. ENGEL, New York
CHARLES W. ``CHIP'' PICKERING,       ALBERT R. WYNN, Maryland
Mississippi, Vice Chairman           GENE GREEN, Texas
VITO FOSSELLA, New York              TED STRICKLAND, Ohio
ROY BLUNT, Missouri                  DIANA DeGETTE, Colorado
STEVE BUYER, Indiana                 LOIS CAPPS, California
GEORGE RADANOVICH, California        MIKE DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire       TOM ALLEN, Maine
JOSEPH R. PITTS, Pennsylvania        JIM DAVIS, Florida
MARY BONO, California                JAN SCHAKOWSKY, Illinois
GREG WALDEN, Oregon                  HILDA L. SOLIS, California
LEE TERRY, Nebraska                  CHARLES A. GONZALEZ, Texas
MIKE FERGUSON, New Jersey            JAY INSLEE, Washington
MIKE ROGERS, Michigan                TAMMY BALDWIN, Wisconsin
C.L. ``BUTCH'' OTTER, Idaho          MIKE ROSS, Arkansas
SUE MYRICK, North Carolina
JOHN SULLIVAN, Oklahoma
TIM MURPHY, Pennsylvania
MICHAEL C. BURGESS, Texas
MARSHA BLACKBURN, Tennessee

                      Bud Albright, Staff Director

        David Cavicke, Deputy Staff Director and General Counsel

      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                 ______

                         Subcommittee on Health

                     NATHAN DEAL, Georgia, Chairman

RALPH M. HALL, Texas                 SHERROD BROWN, Ohio
MICHAEL BILIRAKIS, Florida             Ranking Member
FRED UPTON, Michigan                 HENRY A. WAXMAN, California
PAUL E. GILLMOR, Ohio                EDOLPHUS TOWNS, New York
CHARLIE NORWOOD, Georgia             FRANK PALLONE, Jr., New Jersey
BARBARA CUBIN, Wyoming               BART GORDON, Tennessee
JOHN SHIMKUS, Illinois               BOBBY L. RUSH, Illinois
JOHN B. SHADEGG, Arizona             ANNA G. ESHOO, California
CHARLES W. ``CHIP'' PICKERING,       GENE GREEN, Texas
Mississippi                          TED STRICKLAND, Ohio
STEVE BUYER, Indiana                 DIANA DeGETTE, Colorado
JOSEPH R. PITTS, Pennsylvania        LOIS CAPPS, California
MARY BONO, California                TOM ALLEN, Maine
MIKE FERGUSON, New Jersey            JIM DAVIS, Florida
MIKE ROGERS, Michigan                TAMMY BALDWIN, Wisconsin
SUE MYRICK, North Carolina           JOHN D. DINGELL, Michigan,
MICHAEL C. BURGESS, Texas              (Ex Officio)
JOE BARTON, Texas,
  (Ex Officio)

                                  (ii)




                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Berger, Jan, Chief Clinical Officer, Caremark................    19
    Cramer, Bonnie M., Board of Directors, American Association 
      of Retired Persons.........................................    29
    Gottlieb, Scott, American Enterprise Institute...............    38
    Jaeger, Kathleen D., President and CEO, Generic 
      Pharmaceutical Association.................................    10
    Perry, Bruce C., Medical Director, The Southeast Permanente 
      Medical Group, Kaiser Permanente...........................    33
Material submitted for the record by:
    National Association of Chain Drug Stores, prepared statement 
      of.........................................................    69

                                 (iii)

  

 
     INCREASING GENERIC DRUG UTILIZATION: SAVING MONEY FOR PATIENTS

                              ----------                              


                        WEDNESDAY, MAY 18, 2005

                  House of Representatives,
                  Committee on Energy and Commerce,
                                    Subcommittee on Health,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 1:04 p.m., in 
room 2322 of the Rayburn House Office Building, Hon. Nathan 
Deal (chairman) presiding.
    Members present: Representatives Deal, Bilirakis, Shimkus, 
Shadegg, Bono, Ferguson, Myrick, Burgess, Barton (ex officio), 
Brown, Waxman, Green, Strickland, Capps, Allen, and Baldwin.
    Staff present: Chuck Clapton, chief health counsel; Ryan 
Long, professional staff; Bill O'Brien, legislative analyst; 
Eugenia Edwards, legislative clerk; Brandon Clark, health 
policy coordinator; John Ford, minority counsel; and Jessica 
McNiece, research assistant; and David Vogel, research 
assistant.
    Mr. Deal. I call the meeting to order. I am pleased to have 
this opportunity to have these distinguished members of the 
panel here, today.
    And in my opening statement, I want to simply welcome you, 
and I will go ahead and introduce each of you as we go along 
the table: Ms. Kathleen Jaeger, who is President and CEO of the 
Generic Pharmaceutical Association. We are pleased to have you 
with us. Dr. Jan Berger, the Chief Clinical Officer of 
Caremark. Ms. Bonnie Kramer, Board of Directors Member of the 
American Association for Retired Persons. Dr. Bruce Perry, 
Medical Director for the Southeast Permanente Medical Group in 
Atlanta, Georgia, representing Kaiser Permanente. And Dr. Scott 
Gottlieb of the American Enterprise Institute. We are certainly 
pleased to have such a distinguished group before us today.
    Given the increase in expenditures on healthcare costs in 
our country, I believe all of us would agree that it is 
appropriate that we are here today to explore the significant 
cost savings for American consumers and the American taxpayers 
if we could increase the rate of utilization of generic 
pharmaceuticals. Although the United States has one of the 
highest rates of generic utilization in the world, and generics 
available in our country are up to 50-percent cheaper than 
those available in other countries, we are still leaving 
significant savings on the table through under-utilization.
    In fact, a recent HHS report conservatively estimates that 
in 2003, U.S. consumers could have saved an additional $17 
billion if they would have fully utilized the generic drugs 
available on the market today. And the FDA states that a 
typical patient could reduce their per-day cost by 14 to 16 
percent by fully utilizing generic pharmaceuticals. Amazingly, 
for every 1-percent increase in generic drug utilization, it 
has been estimated that consumers and third-party payers could 
save between $1.3 and $4 billion every year. Clearly, generic 
pharmaceuticals could provide real savings for real people and 
could do so in a way that does not put patients' safety at 
risk.
    That is why I am excited about the opportunity we have 
before us today to further explore ways to lower some of the 
obstacles to increased use of generic pharmaceuticals and to 
highlight some of the efforts already underway to achieve these 
important goals. Again, I welcome our distinguished members of 
the panel, and at this time, I will recognize my friend Mr. 
Brown from Ohio for his opening statement.
    Mr. Brown. Thank you, Mr. Chairman. I very much appreciate 
your having this hearing today on generic medicines as a 
vehicle for reducing healthcare costs. And thanks to the five 
witnesses who are with us today, too.
    If the prescription drug market worked like other markets, 
a brand-name drug would enjoy a well-defined, immutable period 
of market exclusivity to reward and compensate innovation, and 
competition would drive the price down to more or less the cost 
of production plus a reasonable profit. The foundation for this 
free market structure is written into our Constitution. The 
Constitution requires the Federal Government to protect 
intellectual property, as we know; it also requires defining 
limits on that protection to prevent exploitation of consumers.
    When it comes to prescription drugs, the public has a huge 
stake in the market working as it should. Unlike most 
innovations, new drugs and other healthcare innovations can 
have a direct bearing on human suffering and on human survival. 
That is why there is so much tension between innovation and 
access. That is why the public finances prescriptions drugs for 
millions of Americans who otherwise couldn't afford them. That 
is why anticompetitive behavior in the prescription drug market 
isn't just unethical; it is immoral.
    I am sorry that pharma refused to participate in today's 
hearing. I don't particularly like leveling charges at brand-
name drug makers when our friend and former colleague Billy 
Tauzin is not here to defend their actions.
    We can't responsibly discuss generic utilization without 
discussing the tactics used to delay generic approvals. 
Utilization of approved generics may be less than 100 percent, 
but utilization of approvable but unapproved generics is zero. 
Brand-name drug manufacturers abuse the citizen-petition 
process to unjustifiably delay approval of generics. I am 
pleased the FDA is trying to tighten up the process to prevent 
such abuses. The agency can--and the agency should establish 
reasonable timeframes for review of these petitions and permit 
FTC to review them for anticompetitive intent.
    Brand-name drug companies also compete against themselves 
to undermine the incentive for timely generic competition. They 
do this by producing authorized generics, which are no more 
than repackaged and re-priced versions of their brand products. 
Drug makers could simply reduce the price of their brand name 
products to the generic drug level, which would benefit 
consumers even more than generic competition, at least until 
the myths about generic inferiority are completely dispelled. 
They could price their generic product competitively, which 
would obviate the need for true generic competition; instead, 
they reduce the generic price by a token amount, knowing that 
their presence in the market curtails the profit potential for 
true generic competition. FTC analyzed a few authorized 
generics and decided they are not anticompetitive. Now, these 
pseudo-generics are proliferating, and the anticompetitive 
implications are clear.
    Drug makers fight generic access at the State level. They 
attach irrelevant patents to their drugs to gum up the generic 
approval process. They play on fears about the quality of 
generics, fears that are 20 years old and should have 
evaporated when my colleague John Dingell helped to clean up 
the generic drug industry. When generic drug competition 
threatens one product, drug makers produce a slightly modified 
version and market it as new breakthrough product. We could 
name example after example.
    They price it that way, too. I am all for incremental 
advances, but when second-generation products are oversold, 
overpriced, and the release is timed to thwart generic 
competition, consumers, simply put, are being robbed. Drug 
makers are currently pushing for a second Bioshield bill that 
provides the industry an array of patent extensions. Even I 
didn't expect the drug industry to sink so low as to exploit 
the threat of terrorism in pursuit of windfall profits.
    Drugs makers use directed consumers ads to convince 
patients that the profitable drugs are the best ones. Like 
other major industries, drug companies use advertising to 
induce demand and develop brand loyalty. Except the drug 
industry isn't like other industries: drug companies knowingly 
involve themselves in life and death situations. Their products 
aren't expendable, and the resources that purchase them are 
indeed stretched thin. I appreciate the drug industry's efforts 
to set standards for directed consumer advertising, but drugs 
should be used because they are effective, not because they are 
effectively advertised. Drug makers should voluntarily refrain 
from DTC advertising and work with us to expand access to 
objective information like that provided on the NIH website.
    The bottom line, Mr. Chairman, is this: competition brings 
drug prices down; generic drugs fuel competition. 
Misinformation, misperceptions, outmoded practice patterns and 
anticompetitive tactics frustrate competition. That, we cannot 
afford.
    Mr. Deal. I thank the gentleman. In fairness to pharma, I 
must tell you that they were not invited to this hearing, since 
we did not consider them to be a generic manufacturer.
    Mr. Brown. Mr. Chairman, my understanding from the minority 
staff is that we requested they be invited, and your staff told 
us that they were, and they declined.
    Mr. Deal. Well, I shall clear up to be sure, but I can 
assure you that you are going to have more than your share of 
opportunities to talk to our former Chair, Mr. Tauzin--probably 
more than you want to.
    Mr. Brown. I noticed there are more than 2 or 3 pharma 
lobbyists roaming the Capitol from time to time, too, Mr. 
Chairman.
    Mr. Deal. Well, I am sure that you will have an opportunity 
to do that. This hearing today, of course, hopefully, is more 
focused on the generic issue. Mr. Bilirakis, the cochairman of 
overall committee.
    Mr. Bilirakis. Thank you very much, Mr. Chairman. I, too, 
want to commend you on calling this hearing to examine the role 
of generic drugs in lowering healthcare costs. As you, I am 
sure, know, I have been a longtime proponent of generic drug 
industry.
    Generic drugs contain the same active ingredients as brand-
name drugs, for the most part; they meet the safety 
requirements as brand-name drugs. They are just as efficacious 
as brand-drugs--again, for the most part. They are held to the 
same manufacturing standards as brand-name drugs. Generic drugs 
are, in fact, just as safe and work just as well as their 
brand-name counterparts, except that they often cost much less.
    Congress enacted the Hatch-Waxman Act a little more than 20 
years ago to establish the framework that currently governs the 
entry of generic pharmaceutical products into the marketplace. 
The law--which has worked well--was designed to both to speed 
the entry of lower cost, generic drugs into the marketplace, 
while preserving an environment that encourages companies to 
develop innovative, new pharmaceuticals.
    The Medicare Prescription Drug Law that we approved in 2003 
built on the success of Hatch-Waxman by including provisions to 
further decrease the time that it takes to bring generic 
pharmaceuticals to the market. Consequently, more prescriptions 
are filled for generics today than ever before. In 1984, only 
about one-fifth of prescriptions were filled with generic 
alternatives, compared to more than half today. That is good, 
but I think not good enough.
    We have not fully realized the potential that generic drugs 
hold for lowering healthcare costs. The Department of Health 
and Human Services recently reported that American consumers 
could have saved $17 billion in the year 2003 if they would 
have utilized generic drugs whenever they were available. There 
are several reasons why generics are not used more often. 
Certainly, one of those reasons is that many people, most 
people, simply refuse to believe that generics work as well as 
their brand-name counterparts. I have also heard that doctors 
and pharmacists sometimes lack adequate information about the 
safety, efficacy, and affordability of generics.
    I want to make it clear that I strongly believe and support 
the pioneering work--and I think we should underline the words 
``pioneering work''--of America's pharmaceutical companies. 
These companies take tremendous risks by spending billions of 
dollars to bring new, lifesaving drugs to the markets. They 
rightly reap the rewards when those drugs make it through the 
rigorous approval process, and so do we. The work of the drug 
companies that some so deride does save lives. Their research 
and development allows others to bring generics to the market 
more quickly and more cheaply. I believe we must continue to 
ensure that we find an appropriate balance--and there is that 
key word--between encouraging the use of lower cost, generic 
alternatives and protecting the incentives for innovator 
companies to continue their lifesaving and life-improving 
research.
    I look forward to the testimony, as we all do, of our 
witnesses and am interested to hear their perspective on how we 
can save patients and taxpayers billions of dollars by 
encouraging the appropriate use of generic drugs. Thank you, 
Mr. Chairman.
    Mr. Deal. Thank the gentleman. Mr. Waxman?
    Mr. Waxman. Thank you very much, and Mr. Chairman, it is a 
pleasure to be at a committee where both Democrats and 
Republicans agree that generic drugs are one of the more 
effective ways to lower costs of prescription drugs to 
consumers. That is certainly true, and FDA's rigorous 
regulatory framework assures us that generics are as safe and 
as effective as their brand-name counterparts. So I think that 
we should do all we can to ensure that generics are available 
and used widely.
    The high cost of prescription drugs is one of the major 
challenges facing the American healthcare system today. I think 
we should be clear that the use of generics is only one part of 
the solution to the problem of the high cost of prescription 
drugs. We can do much more. First, we should remove the ban on 
the Secretary's ability to use the purchasing power of 40 
million Medicare beneficiaries to negotiate lower prices for 
brand-name drugs. And second, the U.S. should not be paying 
prices for their drugs that are many times the prices in other 
countries. We need to change that.
    Most drug expenditures, after all, are for drugs for which 
there is no approved generic version, so until we deal with the 
brand-name drug prices, we are not dealing with the problem. 
However, increasing the availability and use of generic drug 
products is of critical importance. Once generic products have 
entered the market, consumers can avail themselves of the 
drastic price advantages; but first, we must assure that 
generic drugs make it to the market as soon as possible.
    Unfortunately, today there is an entire class of products 
known as biopharmaceuticals, widely known as biotech drugs, for 
which there are no available generic alternatives. These 
products account for billions of dollars in U.S. sales, and 
generic versions of these products could create enormous 
savings for consumers. We should do all we can to ensure that a 
generic-approval system for biopharmaceuticals is put in place 
as soon as possible. Every day delayed means American consumers 
pay a higher price.
    The threats to rapid access of generics to the market are 
always with us. Incredibly, as we talk today, there is 
legislation in the Senate that Mr. Brown referred to, 
Bioshield, two proposals that would allow a brand-name company 
to get up to a 2-year extension on any drug or product the 
company markets, simply by developing a drug to deal with 
bioterrorism illness or emerging infectious disease. This is 
called a wildcard. It doesn't make sense. It is a gift of what 
could amount to billions of dollars to those companies without 
the consumers really getting what they need in exchange.
    It is heartening to learn about practices of companies such 
as Kaiser Permanente and Caremark that help create wider use of 
generic products. We must continue to be vigilant in our 
efforts to break down the barriers to rapid emergence of 
generic drugs on the market and at the same time, pursue 
equally vital options for lowering the cost of prescription 
drugs in this country.
    I am pleased to welcome the witnesses to our hearing today 
and look forward to their testimony.
    Mr. Deal. I thank the gentleman. I recognize Dr. Burgess 
for an opening statement.
    Mr. Burgess. Thank you, Mr. Chairman, and again, thank you 
for holding this hearing on generic drug utilization.
    There is no question that consumers should have access to 
lower cost, safe medications, and generic drugs do provide a 
vehicle to get here. Unfortunately, utilization of generic 
drugs has not been as widespread as it should be. Based on 
estimates in 2003, consumers could have saved $17 billion if 
they had used more generic drugs, where appropriate.
    Because of the inequities of foreign regulation and 
regimes, the place of both prescription drug research and 
development goes on in America, and the American consumers 
bears the brunt of that. Generic drugs do provide consumers 
with a much lower cost alternative than branded medications, 
and we do need to consider remedying the inequities in the 
foreign market through a more aggressive use of trade tactics. 
Then, generic drugs can remain one of the few, safe low cost 
options to consumers.
    Within the Medicare Modernization Act, this Congress 
provided much-needed reforms to the Hatch-Waxman drug-pricing 
law to speed more generics to the market. Reducing the amount 
of time that a brand-name manufacturer can reasonably maintain 
a patent on a drug will give the consumers greater access to 
lifesaving medications. I am interested to hear from the panel 
how effective these reforms have been and whether consumers are 
benefiting from the lower cost medications.
    I am also hopeful that we can find ways to support more 
utilization of generic drugs. Consumers need to have pricing 
information available to them and differences between branded 
and generic medicines. Increased transparency of the 
marketplace, I believe, will benefit us all. The healthcare 
network, from doctors to pharmacists and health plans plays a 
vital role in helping patients realize substantial savings.
    Finally, we need to ensure that medical decisions, 
including the prescribing of generics, remains in the hands of 
the physician. Substitute-therapeutics and placing other 
mediation in the hands of the patient when the doctor has 
prescribed something else really has no place in this debate, 
and I would encourage our body, our Congress, not to practice 
medicine by legislation because it is not appropriate for us to 
do so. But when it is clinically appropriate to prescribe 
generic drugs, we need to encourage their utilization.
    Mr. Chairman, I look forward to hearing some information 
from our panel today about the cost of generics. While we are 
concerned about the cost of branded pharmaceuticals, sometimes 
of the cost of generics is many, many hundreds of a percent 
times the cost of their manufacture. Perhaps there are ways of 
even getting the costs even lower than what we see today.
    In the arena of biopharmaceuticals, Mr. Chairman, that is a 
difference science, and that does bring a lot of different 
issues into play. And we need to be very careful in this 
Congress about legislating that type of development.
    With that, Mr. Chairman, I will yield back.
    Mr. Deal. I thank the gentleman. I recognize Ms. Capps for 
an opening statement.
    Ms. Capps. Thank you, Mr. Chairman, for holding this 
hearing and to our witnesses for coming. The rising cost of 
prescription medications is critical issue for this committee, 
and that is because it is such a critical issue for our 
constituents.
    Increasing medication prices are making healthcare and 
health insurance go through the roof--it is so expensive. And 
they are hurting the quality of healthcare that we pride 
ourselves on because they are putting needed therapies out of 
reach for so many Americans. New prescription drugs are great 
news for patients looking for new and better treatment, but 
what a tragic irony for a patient to realize there is treatment 
available, but not to that person because of the cost.
    One part of the solution is clearly increased competition 
with generic drugs. Generics that are currently on the market 
give patients alternatives to expensive brand-name mediations. 
Certainly, it is worthwhile to encourage doctors and patients, 
where feasible, to use generics. But we also need to look at 
how to get more generics onto the market.
    This committee has heard many accounts of how some brand-
name prescription drug companies misuse the patent system to 
keep generics off the market. Some of my colleagues today have 
detailed some of these practices. And if we want to seriously 
address the cost of prescription medication, we need to address 
this problem squarely. But increasing generic access to market 
is only going to solve part of the problem.
    For many brand-name drugs, no generic is available, and for 
some people--maybe few, but those people are important--like my 
friend who has Parkinson's. The generic brand is not able to be 
tolerated by her, so she needs to have the brand name.
    We also need to find better ways to help Americans pay for 
the medications that they need. This has got to be part of the 
equation. For example, Medicare needs to be given the ability 
to negotiate a lower drug cost for seniors and those with 
disabilities. The fact that this was not permitted under the 
Medicare Bill last year is one of its great failings.
    No one is saying the prescription drug companies should not 
make a profit. They have to make significant investments to 
bring us the wonderful medications that they produce, and they 
deserve some reward for the risks that they take. But their 
products do little good for the patients we represent if they 
are unavailable because they are so expensive. That is the 
issue that this committee needs to be examining. This hearing 
is a good start to that process, and I hope we will continue to 
examine this issue. And I look forward to the testimony that is 
about to begin. I yield back.
    Mr. Deal. I thank the gentlelady. I don't see anyone else 
here to make an opening statement. One thing about starting on 
time is that we are ahead of most of our members, so you will 
probably see some of them catch up as this hearing proceeds--I 
hope.
    [Additional statements submitted for the record follow:]

    Prepared Statement of Hon. Paul E. Gillmor, a Representative in 
                    Congress from the State of Ohio

    Thank you, Mr. Chairman for holding this important hearing.
    While the new Medicare bill is just over the horizon, no matter how 
you cut it, our constituents are fed up with the high cost of health 
care, and in particular, the price of prescription drugs, whether it be 
brand or generic; and that's just it.
    Patients many times put brand and generic drugs in the same 
category with regard to overall costs, even though they know generics 
are cheaper. All too often, due to perception and a general lack of 
education when it comes to generics, consumers ignore the fact that 
brands and generics share identical ingredients, dosage, effectiveness, 
quality, and safety. Even if a patient is well-aware of this 
equivalence, it is likely that he or she will be offered through a 
health plan, or prescribed by a physician, a more expensive brand drug 
simply because of an unawareness that a competing generic is already on 
the market.
    I would also like to join my colleagues in drawing attention to the 
recent HHS report, quoting $17 billion in consumer savings where 
generics were available, but not utilized. I look forward to being 
educated by the well-balanced panel of witnesses, about their efforts 
to further educate physicians, pharmacists, health care providers, and 
patients alike to ensure market access to generic drugs, resulting in 
significant savings to patients' and taxpayers' pocketbooks.
    Again, I thank the Chairman and yield back the remainder of my 
time.
                                 ______
                                 
    Prepared Statement of Hon. Charlie Norwood, a Representative in 
                   Congress from the State of Georgia

    Thank you, Mr. Chairman.
    As Americans continue to struggle against the backdrop of high 
prescription drug costs, generic drug utilization is essential. Today, 
generics hold great hope for American consumers. There is at least one 
generic product available for most of the top therapeutic classes. 
Generics currently account for roughly 50 percent of all prescriptions 
filled in the United States. Employers--who can no longer afford 
unrestricted health benefits are seeking ways to stay competitive. 
Generics have proven an effective answer.
    Generics are holding their own in the marketplace and encouraging 
their full potential is an admirable goal. But there is certainly room 
for expansion. While, a 2005 study found that 7 in 10 consumers would 
prefer a medicine that has been on the market for at least 10 years, 
only 46 percent were willing to use generics for serious health 
problems.
    However, we should be encouraged that eighty-six percent of 
consumers report that they would be willing to use generics for common 
health problems. With 89% of seniors taking prescription drugs in the 
past year and nearly half of those taking at least five, generic drugs 
could save individuals and the federal government a lot of money. 
According to estimates prepared by the Congressional Budget Office, in 
2003 U.S. consumers could have saved as much as an additional $17 
billion by purchasing generics.
    This is not a new idea. Generic drug utilization has already been 
the key to managing the growing cost of prescription drugs for private 
insurance plans and individuals alike. Incentives to use generics have 
enabled plan sponsors to continue providing coverage at a time when too 
many are dropping health coverage.
    As this subcommittee looks towards ways of increasing generic 
utilization, we should focus our efforts on the relationship between 
patients and their doctors and their pharmacists.
    Often patients want a name brand drug because it is more familiar 
to them. A good doctor--patient relationship can clarify that generics 
are identical to a brand name drugs. As healthcare professionals work 
to increase familiarity with, and knowledge of generics I believe that 
they will become even more accepted.
    However, generic utilization will not solve all of our problems. 
There is a generic-utilization ceiling. Generics rely on the cycle of 
name-brand drugs and patent protections to encourage research and 
development into the next miracle pharmaceutical, which means future 
opportunities for generic companies.
    Maximizing the use of generic drugs is a first step in U.S. 
efforts--to find better--market-driven--solutions to affordable 
prescription drugs. There is not a generic drug for every prescription, 
and patents rightfully protect name-brand drugs for their development 
costs. We--need to spread the word that management of prescription drug 
prices--through--market forces--is not an adversarial notion.
    Our allies need to realize that market forces not government 
intervention is the answer regarding name brand drugs. To lower the 
price of name brand drugs we should address our allies' monopolistic 
purchasing structures. But this is just another piece of the puzzle in 
addition to, not in place of increasing generic use.
    In this light, I am looking forward to our witnesses' testimony and 
guidance. I yield back.
                                 ______
                                 
 Prepared Statement of Hon. Joe Barton, Chairman, Committee on Energy 
                              and Commerce

    Thank you Chairman Deal for holding this hearing. I appreciate the 
opportunity to hear from today's panel of witnesses about how generic 
drugs can help lower the prices consumer pay for their medications.
    I support lowering prescription drug costs. I also support free 
markets and competition. Generic drugs achieve both of those goals, in 
a way that is both safe and legal. In fact, generic drugs save 
consumers, health plans and the Medicare and Medicaid programs tens of 
billions of dollars every year.
    Although you would never know it from the recent debates in 
Congress on drug pricing, we passed a law in 1984 that has been one of 
the most effective tools ever provided to consumers to lower their 
prescription drug costs.
    This law, known as Hatch-Waxman (named for the senator from Utah 
and for our colleague from California), established a process for 
approving generic versions of brand-name drugs. These new generic 
versions are required to be identical to the originals, but are subject 
to expedited review and approval processes. As a result, these drugs 
are sold at a fraction of the cost of the original medications.
    Since the mid-1980's we have seen a dramatic increase in generic 
availability. Currently, a little over 50% of all prescriptions in the 
United States are filled with generics, often at prices dramatically 
lower than those charged for comparable brand name drugs.
    Because we have such a robust generic drug industry, American 
consumers actually paid $30 Billion LESS for generic drugs than 
European consumers paid for equivalent products. We also managed to 
achieve these savings without having to rely on the price controls that 
kill innovation and deny patients new medications.
    I believe, however, that we can do an even better job in educating 
consumers about the advantages offered by generic drugs. According to a 
report by the Health and Human Services Report released in December 
U.S. consumers could have saved as much as $17 billion by purchasing 
available generic substitutes for brand name drugs.
    I look forward from hearing from the witnesses today about what 
they are doing to promote cheaper, effective alternative medications. 
Their experiences can help us prepare for the implementation of the new 
Medicare prescription drug benefit in 2006 as well as assist our 
efforts to reform the Medicaid program. I also hope to hear any 
additional suggestions about how to further improve the current system 
to promote competition and ultimately lower drug prices for consumers.
    Thank you again, Chairman Deal for holding today's hearing, and I 
yield back my time.
                                 ______
                                 
  Prepared Statement of Hon. Gene Green, a Representative in Congress 
                        from the State of Texas

    Thank you, Mr. Chairman, for calling this hearing to examine the 
use of generic prescription drugs and the savings that generics offer 
to patients, health insurers and government programs.
    For years, we have heard the reports about the soaring costs of 
prescription drugs.
    It's no secret that the brand name drugs--not the generics--are 
behind this increase in drug costs.
    In fact, in 2004 alone, brand name drug prices increased over 7 
percent--more than twice the rate of inflation--while the price of 
generics increased only one half of one percent.
    Whether it is due to the increasing cost of brand-name prescription 
drugs or increased patient and physician awareness, generic drugs are 
without doubt penetrating the market.
    More than 50 percent of all prescriptions are filled with generic 
drugs, yet generics only account for 12 percent of prescription drug 
spending.
    When you look at it that way, it's easy to believe that generics 
can be 70 to 80 percent cheaper than brand name prescription drugs.
    These statistics suggest a tremendous opportunity for patients and 
insurers to save critical health care dollars.
    And in a time of extreme budget crunches both at the federal level 
and in each of our states, we should take a long look at generic drugs 
and the increasing role they can play in health care financing.
    Our challenge is to examine what role the government should play in 
increasing the availability of generic drugs and providing incentives 
for their use.
    In my state of Texas, the Legislature effectively made generic 
prescriptions the default by mandating that physicians physically write 
out ``brand necessary'' or ``brand medically necessary'' on the 
prescription pad when no substitutions were appropriate.
    The University of Texas's Center for Pharmaco-economic Studies 
estimated that this one policy could save patients and drug benefit 
programs in my state as much as $257 million each year.
    One simple way to increase the utilization of generic drugs is to 
make them more readily-available.
    To that end, we need to look at current statutes and regulations 
that have the effect of hindering the entry of generic drugs to the 
market, whether it is through an examination of patents, authorized 
generics or the approval process at the FDA.
    I look forward to hearing from our witnesses on their experiences 
and recommendations on these issues, and I thank them for appearing 
before us today.
    With that, Mr. Chairman, I yield back the balance of my time.

    Mr. Deal. Once again, we are pleased to have you here. We 
look forward to your testimony and the questions that will 
follow. And Ms. Jaeger, I will call on you first for 5 minutes.

  STATEMENTS OF KATHLEEN D. JAEGER, PRESIDENT AND CEO, GENERIC 
PHARMACEUTICAL ASSOCIATION; JAN BERGER, CHIEF CLINICAL OFFICER, 
   CAREMARK; BONNIE M. CRAMER, BOARD OF DIRECTORS, AMERICAN 
    ASSOCIATION OF RETIRED PERSONS; BRUCE C. PERRY, MEDICAL 
   DIRECTOR, THE SOUTHEAST PERMANENTE MEDICAL GROUP, KAISER 
 PERMANENTE; AND SCOTT GOTTLIEB, AMERICAN ENTERPRISE INSTITUTE

    Ms. Jaeger. Mr. Chairman and members of the committee, I am 
Kathleen Jaeger, President and CEO of the Generic 
Pharmaceutical Association. It is an honor to be here before 
you today to speak on behalf of an industry that helps to fill 
over 1 billion prescriptions a year, yielding annual savings of 
ten of billions of dollars to consumers, businesses, and 
government.
    GPhA appreciates the opportunity to discuss current generic 
pharmaceutical use and ways to both increase access and effuse 
savings from these more affordable medicines. We will 
recognize--yes? Absolutely. Sure. Is this better?
    We recognize the importance of this issue to the committee, 
given its broad jurisdiction over the nation's healthcare 
systems, including private insurers, Medicaid, and much of the 
Medicaid program.
    Generic pharmaceuticals represent more than 53 percent of 
all prescription dispensed in the Unites States. They account 
for less than 12 cents of every dollar spent on prescription 
drugs. According to the National Association of Chain 
Drugstores, last year the average retail price for a brand drug 
was $96.01. The average retail price of generic was $28.74--a 
savings of nearly 70 percent per prescription.
    It is important to note that while current generic 
utilization saves America tens of billions of dollars each year 
on the costs of medicines, a mere 1-percent increase in generic 
usage will yield almost $4 billion in additional savings. Now, 
let me repeat that fact. Moving 1 percent of the U.S. brand 
prescriptions to FDA approved generics will yield almost $4 
billion in savings, savings that can be used to help moderate 
prescription drugs spending at both the Federal and State 
levels and for individual customers as well.
    Now, to see how this translates into real savings, we only 
need to look at the generic utilization rates of some State 
Medicaid programs. The States with the highest generic 
utilization rates are Hawaii at 56 percent, and Illinois, in a 
close second, at 55 percent. And dragging themselves into the 
world of cost-containment are New Jersey and Delaware, with 
both States having a meager 42-percent generic utilization 
rate. If all the Medicaid programs obtained a generic 
utilization rate in the high 50's, States and the Federal 
Government would save billions of dollars annually.
    Now, what explains the wide variance in generic drug rates 
among the States? Well, easy. That is practices, practices that 
are currently employed in most private insurers in some States. 
And in fact, there are a number of initiatives that can be 
immediately adopted or encouraged by this committee that would 
rapidly increase the substitution of generic drugs.
    Now, the easiest and most immediate place to start on 
savings on prescription drugs involves the overlooked 
prescription pad and physician-prescribing practices. At least 
33 States require the physician to make a conscious decision 
and to handwrite ``no substitution, dispensed as written'' or a 
similar statement on the pad if only a brand drug can be 
dispensed. Other States have a check-off box or require the 
doctor to sign on a different line if they want the brand 
product. Encouraging States to simply redesign the prescription 
pad could form tremendous public savings for public and private 
healthcare providers and consumers. And in fact, Texas did just 
that in 2001 and saved $223 million a year.
    The next best practice is the implementation of mandatory 
generic-substitution programs where they do not currently exist 
and strengthening such programs in States where loopholes may 
lower the overall substitution. As an example of strengthening 
a mandatory generic program, Massachusetts, recently took a 
series of steps over a 3-year period that they estimate shaved 
$150 million off the State's annual drug tab. A large part of 
the savings came from implementing a tougher dispensed-as-
written program, requiring doctors to explain in writing the 
need and get permission from the State in order for the brand 
to be dispensed.
    Another issue closely related to the mandatory-substitution 
and physician-prescribing practices involves the elimination of 
carve-outs for classes of drug products, including mental 
health, diabetic, and epileptic, and cancer drug products to 
name a few. Some States have, unfortunately, instituted this 
bad practice, which is supported by special interests that make 
it extremely easy for physicians to bypass generic-drug-
substitution laws. This carve-out policy is based on the 
erroneous assumption that the use of generics will undermine 
the treatment outcomes. There is no scientific or medical basis 
for this assertion; and thus, it unnecessarily increases State 
Medicare program costs by millions of dollars. This bad 
practice must be stopped.
    There also are several additional best practices relating 
pricing and incentives that will dramatically reduce drug 
expenditures. These involve implementing aggressive, maximum 
allowable cost--or MAC--formulations by capping the maximum 
price States will pay for certain prescriptions and having 
pharmacists having the incentive to dispense the less expensive 
generic. While some States do adopt these, others do not, and 
slightly over half the States take advantage of their ability 
to set their own payment ceilings for multi-source drugs. And 
for that do, not all of these States have implemented an 
aggressive MAC system, leaving unrealized savings on the table.
    And finally, an area of virtually untapped opportunity for 
generic utilization involves the investment in consumer 
education: an aggressive effort to educate providers and 
patients about the safety, sameness, and savings of generics. 
And of course, those who administer healthcare plans such as 
Kaiser and Caremark, here, know all too well that differential 
co-payments can also provide substantial savings.
    The best practices that I have referenced can be 
implemented at the State level, with or without Federal 
legislation; however, to ensure a nationwide adherence and 
maximum savings, a Federal approach, which would ensure a more 
uniform and efficient policy course of action, should produce 
increased Federal savings. Please be assured that we would be 
happy to work with this committee toward passing and 
implementing successful policies in this area.
    Nonetheless, is essential to note that tremendous savings 
from these vast practices can be dramatically curtailed with 
the passage of legislation and international trade agreements 
that will, if unchecked, disrupt the timely introduction of 
new, affordable generic drugs. One such threat is embodied 
within the certain provisions of a certain Bioshield II 
legislation. GPhA supports some aspects of the proposed 
legislation, such as the need for product-liability 
protections, expanded tax credits, and FDA review of drug 
applications, but GPhA remains opposed to unnecessarily 
extending brand product monopolies for already approved drugs 
which will do little to secure America and would allow brand 
pharma to profiteer off the fears of Americans.
    Another threat to the U.S. generic savings involves 
attempts to use international trade agreements to limit the 
timely introduction of generics in the United States. GPhA has 
serious concerns about a number of provisions contained in free 
trade agreements that the United States has originally 
negotiated and is currently negotiating. It is GPhA's position 
that no free trade agreement should upset the U.S. of 
pharmaceutical innovation and access, nor should they block 
generic drugs from being exported abroad.
    And Mr. Chairman, I would be remiss if I left this hearing 
without urging Congress to encourage the FDA to immediately 
clear a pathway for generic biologics and issue important 
industry guidelines. Generic biologics represents another 
opportunity for additional, untapped consumer savings. We also 
urge Congress to require sufficient FDA oversight and 
accountability to ensure the timely introduction of generic 
drugs. The return on investment from increased FDA oversight 
and accountability regarding the generic drug approval program 
would pay significantly in long-lasting dividends to all 
Americans.
    And finally, GPhA encourages Congress to encourage CMS to 
complete its analysis on authorized generic drugs, products 
that are masquerading as generics, with respect to the best 
price calculation for brand companies and issue a policy 
clarification on this matter.
    And Mr. Chairman, I want to reiterate that the tools needed 
to capture millions of dollars in savings in consumers exists 
today. It is clear that generic pharmaceuticals already save 
billions of dollars a year in prescription drugs costs. More 
substantial drugs savings can be accompanying by adopting and 
tightening best practices and remaining vigilant to those 
special interests seeking on a national and international level 
to erect barrier to the timely introduction of generic drugs. 
But we can and we should do better so we can ensure that 
healthcare and prescription drugs remain affordable for all 
consumers. And with your help, I am confident we can, and we 
will. And I will be pleased to answer any questions you may 
have. Thank you.
    [The prepared statement of Kathleen Jaeger follows:]

   Prepared Statement of Kathleen Jaeger, President and CEO, Generic 
                       Pharmaceutical Association

    Mr. Chairman and Members of the Committee. I'm Kathleen Jaeger, 
President and CEO of the Generic Pharmaceutical Association. Today I am 
pleased to speak on behalf of nearly 130 member companies that 
manufacture and distribute generic pharmaceutical products, including 
bulk active pharmaceutical chemicals.
    We appreciate the opportunity to discuss current generic 
pharmaceutical utilization and the opportunities available to tap a 
substantial reservoir of additional savings for consumers, as well as 
for State- and Federally-funded programs. Because your committee has 
such broad jurisdiction over our nation's health care programs, 
including private insurers, Medicaid, and much of the Medicare program, 
we well recognize your keen interest in and knowledge about the impact 
of growing pharmaceutical cost on all purchasers of health care. GPHA's 
recommendations for achieving substantial savings can be accomplished 
by adopting initiatives in two broad categories:

1) Adopting initiatives that would increase generic utilization and 
        produce substantial savings; and
2) Preventing initiatives that would erect new barriers to generic 
        competition and thus increase overall cost.

    First, I would like to provide a brief overview of the safety and 
sameness of generic drugs as well as to discuss recent pharmaceutical 
cost trends. For more than two decades, FDA-approved generic medicines 
have been providing consumers with the same medicines, and offering the 
same clinical results as their brand name counterparts at a substantial 
savings for consumers.
    The rigorous FDA-approval process for generics ensures that our 
products have the same active ingredients, are taken in the same way, 
provide the same dose, and produce the same clinical results. 
Repeatedly since the founding of our industry, the FDA has assured the 
general public, doctors and healthcare providers that the only 
difference between a generic drug and its brand name counterpart is the 
cost. Our products have been used to fill over tens of billion 
prescriptions, a track record for safety and sameness that stands on 
its own.
    Generic pharmaceuticals represent more than 53 percent of all 
prescriptions dispensed in the United States, but they account for only 
12 percent of all dollars spent on prescription drugs. According to 
various studies, generics can be as much as 80 percent less than 
brands. And, according to the National Association of Chain Drug 
Stores, last year the average retail price for a brand drug was $96.01 
while the average retail price of a generic was $28.74, a savings of 
nearly 70 percent per prescription.
    It is important to note that while current generic utilization 
saves America tens of billions of dollars each year on the cost of 
medicines, increasing utilization will introduce even more dramatic 
savings.
    Recently, AARP released its annual Rx Watchdog Report, which tracks 
prices that drug manufacturers charged wholesalers during the past year 
for about 200 prescription drugs popular with older Americans. The 
brand pharmaceutical price hikes were the largest annual jump since 
AARP began sponsoring the study five years ago.
    According to the report, the 7.1 percent hike continues a trend of 
increasing brand drug prices, despite the fact that inflation in 2004 
was 2.7 percent.
    The report also noted that in contrast, the price for 75 popular 
generic drugs hardly budged in 2004, rising 0.5 percent, 2.2 percent 
below the rate of inflation.
    The value of generic medicines as the prescription for relief from 
high drug costs was further confirmed in a December 2004 study released 
by the Department of Health and Human Services. While we believe the 
number to be much higher, the HHS study found that in the United 
States, ``if consumers were to buy generic products whenever possible . 
. . we estimate savings to be approximately $17 billion.''
    Clearly, greater use of generic pharmaceuticals could help arrest 
the escalation of drug spending at both the federal and state levels, 
and for individual consumers as well. Promoting the increased 
utilization of generic drugs is therefore, quite simply, good and 
affordable medicine for everyone.
    Yet, as I indicated previously, there remain a number of 
opportunities and threats to substantially enhancing the savings 
potential that generic pharmaceuticals provide.

  I. INITIATIVES THAT WOULD INCREASE GENERIC UTILIZATION AND PRODUCE 
                          SUBSTANTIAL SAVINGS

    Adopting or encouraging the use of practices that immediately 
increase the use of FDA-approved generic pharmaceuticals in place of 
expensive brand name drugs is imperative. In fact, a one percent 
increase in generic utilization yields almost 4 billion dollars in 
savings!! 1
---------------------------------------------------------------------------
    \1\ 2005 IMS Health: National Sales Perspective (2004 Data 
Analysis) & IMS Health NPA
---------------------------------------------------------------------------
    One critical step that deserves immediate consideration by Congress 
is the adequate funding and oversight of FDA's generic approval 
division, the Office of Generic Drugs (OGD). Lack of sufficient 
oversight and accountability at the Commissioner and Center levels, 
allows generic applications to endure needlessly protracted legal and 
scientific consults--delaying generic approvals for several months to 
several years. Also, allocations for OGD have remained flat for the 
past couple of years, and the result of this constraint on resources is 
clear.
    Today, when consumers need FDA-approved generic medicines more than 
ever before, more than 700 applications languish due to lack of 
resources at OGD. Cooperative efforts between our industry and the 
staff of the Office of Generic Drugs have resulted in a streamlining of 
the approval process and better generic pharmaceutical applications. 
Yet, due to the lack of sufficient agency accountability and OGD 
resource constraints, approvals significantly lag behind the 
increasingly strong applications of our member companies. Moreover, 
this problem will only worsen over the next few years as more generic 
drug applications are submitted for equivalents of blockbuster brand 
products that come off patent: $27 billion in 2007, $29 billion in 
2008, $21 billion in 2009 and $44 billion in 2010.2
---------------------------------------------------------------------------
    \2\ Bain & Company.
---------------------------------------------------------------------------
    Congress can, and should, require accountability and increase 
funding to support more timely approvals. The return on investment from 
more accountability and increased funding will pay significant and 
long-lasting dividends for all Americans--individual consumers, 
employers and state governments and the federal government.
    GPhA believes that there are a number of additional ways to 
immediately and effectively increase generic utilization rates on the 
national and state level, for Medicaid and other federal programs, for 
state funded programs, and for private insurers and individual 
consumers who must pay out of pocket.
    While not all-inclusive, GPhA has identified several initiatives 
that alone, or in combination, would help increase the utilization of 
more affordable generic medicines. Four of these proposals involve 
changes related to the way generic medicines are prescribed and 
substituted. Three of our proposals address incentives and the value of 
efficient cost management. One initiative focuses on the value of 
education.
    We also want to take the opportunity of this hearing to raise a 
flag on several issues currently looming on the legislative and 
international horizon that could derail America's leadership in safe 
and effective affordable pharmaceutical products.
    Let's look first at prescribing practices and generic substitution. 
The easiest, and most immediate, place to start saving on prescription 
medicines involves the often overlooked prescription pad, and physician 
prescribing practices.
    The format of a prescription pad varies from state to state. Yet, 
this format can have a profound impact on whether physicians are more 
or less likely to prescribe brands over generics. At least 33 states 
require the physician to make a conscious decision and handwrite ``no 
substitution'', ``dispense as written'' or a similar statement on the 
pad if only a brand drug can be prescribed. Other states may have a 
check-off box or require the doctor to sign on a different line if they 
want the brand product dispensed and not a generic.
    Encouraging states to simply redesign the prescription pad form 
could provide tremendous savings to public and private healthcare 
providers and consumers.
    For example, before 2001 the State of Texas had a two-line 
prescription pad where the physician could sign the ``brand only'' line 
and override the substitution of a generic for the brand. In 2001, 
Texas implemented a new pad that required a physician to handwrite 
``Brand medically necessary'' in order to prohibit generic 
substitution. According to an analysis by the University of Texas, this 
simple change resulted in estimated savings of $223 
million.3 If states were to adopt this type of approach, 
which makes the dispensing of an expensive brand drug a proactive 
choice by the physician, states would unlock a vast, untapped 
opportunity for savings.
---------------------------------------------------------------------------
    \3\ May 2001, Center for Pharmacoeconomic Studies, University of 
Texas at Austin
---------------------------------------------------------------------------
    We also believe that there are several additional ways to increase 
usage of generic drugs, by strengthening the substitution process and 
prescribing practices in favor of generic medicines where they are 
available.
    Next, we believe that the issues of requiring the substitution of 
generics offer an untapped opportunity for savings. GPhA urges that 
mandatory generic substitution policies be implemented where they do 
not currently exist, and strengthened in states where loopholes may 
lower overall substitution. As an example of savings, legislation 
expected to be approved by the Tennessee Legislature that requires 
substitution of generic drugs for more expensive brand drugs has been 
projected by state officials to save $32 million for that Medicaid 
program--$11.5 million in state funds and almost $21 million in federal 
funds.
    While the federal government may not want to specifically mandate 
this at the state level, CMS could certainly assist in making a 
compelling argument for states that do not have mandatory substitution. 
While CMS has recently announced its support for mandatory generic 
substitution policies, and most private entities already have embraced 
this policy, more can be done to encourage adoption by the public 
sectors.
    GPhA would propose policies be implemented to ensure that that the 
substitution of generic medicines, when available, cannot be overridden 
without a valid medical reason.
    For example, in Massachusetts, Medicaid officials took a series of 
steps over the past three years that they estimate shaved $150 million 
off the annual tab for drugs. A large part of the savings came from a 
change in a policy within their mandatory generic substitution program 
related to ``Dispense as Written.''
    Massachusetts doctors were routinely asking for brand name drugs by 
writing ``Dispense as Written,'' and Medicaid was paying $10 million to 
$11 million a month for brand-name drugs that had generic equivalents. 
After reviewing the situation, a tougher policy was put into place that 
requires the doctor to explain why, in writing, and get permission from 
the Medicaid program in order to force dispensing of a brand drug 
instead of its equivalent lower-cost generic. Once the new policy went 
into effect, spending on brand-name drugs with generic equivalents 
dropped dramatically to $200,000 to $300,000 a month.4
---------------------------------------------------------------------------
    \4\ Tough Medicine is Paying of For State; Boston Globe; February 
17, 2004
---------------------------------------------------------------------------
    Another issue closely related to mandatory substitution and 
physician-prescribing practices involves a new version of the old 
argument that generic drugs are not the same as brands. This argument 
is appearing in the form of ``carve-outs'' for mental health, 
epileptic, diabetic, arthritis, cancer and many other drug products.
    Some states have instituted practices, supported by brand drug 
special interests that make it extremely easy for physicians to bypass 
generic drug substitution laws for mental health drugs. The rationale 
for carve-out provisions is based on the erroneous assumption that the 
use of generic drugs will undermine treatment outcomes of patients with 
mental illness. There is no scientific or medical basis for this 
assertion and it is inconsistent with FDA's determination of 
therapeutic equivalence.
    In the mental health category alone, there are currently more than 
60 major mental health drugs on the market including anti-depressants, 
anti-psychotics, anti-anxiety, and stimulants. Fifteen of the most 
prescribed mental health drugs accounted for more than $18 billion in 
brand name drug sales in 2001. Sales of anti-psychotics totaled $6.5 
billion in 2003.
    Simply stated, the ``carve-out'' policy is contrary to FDA's 
pronouncement of therapeutic equivalence, and increases state Medicaid 
program costs by millions of dollars without any credible, independent 
evidence-based studies that indicate that using a brand drug will 
result in a different outcome than using a generic.
    To understand the cost of ``carve-outs'' one needs only to look to 
the State of Florida. Two years after the state implemented a preferred 
drug list with a carve-out for mental health drugs, an analysis by 
state officials showed that the elimination of the carve-out could 
provide substantial savings. And, less than two weeks ago, Florida 
followed through by passing legislation to eliminate carve-outs ``aimed 
at saving nearly $300 million a year.'' 5
---------------------------------------------------------------------------
    \5\ Advocates Also Point Out Concerns of Public Safety; The Tampa 
Tribune (May 13, 2005). The law is due to go into effect, July 1st if 
signed by the Governor.
---------------------------------------------------------------------------
    Other states that have rejected carve-outs have achieved 
substantial savings without any impact on health outcomes. One year 
after the state of Kentucky changed its policy to treat an anti-
psychotic drug like all other medications for the purpose of 
substitution, ``mental health advocates said they could trace no ill 
effects to the decision.'' 6
---------------------------------------------------------------------------
    \6\ States Try to Limit Drugs in Medicaid but Makers Resist; New 
York Times; December 18, 2003.
---------------------------------------------------------------------------
    GPhA strongly encourages the modernization and strengthening of the 
process by which substitution of a generic for a more expensive brand 
product is encouraged.7
---------------------------------------------------------------------------
    \7\ May 2001, Center for Pharmacoeconomic Studies, University of 
Texas at Austin
---------------------------------------------------------------------------
    There are also several additional issues related to pricing and 
incentives that GPhA believes can help dramatically increase generic 
utilization rates. These involve implementing aggressive maximum 
allowable cost--or MAC--formulations, and providing an incentive for 
pharmacists to dispense generics.
    States have the flexibility to establish their own payment ceilings 
for multiple source drugs, so long as it does not exceed the federal 
payment ceiling for drugs. Slightly over half the states take advantage 
of this cost containment tool, which enables them to limit their 
liability with regards to drug pricing.
    Many states have implemented MACs, or maximum allowable cost 
formulations, for a limited number of drugs. And, while establishing 
aggressive MACs is certainly a worthy objective, it is the rigorous 
application of MACs to both brands and generics that can yield 
substantial state savings. This is a common practice among private 
health insurers that has resulted in significant savings for them.
    Another opportunity for increasing generic utilization involves 
incentive fees for pharmacists. Drug specific payment ceilings 
calculated at the Centers for Medicaid and Medicare Services allow for 
payment to pharmacists of a ``reasonable'' dispensing fee established 
by the state Medicaid agency.
    CMS regulations do not define ``reasonable'' and there is great 
variation among states in the amount of the dispensing fee and the 
manner in which it is calculated.8 Lots of states offer no 
differential at all between the dispensing fee paid for brand-name 
prescription drugs and generic drugs. Offering a higher dispensing fee 
for generic drugs than brand drugs would encourages greater dispensing 
of generic drugs at the pharmacy, thus saving scarce Medicaid dollars.
---------------------------------------------------------------------------
    \8\ Ibid
---------------------------------------------------------------------------
    Finally, an area of virtually untapped opportunity for increasing 
generic utilization involves the investment in consumer education 
programs that address misinformation campaigns by brand companies as 
well as misperceptions about the sameness and effectiveness of 
generics. An aggressive effort to educate providers and patients can 
result in substantial savings.
    For example, AARP and Consumers Union have separately produced 
extraordinarily useful and empowering information to consumers to help 
them make the right decisions about choosing affordable medications. 
There are other examples as well. The Generics First program initiated 
by Medco Health Services demonstrates the impact that a generics 
education program can have. In 2002, Medco sent pharmacists to hold 
face-to-face clinical discussions with 1,700 physicians in 10 states. 
In addition to the meetings, the pharmacists left patient education 
materials and generic samples that physicians could provide to 
patients. The effort focused on educating the physicians on the 
availability, clinical benefits and economic value of generics and 
encouraged their use as a first line treatment.9
---------------------------------------------------------------------------
    \9\ The Bergen County Record newspaper, November 5, 2002
---------------------------------------------------------------------------
    In addition, Express Scripts has implemented a program called 
``GenericsWork'' that encourages physicians to prescribe, and patients 
to ask for low-cost generics. It is supported by a communication and 
education strategy targeted to both audiences. Express Scripts projects 
savings of $25 million over 3 years per 100,000 lives.
    According to published reports, at least six (6) states have 
experimented with similar ``counter-detailing'' efforts. The Wall 
Street Journal reported that in October 2000, a Florida ``counter-
detailer'' visited 88 physicians who tended to prescribe brand-name 
anti-inflammatory drugs. An analysis of those physicians prescribing 
habits three months later showed a change in prescribing that was 
expected to save Florida $196,000 a year.10
---------------------------------------------------------------------------
    \10\ The Wall Street Journal, August 22, 2001
---------------------------------------------------------------------------
    West Virginia launched a pilot ``counter-detailing'' program in 
2002. The head of West Virginia's Public Employee Insurance Agency 
predicted at the outset that a 2 percent increase in generic 
utilization (from 43 percent to 45 percent) would save his state $1 
million.11
---------------------------------------------------------------------------
    \11\ The Washington Post, August 5, 2002
---------------------------------------------------------------------------
    GPhA has developed a consumer educational campaign designed to 
maximize awareness of generics. It focuses on the core message that 
generics are the same medicine, provide the same results, but at lower 
cost than brand name drugs. This educational program can be made 
available and distributed directly, or indirectly, and customized to 
suit any health care provider's needs. For example, a state could 
partner with GPhA or merely use the materials as they have been created 
to support generic product use and patient acceptance within their 
program--without the cost of developing such a campaign on their own.
    GPhA stands ready to assist in implementing such educational 
programs in both the federal and state levels, as well as with 
employers, providers, insurers and physicians and pharmacists.
    Another tremendous opportunity of untapped savings is in the area 
of biopharmaceuticals. Biologics are growing at almost twice the rate 
of total pharmaceuticals. There are more than 600 biotech drugs 
currently in phase II and III clinical trials. And marketed biologics 
are approximately $30 billion in U.S. Sales, 12% of total 
pharmaceuticals, and growing about 20% annually. They could reach $60 
billion in sales by 2010.
    Acting Commissioner Dr. Crawford addressed the issue of 
biogenerics. Dr. Crawford stated that ``[w]e now have the science to 
fashion a generics biologics program,'' and the agency has ``to put a 
system in place to deal with it.'' GPhA couldn't agree more. The 
opportunity of additional savings is only a few steps away. We urge 
Congress to demand that FDA: (1) issue guidance documents to provide 
further advice to industry participants; and (2) approve generic 
applications that have scientific sign off. And finally, we urge 
Congress to encourage FDA to immediately establish a clear, definitive 
flexible pathway for generic biopharmaceuticals.

  II. PREVENTING INITIATIVES THAT WOULD ERECT NEW BARRIERS TO GENERIC 
               COMPETITION AND THUS INCREASE OVERALL COST

    Ensuring that federal and international legislation as well as 
trade agreements do not disrupt the level playing field is necessary 
for the continued, timely introduction of affordable life-saving 
generic drugs.
    These threats to savings are contained in such initiatives as 
attempts to use bioterrorism preparedness as a vehicle for brand 
product monopoly extensions; and efforts to utilize international trade 
agreements to restrict the development and timely approval of generics 
in America
    For the past year, Congress has been exploring ways to expand and 
improve BioShield I. Senators Joseph Lieberman, Orrin Hatch and Sam 
Brownback introduced the Project BioShield II Act of 2005 to further 
improve America's security. While this legislation includes several 
promising incentives, it also includes provisions that would 
dramatically increase health care costs for consumers and the federal 
government and deliver windfall profits to brand pharmaceutical 
companies.
    While GPhA supports efforts to encourage the production of 
countermeasures, some aspects of this legislation threaten the economic 
viability of our health care system. Outrageous measures to extend 
brand monopolies like 'wild cards' and overly generous patent 
extensions will delay consumers' access to affordable medicines.
    For nearly 20 years, such special interest measures have been 
soundly rejected by Congress as catering to special interests at the 
public's expense. Yet, they have now resurfaced in legislation intended 
to strengthen America's security.
    The bill contains promising incentives, such as needed product 
liability protections, expanded tax incentives, and fast track FDA 
review of drug applications, which GPhA supports. But as the 
legislation currently stands, it rewards de minimis product 
modifications of already approved products and discourages ``true'' 
innovation. Simply put, it allows brand pharma to play off Americans' 
fears to extend their product monopolies and keep affordable medicines 
off the market. Accordingly, this legislation is little more than a 
blank check to the brand pharmaceutical industry.
    GPhA remains opposed to:

 The overly broad definition of a countermeasure, which could be 
        extended to already approved products. Because the legislation 
        fails to limit the term to novel medicines--ones that are 
        clinically superior and fill a security priority void--patent 
        extensions could be applied to a wide range of already approved 
        drugs.
 Extending data exclusivity up to 10 years.
 Unlimited and uncapped patent extensions on any countermeasure 
        product. Under this bill, multiple patents claiming the brand 
        product could be extended.
 ``Wild card'' provisions that could be applied to any product in a 
        company's portfolio, thus providing a windfall to brand 
        pharmaceutical companies for products wholly unrelated to 
        bioterrorism.
    Rather than providing the brand industry with enormous windfalls, 
GPhA urges Congress to strengthen BioShield by adding incentives for 
``true'' research priorities and incentives that don't jeopardize the 
nation's healthcare system.
    Another threat to U.S. generic savings involves attempts to use 
international free trade agreements to limit the timely introduction of 
generics in the United States.
    GPhA remains active on the international level, to ensure that 
harmonization efforts and treaties do not raise new barriers to the 
introduction of affordable medicines in the U.S., or make it difficult 
for generic companies to compete in the international arena.
    Specifically, GPhA has serious concerns about a number of 
provisions contained in Free Trade Agreements (FTAs) that the United 
States has recently negotiated with various trading partners, including 
Australia, Bahrain, Chile, Morocco and Singapore, and potentially may 
be negotiated with Andean, SACU, ASEAN and other countries.
    Some FTA provisions regarding intellectual property and other 
measures involving pharmaceuticals appear to contradict, both 
explicitly and in spirit, commitments made by the United States in the 
World Trade Organization and several appear inconsistent with U.S. law. 
GPhA is concerned that such measures could block generic drug exports 
abroad, substantially delay the timely access of affordable 
pharmaceuticals in those territories, and create the means to delay 
generic competition here at home, such as through international 
harmonization measures.
    It is GPhA's position that no Free Trade Agreement should be used 
as a means to facilitate the brand industry's strategic global 
objectives of unfairly extending drug market protections and destroying 
the U.S. balance between pharmaceutical innovation and access.
    GPhA will continue to monitor these issues, while focusing efforts 
on those initiatives that will help boost generic utilization and lower 
costs to the federal and state governments, to employers, insurers and 
all consumers.
    In summary, it is clear that generic pharmaceuticals already save 
tens of billions of dollars a year in prescription drug costs. It is 
also clear, that with substitution at approximately 53 percent, there 
is still much room to grow America's utilization of generic drugs.
    Ensuring the long-term growth in generic drug savings will result 
from Congress requiring FDA accountability and providing OGD with the 
resources necessary to free the logjam of new generic product 
approvals, by increasing the appropriations necessary to adequately 
fund the Office of Generic Drugs.
    Additional increases in drug savings will come from changes to 
prescribing practices. Some of this growth can be accomplished by 
tightening existing substitution mechanisms. Additional growth can be 
accomplished by providing incentives for the increased use of generics. 
Some of this growth can come from educating consumers about the safety 
and sameness of generic medicines.
    And finally, ensuring affordable generic pharmaceuticals for 
American consumers in the future will require that we remain vigilant 
to those special interests seeking, on a national or international 
level, to erect barriers to generic competition by unfairly extending 
market protections under the guise of bioterrorism preparedness, or by 
using international treaties to delay competition from America's 
generic pharmaceutical industry in the name of international 
harmonization.
    America's generic industry is working right now to lower 
prescription drug costs. Prescriptions are being filled right now, one 
out of every two, with lower cost generics. But we can, and should do 
better, so we can ensure that health care and prescription drugs 
remains affordable for all consumers.
    Thank you.

    Mr. Deal. Thank you. Dr. Berger?

                     STATEMENT OF JAN BERGER

    Ms. Berger. Good afternoon. My name is Dr. Jan Berger, and 
I am the Chief Clinical Officer for Caremark RX, Incorporated. 
As you may know, Caremark is a leading pharmacy benefit-
management company that provides comprehensive drug services to 
over 2,000 health plan sponsors throughout the United States. 
Our clients include employers, health plans, managed care 
organizations, insurance companies, unions, and government-
employee programs, including the Federal Employees' Health 
Benefits Program. Caremark operates a national retail pharmacy 
network of over 59,000 participating pharmacies and seven mail 
service pharmacies. We process over 55 billion prescriptions 
each year on behalf of our beneficiaries.
    I would like to thank the chairman for calling this hearing 
today on generic prescription drugs. Our company has been 
creating and implementing programs to promote generics as an 
effective alternative to expensive, brand-name prescriptions 
for years. The Congressional Budget Office estimated that in 
2002, generic drugs enabled savings of almost $100 billion 
versus the cost of the equivalent brand name prescriptions. 
Promoting the use of generic drug alternatives is a key factor 
in helping to control the total prescription drug costs in the 
U.S. market. This is particularly relevant as the first 
outpatient drug benefit in the Medicare program is implemented 
in January.
    As you know, the FDA ensures that generic medications 
maintain the same high standards of safety, strength, quality, 
and effectiveness as brand-name medications. Based on the FDA 
guidelines, the only difference between brand-name and generic 
drugs are their name, appearance, and price. You may wonder 
then, why doesn't everyone use generic drugs? There are many 
outside influences that work against the average consumer's 
choice to use generic drugs. The most obvious are the lack of 
awareness of safe and available generic options, the competing 
visibility of brand names, the stereotype that generics are 
inferior, and the lack of motivation by both patient and 
physician due to benefit-plan-design structure and physician 
sampling. However, we believe that one once beneficiaries 
understand that generics are safe and effective, they will be 
interested in the fact that generic drugs can save them money.
    Caremark has developed and operates a wide range of 
programs that help patients take advantage of generic drugs. By 
increasing the dispensing of generic drugs, health plans 
typically realize a savings of 30 to 70 percent, compared to 
the use of the more expensive brand-name drugs. How do we do 
it? We work to educate patients, physicians, and pharmacists 
about safe and effective generic options, both concurrently and 
retrospectively, and we work to design health plan structures 
that encourage the choice of generics.
    Many of our programs are patient-oriented so that patients 
themselves are encouraged to use the generics. These include 
educating the patient on availability, safety, and 
effectiveness; educating the patient about their own potential 
cost savings; and working within the plan design to motivate 
patients to consider generics. Numbers of studies have shown 
that lower out-of-pocket costs for a patient result in greater 
compliance with their prescription drug regimen, so because 
generics are less expensive to the participant, typically, they 
are able to take them more continually--increased adherence--
and have better health outcomes.
    In addition to Caremark's programs to educate beneficiaries 
of our generics, Caremark also assists prescribers in choosing 
generic drugs because they have the power of the pen. Specific 
activities here include face-to-face physician consultation 
through our National Academic Physician Detailing program, and 
through drug utilization review or DUR letters, physician 
feedback and peer comparisons, and utilizing tools that help 
identify generic opportunities and help eliminate the hassles 
of generic prescribing such as difficult drug names and 
spellings. Our programs operate both at the retail and mail 
order level in order to encourage physicians to consider 
generic options when writing prescriptions.
    Of course, the final decision of dispensing a brand-name 
drug or a generic always rests with the prescribing physician. 
We believe that widespread usage of electronic prescribing--or 
e-prescribing--could assist physicians in the dispensing of 
generics. We are working the commercial market in order to 
encourage our health plans and employers clients to employ e-
prescribing programs with providing physicians with either 
handheld or web-based technologies. Provisions included in the 
Medicare Drug Benefit law will ensure that Medicare beneficiary 
physicians will have access to patient-specific formulary 
information and will be able to greater discuss generic drugs 
options at the point of care, rather than at the pharmacy 
counter. Greater use of e-prescribing program will not only 
increase generic utilization, but are likely to improve safety 
by reducing medication errors.
    Pharmacists are the third group we work with in order to 
find opportunities to increase generic utilization. We do this 
through online communication at the point of sale to alert a 
pharmacist to potential generic dispensing opportunities; 
pharmacist feedback and peer comparisons; and in some cases, 
monetary incentives are provided, based at least partially on 
the efforts to improve generic drug substitution and dispensing 
rates.
    Caremark understands the value of generics and will 
continue to promote their appropriate use. Our efforts with 
patients, prescribers, and pharmacists, as well as the efforts 
of others in the industry have paid off. Generic drug 
utilization has increased. In 2004, across Caremark's client 
base, the overall generic-substitution rate was 95.1 percent. 
This means that over 95 percent of the time that a prescription 
was dispensed for a prescription drug with a generic equivalent 
available, a generic option was actually dispensed.
    I do, however, wish to bring to your attention a 
legislative issue that could prove counterproductive to all of 
the work that Caremark and others have been doing to increase 
the use of generics. We recognize that Congress is actively 
pursing Bioshield II legislation that would enhance 
manufacturers' ability to bring bioterrorism countermeasures to 
market. We commend these efforts, but are concerned that in 
doing Congress will unintentionally enact legislation that will 
inhibit the production of generic drugs. Specifically, we urge 
Congress to remove all of the patent-extension provisions for 
brand-drugs as they consider this important legislation. While 
we are supportive of tax incentives and limitations of 
liability for manufacturers, we believe these protections 
should be sufficient incentives for companies to invest in the 
production of biomedical countermeasures.
    Patent-restoration and wildcard extensions for brand-name 
pharmaceuticals are not in the best interest of healthcare, 
patients, State and local governments, or private payers. The 
end result will be higher prescription drug bills for all 
concern and potentially reduced access to necessary healthcare. 
A rough estimate of cost of the extending of patent life of the 
top ten selling drugs for 2 years was over $45 billion. We 
strongly urge the House, when considering Bioshield II, to 
eliminate all patent-extension provisions.
    In conclusion, Caremark is committed to delivering high 
quality healthcare services, and we believe one of the more 
important, clinically safe and effective cost-containment 
techniques is the promotion of generic drugs. I thank the 
committee for asking me to speak about our business practices 
today and look forward to an ongoing dialog with you, Mr. 
Chairman, and the members of this committee.
    [The prepared statement of Jan Berger follows:]

   Prepared Statement of Jan Berger, Chief Clinical Officer, Caremark

                              INTRODUCTION

    I would like to first thank the Committee for calling this hearing 
today on generic prescription drugs. Our company has been creating and 
implementing programs to promote generic as an effective alternative to 
expensive brand name prescription drugs for years. Caremark is pleased 
that the Congress is interested in the health care improvement and cost 
savings opportunities that are represented by generics.
    I am a physician and the Chief Clinical Officer for Caremark. At 
Caremark I am responsible for the physician oversight of the Caremark 
corporate clinical strategy, support of sales and account management, 
governmental and lobbyist activities, Medicare Part D, product 
development, disease management and technology initiatives including: 
e-prescribing and Internet activities. I am a board certified 
pediatrician with clinical experience in private, managed care and 
academic medicine.
    Caremark appreciates the opportunity to offer testimony on generic 
prescription drugs. Generic drugs represent a cost effective 
alternative to expensive brand name prescription drugs. By making this 
cost effective alternative available to patients, patient adherence to 
therapy increases, clinical outcomes are improved and healthcare costs 
are reduced. We commend the Energy and Commerce Subcommittee on Health 
for considering this very important issue. Based on its many years of 
experience in managing the pharmacy benefits for tens of millions of 
Americans, Caremark is pleased to be able to offer its comments and 
recommendations.
    I will touch on three major points in my testimony to you today. 
First, I will explain how Caremark and the pharmacy benefit management 
(PBM) industry generally promotes generic drug utilization. Second, I 
will discuss some of the challenges we face in trying to increase 
generic utilization, and the efforts Caremark has made to increase 
consumer and provider awareness of generic drugs. Third, I will 
identify some of the more significant federal policy barriers we see to 
increased utilization of generic drugs.

 CAREMARK RX INC. AND THE IMPACT OF GENERIC PRESCRIPTION DRUGS ON OUR 
                                 MARKET

    Caremark Rx, Inc. (Caremark or ``the company'') is a leading 
pharmacy benefit management (PBM) company, providing through its 
affiliates comprehensive drug benefit services to over 2,000 health 
plan sponsors and their plan participants throughout the U.S. 
Caremark's clients include employers, health plans, managed care 
organizations, insurance companies, unions, government agencies, 
including the Federal Employees Health Benefits Program (FEHBP), 
CalPERS, and other funded benefit plans. Caremark operates a national 
retail pharmacy network with over 59,000 participating pharmacies, 
seven mail-service pharmacies, the industry's only FDA-regulated 
repackaging plant, and 21 licensed specialty pharmacies for the 
delivery of specialty medications to individuals with chronic or 
genetic diseases and disorders. Caremark processes over 550 million 
prescriptions annually.

                      THE PROMISE OF GENERIC DRUGS

    The Congressional Budget Office (CBO) estimated that in 2002 the 
selection of generic drugs enabled savings of almost $100 billion vs. 
the costs for the equivalent brand name prescriptions. In addition, as 
blockbuster brands are losing their patent protection, more generic 
drugs are being introduced to the market every year. Every generic drug 
introduction is an opportunity to increase generic drug utilization.
    Promoting the use of generic drug alternatives is a key factor in 
helping to control total prescription drug costs in the U.S.. 
Prescription drug spending grew at an annual rate of 10.7 percent from 
2002 to 2003, reaching 11 percent of total national health spending in 
2003. 1 If generic drug alternatives are introduced into the 
market, current brand name drug prices decline. A recent report 
indicated that ``prices decrease 30 percent during the first 6-12 
months after a generic drug enters the market, during which time only a 
single manufacturer may produce the generic, after which the price may 
decrease by as much as 70 percent when other generic drug competitors 
enter the market''.2
---------------------------------------------------------------------------
    \1\ Cynthia Smith et al. ``Trends: Health Spending Slows in 2003''. 
Health Affairs, Volume 24, Number 1. January/February 2005.
    \2\ Milne, Christopher-Paul and Catherine Cairns. ``Generic Drug 
Regulation in the US Under the Hatch-Waxman Act''. Pharmaceutical 
Development Regulation 2003; 1(1). Tufts Center for the Study of Drug 
Development, Tufts University.
---------------------------------------------------------------------------
    In an environment where health care costs are on the rise, it is 
vital that the cost savings available from increase generic drug 
utilization be realized. This is particularly relevant as the first 
outpatient drug benefit in the Medicare program is implemented January 
1, 2006. Policy makers and industry stakeholders will want to ensure 
that there is an appropriate balance between quality of care delivered 
and effective cost-containment strategies, such as generic drug 
utilization.
    The FDA ensures that generic medications maintain the same high 
standards of safety, strength, quality, and effectiveness as brand name 
medications. Since generic drugs contain the same active ingredients in 
the same amounts as brand drugs, they're just as safe and just as 
effective. In fact, the two versions are equal in strength and perform 
the same way within the body. Through strict regulations and scrutiny, 
the FDA ensures these similarities. That means, beyond the name, 
generic drugs and brands are therapeutically equivalent and 
bioequivalent.3
---------------------------------------------------------------------------
    \3\ Therapeutically Equivalent: Two drugs are considered 
therapeutically equivalent if they can be expected to produce the same 
clinical effect with the safety profile.
    Bioequivalent: Acting on the body with the same strength and 
similar bioavailability as the same dosage of a sample of a given 
substance. Use of differing formulations of a drug or chemical 
compound. Two drugs are considered bioequivalent if they contain the 
same active pharmaceutical ingredient and if there is no significant 
difference in the rate, and extent to which, the products are absorbed 
in the human body under similar experimental conditions, when 
administered at the same dose. See Food, Drug and Cosmetic Act, 21 
U.S.C.  505(j)(8)(B).
---------------------------------------------------------------------------
    Based on FDA guidelines, the only differences between brand name 
and generic drugs are their name, appearance and price. By law, generic 
drugs must look different from their brand name counterpart: what is 
sold as a blue pill from the brand manufacturer might be sold as a 
white pill from the generic manufacturer. And, because generic drugs 
can have multiple competitors and don't carry the high costs of 
research and advertising, they can be sold at a much lower cost. 
Prescription generic medication essentially is the same as the brand 
name drug in everything but name. That is why generic drugs are such a 
great value for patients and health plans, patients can receive the 
same medication, just as safe and just as effective as the brand, for a 
much better price. In short, the promise of generic drugs is equal 
effectiveness and lower costs.
    Based on Caremark's experience in managing drug benefit programs in 
a wide variety of settings, we can say unequivocally that one of the 
simplest and most effective ways to control drug costs while 
maintaining high quality care is to increase the use of generic, as 
compared to brand, medications by patients. For example, generic drugs 
introduced over the last three years alone reduced total drug costs for 
Caremark's health plan clients in 2003 by 3.1 percent. By increasing 
generic drug substitution, health plans typically realize a savings of 
30-70 percent compared to use of the more expensive brand-name drugs 
Caremark's programs to increase generic utilization have two main areas 
of focus:

 Education--Empower and educate the physicians and patients about the 
        safety and effectiveness, as well as lower cost, of generic 
        drugs through proactive, concurrent and retrospective programs.
 Plan Design--Structuring the plans designs to encourage the use of 
        generic drugs.
    In addition to patients and physicians, the dispensing pharmacist 
is also an important decision-maker with regards to generic drug 
dispensing. Caremark recognizes this and works with our network 
pharmacies in a variety of ways to maximize the potential value for our 
clients and their members from generic drugs. These include on-line 
communications at the point of sale that alert a pharmacist to 
potential generic drug dispensing opportunities, financial incentives 
for pharmacies to dispense generic drugs rather than more costly brand 
alternatives, and extensive analytic and reporting tools to further 
help pharmacies recognize and maximize generic dispensing 
opportunities.

                           RAISING AWARENESS

    Why doesn't everyone use generic drugs? There are many outside 
influences that work against the average consumer's choice to use 
generic drugs. The most obvious are:

 Awareness: Many patients are simply unaware that generic drugs are 
        just as safe and just as effective as their brand name 
        counterparts. They may also be unaware that a generic drug 
        exists for the prescription they are filling. And they may not 
        know they can ask their doctor or pharmacist for the generic 
        version.
 Visibility: Blockbuster brands have a strong marketing presence 
        through direct-to-consumer advertising, while prescription 
        generics do not.
 Mistaken Identity: People often associate the term ``generic'' with 
        lower quality (e.g., ``Brand X'' generic paper towels). In the 
        case of generic drugs, ``generic'' simply means a non-branded 
        prescription medication.
 Motivation: If patients pay nearly the same co-pay for a brand name 
        drug and a generic drug, then there's little reason for them to 
        choose the generic. Creating a pharmacy plan that clearly 
        distinguishes the economic or financial benefits of using 
        generic drugs will motivate patients to learn more about and 
        use generic drugs.
 Physician Focus: It's often easier to prescribe, pronounce and spell 
        a brand name drug name (e.g., Dyazide) than a generic one 
        (hydrochlorothiazide/triamterene). The priority for physicians 
        is the clinical care of their patients; drug costs are 
        secondary. Studies have found that approximately 23 percent of 
        physicians could correctly identify the price of common 
        prescription medications. While, physicians aren't directly 
        impacted by the actual cost of brand medications; they do, 
        however, receive brand samples and substantial marketing and 
        sales attention from brand name drug manufacturers.
 Powerful Patents: The patents for many brand name drugs are vigorously 
        defended even after the protection period is over. Brand 
        manufacturers often try to extend their patents and exclusivity 
        periods to protect their product from competition by generic 
        drugs. Sometimes brand manufacturers create new formulations or 
        ``me-too'' variations to the original brand to divert attention 
        from the generic drug.
    These issues affect patients in their homes, at the physician's 
office, and at the pharmacy. They can influence decisions about what 
drugs are dispensed. These are major forces that influence rising drug 
costs today.
    Hence, Caremark's patient education programs focus first on safety 
and effectiveness. Perhaps the biggest obstacle to the use of generic 
drugs is the perception that generic drugs are inferior. Patients need 
to know that they aren't sacrificing anything--quality of care or 
safety or effectiveness--by using generic drugs. Only then will they be 
interested in the second message: generic drugs can save them money.
   
      CAREMARK'S FOCUS ON INCREASED GENERIC DRUG UTILIZATION

    Caremark promotes the use of generics through several different 
programs. These programs focus on three key audiences: patients, 
physicians and pharmacists.
     Patient Programs--Patients are encouraged to use generics 
through: (1) educational programs and (2) plan designs that create an 
economic incentive to use generics.
    1. Educational Programs--These include general mailing that explain 
what generics are, and how patients can save money without compromising 
their care by choosing generics. They also include patient-specific 
mailings based on identifying retail brand name prescriptions dispensed 
when there was a generic drug available. In this case, Caremark will 
then a mailing to the patient in cases where the patient requested the 
prescription to be filled with a brand when a generic was available.
    2. Plan Design--There are many ways to encourage generic drug 
utilization through plan design. Some of the ways to do this include:

 Adjusting co-pay differentials to be higher for more expensive brand 
        name drugs
 Requiring patients to obtain explicit physician authorization in 
        order to receive brand name dispensing when an approved generic 
        product is available.
 Requiring that patients accept generic products or pay the difference 
        in price between the brand name and generic drugs, in addition 
        to the standard co-payment.
 Educational Mailings--Caremark will identify retail brand name 
        prescriptions dispensed when there is a generic drug available, 
        and will then send mailings to the patient in cases where the 
        patient requested the prescription to be filled with a brand 
        when a generic was available.
    Prescriber Programs--In addition to Caremark's programs to educate 
patients about generic drugs, Caremark also assists prescribers to 
choose generic drugs.
    Caremark's physician education programs focus on promoting 
appropriate and cost-effective prescription utilization. Specific 
program activities include physician education via retrospective DUR 
(drug utilization review) letters, physician profiling and report 
cards, and face-to-face physician consultation through our national 
academic physician detailing program. These activities provide 
physicians with current clinical and economic information on 
pharmaceutical products and treatment protocols within specific 
therapeutic classes, including utilization of generic drugs. Some of 
these programs are described in greater detail below:

 Under Caremark's physician profiling program, a report is sent to 
        physicians identifying claim-specific examples of brand 
        products that could be converted to a generic drugs. Physicians 
        will then be given patient-specific opportunities to prescribe 
        a generic product. Twice a year, Caremark also produces a 
        report showing the physicians' generic substitution rate (GSR) 
        compared with peers in their specialty and against other 
        physicians in the Caremark book of business. The report also 
        shows the top five multisource brands where substitutions did 
        not occur. Physicians may request a list of their patients who 
        have been prescribed the multisource brand.
 Under the Caremark CustomCare Mail program DAW (Dispense as Written) 
        prescriptions for brand name drugs are identified at Caremark's 
        mail service pharmacy. A Caremark clinician contacts the 
        prescribing physician to ask the physician to consider 
        converting the prescription to a generic drug substitute and to 
        educate the physician on the value of generic drugs. The final 
        decision to dispense a brand name drug or generic substitute 
        always rests with the prescribing physician. Caremark is 
        successful in 45 percent of cases when requesting that 
        physicians convert DAW prescriptions to a generic product.
 Caremark clinicians analyze and identify certain therapeutic 
        categories that may include clinically similar drugs. Through a 
        clinical pharmacist review, physicians are contacted and 
        educated around the Caremark pharmacist's clinical 
        recommendations. Caremark will then ask the physician to 
        prescribe the generic alternative if clinically appropriate. 
        This is done prior to filling at Caremark's mail service.
 Retail DAW mailings: Caremark will identify retail brand name 
        prescriptions dispensed when there is a generic drug available, 
        and will then send mailings to the physician who requested the 
        prescription to be filled with the brand-name version of the 
        prescription drug. Mailings educate the recipient on the 
        safety, efficacy, and value of generic drugs, and on the 
        actions they can take to have the next prescription filled as a 
        generic drug.
 Generic Therapeutic Interchange at retail: Caremark clinicians 
        identify certain therapeutic categories that may include 
        clinically similar drugs. If a drug does not have a generic 
        drug alternative, Caremark will send communications to the 
        physician to consider prescribing a generic drug within the 
        same class for the next prescription.
 Lastly, one of the most vital programs that will assist in the 
        dispensing of generics by physicians is the use of electronic 
        prescribing (e-prescribing). E-prescribing will allow for a 
        better dialogue between physicians and their patients about the 
        range of prescription options available by providing physicians 
        with instant access to patient-specific formulary information, 
        and the medication histories of their patients.--This will 
        allow physicians to discuss generic drug options at the point-
        of-prescribing rather than having these issues addressed only 
        after the fact at the pharmacy counter or later. The 
        requirement for Medicare drug benefit plans to implement an e-
        prescribing program will go a long way towards encouraging the 
        widespread use of e-prescribing in the commercial market ``by 
        setting uniform federal standards that can be adopted by all 
        participants in the health care system. This will, in turn, not 
        only, encourage a better doctor-patient relationship, improve 
        safety by reducing medication errors but also increase the 
        utilization of generic drugs.
    Pharmacy Programs--Clinical pharmacy management programs alert 
pharmacists to opportunities to substitute generic drugs. These 
programs are employed both before and after a prescription is 
dispensed. Some of these programs are described below:

 Caremark's claim adjudication systems automatically identify when a 
        brand name drug has a generic drug equivalent. The pharmacist 
        will dispense the generic drug alternative, provided the 
        physician has not written ``Dispense as Written'' (DAW). Retail 
        pharmacies are given monetary incentives based, in significant 
        part, on their efforts to improve our clients' generic drug 
        substitution and dispensing rates. They improve performance in 
        these areas by their own dispensing decisions and by 
        influencing patients and physicians to use the most cost-
        effective, clinically appropriate medications. Individual 
        pharmacists are not paid fees tied to performance results.
 The MAC (maximum allowable cost) program is an effective tool to 
        promote utilization of generic drugs. The MAC program 
        encourages generic drug substitution at the pharmacy level by 
        establishing a ceiling price on the amount reimbursed to 
        pharmacies for specific multisource brand-name and generic drug 
        products. Pharmacy reimbursement is limited to the MAC price 
        for drug products on the MAC list, and so pharmacies will 
        retain more of the reimbursement if they dispense the less 
        costly generic product. This creates a strong incentive for the 
        pharmacy to dispense a generic drug.
    Caremark helps pharmacies contain costs for patients and health 
plans by providing pharmacies with reporting tools for evaluating and 
improving their own performance and that identify missed opportunities. 
Pharmacies can access their own data electronically via downloadable 
spreadsheets in weekly e-mails and through other electronic media. This 
reporting enables pharmacies to drill down to the store level and view 
important cost-containment data, including generic drug substitution 
and generic drug dispensing rates, as well as comparisons with other 
pharmacies within each state.

 OPPORTUNITIES FOR INCREASED USE OF GENERIC DRUGS--CONGRESS AND THE FDA

    Caremark understands the value of generics and will continue to 
promote their appropriate use. Our historical efforts with 
beneficiaries, physicians and pharmacies and in support of health plan 
sponsors that we have described, as well as the efforts of others in 
the industry have paid off. Generic drug utilization has increased. In 
fact in 2003, across Caremark's entire client base, the overall generic 
substitution rate (GSR) was 94.8 percent. This means that about 95 
percent of the time that a prescription was dispensed for a 
prescription drug with a generic equivalent available, a generic option 
was actually dispensed.
    While generic substitution rates are over 90 percent, the generic 
dispensing rate, that is the percentage of total prescriptions 
dispensed that are generic, is only between 40-50 percent. Therefore, 
the greatest opportunity today to increase the savings realized from 
generic drugs lies not in increasing the rate of dispensing a generic 
drug when a generic drug is available, but instead, in increasing the 
availability of generic drugs generally. The more generic drug products 
that are available, the greater the overall rate at which pharmacies 
and PBMs like Caremark can dispense generic drugs. Increasing the 
availability of generic drug alternatives is the key to increasing 
overall generic drug utilization.
    There are many factors that create barriers to the availability of 
generic drug alternatives. Some of these barriers can be addressed by 
Congress, and we urge the Congress to take action to reduce or 
eliminate these barriers so that lower cost generic drugs can be 
brought to market more quickly thereby, lowering overall health care 
costs to the American consumer.
    The following sections outline three areas where Caremark believes 
Congress' actions can and will significantly affect generic drug 
utilization in the future:

1. First, the Medicare Modernization Act of 2003 made changes to the 
        Hatch-Waxman Act to close perceived loopholes that allowed 
        brand manufacturers to extend their patents beyond the time 
        originally intended and deemed appropriate by Congress. We 
        encourage Congress to continue these efforts in order to ensure 
        that generic manufacturers have a level competitive playing 
        field with brand name manufacturers.
2. Second, we urge Congress and the FDA to move forward on a regulatory 
        process that leads to the approval of generic biologics as an 
        alternative to brand name biologic products. This is truly the 
        next frontier generic drug products and progress in this area 
        should improve the affordability and accessibility of these 
        very important, but expensive products.
3. Third, we ask that as Congress considers Bioshield II legislation 
        that would enhance manufacturers' ability to bring bioterrorism 
        countermeasures to market more quickly, it not unintentionally 
        enact legislation that will inhibit the production of generic 
        drug by. increasing the protections against market competition 
        already enjoyed by brand manufacturers. This would serve as a 
        major disincentives for generic drug manufacturers to make 
        cost-saving generic products available to the American public.
    the hatch-waxman act: change in the medicare prescription drug, 
            improvement, and modernization act of 2003 (mma)
    In 1984, Congress passed the Drug Price Competition and Patent Term 
Restoration Act of 1984, commonly referred to as the Hatch-Waxman Act. 
Title I of the Act sought to reduce the time it took for generic drugs 
to enter the market through the creation of an abbreviated new drug 
application (ANDA) process. For the first time, generic manufacturers 
did not need to repeat the preclinical and clinical research and trials 
that must be conducted by brand manufacturers before obtaining FDA 
approval. Generic pharmaceutical manufacturers instead needed only to 
show that their product was bioequivalent to the brand name product.
    Caremark supports the intent of the 1984 Hatch-Waxman Act to 
encourage greater consumer access to lower-priced generic alternatives. 
However, over time, brand name manufacturers have found loopholes in 
the Act that allow them to extend their patents beyond the initial 
period, thereby frustrating the purpose of the law and delaying the 
introduction of generic drugs to market.
    In 2003 Congress took an important step towards the promotion of 
generic drug competition with the changes to Hatch-Waxman enacted by 
the Medicare Prescription Drug, Improvement, and Modernization Act of 
2003 (MMA). Under the new law, a brand name manufacturer no longer can 
receive 30-month stays for patents that are submitted to the FDA after 
an ANDA has been submitted for that product. In addition, the MMA 
included a modification to the start date of the 180-day exclusivity 
period that ensures that it is not used up in patent disputes.
    We believe that the changes to Hatch-Waxman Act under the MMA are 
steps in the right direction. However, there is still work to be done 
in order to ensure that the Hatch-Waxman Act removes all barriers that 
exist to increased competition and generic drug availability.

                           GENERIC BIOLOGICS

    When the provisions of the Hatch-Waxman Act were drafted, the 
biotechnology market was in its infancy. Since then, biotechnology and 
patent approvals for biotechnology products have grown rapidly. The 
growth in this market has recently caused policymakers and industry 
leaders to consider making generic alternatives to the brand versions 
of these biologic products available to consumers. This is particularly 
relevant now, given that 18 biologic products worth $10 billion a year 
will lose patent protection over the next few years.4
---------------------------------------------------------------------------
    \4\ Milne, Christopher-Paul and Catherine Cairns. ``Generic Drug 
Regulation in the US Under the Hatch-Waxman Act''. Pharmaceutical 
Development Regulation 2003; 1(1). Tufts Center for the Study of Drug 
Development, Tufts University.
---------------------------------------------------------------------------
    Biologic drugs tend to be very expensive, and in a time of rapidly 
growing prescription drug costs, it is important that biogeneric 
alternatives be considered to help create a more competitive, lower 
cost market. Similar to conventional drugs, when a generic version of a 
biological product becomes available, the market can be expected to be 
more competitive, and Caremark anticipates that it will be better able 
to negotiate discounts and offer those products at a lower cost to 
consumers and payers.

Biotechnology and Specialty Pharmacy
    Specialty pharmacy is a significant component to Caremark's overall 
service offering. Most of the specialty products that Caremark offers 
to consumers are biologic drugs. In contrast to conventional drugs, 
which are chemically synthesized from small molecules, many biologics 
are synthetic or recombinant versions of natural biologic substances 
such as proteins and enzymes that often require specific handling and 
storage techniques.
    Caremark believes that the development of a streamlined FDA 
regulatory approval process for follow-on biologics would greatly 
increase generic product competition. We believe it is critical that 
the FDA use the administrative tools it has at its disposal to allow 
biogeneric alternatives to enter the market. In addition, we encourage 
Congress to create a legislative solution in areas where the FDA does 
not have administrative authority to do so, or is not using its current 
administrative authority due to concerns about legal interpretation.
Promote Regulatory Process to Approve Generic Biologics
    To date, the FDA does not approve most therapeutic biologics 
through the new drug application (NDA) process, which is used to 
approve most drugs. There are however, several therapeutic biologics 
such as insulin and growth hormones that have, by exception, been 
approved via the NDA process.
    Biologics are generally approved separately, under the biologics 
license application (BLA) process, which is authorized under the Public 
Health Service Act (PHSA), not the Food, Drug and Cosmetics Act (FDCA) 
(which governs the NDA and ANDA processes). The BLA does not contain a 
process similar to the ANDA, which would expedite the approval of 
generic biologics. To date, the FDA has not made any administrative 
changes to either the BLA or the NDA/ANDA process to approve generic 
biologics.
    Caremark encourages the FDA or Congress to move forward with an 
administrative process which would speed the availability of generic 
biologics to American consumers. We believe this could be done in one 
of two ways: 1) the FDA or Congress could create one approval process 
for biologics and pharmaceuticals, thereby allowing generic biologics 
to enter the market through the ANDA process; or 2) create an expedited 
approval process within the PHSA for generic biologic, similar to what 
was created under the Hatch-Waxman Act.
    We understand that the FDA has publicly stated that the Agency has 
limited administrative authority to create a process whereby generic 
biologics may be approved. If the FDA continues to take this position, 
we encourage Congress to take action in order to address the issue.

Bioequivalency
    One of the most significant barriers to biogeneric approval is 
demonstrating the bioequivalence of these products. Progress is being 
made daily to better understand how to analyze and evaluate the 
clinical evidence that will prove bioequivalence. According to public 
comments from the FDA, significant progress is being made at the Agency 
to promote the development of bioequivalence evaluation tools, 
including molecular imaging techniques, in-vivo sampling methods, 
pharmacodynamic measures and mathematical models that test the 
performance of inhalation drugs.5
---------------------------------------------------------------------------
    \5\ http://www.fda.gov/oc/speeches/2005/GPhA0301.html
---------------------------------------------------------------------------
    We believe that the science around bioequivalence testing has 
evolved to the point where the FDA should begin considering accelerated 
generic approvals of bioequivalent products. We believe the time is now 
ripe for the FDA and Congress to take action to ensure that this 
science and technology is harnessed to bring to market lower-cost 
biogeneric alternatives.

          BIOSHIELD AND THE IMPACT ON GENERIC PHARMACEUTICALS

BioShield I shows commitment to bio-preparedness
    The enactment of BioShield I (P.L. 108-276) in July of 2004 was a 
defining moment in the nation's commitment to bio-preparedness. Clearly 
there is a need to develop new countermeasures for protection against 
the bioterror pathogens, toxins, or infectious diseases that 
potentially could be targeted against the United States.
    Since the passage of BioShield I, some policy makers have raised 
concerns about the limitations of BioShield I, especially in dealing 
with the reluctance of pharmaceutical manufacturers to engage in 
research and development of biomedical countermeasures. Without public 
demand or appropriate incentives to spur countermeasures production 
today, the market for these products may not develop quickly enough.
    Several bills have been introduced, that aim to strengthen 
BioShield I by giving the federal government tools to collaborate with 
private companies in developing countermeasures, thereby ensuring that 
the nation is more adequately prepared for potential bioterrorism 
attacks. One such bill, BioShield II (S. 975) would allow the Secretary 
of the Department of Health and Human Services (HHS) to deploy a 
variety of additional incentives, including the ``wild-card'' patent 
extension.

The wild-card patent provision
    In general, under a ``wild-card'' patent provision, a brand name 
manufacturer may receive an incentive of additional market exclusivity 
on any drug, including non-countermeasure drugs and blockbuster drugs, 
for which it holds an unexpired patent. Specifically, as contained in 
S. 975, the Secretary of HHS would have the discretion to grant a 
manufacturer, who has won a BioShield contract, a wild-card patent 
extension ranging from six months to two years, for any qualified 
product the company manufactures upon successful development of a 
biomedical countermeasure. If you consider the just ten top selling 
brand names drugs that could be certified, the cost of this provision 
for the US buyers of prescription drugs, including consumers, 
especially seniors and the disabled and health plan sponsors, such as 
the federal government, exceed $45 billion.

Wild-card incentives delay generic drug competition
    While Caremark supports some of the other incentives, such as tax 
incentives and liability protections, to encourage more pharmaceutical 
companies to participate in bioterrorism countermeasure, we strongly 
urge that Congress not pass legislation that includes protectionist 
patent-related incentives such as the ``wild-card'' provision. Such 
incentives will delay or even prevent generic drug competition for 
brand drugs, thereby undermining the balance so carefully achieved 
under Hatch-Waxman. By delaying the entry of generic drugs to the 
marketplace, these incentives would unnecessarily restrict access to 
less expensive versions of safe, effective and much needed medications, 
thereby burdening consumers, government, and private insurers with 
higher prescription drug bills.
    While S.975 would require that the Secretary consider, among other 
things, the impact of the patent extension on consumers and healthcare 
providers in deciding whether to grant the wild-card extension, we are 
concerned that in some cases the urgent need for countermeasure 
development may seemingly outweigh the potential harm of extending the 
patent rights on a non-countermeasure drug. However, attempting to 
promote one public policy goal (security) by sacrificing another 
(access to affordable health care) through anti-competitive 
protectionist measures is not in the nation's interest, and not an 
appropriate tradeoff.

BioShield II patent incentives would propagate uncertainty in the 
        generic drug marketplace
    Under S. 975, all manufacturers who successfully produce the 
contracted countermeasure, including those that are awarded the wild-
card extension, have the option to instead elect for full-term patent 
restoration on the countermeasure to compensate for time lost during 
the regulatory review process. In fact, at any time a contracting 
manufacturer granted the wild-card extension may choose the 
countermeasure patent restoration option instead of the wild-card, but 
the manufacturer may only choose one option. It could take five years 
or more for a successful countermeasure to be delivered, due to the 
time needed for research and development, during which time the patent 
on the selected wild-card drug may expire. The ability of a 
manufacturer to name a wild-card drug but never invoke the provision 
would significantly impact generic manufacturers, who would be deterred 
from developing a generic version of the selected wild-card drug due to 
the threat of litigation and liability for treble damages. As a result, 
American consumers, health insurers, and the prescription drug plans 
soon to be offering the new Medicare Prescription Drug benefit would 
have potentially fewer generic drug alternatives from which to choose, 
thereby increasing healthcare costs and eliminating treatment options 
for Americans.

BioShield II proposes to waive Hatch-Waxman limits on patent term 
        restoration
    S. 975 goes beyond the patent term restoration options under 
existing law, which allow only a fraction of the patent term lost 
during the approval process to be restored. It would allow the entire 
delay associated with regulatory review to be restored. This provision 
could allow the firm with a winning countermeasure drug to choose to 
extend the life of the patent on the new product to its full 17 years. 
Extending the life of brand name patents for this period of time is an 
unnecessary boon to brand manufacturers that will come at the price of 
the American consumer, as it will seriously inhibit generic drug 
manufacturers from bringing new generic products to market, thereby 
reducing the availability of lower cost generic products to consumers.
Congress should encourage the countermeasure and generic drug markets
    The ability of the Federal Government to offer sufficient 
incentives to large pharmaceutical companies to invest substantial 
amounts of private capital towards the development of biomedical 
countermeasures--a relatively underdeveloped marketplace for research 
and development--is clearly important to the safety and security of our 
nation, but should not come at the expense of reduced generic drug 
options and therefore, reduced access to necessary health care.
    Caremark continues to support the acceleration of research, 
development and manufacturing of novel biomedical countermeasure 
agents. Tax incentives and limitations on liability should be 
sufficient incentives for companies to invest in the production of 
biomedical countermeasures. Patent restoration and wild-card extensions 
are not in the best interest of the American people, generic 
pharmaceutical manufacturers, pharmacy benefit management companies, 
and the country's healthcare system at large.

                               CONCLUSION

    Caremark is committed to delivering high quality health care 
services to American consumers. We provide, through our affiliates 
comprehensive drug benefit services to over 2,000 health plan sponsors 
and their plan participants throughout the U.S. One of the most 
important, clinically safe and effective, cost containment techniques 
that we employ as a PBM is the promotion of generic drug utilization 
through educational offerings, pharmacy programs and plan benefit 
design strategies. By encouraging generic drug utilization, we are able 
to offer safe and effective drugs at lower prices to consumers.
    I thank the Committee members for asking me to speak about our 
business practices to promote appropriate utilization of generic drugs 
today, and look forward to an ongoing dialogue to determine how to 
increase the promotion and utilization of generic products in the 
future. I also appreciate the opportunity to raise legislative and 
administrative policy issues that could affect the ability to 
efficiently and expeditiously bring generic prescription drugs to 
market. Again, I commend the Committee for considering this very 
important issue and look forward to further discussion and policy 
development in this critical area.

    Mr. Deal. Thank you, ma'am. Ms. Cramer?

                  STATEMENT OF BONNIE M. CRAMER

    Ms. Cramer. Mr. Chairman and member of the committee, I am 
Bonnie Cramer, a member of the all-volunteer AARP Board of 
Directors. Thank you for the opportunity to testify today.
    Americans of all ages need access to affordable 
prescription mediations. Generic drugs have an important role 
in helping to control drug costs. Recent AARP studies reveal 
that generic drug prices, which are traditionally less 
expensive, are not rising as fast as their brand-name 
counterparts. Brand-name prescription drug prices to continue 
to rise much faster than the rate of inflation. The use of 
generic drugs is steadily increasing, but more needs to be done 
to ensure the availability of these lower-cost alternatives.
    For instance, the patent life of innovator dugs should not 
be unnecessarily extended, and once the patent on the innovator 
drug has expired, generic drug manufacturers should not be 
hindered by unnecessary litigation and other efforts to extend 
patent protection beyond what true innovation deserves. In 
addition to generally being less expensive, generic drugs are 
also a safe alternative to brand-name drugs. For an 
overwhelming majority of individuals, generic drugs can be 
substituted for the brand-name equivalent drug. However, in a 
few cases, an individual may not react the same to a generic 
drug as they would to its brand-name counterpart. For example, 
some individuals may be allergic to inert ingredients included 
in the generic drug. AARP supports the use of generic drugs 
whenever possible, but we also believe that physicians must 
retain the ability to override generic substitution where 
medically appropriate. In addition, individuals should not be 
penalized financially when the generic drug is not medically 
appropriate. Any formulary override should be conducted with as 
little burden on a physician and patient as possible.
    Americans are becoming increasing familiar with generic 
drugs, but we need to do more to educate consumers and 
physicians about the benefits of generic drugs. In 2002, AARP 
launched a nationwide Wise-Use campaign to promote the 
appropriate use of generics. This campaign included print and 
broadcasts ads and a brochure entitled ``Before You Take Your 
Medicine, Take This Advice'', which we developed with the 
American Pharmacist Association and distributed in pharmacies 
nationwide. This year, AARP is taking that campaign further by 
unveiling a drug-safety and effectiveness reference tool on 
AARP webpage.
    Generic drugs offer most Americans the same therapeutic 
value as brand-name prescriptions drugs, but at a more 
affordable price. We urge Congress to do more to ensure that 
Americans have access to lower cost generic drugs as part of a 
broader agenda to bring down the rising cost of prescription 
drugs. Thank you, again, for inviting us here, and I am happy 
to answer any questions you may have.
    [The prepared statement of Bonnie M. Cramer follows:]

       Prepared Statement of Bonnie M. Cramer, AARP Board Member

    Mr. Chairman and members of the Committee, my name is Bonnie 
Cramer. I am a member of AARP's Board of Directors. On behalf of our 
over 35 million members, thank you for convening this hearing and for 
including AARP in your discussions about the use of generic 
prescription drugs.
    In November, millions of older Americans and those with 
disabilities will have the opportunity to choose to enroll in a long-
overdue Medicare prescription drug benefit. Medicare coverage of 
prescription drugs will ensure that beneficiaries can afford necessary 
medications. However, even with the addition of this new benefit, more 
needs to be done to keep overall drug costs down. Generic drugs have an 
important role to play in helping to control drug prices for 
beneficiaries, the Medicare program, and for the entire health care 
system.

                           RISING DRUG PRICES

    High prescription drug prices are taking a toll on our health care 
system--both the public and private sectors. Employer-sponsored health 
care premiums are rising at double digit increases, 1 in 
large part due to increasing prescription drug costs. As a result of 
rising health care costs, more employers are dropping coverage, thus 
increasing the number of uninsured Americans. There are currently more 
than 45 million Americans who lack health care coverage and these 
individuals pay the highest prices for their prescription drug needs. 
Many choose not to fill prescriptions because they cannot afford to pay 
for them. A recent AARP survey showed that among Americans age 50 and 
older, one in four said they decided against filling a prescription; 
cost was reported to be the main deterrent.2
---------------------------------------------------------------------------
    \1\ Kaiser Family Foundation and Health Insurance and Educational 
Trust, Employer Health Benefits 2004 Summary of Findings.
    \2\ Prescription Drug Use Among Midlife and Older Americans, AARP, 
January 2005.
---------------------------------------------------------------------------
    Rising prescription drug prices continue to squeeze public programs 
at both the state and federal level. In 2003, the federal government 
spent $25.2 billion on prescription drugs for public 
programs.3 Prescription drug spending in the Medicaid 
program increased at an average annual rate of 17--percent between 2000 
and 2003.4
---------------------------------------------------------------------------
    \3\ Centers for Medicare and Medicaid Services, Expenditures for 
Health Services and Supplies Under Public Programs, by Type of 
Expenditure and Program: Calendar Year 2003, available at http://
www.cms.hhs.gov/statistics/nhe/historical/t10.asp (noting that of this 
amount $5.3--billion was non-Medicaid dollars and $19.9--billion 
represented Medicaid spending on prescription drugs).
    \4\ John Holohan and Arunabh Ghosh, ``Understanding the Recent 
Growth in Medicaid Spending, 2000-2003,'' Health Affairs, Jan. 26, 2005 
at W5-52.
---------------------------------------------------------------------------
                   GENERIC DRUGS CAN ACHIEVE SAVINGS

    Brand name prescription drug prices continue to rise at rates that 
are increasingly unaffordable for the average American. A recent AARP 
study revealed that, on average, pharmaceutical manufacturer prices for 
the 195 brand name drugs most widely used by older Americans increased 
at more than double the rate of general inflation from 2000 through 
2004.5 The average annual increase in manufacturer prices 
charged to wholesalers and other direct purchasers for these drugs was 
7.1 percent in 2004, up from 4.1 percent in 2000. For the 153 brand-
name drugs that were in the market for the entire five year period, 
this translates into a cumulative average price increase of over 35 
percent, over two-and-one-half times the general inflation rate of 13.5 
percent over the same period.
---------------------------------------------------------------------------
    \5\ Trends in Manufacturer Prices of Brand Name Prescription Drugs 
Used by Older Americans, 2004 Year-End Update, AARP Public Policy 
Institute Data Digest #DD112, April 2005.
---------------------------------------------------------------------------
    In contrast, generic drug prices are lower than brand name 
prescription drugs, and more interestingly, manufacturers' prices on 
generic drugs are not rising as fast as their brand name counterparts. 
A recent AARP study revealed that, on average, manufacturer list prices 
for the top 75 generic drugs most widely used by older Americans rose 
0.5 percent in 2004 compared to a 13.3 percent average increase in 
2003.6 This average annual increase was less than one-fifth 
the rate of general inflation for 2004.
---------------------------------------------------------------------------
    \6\ Trends in Manufacturer Prices of Generic Prescription Drugs 
Used by Older Americans, 2004 Year-End Update, AARP Public Policy 
Institute Data Digest #DD113, April 2005.
---------------------------------------------------------------------------
                GENERIC DRUGS CAN BE A SAFE ALTERNATIVE

    In addition to generally being less expensive, generic drugs are 
also a safe alternative to brand name drugs. In order to gain Food and 
Drug Administration (``FDA'') approval to market a generic drug, a 
manufacturer must demonstrate that the generic drug is bioequivalent to 
the comparable brand name prescription drug. To prove bioequivalence, 
the generic drug manufacturer must demonstrate two things. First, that 
the generic drug is pharmaceutically equivalent, in other words that it 
has the same active ingredients, strength, dosage, and method of 
administration as the brand name pharmaceutical. Second, the 
manufacturer must prove that the generic drug has comparable 
bioavailability, meaning that the generic drug must have the same rate 
and extent of absorption as the brand name pharmaceutical.
    Nearly all generic drugs are expected to be bioequivalent to their 
brand name counterparts (e.g., ``A''-rated generic drugs). For an 
overwhelming majority of individuals, these generic drugs can be safely 
substituted for the brand name equivalent drug. However, in a few 
limited cases, generic drugs may not meet the standards of therapeutic 
equivalency. These ``B''-list drugs should not be substituted for the 
brand name drug.
    There is documented evidence that suggests that for a small number 
of individuals, generic substitution may not be appropriate. For 
example, some individuals may be allergic to inert ingredients (e.g., 
coating) included in the generic drug. Therefore, AARP believes that 
prescribers must retain the ability to override generic substitution in 
cases when the prescribing physician has deemed such substitution to be 
medically appropriate (e.g., individual does not respond well to the 
generic drug treatment regimen).
    Thus, a critical component of any drug formulary or preferred drug 
list that promotes use of generics is an efficient and effective 
exceptions process. Such a process should provide prompt access to a 
brand name or other appropriate drug whenever--based on sound clinical 
evidence provided by the prescribing physician--the generic is not 
medically appropriate for an individual patient. Equally important is 
ensuring that, whenever such exceptions are granted, the patient is not 
charged more for obtaining a medically appropriate drug. Furthermore, 
individuals who are granted such exceptions should not be required to 
go through the exceptions process again once it has been established 
that the generic is not medically appropriate for them.

                        ACCESS TO GENERIC DRUGS

    Use of generic drugs is steadily increasing. In 2001, generic drugs 
accounted for nearly half of all retail prescription drugs dispensed in 
the United States, up from 18.6 percent in 1984.7 In 2003, 
generic drug prescriptions represented 43 percent of all prescriptions 
written, and 47 percent of new (non-refill) prescriptions.8
---------------------------------------------------------------------------
    \7\ Generic Drugs Research Report, AARP Public Policy Institute, 
publication IB61, May 2003.
    \8\ IMS Health, 2004.
---------------------------------------------------------------------------
    In 1984, Congress passed the Drug Price Competition and Patent Term 
Restoration Act, commonly referred to as the Hatch-Waxman Act, which 
helped speed generic drugs to market. Unfortunately, brand name 
pharmaceutical manufacturers have often tried to circumvent the Hatch-
Waxman Act. Brand name pharmaceutical manufacturers facing loss of 
patent protection on blockbuster drugs began using litigation and other 
means to extend the life of patents. Courts and the Federal Trade 
Commission (``FTC'') have determined that some brand name prescription 
drug manufacturers colluded with generic drug manufacturers to delay 
the marketing of competing generic products. The first generic version 
of a brand name drug to establish that it does not infringe on a valid 
patent receives a 180-day period of market exclusivity. Therefore, 
stopping or delaying market entry of the first generic drug prohibited 
all other generic drugs from competing, thus extending the brand name 
manufacturer's market exclusivity.
    In another effort to extend the life of their patent protections, 
brand name manufacturers have also used the practice of 
``evergreening,'' the process of extending the patent protection of a 
brand name prescription drug as the term of the original patent nears 
expiration. One common method of evergreening is the ``late-file 
patent'', whereby brand name manufacturers change a small aspect of 
their drug (e.g., color, new dosage requirements, tablet shape) prior 
to the expiration of the patent and then obtain a new patent based on 
the ``improvements'' to the drug.
    Evergreening blocks generic competition in at least two ways. 
First, after the slight change results in the granting of a new patent, 
the brand name manufacturer heavily promotes the ``new'' formulation as 
being much better than the old and creates enormous demand for the 
``new'' product for which it can charge monopolistic prices. Thus, the 
market demand moves to the new expensive product even though there is 
little science-based evidence that the old product, for which generics 
may now be available, is inferior.
    Second, brand name manufacturers used the late filed patents to 
manipulate the automatic 30-month stay of generic competition granted 
by Hatch-Waxman when the generic manufacturer notified the FDA that it 
would like approval to market a generic version of a brand name drug. 
The thirty months stay was designed to allow time for a court to 
resolve whether the generic infringes the brand name manufacturer's 
patent. But, after the first stay based on an older patent of a 
particular drug was resolved in favor of the generic, the brand name 
manufacturer then would file another suit against the generic based 
upon a later-filed patent on the same drug. This gave the brand name 
manufacturer another automatic 30-month stay preventing the generic 
manufacturer from bringing its drug to market until that patent issue 
was resolved. Brand name manufacturers were filing multiple challenges 
in order to extend their patent life. The Medicare Modernization Act of 
2003 (``MMA''), bans this form of evergreening by limiting brand name 
pharmaceuticals to a single automatic 30-month stay.
    Pharmaceutical innovation plays an important role in prolonging the 
life and improving the quality of life for individuals. Pharmaceutical 
manufacturers are rewarded for their innovations in the form of patents 
and FDA-granted market exclusivity on their products. However, the 
patent life of these innovator drugs should not be unnecessarily 
extended. Once the patent on the innovator drug has expired, generic 
drug manufacturers should not be hindered by unnecessary litigation and 
other efforts by the patent holder to extend patent protection beyond 
what true innovation deserves. There have been eleven successful 
challenges to patent laws brought by generic drug manufacturers; these 
challenges have provided over $27--billion in savings.9
---------------------------------------------------------------------------
    \9\ Generic Pharmaceutical Association's testimony to the HHS Task 
Force on Drug Importation, April 5, 2004.
---------------------------------------------------------------------------
    Pharmaceutical companies that engage in actions to unnecessarily 
extend the life of their patent do so because holding the patent yields 
significant income for the company every year. However, this money is 
generated by individuals and health care payers. If generic drugs were 
brought to market in a timely manner, this could reap significant 
savings for the health care system in this country. AARP opposes patent 
extensions or extensions of market exclusivity.
    In addition to bringing generics to market in a timely manner, the 
U.S. health care system can reap significant savings by investing 
heavily in the research of comparative clinical effectiveness of 
prescription drugs. Unlike in other countries, the U.S. does not 
require that drugs coming onto the market test better than drugs 
already available in the marketplace. Funding of comparative clinical 
effectiveness studies would provide scientifically based information on 
the relative clinical effectiveness of different prescription drugs. In 
some cases the newer drug may be the best treatment option, in other 
cases the best treatment option may be the generic drug already on the 
market. Armed with this information, individuals and their prescribers 
can make better treatment decisions.

                           CONSUMER EDUCATION

    Although Americans are becoming increasingly familiar with generics 
drugs--a recent AARP study showed that 97--percent of respondents say 
they have heard about generic prescription drugs 10--some 
confusion about the benefits of generics still exits. Twenty-four--
percent of respondents indicated that generic drugs were different from 
brand name drugs, and among those who thought there was a difference, 
only four in ten believed generic drugs to be less effective. 
Surprisingly, overall only 21--percent of respondents believed generic 
drugs to be less expensive than brand name prescription drugs.
---------------------------------------------------------------------------
    \10\ Prescription Drug Use Among Midlife and Older Americans, AARP, 
Jan. 2005.
---------------------------------------------------------------------------
    More education is needed to help consumers and physicians 
understand the benefits of generic drugs. Physicians generally support 
generic substitution,11 but they also report frequent visits 
by brand name pharmaceutical manufacturer representatives, which can 
influence their prescribing behavior. Consumers also need to be aware 
that direct-to-consumer (``DTC'') advertising often steers them towards 
brand name prescription drugs when a less costly generic and/or a less 
costly brand name drug may be available. Some DTC advertising is 
beneficial--such as advertising that raises awareness about certain 
diseases and/or conditions. However, the pharmaceutical industry spends 
billions of DTC advertising dollars to promote ``new'' formulation of 
products, which may show little improvement over less costly 
alternatives already available in the marketplace.
---------------------------------------------------------------------------
    \11\ Physicians' Attitudes and Practices Regarding Generic Drugs, 
AARP, March 2005 (reporting that 78--percent of respondents support 
generic substitution in most cases, 17--percent support generic 
substitution in all cases where the generic drug is available, and only 
5--percent do not support generic substitution).
---------------------------------------------------------------------------
    In April 2002, AARP launched a nationwide ``Wise Use'' campaign to 
promote the appropriate use of generic medicines. The campaign urged 
consumers to inform their doctor or pharmacist about all other 
medicines they were taking; to follow their physician's advice about 
exactly how to use their medicine properly; and to resist being 
pressured by direct-to-consumer pharmaceutical advertising to request 
an inappropriate or possibly unnecessary medicine. The campaign 
included print and broadcast ads, and a brochure, ``Before You Take 
Your Medicine, Take This Advice,'' developed with the American 
Pharmaceutical (now ``Pharmacists'') Association, distributed in 
pharmacies nationwide.
    This year, AARP took its education campaign further by unveiling a 
drug safety and effectiveness reference tool at http://www.aarp.org/
health/comparedrugs. Based on the Drug Effectiveness Review Project 
conducted at the Oregon Health and Science University, AARP helps 
consumers compare the clinical and economic benefits of various drugs 
within common therapeutic categories. We urge consumers to review this 
information and, if applicable to their medical condition, to discuss 
it with their physician or other health care professional.

                               CONCLUSION

    Generic drugs offer most Americans the same therapeutic value as 
brand name prescription drugs, but at a more affordable price. We urge 
Congress to do more to ensure that Americans have access to lower cost 
generic drugs as part of a broader agenda to bring down the rising cost 
of prescription drugs. AARP appreciates the opportunity to testify and 
we look forward to working with this Committee and Congress to help our 
members--and all Americans--understand the wise and safe use of generic 
drugs.

    Mr. Deal. Thank you, ma'am. Dr. Perry?

                   STATEMENT OF BRUCE C. PERRY

    Mr. Perry. Chairman Deal, Congressman Brown, and 
distinguished subcommittee members, I am Bruce Perry, a family 
physician, geriatrician, and Medical Director of Kaiser 
Permanente, Georgia Region. I am here today on behalf of Kaiser 
Permanente.
    Timely access to generic drugs is central to our effort to 
provide high quality and affordable prescription drug benefits. 
This year, Permanente physicians will prescribe nearly $3 
billion worth of drugs. The very close partnership between our 
pharmacists and physicians allows us to use generic drugs very 
effectively. While just over 50 percent of prescriptions in the 
U.S. are written for generics, we write about 70 percent. Last 
year, Americans spent more than $250 billion on prescription 
drugs. Improved generic providing could save billions of 
dollars, money that could be spent on other healthcare services 
such as prevention or simply saved.
    Safety and effectiveness underlie all of Kaiser 
Permanente's pharmacy services. Let me offer you one example. 
Cox-2 inhibitors are used to treat pain and inflammation. Cox-
2s were believed to reduce significant gastrointestinal side 
effects of other pain relievers, including bleeding. They have 
never been seen as superior pain relievers, compared to 
ibuprofen, for example--although heavy advertising may have led 
many patients to believe so. Stanford scientists showed the 
Cox-2s potential to improve safety was limited to patients at 
high risk of serious bleeding, less than 5 percent. They 
developed a scoring tool to determine which patients would 
benefit. Once Kaiser Permanente adopted this tool, our 
physicians prescribed Cox-2s about 5 percent of the time. Until 
the recent withdraws of Vioxx and Bextra, Cox-2s were 
prescribed by other physicians approximately 50 percent of the 
time. Aggressive promotion meant that patients were at 
increased risk for heart attacks and higher spending. If the 
use of Cox-2s in the U.S. had been the same as Permanente 
physicians, last year, Americans would have saved more than $4 
million or almost 2 percent of all drug spending. Promoting 
greater use of generics can not only save money; it can be a 
lot safer for our patients.
    Kaiser Permanente's programs do not deny access to brand-
name drugs. Our goal is to prescribe those drugs to those 
patients who really need them. The result is better quality and 
lower costs. Our program works for four reasons. First, our 
physicians and pharmacists, themselves, develop and implement 
our pharmacy program. Second, our physicians have the latest 
information about alternative drug therapies. Third, Permanente 
physicians know they will not be penalized for prescribing non-
formulary or expensive brand-name drugs. Indeed, they know that 
their patient can get them if they need them. Finally, 
Permanent physicians know that the savings from their efforts 
willower member premiums or enable them to provide other care.
    Physicians are clamoring for better information about 
comparative clinical effectiveness of prescription drugs. 
Thanks to your work, AHRQ has begun comparative clinic-
effectiveness studies. This year, Congress appropriated $15 
million for this. While modest, it is an important first step, 
one that should be seen as an investment in better care and 
lower spending. I encourage you to strongly support increased 
funding for this vital research in this and future years.
    Mr. Chairman, thank you for the invitation to testify. I 
will be glad to answer any questions.
    [The prepared statement of Bruce C. Perry follows:]

Prepared Statement of Bruce C. Perry, Executive Director, The Southeast 
  Permanente Medical Group on Behalf of the Kaiser Permanente Medical 
                              Care Program

    Chairman Deal, Congressman Brown, and distinguished Sub-committee 
members, I am Dr. Bruce Perry, a family physician and geriatrician and 
Medical Director of The Southeast Permanente Medical Group, which 
together with Kaiser Foundation Health Plan of Georgia make up Kaiser 
Permanente's Georgia Region. I also serve as Chairman of the Executive 
Committee of the Permanente Federation, the umbrella organization that 
coordinates national activities of the eight Permanente Medical Groups. 
I appreciate the opportunity to testify here today on the important 
subject of access to generic drug therapies. Timely access to high 
quality generic drugs is central to Kaiser Permanente's efforts to 
provide high quality and affordable prescription drug benefits.
    I am testifying today on behalf of the national Kaiser Permanente 
Medical Care Program. Kaiser Permanente is the nation's largest 
integrated health care delivery system. We provide comprehensive health 
care services to more than 8.4 million members in our 8 regions, 
located in 9 states 1 and the District of Columbia. In each 
Region, the nonprofit Kaiser Foundation Health Plan enters into a 
mutually exclusive arrangement with an independent Permanente Medical 
Group to provide all medical services required by Health Plan members.
---------------------------------------------------------------------------
    \1\ California, Colorado, Georgia, Hawaii, Maryland, Ohio, Oregon, 
Virginia and Washington
---------------------------------------------------------------------------
    In our organization, virtually all pharmacy services are provided 
directly in Kaiser Permanente facilities by Health Plan employed 
pharmacists. This year, Permanente physicians will prescribe and Kaiser 
pharmacists will dispense more than $3 billion worth of prescription 
drugs. Our physicians and pharmacists make their best efforts to ensure 
that our members receive the highest possible quality and most cost-
effective pharmaceutical care based on the best and most current 
available clinical evidence. This is supported by a strong culture of 
cooperation and collaboration between our medical groups and our 
pharmacy program.
    It is this very close partnership between the pharmacy operations 
team of our Health Plan and the physicians of the Permanente Medical 
Groups that allows Kaiser Permanente to experience very high levels of 
use of generic drugs. While the Generic Pharmaceutical Association 
reports that 53 percent of prescriptions in the United States are 
written for generic drugs, approximately 70 percent of all 
prescriptions written by Permanente physicians nationally are for 
generic drugs. More than $250 billion was spent by or on behalf of US 
patients in 2004 for prescription drugs. There is no question that 
improved generic prescribing by US physicians has the potential to save 
many billions of dollars--money that can be spent on other health care 
services or newer drugs, or simply saved, slowing the growth of overall 
health care spending.
    We expect that our pharmaceutical costs will increase annually in 
excess of the overall inflation rate. How much more than the inflation 
rate is the real question. We acknowledge that increased pharmaceutical 
utilization can in well-defined instances improve health and/or reduce 
spending on hospital and medical services that drugs make unnecessary. 
Overall, however, it is true that rising drug spending increases 
overall health care costs. Capturing the value of prescription drugs, 
and avoiding waste, is enhanced by the effective use of generic drugs.

     DETERMINING THE PREFERRED DRUGS FOR KAISER PERMANENTE MEMBERS

    At Kaiser Permanente, we take very seriously our obligation to 
deliver the highest quality care to our members. As with virtually all 
other health plans, each Kaiser Permanente region establishes a 
formulary that includes a list of drugs that are preferred as first-
line therapies. The formulary is established by a regional 
pharmaceutics and therapeutics (P&T) committee.
    Our P&T committees are comprised of Permanente physicians from a 
broad range of medical disciplines and the regional pharmacy services 
director. When a new drug becomes available to treat a particular 
condition, or when a review of existing drug therapies is undertaken, 
the P&T committee is commonly aided by physicians with expertise in the 
appropriate specialty.
    When a new blood pressure medicine becomes available, for example, 
a panel of cardiologists and internists will make recommendations to 
the P&T committee. Their recommendations will reflect the latest 
information on all drugs in the therapeutic class as presented in a 
monograph prepared for the P& T committee by our pharmacist-staffed 
drug information service. The drugs included on the preferred drugs 
lists are those that, first and foremost, evidence indicates are 
clinically superior to the other drugs in the therapeutic class. If the 
preferred drug is available as a generic, the generic version will 
virtually always be the preferred drug on the formulary. Along with 
formulary-consistent prescribing by Permanente physicians, this 
explains in large part why Kaiser Permanente has been so successful in 
using generic drugs.

Opportunities Presented by High Quality Generic Drugs
    I would like to discuss three examples that illustrate how Kaiser 
Permanente uses generics to match clinical excellence with cost savings 
opportunities when they are available in a class that contains many 
drugs. While it is true that drugs that recently received FDA approval 
sometimes provide additional value for patients in terms of reduced 
side effects or greater efficacy, it is difficult to measure that value 
because only very rarely do brand name pharmaceutical manufacturers 
conduct head-to-head studies to assess whether newer drugs really are 
better than other available drugs. Independent head-to-head comparative 
research is also rare. However, one general observation can be made--
many, if not most, patients can be successfully treated with available 
generic drugs. If these drugs fail to achieve the desired therapeutic 
outcome, a newer drug can be prescribed. This is particularly true when 
what was originally a breakthrough drug becomes available as a generic 
drug, and the follow-on alternatives are still under patent.

Antidepressants
    A good example is Prozac and follow-on antidepressants known as 
selective serotonin reuptake inhibitors or SSRIs. When Prozac, now 
generically available as fluoxetine, first came to market in the late 
1980s, it was generally accepted as a breakthrough over the older 
tricyclic antidepressants. While probably no more effective than the 
older, existing drugs, the much less onerous side effects of Prozac 
meant that patients were much better able to tolerate Prozac and 
continue therapy. As a result, this became the drug of choice for a 
proportionately large number of patients with clinically diagnosed 
moderate depression.
    In the years that followed, competitors in the class of SSRIs, 
Paxil (paroxetine), Zoloft (sertraline), Celexa (citalopram), and line 
extensions and follow-on versions of all of these (weekly Prozac, 
extended release Paxil, Lexapro (escitalopram)) became available, 
providing a panoply of choices for clinicians in a pharmacological area 
where the first treatment, whatever is selected, may not be successful. 
It is important to note that, while SSRIs have somewhat different side 
effects profiles, none of these drugs appear to have meaningfully 
different performance as the first drug in the class prescribed to a 
patient. In other words, no one really knows whether a patient will 
succeed on the first choice, no matter what the first choice is.
    Today, high quality generic versions for Prozac, Paxil and Celexa 
are available. As a result, it is possible to start virtually all 
patients (except for those with a known sensitivity to or a side effect 
from a particular drug) on any one of the generic alternatives before 
attempting therapy on drugs that are still under patent. An appropriate 
strategy like this, which is implemented in all Kaiser Permanente 
regions, enables Permanente physicians to offer our patients both high 
quality therapy and lower copayments (generic copayments are generally 
lower than those for brand name drugs). By reserving the patented 
alternatives for those patients who truly need them, we are able to 
keep drug costs, and employer and individual premiums that are directly 
related to those costs, down.
    We estimate that our regional ``Fluoxetine First'' programs, which 
are approved by all of our Regional chiefs of psychiatry, save Kaiser 
Permanente members over $100 million annually in drug costs nationally, 
compared to broader U.S. prescribing patterns. If all U.S. prescribing 
of these drugs for new patients requiring antidepressants matched that 
of Permanente physicians, there would be savings of well into the 
billions of dollars annually with no reduction in clinical quality.

Cox-2 Inhibitors and other Nonsteroidal Anti-inflammatory Drugs
    Cox-2 inhibitors (such as Celebrex, Vioxx and Bextra) represent a 
type of non-steroidal anti-inflammatory drug (NSAID) that have been 
used to treat the pain and inflammation that comes with various forms 
of arthritis. It was believed that Cox-2 inhibitors would provide an 
advantage over older NSAIDs (like ibuprofen and naproxen) because they 
were presumed to cause significant gastrointestinal side effects, which 
can include bleeding from gastrointestinal ulcers. They have never been 
considered superior pain relievers, although heavy promotion of these 
drugs may have led many patients to believe they are. We now know that 
high doses of these drugs represent a significant cardiovascular risk 
for patients and as of today, two of the three Cox-2s, Vioxx and 
Bextra, have been removed from the market. Caution dictates that 
physicians should reserve the remaining Cox-2 inhibitor, Celebrex, for 
those patients who fail on traditional NSAID therapy and do not have 
significant cardiovascular risk factors.
    Even before the early hints of serious cardiovascular risk were 
confirmed and widely accepted by the medical community, work done by 
scientists at Stanford University showed that the potential 
gastrointestinal safety benefit of Cox-2 inhibitors was largely limited 
to patients who were at high risk of serious gastrointestinal bleeding 
from traditional NSAIDs. This was important because they found that 
fewer than five percent of patients are actually at high risk of 
serious gastrointestinal side effects.
    In a very practical response to these data, the same scientists 
developed a scoring tool to apply to patients who were candidates for 
NSAIDs to determine their risk levels. Kaiser Permanente, with the 
enthusiastic support of our Regional chiefs of rheumatology and 
internal medicine, adopted this scoring tool to provide physicians with 
simple, automated methods to know the risk levels of the patients they 
were seeing. Once this scoring tool was implemented, Permanente 
physicians prescribed Cox-2 inhibitors for Kaiser members less than 
five percent of the time when NSAID therapy was necessary. Until the 
recent withdrawal of the two Cox-2s, among the rest of the US 
population, these drugs were being prescribed approximately 50 percent 
of the time. The lack of good independent, credible information for 
physicians about the limited clinical role for these medicines combined 
with ubiquitous promotion to patients and physicians meant that 
millions more patients than necessary were prescribed them, and 
billions of dollars in needless drug expenditures resulted.
    We estimate that in 2004 alone, if U.S. use of the three Cox-2s 
compared to traditional NSAIDs had matched that of Permanente 
physicians, U.S. consumers and businesses paying for prescription drugs 
would have saved over $4 billion dollars, or almost 2 percent of all 
U.S. drug spending. Here is a great example where promoting the use of 
high-quality generic drugs can be not only significantly less costly, 
but safer.

Cholesterol-lowering Statins
    A few years ago, the Wall Street Journal reported on Kaiser 
Permanente's use of generic lovastatin (Mevacor) as the first line 
cholesterol lowering drug for our members. While lovastatin is not the 
most potent statin on the market, through appropriate dosing a majority 
of patients can readily achieve their target cholesterol levels. 
Members who have a clinical need for a more potent statin have easy 
access to them. An astonishing fact is that Kaiser Permanente 
physicians can treat six patients appropriately with lovastatin for the 
same cost as one patient on one of the still-patented alternatives. 
This program along with other steps taken by Kaiser Permanente to 
address cardiovascular disease has been so successful that in Northern 
California, for example, it was recently determined that heart disease 
is no longer the leading cause of death among Kaiser Permanente members 
(cancer is), even though it remains the leading cause for non-Kaiser 
Permanente members in the San Francisco area and throughout the nation.

How Appropriate Generic Prescribing is Achieved
    The value of generic drugs is maximized when programs are designed 
in a way that does not deny access to necessary but more expensive 
brand name prescription drugs. Our goal, instead, is to target the more 
expensive drugs to those patients who stand to benefit from whatever 
additional value newer drugs might provide, rather than simply 
defaulting automatically to the newest drug for all patients. This 
result is equally high quality, but far more cost effective use.
    These programs work within Kaiser Permanente for several reasons.

 First and foremost, our physician clinical experts are intimately 
        involved in the development and implementation of good drug use 
        management initiatives. Permanente physicians have the 
        confidence that their most expert colleagues are in agreement 
        with the recommendations for drug use initiatives.
 Second, the Health Plan's clinical pharmacists are available for 
        consultation and provide the latest information about 
        alternative drug therapies. Kaiser Permanente invests 
        significant resources to make sure that physicians have ready 
        access to the best objective drug information that exists.
 Third, physicians delivering care to patients know that they will not 
        be penalized for prescribing nonformulary or more expensive 
        brand name drugs--they know that those drugs are readily 
        available when necessary. Indeed, they know that some patients 
        will need the newer drugs and receive them when needed.
 Finally, Permanente physicians know that savings resulting from their 
        efforts will either lower member premiums or enable spending in 
        other areas, whether subsidizing other, more expensive drugs, 
        building new facilities or buying necessary medical equipment.

                         THE BROADER CHALLENGE

    If it is Kaiser Permanente's integrated nature, financial structure 
and close cooperation among physicians and pharmacists that leads to 
our high use of generic drugs, the question remains: what lessons 
learned in the group practice environment can be applied in less 
integrated settings?
    It might not be possible for other types of health plans to achieve 
Kaiser Permanente's level of success in generic prescribing, but I 
believe that steps are already being taken that can help realize 
savings through increased use of generic drugs. Physicians are 
clamoring for better, objective information about the comparative 
clinical effectiveness of prescription drugs. Thanks to the work of 
this Committee, the Medicare Modernization Act included provisions 
authorizing the Agency for Healthcare Research and Quality to initiate 
a research agenda on the comparative effectiveness of alternative 
therapies, including drugs for the same condition. For fiscal year 
2005, Congress appropriated $15 million to fund this activity. While 
modest, it is an important first step, and we encourage members to 
support increased funding in future years. We strongly believe that 
increased support for this important research will result in 
exponentially greater savings in the future, as physicians see clinical 
evidence that guides their practices. I am confident that the research 
will show that generic drugs can be used safely and effectively more 
frequently than they are now.
    We also believe that physician organizations, such as medical 
associations and specialty societies, need to take the lead in defining 
best practices. Much that is learned from multispecialty group 
practices like the Permanente Medical Groups and our colleagues in 
academic medicine and medical foundations is not effectively translated 
to the larger medical community. We think our colleagues in organized 
medicine can play an important role in expanding good drug use 
practices.
    The new Medicare drug benefit also provides an opportunity to 
expand appropriate use of generics. The new drug benefit will provide 
important value for Medicare beneficiaries, but other than for low 
income persons, many beneficiaries will experience gaps in coverage. In 
this context, high-quality, affordable generics are critical to ensure 
that beneficiaries have access to the therapies they need. Simply 
stated, Medicare beneficiaries can have many more of their 
prescriptions covered under the current benefit design if generic 
medicines are appropriately prescribed. We are confident that CMS can 
and will work with physicians caring for Medicare beneficiaries in ways 
that will provide information about the relative value and clinical 
appropriateness of generic drugs.
    Mr. Chairman, thank you for the invitation to testify here today. I 
would be happy to answer any questions you may have.

    Mr. Deal. Thank you. Dr. Gottlieb?

                   STATEMENT OF SCOTT GOTTLIEB

    Mr. Gottlieb. Thank you, Mr. Chairman, Congressman Brown, 
members of the committee. Thank you for inviting me to testify 
before you today. Allow me to briefly introduce myself and then 
tell you how my experience relates to what I am going to 
discuss today.
    I am a practicing physician and a former Senior Advisor to 
the Commissioner of the Food and Drug Administration and the 
Administrator of the Centers for Medicare and Medicaid 
Services. At the FDA and then at CMS, I worked on many policies 
that were promulgated during my time at those two agencies that 
were aimed at increasing the availability of safe and effective 
generic drugs and providing a framework for people to make 
wider use of them. But it is as a physician that I have 
developed my deepest appreciation for the value that generic 
drugs offer.
    Practicing in a mostly Medicaid clinic, I often had to 
approach my patients' prescriptions requirement, not on what 
they needed, but on what they could afford. They could only a 
fixed, and usually small, amount of money each month, out of 
pocket, on medicines. Generics made it possible for me to 
provide my patients with the lifesaving benefits of safe and 
effective medicine while staying within their tight budgets.
    So the question becomes what steps can we take to encourage 
more widespread use of safe and effective, FDA-approved generic 
drugs, where these option make sense for patients, both 
therapeutically and economically, and without trampling the 
incentives for brand-name drug makers to continue to come up 
with newer--and yes, better molecules by dismantling legitimate 
patent protections.
    The good news is that each year patients are making wider 
use of generic drugs, recognizing the value that they bring. 
Drug insurance companies, which are exposing consumers to more 
of the costs of their incrementally more expensive medical 
choices are also driving this trend. Through aggressively tiers 
formularies of co-pays on more expensive, branded drugs, 
consumer who can afford to contribute to the incremental cost 
of expensive tastes when it comes to medicines are being asked 
to pay a portion of that decision. This is giving consumers 
reason to make wider use of low-cost, generic options and even 
over-the-counter drugs where these substitutions for branded 
drugs make therapeutic sense.
    One recent study by Aetna of almost 14,000 beneficiaries 
found a 5.5-percent decrease in pharmacy costs and a 7-percent 
increase in overall generic utilization when consumers were 
exposed to more of the cost of their incremental drug decision. 
There is also some evidence from Medstat and elsewhere that 
Medicare beneficiaries who have been using their new Medicare 
drug cards are more likely than other seniors to use generic 
drugs, I think, precisely because the information they have 
available through the drug card keeps them informed and 
educated on how they can save money with generic drugs.
    I believe these trends to expose consumers who can afford 
to pay some of the cost of the decisions will accelerate under 
the new Medicare prescription drug plan as the plan, 
themselves, become more aggressive and adept at managing a drug 
benefit and steering patients to lower-cost options where they 
exist and where they offer similar therapeutic benefits, but 
there are some things that we should all be mindful of.
    First, the decision that plans make about which medicines 
to have a high co-pay on or prior authorization is often not 
linked directly to the cost of the medicine or its value to the 
patient relative to a generic alterative, but simply on whether 
the plan got a good deal from the drug company. So a far better 
way to expose consumers to the incremental cost of a more 
expensive drug decision is through health savings accounts or 
through coinsurance. Of course, patients have to want to 
participate in their own healthcare decisionmaking or be able 
to, and no everyone will, so we need to maintain a safety net 
for those who cannot.
    Second, if we are going to truly take advantage of some of 
the opportunities to offer more patient-specific therapies in 
the future, using tools like genomics and proteomics, then it 
simply follows that patients will need to be more active 
participants in weighing the competing medical options that 
they will have that will all have benefits and tradeoffs, 
including economic tradeoffs.
    So what can this committee do to help us prepare for this 
future of consumer-led healthcare? I think one of the big 
impediments to more active participation by consumers is a lack 
of information at the point of care about the economic impact 
of peoples' decisions. Far too often when I prescribe medicine 
to a patient, I get a phone call a few hours later. They are at 
the pharmacy and found out there is a $50 co-pay on the 
medicine I prescribed, and can I find something else that 
doesn't have a co-pay. Having information about things such co-
pays accessible right in my office and having them available 
outside of my office for my patients would give my patients and 
I the information tools we need to factor economics into our 
choices. I am confident that, armed with this information, we 
would opt for lower-cost generics where they made therapeutic 
sense more often than we do today.
    That leads me to my last point. How can we make this 
information more widely available? Here, I encourage you to 
look at some recent steps that Aetna has taken. They have 
developed a sophisticated website that allows patients to mix 
and match similar drugs to see how they can lower their overall 
drug bill by changing their drug mix. This is also one area 
where I believe that CMS is taking the lead in setting a good 
example for the private market through efforts like their drug-
compare website and pushing for incentives and standards to 
promote more widespread adoption of e-prescribing. I believe 
the government can play an appropriate role, following the lead 
set by CMS, to help patients have more information available to 
them so that they can weigh for themselves the value that 
generic drugs offer at the time that they need to make a 
decision about which drugs they want to use.
    Finally, I would like to close on two cautionary thoughts 
for the committee to consider. First, especially in an age when 
decisions to take drugs that are in development today are going 
involve more personal preferences and involve criteria that 
allow doctors to more closely match medicines to patients, I do 
not believe policies that force patients into generic drugs 
will success in maximizing overall public health benefit. 
Strategies like Fail-First, especially when inappropriately 
applied to areas to medicine where compliance is such a big 
factor to success, like mental health, has already been shown 
to cost more in the end. If plans are going to steer patients 
to generic drugs through restrictions on access to branded 
alternatives, they need to provide easy ways to opt around 
these restrictions for patients for whom the branded drugs 
makes the most sense.
    Second, and last, I believe we all need to recognize that 
no two molecules are the same. While two very similar drugs in 
the same drug class might provide largely equal benefits for 
the majority of patients, there are always patients for whom 
one seemingly similar drug will have very different effects 
than its close cousin. As doctors, we see this anecdotally 
every day, and literature supports our experience. In fact, we 
cannot have it both ways--recognizing, for example, that Vioxx 
might have certain risks that another similar drug does not, 
yet not recognizing that seemingly similar molecules also have 
different benefits.
    In closing, we need to arm consumers who want to be more 
active participants in their health choices, and who have the 
economic means and wherewithal to do so, with information that 
could help them weigh economics as one more factor in their 
treatment decisions. With the right information available at 
the right time, I am confident more of my patients would make 
wider use of safe and effective generics when these therapeutic 
options make equal sense. Thank you.
    [The prepared statement of Scott Gottlieb follows:]

    Prepared Statement of Scott Gottlieb, Resident Fellow, American 
                          Enterprise Institute

    Mr. Chairman, members of the Committee: Thank you for inviting me 
to testify before you today.
    Allow me to briefly introduce myself, and then tell you how my 
experience relates to what I am going to discuss today. I am a 
practicing physician and a former senior advisor to the Commissioner of 
the Food and Drug Administration and the Administrator of the Centers 
for Medicare and Medicaid Services.
    At FDA and then at CMS, I worked on many policies that were 
promulgated during my time at those two agencies that were aimed at 
increasing the availability of safe and effective generic drugs, and 
providing a framework for people to make wider use of them.
    But it is as a physician that I have developed my deepest 
appreciation for the value that generic drugs offer.
    Practicing in a mostly Medicaid clinic, I often had to approach my 
patients' prescription requirements not on what they needed, but what 
they could afford. They could only spend a fixed and usually small 
amount of money each month--out of pocket--on medicines.
    Generic drugs make it possible for me to provide my patients with 
the lifesaving benefits of safe and effective medicines, while staying 
within their tight budgets.
    This is not a unique recognition, but one made also by policymaker 
across Washington, and especially on this committee. So the question 
becomes: what steps can we take to encourage more widespread use of 
safe and effective, FDA approved generic drugs where these options make 
sense for patients both a therapeutically and economically, without 
trampling the incentives for brand drug makers to continue to come up 
with newer and yes better molecules by dismantling legitimate patent 
protections.
    The good news is that each year, patients are making wider use of 
generic drugs, recognizing the value that they bring. Drug insurance 
companies, which are exposing consumers to more of the cost of their 
incrementally more expensive medical choices, are also driving this 
trend. Through aggressively tiered formularies or co-pays on more 
expensive branded drugs, consumers who can afford to contribute to the 
incremental cost of expensive taste when it come to medicines, are 
being asked to pay a portion of that that decision.
    This is giving consumers reason to make wider use of low cost 
generic options, and even over the counter drugs, where these 
substitutions for branded drugs make therapeutic sense.
    One recent study by Aetna of almost 14,000 beneficiaries found a 
5.5 percent decrease in pharmacy costs and a 7 percent increase in 
overall generic utilization when consumers were exposed to more of the 
cost of their incremental drug decision.
    There is also some evidence from MEDSTAT and elsewhere that 
Medicare beneficiaries who have been using the new Medicare drug cards 
are more likely than other seniors to use generic drugs, I think 
precisely because the information they have available through the drug 
card keeps them informed and educated on how much they can save with 
generic drugs.
    I believe these trends to expose consumers who can afford to pay to 
some of the cost of their decisions will accelerate under the new 
Medicare Prescription Drug Plan, as the plans themselves become more 
aggressive, and adept at managing a drug benefit and steering patients 
to lower cost options where they exist and where they offer similar 
therapeutic benefits.
    But there are some things that we should all be mindful of.
    First, the decision that plans make about which medicines to have 
high co-pay on, or to have prior authorization on, is often not linked 
directly to the cost of the medicine, or its value to the patient 
relative to the generic alternative, but simply on whether the plan got 
a good deal from the drug company.
    So a far better way to expose consumers to the incremental cost of 
more expensive drug decisions is through Health Savings Accounts, or 
through co-insurance.
    Of course, patients have to want to participate in their own health 
care decision-making, or be able to, and not everyone will. So we need 
to maintain a safety net for those who cannot.
    Second, if we are going to truly take advantage of some of the 
opportunities to offer more patient-specific therapies in the future, 
using tools like genomics and proteomics, then it simply follows that 
the patient will need to be a more active participant in weighing 
competing medical options that will all have certain benefits and 
tradeoffs, including economic tradeoffs.
    So what can this Committee do to help us prepare for this future of 
consumer led healthcare? I think one of the big impediments to more 
active participation by consumers is the lack of information--at the 
point of care--about the economic impact of peoples' decisions. Far too 
often, I prescribe a medicine to a patient only to get a phone call a 
few hours later. They are at the pharmacy and found out there is a $50 
co-pay on the medicine I prescribed. Can I find something else for them 
that does not have a co-pay.
    It is simply impossible for me to keep track of all of the 
different formularies from all of the different plans that all of my 
different patients are on. Having this information accessible right in 
my office, and having it available outside of my office for my 
patients, would give my patients and I the information tools we need to 
factor economics into our choices.
    I am confident, that armed with that information, we would opt for 
lower cost generics--where they make therapeutic sense--more often than 
we do today.
    That leads me to my last point: How can we make this information 
more widely available? Here I encourage you to look at some recent 
steps that Aetna has taken. They have developed a sophisticated web 
site that allows patients to mix and match similar drugs to see how 
they can lower their overall drug bill by changing their drug mix.
    This is one area where I also believe that CMS is taking the lead 
and setting a good example for the private market, through efforts like 
their drug compare web site and pushing for incentives and standards to 
promote more widespread adoption of e-prescribing.
    I believe government can play an appropriate role, following the 
lead set by CMS, to help patients have more information available to 
them so that they can weight for themselves the value generic drugs 
offer at the time that they need to make decisions about which drug 
they want to use.
    Finally, I'd like to close on two cautionary thoughts for the 
Committee to consider:
    First, especially in an age when decisions to take the drugs that 
are in development today are going to involve more personal preferences 
and involve criteria that allow doctors to more closely match medicines 
to patients, I do not believe policies that force patients into generic 
drugs will succeed in maximizing overall public health benefit.
    Strategies like ``Fail First''--especially when inappropriately 
applied to areas of medicine where compliance is such a big factor to 
success, like mental health--has already been shown to cost more in the 
end. If plans are going to steer patients to generic drugs through 
restrictions on access to branded alternatives, they need to provide 
easy ways to opt around these restrictions for patients for whom the 
branded drug makes the most sense.
    Second and lastly, I believe we all need to recognize that no two 
molecules are the same. While two very similar drugs, in the same drug 
``class'' might provide largely equal benefits for the majority of 
patients, there are always patients for whom one seemingly similar drug 
will have very different affects than its close cousin.
    As doctors we see this anecdotally every day and the literature 
supports our experience. In fact, we cannot have it both ways--
recognizing for example that Vioxx might have certain risks that 
another similar drug does not, yet not recognizing that seemingly 
similar molecules also have different benefits.
    To end on my point about the direction of the technology and of 
drug development, we are heading toward more targeted treatments, 
better information about those treatments, and drugs more finely 
matched to individual patient needs.
    We simply cannot adopt policies that force square pegs into round 
holes, forcing patients on to medicines when better options exist, 
simply because of cost. We cannot take that decision away from the 
doctor and the patient. Doing so bucks the tide of innovation and best 
practice.
    What we can, and I think should do, is arm consumers who want to be 
more active participants in their health choices, and who have the 
economic means and wherewithal to do so, with information that can help 
them weigh economics as one more factor in their treatment decisions. 
Too often in my own medical practice I have been left in my office, 
scratching my head along with my patient, wondering what the drug bill 
will be when my patient arrives at their pharmacy.
    With all of the valuable information tools we have at our 
fingertips, there is no reason we need to be left asking these 
questions. Armed with the right information at the right time, I am 
confident more of my patients will make wider use of safe and effective 
generic drugs when these therapeutic options make equal sense.

    Mr. Deal. I thank the gentleman. I recognize myself for 
questions. Ms. Jaeger, one of the things that I understand that 
is at least a partial impediment to getting some generics on 
the market is the backlog at FDA for approval of applications. 
Is that correct?
    Ms. Jaeger. That is correct, Chairman.
    Mr. Deal. Could you give us some of what that problem--the 
magnitude of it?
    Ms. Jaeger. Certainly. Over the years, the OGD has limited 
resources, and if you look at the last 2 or 3 years, OGD, the 
Office of Generic Drugs within the FDA, has been flat-funded; 
yet every year they receive more and more applications for 
generic drugs, and they are not getting any resources. So as of 
December of 2002, there were over 7,000 applications pending 
before the agency for their review. And it turns out, of 
course, that they probably won't even picked up and looked at 
until probably sometimes late this Fall, if at all.
    And so we are looking at a situation where applications are 
languishing there before FDA, and it is just a matter of time 
before they get picked up and reviewed. The review time for 
generics is much longer than, actually, and NDA product, a 
brand product, taking, on average, somewhere around 17 months. 
And we would hope that through some more accountability, some 
more oversights within the FDA, starting with the 
Commissioner's Office and going down to the Senator level, that 
perhaps we could move some of the applications through in a 
more timely fashion.
    So it is an issue of yes, OGD needs more appropriations and 
needs more resources to deal with the backlog, but we also need 
to ensure that we provide the generic drug with the appropriate 
oversight and accountability because some applications are 
going on consults--legal consults going; scientific consults--
and these consults, also, are taking a substantial amount of 
time--sometimes 7 months, sometimes 9 months, and sometimes 
years in the legal office of FDA.
    Mr. Deal. One of the things that has been suggested is that 
generics should be put in the same category as we place medical 
devices, applications for new drug products, even animal 
medicines, and that is in order to speed up the review time. 
They have agreed, and we put in place, a user fee for them. 
Would your association be willing to pay a user fee in order to 
have additional resources that would speed up the time for 
approval?
    Ms. Jaeger. That is a good question, Mr. Chairman.
    In the past, it didn't make much sense because there were 
so many loopholes in the Hatch-Waxman Law that even if our 
industry did actually pay a user fee, the applications were 
going to languish there because of all of the loopholes that 
the brand industry could utilize to delay the generic 
applications. So in the past it made no sense.
    As we go forward, I think our industry could certainly 
consider that thought again; but again, it also creates a 
barrier for some of the smaller drug companies to bring their 
products to the market. The more competitors we have in the 
marketplace, the more it benefits consumers and brings down 
costs.
    Mr. Deal. Well, you know some of--I know in the medical 
device area, those fees are calculated based on the size of the 
company that is asking for help, and they have reduced fees if 
they are smaller companies.
    So is that something we could look at, perhaps, down the 
road?
    Ms. Jaeger. Certainly, we can have our industry look at 
that and get back to you, Mr. Chairman.
    Mr. Deal. Would you do that, please?
    Ms. Jaeger. Yes.
    Mr. Deal. Ms. Cramer, I think we have all agreed here that 
part of the solution to this is better patient information, and 
you have pointed out what AARP is doing by way of trying to 
educate the public about consumers. Have you indicated or have 
you had any indication that this is taking hold? That it is 
having an effect?
    Ms. Cramer. Mr. Chairman, as you have indicated, AARP has a 
number of avenues for consumer education. I mentioned our Wise 
Use Program, where we try to promote the use of generic drugs.
    We also have an online drug safety and effective tool that 
is available to members as well as nonmembers alike, and next 
month we will be launching a new tool on the web that will also 
be available to members and nonmembers, alike, called Medicines 
and You, which will do a number of things to educate 
individuals on drug interactions and number of other things. We 
have not, to date, evaluated the effectiveness of the Wise Use 
Program.
    Mr. Deal. Okay. My time is getting away from me, too, and I 
want to hit something really quickly.
    Ms. Jaeger, you indicated that one way to speed this up was 
to have in place State statues that would require the ``no 
substitution'' to be handwritten on the pad where you prescribe 
it. Dr. Gottlieb has indicated that in one other area you 
talked about, about the carve-outs not being appropriate, that 
we have to be careful that we don't go to the Fail First 
approach on some of those areas.
    As we are hopefully going to be looking at Medicaid 
reforms, are those kinds of things, like requiring doctors to 
go the little extra mile to make sure they get a brand name 
versus a generic--are those the kind of things that you are 
suggesting we incorporate in Medicare reform? Many of the 
States already have those in place, my State being one of them. 
What are you seeing in terms of--not necessarily you, but 
anybody else that wants to comment, what are you seeing in 
terms of movement in that direction to put the emphasis on the 
front end, rather than relying on consumer education?
    Ms. Jaeger. Certainly, I would be happy to answer that. I 
think a lot of States are doing some positive initiatives in 
their State Medicaid program; however, at least the vast 
majority of the States--are not utilizing all of the tools that 
are out there to maximize generic substitution. Our concept is 
that if you take a mandatory substitution program, and you look 
and you see, well, there are some holes in that, well, then you 
plug the holes, such as adopting a rigorous DAW program, 
dispensed-as-written program, like Massachusetts did and Hawaii 
did.
    At the same time, States also need to look at aggressive 
MACing, how they reimburse under that program. And a lot of 
States, while they may adopt MACing, they don't really have 
aggressive MACing.
    Some States aren't looking at the products in the 
marketplace, the three generics in the marketplace, and taking 
that average and using that average to reimburse, where other 
States are perhaps still using the brand plus two generics, so 
it think, really, it is a combination of all of those tool that 
would actually substantially increase generic utilization and 
saving.
    Mr. Deal. Thank you. My time has run out. Mr. Brown?
    Mr. Brown. Thank you, Mr. Chairman. Ms. Jaeger, you have 
raise several concerns about a number of provisions contained 
in recently negotiate free trade agreements, and I appreciate 
your comments about that. As you likely know, Congress is 
likely to vote, and Majority Leader DeLay said with would be 
voting on CAFTA, the Central American Free Trade Agreement, 
before the end of May. It is my understanding that CAFTA 
enables brand-name drug companies to deny Central American 
consumers the same benefits of generic competition for even 
longer period than U.S. Law, and I want to explore that and 
have you explain that.
    Under U.S. law, patent extension for brand-name 
manufacturers are limited--because of some reforms recently, 
are limited to the active ingredient of the new drug and to the 
extension of a single patent. My understanding is that CAFTA 
allows multiple extensions for any and all patents covering a 
drug without any time limits at all. If that is the case, 
CAFTA, then, would give drug makers significant, more powerful 
patent-extension tools to delay competition from generic 
medications, more in these Central American countries and the 
Dominican Republic, than they have in the U.S. Is that correct?
    Ms. Jaeger. Yes. Let me actually take your first issue 
first, having to do with the 5-year date of registration 
period. In the CAFTA agreement, there is a 5-year registration 
period for a brand company to file an application in a CAFTA 
country. They need to file that application within 5 years of 
receiving FDA approval. So as you can imagine, most likely, the 
brands aren't going into a CAFTA country until the eve of their 
exclusivity here in the United States has expired or is about 
to expire. And that actually would delay, of course, the entry 
of that lifesaving medicine to the CAFTA country, but it also 
will delay a generic going into a CAFTA country for at least 13 
years because you have to add up the 5-year date of 
registration period plus 1 to 2 or 3 years, depending on the 
country, for their review of that application. And of course, 
once that product is approved, then, they would get an 
additional 5 years in that CAFTA country. So we are concerned 
about that particular provision from, not only, international 
harmonization concept, but also about exporting out products 
into the CAFTA countries.
    The second issue, on patent extension: in CAFTA, there is a 
provision on patent extensions, and the language is very, very 
murky. We would like it to be interpreted that it be consistent 
with the U.S. law, which is that only a new chemical entity can 
get a patent extension. Unfortunately, the way it is written, 
it is murky to us, and it looks like that any product could 
receive a patent extension for a regulatory review period. So 
as you can imagine, if you had a product that had a modest 
labeling change or went to a once-a-week-dosage form, those 
products, too, could obtain additional market protection, and 
we think some interpretations could roll that back and get it 
to be consistent with the U.S. law. And we, really, again, are 
very concerned about international harmonization measures with 
respect to the free trade agreements, not only CAFTA, but 
others as well.
    Mr. Brown. Okay. So if that is the case, as you claim, the 
name-brand drug makers will have more powerful patent extension 
tools in the five Central American countries and the Dominican 
Republic--will have more powerful tools to do this than they 
have in the United States. Take this out to the next step, if 
you would. The name-brand drug industry clearly has used its 
political muscle, not just in this Congress, but around the 
world. And during the CAFTA negotiations, one country, 
Guatemala, actually had passed a generic drug law that the U.S. 
trade rep, representing the United States government--and as 
you know, the U.S. trade rep has an arm--I don't recall the 
exact name and office of prescriptions drugs, whatever--that 
they pretty much said to the Guatemalan government that if you 
want to be included in the Central American Free Trade 
Agreement, that generic drug law needs to be repealed, which it 
was. Understanding that political muscle or that lobbying 
muscle that the drug industry had, are you concerned that the 
drug industry will use CAFTA as leverage to force the U.S. to 
conform to the Central American laws and be able to use 
political muscle in that direction to, in a sense, lobby 
Central America for stronger patent protection laws, therefore 
less access to generics, and then turn around and use those 
laws to weaken generic competition opportunities in the U.S.
    Ms. Jaeger. We are concerned that if the free trade 
agreements, as they are being negotiated right now and as they 
are interpreted--to the ones that actually have been passed--if 
they are not pulled back to be consistent with the U.S. law, 
there could be some damage to the U.S. healthcare system in 
years to come.
    To give you an example: in most free trade agreements, the 
best-mode requirement having to do with patentability has been 
omitted. Now, that is an issue here for the United States. That 
is very critical with respect to patentability and having a 
company downstream trying to make a product. As you can 
imagine, there must be 45 or 50 different ways to make a 
biopharmaceutical. In the United States, we require the brand 
company to put forth the best mode of making the product in 
their patent. And unfortunately, that particular requirement is 
being deleted. And now, we are also seeing here--there is a 
House patent-reform bill that is actually throwing that concept 
up--that thorough international harmonization, perhaps the U.S. 
should delete best-mode.
    Now, we are hopeful that Congress in their wisdom will see 
pharma's backdoor maneuvers for what they are and reject that 
and again maintain the U.S. patent law, as is. And also, 
hopefully, with respect to market exclusivity around the world, 
you know, pharma has been very good and very diligent about 
going and getting other countries to increase their market 
exclusivity up to 10 years in some situations, six in others. 
They have got reform packages in Canada and in other country, 
so the generic industry is concerned about international 
harmonization measures. There are two provisions in two bills 
in the Senate that are asking for international harmonization 
with respect to market exclusivity.
    So we are concerned, again, that these issues are out 
there, but to date, at least the Congress in their wisdom, 
again, has flatly rejected these concepts, and hopefully, we, 
as a Congress, can urge USTR to cleanup the free trade 
agreement base document and provide a fair interpretation.
    Mr. Bilirakis [presiding]. The gentleman's time has 
expired. Chairman Barton to inquire.
    Chairman Barton. Well, thank you, Mr. Chairman. I am just 
going to ask one question because I am supposed to be on the 
floor right now on our amendment to the Homeland Security Bill. 
Mr. Brown and I are pretty close on agreement on most things. 
We always come to it on a different point of view. I am a 
supporter of the CAFTA agreement. I would list him as 
undecided. I don't think we have convinced him yet. But we 
share a similar concern about generic drugs in the marketplace 
being hamstrung by slightly modifying a patent or modifying 
something so that you have to go through the review process 
again. I am with him on that.
    Is that something that this committee should look at this 
year? Do we need to, perhaps, modify Hatch-Waxman to make sure 
that the drug manufactures don't game the system to re-extend 
their patents and not let the generic version come into the 
marketplace as soon as it could? Is that something we need to 
look at?
    Ms. Jaeger. Well, let me just be clear for the record. GPhA 
actually supports CAFTA. What we are looking for is 
interpretation with respect to CAFTA, and we would also like 
USTR to change their base document going forward. I mean that 
is what we think is really the problem with the issue, is that 
the USTR has this base document, and every free trade agreement 
they kind of go up to the next notch, and they are continuing 
to increase this base document. We even think it needs to be 
brought back to current U.S. law, and we think it needs to be 
clarified so that no gaming can occur, because right now, the 
way it is drafted, gaming could potential occur in other 
countries, and you could have a situation where products cannot 
get into a CAFTA country or an Andean country going forward.
    Chairman Barton. Mine is not a CAFTA question. I am glad 
that you and I agree that we support CAFTA. Okay. What I am 
asking is, in the United States market, whether there was a 
CAFTA agreement on the table or not--generics that are approved 
do save money. Should we modify--and I am not advocating; I am 
asking an honest question. Should we modify, do anything, so 
that patents that are about to expire that have a generic 
equivalent that could come into the marketplace don't get 
slowed down because the patent holder modifies something or 
maybe perhaps filed, I have heard, in some cases as many as 50 
patents when they got the original patent, and then they come 
in and say, we have changed it, and therefore it is this now, 
and you really can't do a generic. That is my question.
    Ms. Jaeger. And to answer you question is that, through 
MMA, we did have some hatchback reforms that actually did close 
some of the unintended loopholes, and so we have made some 
progress on that front, and we are starting to start to see 
some of the results. However, having said that, we are seeing 
that brand pharma has found new games in the system and that we 
are just starting to see these new games being played out.
    So yes, I would agree with you that we need to consider and 
identify the new loopholes and actually take the appropriate 
corrective action.
    Chairman Barton. Great. Thank you. Thank you, Mr. Chairman.
    Mr. Bilirakis. The Chair thanks the gentleman. Mr. Waxman 
to inquire.
    Mr. Waxman. Thank you very much, Mr. Chairman. I want to 
ask Ms. Jaeger.
    We all recognize that we need to encourage doctors to 
prescribe generic drugs; however, there has been a longstanding 
disinformation campaign, presumably by brand-name companies, 
leading doctors to believe that generic drugs can be only 80 
percent as effective as the brand-name version. My 
understanding is that this statement is a serious 
misrepresentation of FDA's statistical tests for determining 
the equivalence of generic versions. According to FDA's 
official listing of all approved generic drugs, the agency has 
twice conducted surveys to quantify the average difference 
between the innovator and the generic products, and in both 
cases, in both studies the agency found that the average 
difference was 3.5 percent or less. The agency has also stated 
that the existing bioequivalent standards are, in fact, so 
tight that, if FDA were to require more stringent tests, it 
would even be possible that if the innovator form reformulated 
its own product, they would not be able to demonstrate 
bioequivalence to itself. Is FDA correct in this regard?
    Ms. Jaeger. Yes, we believe that FDA is correct. There has 
been numerous misinformation campaigns out there by various 
brand companies, one having to do--I think that most people 
would probably know, having to do with the narrow therapeutic 
index products. DuPont Mark, back in the late 80's, going into 
the early 90's, went around the country trying to convince 
policymakers at the State level that generic drugs that fell 
into the category of NTI products were not as safe and were not 
as effective as their brand-name counterparts; and therefore, 
they had to have carve-out rules with respect to these NTIs. 
The FDA did come into the issue and actually did testify in a 
number of States on behalf of the generic industry, and did 
write a number of letters to medical professionals and 
policymakers at the State level. But unfortunately, more needs 
to be done because now we see a new wave of this misinformation 
campaign, having to do with mental health drug, epilepsy, 
cancer--all sorts of drug products. And so a strong campaign 
from the Food and Drug Administration about the safety and 
sameness of generics, I think, would be very, very helpful.
    Mr. Waxman. And this story that is circulating about only 
80 percent as effective, you don't buy that? FDA doesn't buy 
it?
    Ms. Jaeger. No. What the brand company representatives will 
always say is that the generics only have about 80 percent of 
the active ingredient, and they will say that is FDA's rule. 
Well, the rule is 80 to 125, and that has to do with a 
statistical parameter. It has nothing to do with potency of the 
product. The potency of the generic has to match, by Federal 
law, that of the brand. It has to be 100-percent potent, so 
this concept that generics have less than 100--80, 75, whatever 
it may be--is really just plain wrong.
    Mr. Waxman. I just want to ask you two more questions, and 
I guess very quickly because the time is expiring. You 
described the threat to generic access in this Bioshield II 
legislation. It would provide excessive incentives to drug 
companies with no relationship to the value of the benefits we 
might expect. I am concerned about this wildcard exclusivity 
provision and want to understand it in more detail, how it 
would work. As I understand it, a manufacturer could gain an 
outrageous windfall in exchange for only a minor addition to 
our arsenal of countermeasures. Say, for example, Pfizer wants 
to develop a treatment for a minor side effect of an anthrax 
vaccine. Is it true that Pfizer could, then, turn around and 
get 2 additional years of exclusivity on its best-selling drug 
Lipitor? And how much would that cost the American people?
    Ms. Jaeger. Well, if Pfizer just even did a minor study on 
animals having to do with one of the antibiotics in their 
portfolio, never mind an anthrax vaccine, but just a small 
antibiotic, a small study, they would be able to reap a 2-year 
wildcard extension. And that wildcard extension can be put onto 
any product of their choice. The product does not have to do 
with anything with respect to bioterrorism. So if Pfizer was to 
put that wildcard on the product Lipitor, that would be a 
windfall to Pfizer of $14 billion and lost savings to the 
healthcare system of about $10 billion. And when we have looked 
at it, we took the top 20 most profitable drugs in the United 
States. We extended each product for about one wildcard, just 
one, and it turned to be about $100 billion in windfall to 
brand pharma.
    Mr. Waxman. And quickly, the few seconds I have left, if we 
had a pathway for biological products, can you give examples of 
some of these products that are off-patent or will come off 
patent soon and what kind of savings we could anticipate from 
generic biological products if Congress creates an approval 
system for them?
    Ms. Jaeger. Absolutely. There are a number of products, 
right now, that companies have applications in that are pending 
before the agency having to do with insulin and human growth 
hormone. Others have to do with companies looking at Epo. All 
of these products would provide substantial savings to the 
American consumers if we had generics.
    Now, to give you sort of an example, right now, the 
biologic market is about $30 billion in pharmaceutical costs. 
By 2010, it is supposed to be up to $60 billion. So if we just 
take a modest competition concept and say that generics come in 
about 20 percent of that of the brand product, that is savings 
of substantial billions of dollars. And so even if it is a 10-
percent differential--which we think it is going to be much, 
much more than that--again, it is going to provide substantial 
savings to the healthcare system, especially Medicaid and 
Medicare.
    Mr. Waxman. Thank you very much. Thank you.
    Mr. Bilirakis. Thank you, Mr. Waxman. The Chair recognizes 
himself.
    I was glad to see Ms. Capps come back in because she told 
us about the situation where a generic resulted in an allergy, 
so sort of continuing on with Mr. Waxman's point on the 
equivalency, if you will, and efficacy and whatnot--and maybe 
this is better-asked of Dr. Gottlieb.
    The situation Ms. Capps referred to, where there is an 
allergic reaction to the generic drug, and therefore that 
patient had to go back to the brand-name drug, if we have an 
equivalency here of ingredients, et cetera, et cetera, why 
would that be, Doctor?
    Mr. Gottlieb. I was struck by the comments as well, and I 
am mostly struck by the comments of my patients in my office 
every time they come in and tell me that they had a different 
reaction to the generic drug than the branded drug, and they 
request the branded drug only. Sometimes, there are different 
ingredients used in the generic drugs to help formulate the 
pill, and sometimes that could get to how the pill is 
ultimately dissolved in the stomach and perhaps absorbed. But 
by and large, the experience that the patient receives from a 
generic drug and a branded drug should be absolutely the same. 
They should be bioequivalent in the patient's blood and have 
the same therapeutic effects. So I think these anecdotal 
experience is notwithstanding, and it probably is for certainly 
isolated patients situations where the different things used to 
formulate the pill might have a specific effect on a patient. I 
think, by and large, it is more of a perception problem with 
patients, and in that respect, you know, quite frankly, the 
branded drug makers have a perception of quality, and sometimes 
the generic drug makers don't. I have patients who come in and 
say I don't want a drug from India; I don't want a drug from 
China. And so there is a perception in peoples' minds of a 
difference in the quality. I think that plays into how they 
experience their drugs.
    I am glad to see that GPhA has done some of its own 
advertising efforts to try to support the quality of generic 
drugs. FDA has done a lot, and the government's played a role 
there. I think the generic drug industry is highly profitable 
and can probably, hopefully, do more in the future to help 
substantiate in peoples' mind that they are getting a similar 
quality medicine that should have the same effect as the brand 
alternative.
    Mr. Bilirakis. Well, you know, Dr. Tom Colburn, who is now 
in the Senate, was on this committee a few years ago, and I 
know that he mentioned to me a number of times that there were 
exceptions, that there wasn't the same efficacy and whatnot; 
and therefore, doctors had to be careful in terms of 
prescribing--it was to that effect. I am not trying to put 
words in his mouth, but that is basically the way I interpreted 
his comments.
    And I asked Dr. Burgess, after I made my opening statement, 
and he sort of, in a sense, said the same thing--you know, very 
rare situations. So I mean that does happen. I mean it is not 
just a perception--I shall use the word perception. It is not 
just a perception?
    Mr. Gottlieb. I think it is largely a perception issue. I 
think there is isolated cases in medicine where there have been 
drugs that have been formulated the follow-up version have been 
formulated differently and had certain different reactions for 
some patients. I am thinking of a couple in my mind, but that 
is the real minority of experience with patients. And I think 
in the majority of cases where you hear patients coming in and 
complaining of a different response to the drug, it usually ahs 
to do with a different taste that the drug had or a different 
composition that it had in their mouth as they swallowed it or 
it dissolved because of the way its formulated and not really 
related to the active ingredients in the drug.
    Mr. Bilirakis. I did want to ask you about the information 
available to physicians, a point that you made in your 
statement, but first--and I shall probably run out of time, and 
if I do, possibly you can furnish that to us in writing. I 
think that would be a very interesting point there.
    But let me ask Ms. Jaeger, how many drugs are there out 
there? Your testimony referred to 195 most used drugs----
    Ms. Jaeger. Right.
    Mr. Bilirakis. [continuing] that sort of thing?
    Ms. Jaeger. I would have to defer to FDA, but I think there 
are like over 700----
    Mr. Bilirakis. Over 700?
    Ms. Jaeger. [continuing] various drug products, some being 
very, very old, and their newest are probably in the part of 
the list.
    Mr. Bilirakis. Now, of the 53 percent of all prescriptions 
dispensed that generics represent, what percentage is just for 
drugs that have a generic alternative? Do you know the answer 
to that?
    Ms. Jaeger. Are you talking about the generic efficacy 
rate, sir?
    Mr. Bilirakis. Yeah, I am talking about the--I guess the 
question is what percentage of brand-name approved drugs have a 
generic alternative.
    Ms. Jaeger. I don't have exactly that number. The ones, of 
course, that are solid dosage forms than others and those that 
have gone off patent, most all likely have a generic equivalent 
to them.
    Mr. Bilirakis. They all have----
    Ms. Jaeger. However, there are areas which we do not have 
generic alternative, such as like topical corticosteroid 
situations, other inhalation products, such as Flonase, a major 
blockbuster. And that is because there is no bioequivalence 
technology to date that can actually support the approval of 
those products. Research is ongoing in those areas, but more 
research needs to be done before a generic can come into the 
marketplace.
    Mr. Bilirakis. So in the areas where it can be done, you 
say that generics exist or at least are in the process of being 
approved or disapproved or whatever. Is that correct? Very, 
very quickly because I----
    Ms. Jaeger. Sure. I think that there are a number of 
research projects that FDA could take and NIH could take to 
actually move along so that we could ensure that all of those 
brand products that should have generic competition do.
    Mr. Bilirakis. I thank you. Let us see. Ms. Bono to 
inquire. We have going to wait awhile. I guess I got to go to 
the other side. Ms. Capps.
    Ms. Capps. Thank you, Mr. Bilirakis. It is nice to see you 
back in this chair.
    And Ms. Jaeger, I am tempted to follow-up because it was 
very interesting, the conversation about protecting from over-
use of generics, if in fact--and we could have that argument--
or not argument--conversation, because I think we basically 
agree. We just want to make sure that we are doing the right 
thing. But I just want to not let us forget the major piece of 
information that you brought to us, the fact for every 1-
percent increase of generic utilization, there would be nearly 
$4 billion--I think I heard you say that.
    Ms. Jaeger. Four billion.
    Ms. Capps. In additional savings in through the various 
policies that you discussed in your opening testimony. Now, I 
serve on the Budget Committee, and I understand the task that 
is going to be given to this committee, which is going to be 
challenging for me, onerous, and we need all of the help we can 
get. If you could, spell out a little more in detail what this 
would mean for Medicaid.
    Ms. Jaeger. With respect to Medicaid, I think the question 
really deserves to go to CMS, and they could probably best 
answer that question. But however, from the information we have 
provided today, I think you can sort of extrapolate, being that 
Medicaid is roughly about 17 to 18 percent of the total 
pharmaceutical prescriptions in the United States, and so, 
roughly, the savings are going be in the average of about $500 
to $600 million per year.
    Ms. Capps. For Medicaid?
    Ms. Jaeger. For Medicaid.
    Ms. Capps. I see. So this would mean that the incentive 
would be that the more Medicaid recipients are using generic 
prescriptions, then the greater the savings will be to the 
overall policy, meaning that more Medicaid recipients would be 
able to--and so forth that follows.
    And you spoke about some best practices, which I am also 
impressed with, but also, again, want to make sure there are 
safeguards there and hope that we could work with you to, not 
enforce these, but to make them available. Sometimes, as you 
have said, there are small, minute techniques on the 
prescription pad or in patient information and education that 
we could help disseminate so that this could be possible, and I 
encourage you to continue to do that and hope that we can work 
with you.
    I am going to turn now to the other major health topic, 
Medicare population. Ms. Cramer, I would be interested in 
finding out what kind of patient protections you feel should be 
build in to guard against patient harm in the population you 
are representing, the seniors and those with disabilities, but 
particularly seniors with the AARP, and how formularies can be 
used in the most appropriate ways.
    Particularly--if I could spell this out a little bit more, 
I am particularly concerned about the impact that formularies 
may have on the Medicare population, Medicare folks who are the 
disproportionately high users of prescriptions, and the dangers 
that some plans have so that they can increase their profits, 
and they do so at the expense of access to drugs under their 
plan.
    In fact, my friend who we were talking about earlier with 
Mr. Bilirakis, asked if she could use the brand-name, and her 
Medicaid-Plus Choice provider, the HMO, denied her. So we want 
to make comment on steps that Medicare should take to ensure 
that beneficiaries are not harmed by restrictive formularies.
    Ms. Cramer. Congresswoman, with respect to your question 
about patient safeguards that should be available, AARP reports 
that when formularies offer preferred drug brands to their 
patients for generic drugs that there should be a very well-
defined--overly priced--AARP believes that the final decision 
about--however, that physicians--there need to be a clear--AARP 
believes that patients should be protected by--the appropriate 
medications--the brand name instead of the generic. The AARP 
also believe that patients should have quick access to the 
brand-name drugs; there should be no delays.
    Ms. Capps. It is easier said than done, and sometimes it 
feels to consumers that the person practicing medicine is the 
person in green eyeshade, and if you are ever in contact, 
sometimes, with your insurer or the HMO-person, you think is 
this person anywhere connected to--and we don't want to 
undermine the skill and also the responsibility that the 
provider, most often the physician, has with respect to the 
patient. And I want to turn to Mr. Carey. Mr. Carey----
    Mr. Bilirakis. Well, your time has expired.
    Ms. Capps. Oh, I have already gone--oh, all right. If I 
could, I would ask you how your formulary, Mr. Carey.
    Mr. Bilirakis. Furnish it in writing, as Dr. Gottlieb----
    Ms. Capps. Thank you. I would like to note----
    Mr. Bilirakis. Ms. Bono to inquire.
    Ms. Bono. Thank you, Mr. Chairman. I want to thank all of 
the panelists for being here and say that Dr. Gottlieb has done 
a good job of answering my questions already, so I am going to 
read some prepared questions for Dr. Berger. Can you explain 
some of the incentives you give to pharmacies to encourage 
greater dispensing of generics?
    Ms. Berger. This is generally--sorry. I will tell you I 
have very little information and can get back to you further 
information on this, because the financial arrangements that 
are made with the pharmacies are really done outside of my 
purview. They are not done across the board. They are done 
individually, through relationships with our clients. So that 
is really all I can share with you at this point in time, due 
to my lack of knowledge on that specific issue.
    Ms. Bono. Can you explain what the process would be for a 
physician who wanted to prescribe a brand-name drug to a 
Caremark patient when a generic was available?
    Ms. Berger. Absolutely. At the end of the day, it is the 
physician's decision as to what drug is prescribed, so if there 
is a generic available and the physician either chooses or 
feels it is necessary for a participant--which is what we call 
patients. I am a little schizophrenic at times, because I am a 
practicing physician as well--but if the participant needs the 
medication, they have every right to write it.
    Ms. Bono. Is there going to be a follow-up from Caremark to 
that physician to talk about the next time a name brand is 
requested? Is there follow up to make sure that that doesn't 
happen again?
    Ms. Berger. We will communicate with the physician. We 
communicate with all physicians around educating them on 
generics. But if there is a generic available, and we have not 
had a specific conversation on that patient on that drug, we 
will have a conversation with them, get their feedback, and 
then document that so that there is a period of time that we 
will not go back to them on that specific prescription for that 
specific patient again.
    Ms. Bono. Okay. Thank you. And Dr. Gottlieb, can you 
explain what Fail First policies are? I think we understand the 
idea, but can you explain why you feel they are a bad idea.
    Mr. Gottlieb. Well, Fail First policies, as you know, are 
policies where patients are steered toward a certain drug or a 
certain class of drugs because of the economic savings, by in 
large, because there is a generic alternative. I think in many 
areas of medicine, our problem is that we are really under-
medicating a lot of chronic disease, mental health being one of 
them, certainly, thing like hypertension, diabetics. And if 
there is a reason why a doctor wants to prescribe a certain 
drug for a certain patient that might not, on the face of it, 
make economic sense, but the doctor feels it is going to make 
that patient comply with the medicine or achieve a certain goal 
more quickly, that is a very important public health benefit 
that I wouldn't want to take away from the physician. You know? 
For example, if I have a patient that I don't think is going to 
come back and visit me many times, I want to get it right the 
first time. I want to give them the most efficacious drug and 
the most tolerable drug. Well, in some cases, that might be an 
expensive, branded calcium channel blocker, even though 
guidelines might say use the generic diuretic first or a beta 
blocker or some older medicine. But there is a conscious reason 
why I opted for a different drug, even though it might not have 
met formulary guidelines or the economic considerations of my 
health plan.
    The other thing that concerns me as a physician, just as 
sort of a follow-up point, is not only the generic 
substitutions that can be made that don't take into 
considerations these kinds of individual concerns that a doctor 
might have for a specific patient, but also the way formularies 
lump drugs and lump classes of drugs--for example: saying that 
all lipid-lowering statins are the same. Well, doctors know 
they are not the same, and there might be a reason why you want 
to start with a more expensive statin, because it might be a 
higher potency--or lumping together categories of drugs called 
ASE inhibitor with ARBs, which some formularies do. For a 
certain percentage of patients, they have very real 
differences, and you might be making a very important 
therapeutic decision, putting a patient on one drug over 
another. And so that concerns me as well when you look at 
formularies.
    Ms. Bono. Thank you very much. Mr. Chairman, I think my 
time is about up. I shall yield back.
    Mr. Bilirakis. The Chair thanks the gentlelady. Mr. Allen 
to inquire.
    Mr. Allen. Thank you, Mr. Chairman. I also want to thank 
Ms. Baldwin for allowing me to go a little bit out of order.
    I want to thank all of the panelists. I did want to say to 
Ms. Jaeger, thank you very much for your comments about CAFTA 
and about trade-agreements in general. This has been the hidden 
story of our trade negotiations. And I believe that what the 
USTR tried to do in Australia was really unconscionable--that 
is another whole story--and that you need to look at CAFTA and 
what we did in Guatemala, successfully getting the Guatemalan 
legislature to reverse itself and give five to more years of 
exclusivity in that law, there, which will simply prolong the 
ability to bring generics to the Guatemalan market.
    I did want to turn, however, this whole question of 
comparative effectiveness and make a couple of comments and 
then ask Dr. Perry a little bit about how it is working for 
Kaiser Permanente. One of the problems we have is that there is 
so little information that is not pharma-funded about the 
effectiveness of the drugs. And we see the ads just flood our 
television airways, and that is what some people are using to 
make their decisions. And so we now have, in the last Congress, 
we got $15 million.
    I will turn to that right now, since it is there. I will 
divert for a moment to this. One point I wanted to make in the 
course of this hearing was to say that when we talk about 
generic substitutions, they are of great usefulness. But 
remember: of the top 50 bestselling drug--the top 50 drugs by 
sales in the United States--three have generic substitutes. 
Three. So we have a long way to go to manage the healthcare 
costs of our pharmaceuticals, but generics can help. Thank you. 
That is very good. Generics can help.
    You know, the Department of Defense just earlier this month 
announced that it will stop paying for Nexium, which we all 
know as the healing purple pill from the TV ads. It was the 
most heavily advertised drug in 2004, and the Pentagon, like 
others, need to steer people and physicians away from these 
very expensive me-too drugs that frankly have no significant 
medical advantage but cost much more than available generics.
    So Joanne Emerson and I, last year, had a bill for $75 
million to go to ARC and the National Institutes of Health for 
comparative-effectiveness and cost-effectiveness research. 
Before all of my time is gone, I do want to ask Dr. Perry, 
because you mentioned the importance of those kinds of 
competitive-effectiveness studies, from your experience, can 
you give us some guidance? One, is $15 million going to be 
enough to do the job? And two, is there any light you could 
shed on your own experience with doing comparative-
effectiveness undertakings? I gather you have got regional 
committees to review drugs that treat the same condition.
    Mr. Perry. In Kaiser Permanente, the pharmacists and the 
physicians use as much evidence as is out there to determine 
formularies and information for physicians and information for 
members and patients, and we heavily use the comparative-
efficacy studies. Where they exist, we really use them, but 
they don't exist in enough areas.
    I shall give you an example. As I was flying up from 
Atlanta, I was reading my medical magazine, my literature, and 
there is an ongoing controversy with the very drugs that Dr. 
Gottlieb was saying. The more expensive drugs in the United 
States studies reduce heart attacks. Now, there is a British 
study that says it increases heart attacks. We need to know 
that information because it is very important for us, but also, 
we need to know that, or just think of the impact on Medicare 
Part D and the impact of both the cost of drugs and what is the 
long-term outcome.
    So we have these controversies, these areas where we don't 
know, in major areas like cardiovascular disease and diabetes, 
and we need to know that because it has such a profound impact. 
And we do, very rightfully, spend, I think it is over $35 
billion in NIH and some of it on primary research, and it is 
going to have, hopefully, more therapies evolve, but until we 
know which one is the right one, there are going to be 
tremendous impacts, so I think that $15 is very small, given 
the magnitude of the impact on us, and on Medicare, and on the 
patients and members we serve.
    Mr. Allen. Thank you. I would just--in conclusion, Mr. 
Chairman, would just say, you know, this can be a completely 
bipartisan effort going forward, and I look forward to working 
with you.
    Mr. Bilirakis. It would seem that way, wouldn't it, because 
of all of the opening statements here, and we all seem to be in 
agreement in general.
    I would ask: you made the comment that of the top 50 
sellers, only three have generics?
    Mr. Allen. That is right.
    Mr. Bilirakis. But I asked Ms. Jaeger, basically, regarding 
the top sellers, and you indicated that virtually all of them 
have generics or at least they are in the pipeline or something 
of that nature. Did I----
    Ms. Jaeger. They have applications pending before the 
administration.
    Mr. Bilirakis. All right. That is my point.
    Ms. Jaeger. The application will be pending, yes.
    Mr. Bilirakis. Yes.
    Ms. Jaeger. And so at some point in time, when the patents 
expire and the market exclusivity expire for those particular 
products----
    Mr. Bilirakis. Okay.
    Ms. Jaeger. [continuing] for those particular products, 
then the generics will come onto the market.
    Mr. Bilirakis. So generics have been concocted, have been 
manufactured and what not, and they are in the pipeline.
    Ms. Jaeger. Right. And those are the applications pending 
before FDA on a number of those products.
    Mr. Bilirakis. All right. Thank you. Thank you. Let us see. 
Mr. Shimkus?
    Mr. Shimkus. Thank you, Mr. Chairman. I will be brief. 
There are three things I want to mention. Obviously, I want to 
get into the CAFTA debate a little bit just because, one, what 
this debate on this trade agreement is to lower tariffs, in 
fact, get our tariffs down to zero. I mean the tariffs into our 
country by what we import is zero. And what we are trying to do 
is lower tariff so we can get our agricultural products, and 
our manufactured goods, and our hi-tech and all that other 
stuff into these other countries.
    And the debate, how this ties to this, is the patent-
protection issues because the patent protections are very, very 
important in our hi-tech communities. I mean when we have trade 
agreements, we don't want our foreign countries being able to 
make bootleg copies of our intellectual music or all of that 
hi-tech equipment, so that is where there is a convergence of 
this. And so I just throw that out to make sure that we have 
that part of the record.
    Dr. Perry, in terms of generic utilization rates, how 
important of a factor is it that virtually all pharmacy 
services are provided in Kaiser facilities by pharmacists that 
work for your health plan?
    Mr. Perry. I think it is very important in that we have the 
clinic experts, the pharmacists and the physicians, working 
together, communicating together on both the high-level policy 
and on the care of individual members. So the reason we get 
higher formulary adherence and higher rates of generic 
prescribing is the physicians know that they were involved or 
their representatives were involved in developing the pharmacy 
initiates. They know that they had expert pharmacy knowledge 
involved. We use feedback, but it is really a team working 
together.
    Mr. Shimkus. Sort of like faith and confidence in the 
process?
    Mr. Perry. Yes.
    Mr. Shimkus. And it allows them to be more involved and 
active in this issue, then.
    Mr. Perry. Yes.
    Mr. Shimkus. And I would concur with my colleague from 
Maine. This subject is just very, very frustrating to the 
average consumer and person in this country. And I was trying 
to sketch out--I am not going to put it in the record because 
it is kind of ugly--how this process works. And I have got like 
six steps: you have an idea; you kind of go to the market; FDA 
approval; patent; patent extension; generics. Where I think 
most of us understand that if you are going to do research and 
development and capital investment, you have got to get a 
return on that, otherwise you are not going to add new drugs to 
the market. But I think it is also--we would like for that to 
end sometimes so that there is a return on the investment, but 
then you don't game the system.
    And Mr. Chairman, even in the last Congress, we were 
talking about how there was gaming of the system by filing 
multitude of patents and extensions and long-lasting--and it is 
my understanding that if you have a patent on a formula, a 
basic chemical formula for a drug, then that get patented and 
the clock should start running. And then, for that formula, 
that basic formula, then the generic should go after that time 
runs out. Am I misguided in that?
    Ms. Jaeger. No, I mean the way this Hatch-Waxman system is 
setup is that it actually protects innovation, and it balances 
access, and GPhA supports the balance of innovation and access. 
So we believe that whether it be free trade agreements or here 
at home that we need to incentivize the brand industry to do 
the necessary research--true research--to bring novel products 
into the marketplace. Where the generic industry sees problems 
is when pharma companies game the system. On average, 
blockbuster products have about 10 patents covering their drug 
product that are listed in what we call the FDA orange book. 
Well, our system for generic approvals is a linkage concept, 
which it links the generals approvals with the patent 
extension.
    Mr. Shimkus. Can I stop you? I want to ask a question on 
that because that is really the heart of the--premise of--we 
all took basic chemistry, and we know there is a basic formula. 
How can file a multitude of patents on a basic chemical 
formula? If there is one formula? Now, I know there is going to 
be long-lasting and encapsulated, that you want to take one 
pill a week instead of one pill a day, but that would be a 
different formula. So why don't you file a patent on that 
single formula? Or how can we allow multitude of filings of 
patents on a simple, chemical formula?
    Ms. Jaeger. Well, in the United States, the patentability 
requirements are quite broad. We actually have the broadest 
patentability requirements in the world, and brand pharma will 
actually patent every attribute of that product as well as sort 
of----
    Mr. Shimkus. Define every attribute. I guess that is the 
issue. If there is a basic chemical formula----
    Ms. Jaeger. Um-hum.
    Mr. Shimkus. So they are also patenting whether it is a 
round pill or encapsulated or----
    Ms. Jaeger. Whether it is a round pill----
    Mr. Shimkus. [continuing] or it is liquid or----
    Ms. Jaeger. Where they will basically patent the process of 
the product. They will patent how it metabolizes at certain 
times. They will patent various polymorphs, isomorphs. They 
will patent their formula, itself, what it is for.
    Mr. Shimkus. And if they find a difference usage, then they 
will patent it for the different usage.
    Ms. Jaeger. They will patent it for that as well.
    Mr. Shimkus. Mr. Chairman, I would just suggest that we 
look at--and it is actually a different committee's 
jurisdiction. But if you want to patent a chemical a chemical 
formula, we ought patent the chemical formula and work with the 
judiciary and not allow all of this gaming of the system 
through the patent system. And I yield back my time.
    Mr. Deal. I thank the gentleman. Ms. Baldwin?
    Ms. Baldwin. Thank you, Mr. Chairman. This question is for 
Dr. Perry, but if others want to comment, they should feel 
free.
    Regarding the role of physicians in encouraging the use of 
generics: one of the major healthcare systems in the district 
that I represent, Dean Healthcare, has really severe 
restrictions in place, regarding interaction between physicians 
and the pharmaceutical representatives. Dean physicians are not 
permitted to have contact with the pharmaceutical reps or to be 
given anything--you know, pens, calendars, the knick-knacks, et 
cetera--other than free drug samples. The interaction is 
permitted on specific occasions where all pharmaceutical reps 
are invited to come at a specific place and time, and the 
doctors can then approach those representatives at that point 
in time if they choose to do so.
    Among other things, this policy has the effect of reducing 
the numbers of items, like knick-knacks, in a doctor's office 
that might advertise brand-name drugs, and hopefully it makes 
doctors and patients more likely to consider generics. I ask 
what you think about such a policy, whether Kaiser Permanente 
has any sort of similar policy or is grappling with it, and 
what sort of impact you think widespread adoption of this sort 
of policy might have.
    Mr. Perry. Partially, we don't want the distraction of 
pharmaceutical reps, and the--really should be interacting with 
the doctor and not with patient. And so we have restricted 
access to the pharmaceutical representatives in the facilities. 
All of the medical groups, I know, are moving toward a similar 
policy about the restriction of the acceptance of gifts and 
knick-knacks and to have various restrictions on the amount of 
any type of support for educational activities. So whereas I 
would have to look directly at the Dean policy and where we are 
evolving, but I think there are similarities.
    Ms. Baldwin. Any other comments--Dr. Gottlieb?
    Mr. Gottlieb. I was checking my pockets to make sure I 
didn't have a drug pen before I answered.
    I will say, first of all, I certainly don't see a lot of it 
where I practice. I practice in a community hospital where 
there aren't thought leaders, and you know if a pharmaceutical 
rep comes around with a drug pen, that is about it. There might 
be other stuff going on with some of the thought leaders in the 
industry, but I think the industry's own code of conducts have 
really cut back on a lot of what you might feel would be more 
egregious kind of handouts.
    Where I am a little bit concerned about the idea of putting 
restrictions on the ability of physicians to access 
pharmaceutical reps or other scientific resources from the 
pharmaceutical companies is that it is part of what I am seeing 
as a general trend in the government to regulate the practice 
of medicine more broadly. And certainly, the restriction on 
access to pharmaceutical reps is really a restriction on access 
to information from the people who have the biggest incentive 
to try to provide you with that information, and in a lot of 
cases the information is valuable, and in a lot cases, the 
information just won't get in the hands of the physician 
because there is no other party incentivized as strongly to 
hand out copies of journal articles or copies of treatment 
guidelines or whatever it might be, which is usually the kind 
of information that I get passed to me.
    I would also point you in the direction of looking at FDA, 
at the risk-management policies that the FDA has promulgated, 
where they really put significant restrictions on not only the 
kind of doctor who can prescribe certain drugs, but when the 
doctor can prescribe. And this is really a Federal policy to 
restrict access to medicines based on restricting the 
physician's access to medicine.
    And I think some of the reimbursement policies that are 
coming forward that tie reimbursement to certain activities on 
the part of the physician are another intrusion in to the 
practice of medicine. And so taken as a whole, that alarms me 
as a physician, and I think the thought of restricting 
information to a physician and doing away with he presumption 
that the physician is a learned intermediary and can integrate 
the information and won't succumb to clever marketing pitches, 
but use the information in a valuable way, I think that is a of 
a piece with a broader direction.
    Ms. Baldwin. I should stress that I wasn't suggesting this 
become a part of law.
    Mr. Gottlieb. Okay.
    Ms. Baldwin. But you know it is certainly a trend in the 
industry for policy.
    Mr. Perry. I think it is--in terms of the Permanente 
Medical Group, we are ensured that physicians have access to 
the best medical knowledge that is not driven by commercial 
concerns. And so we will find various mechanisms to do that. 
And we are also going to make sure that there is nothing from 
outside entities to interfere with out physicians interacting 
in an effective manner with our members.
    Ms. Berger. We have actually taken a page from the 
pharmaceutical manufacturers' books, and we actually have 
pharmacists who go in and talk about generics with physicians 
and education them around the generics. So you know, they were 
successful in what they did, and we have taken it in a little 
different route, and that is one of the methodologies. We have 
between 125 and 150 pharmacists, who go in; educate the 
physicians around generics, the use of generics, and actually 
give them specific tools they can use in remembering how to 
prescribe generics in their practice.
    Mr. Deal. The gentlelady's time has expired. Mr. Ferguson?
    Mr. Ferguson. Thank you, Mr. Chairman. A couple of quick 
observations--and I don't think my colleagues are here who 
raised these before.
    Mr. Allen was talking about the chart about the top 50 
drugs and how so few of them actually have generics. I don't 
think there is any mystery there. If a drug gets a generic, it 
is going to fall off the top-selling list. So I don't know what 
is so illustrative about the chart.
    And my friend Mr. Shimkus, before, was talking about gaming 
the system and the patent business. Obviously, nobody thinks--I 
think very few of us would say there ought to gaming of the 
system, but I what is not frequently talked about is half or 
more of patent life is eaten up before that firm makes dollar-
one on that drug. So I think, obviously, no one thinks we 
should be gaming the patent system, but we should also 
recognize the fact that the enormous resources, the hundreds of 
billions of dollars that go into finding these new drugs--that 
patent clock is ticking as soon as the patent is approved, not 
when that drug goes on the market. I think that is an important 
point that ought to be made.
    Another point that I don't think has been talked about 
today is the difference between generic substitution and 
therapeutic substitution. And I think this is very important to 
some of the things that we are talking about today. And when we 
are talking about generic substitution, as we are today, we are 
not talking about therapeutic substitution.
    Substituting a generic copy of a brand-name medicine, which 
is generic substitution, is wholly different than therapeutic 
substitution, which is substituting one medicine--whether it is 
a brand or generic--for another different medicine. Generic 
copies of brand-name drugs are not equivalent to all brand-name 
medicines in the same class. Even within a class of drugs that 
work in the same fundamental way, drugs can have different 
indications and side effects for patients, even patients who 
are suffering from the same condition.
    Because of the differences between medicines within in a 
class, encouraging patients or forcing patients or coercing 
patients to change medication, particularly to one that has not 
shown an effectiveness in treatment of that patient's 
condition, could result in a harm to that patient's health.
    And that is where I want to ask Dr. Gottlieb: we have heard 
that characteristics of a patient may affect how a given 
medicine works and that use of a different medicine may have 
bad effects--in fact, can disastrous effects. Can you give us 
an example or two, or do you have any experience in this 
regard, of instances where two medicines cause a different 
reaction? And maybe tell us a little bit about how severe those 
reactions could be.
    Mr. Gottlieb. Absolutely. And I touched briefly on this 
point before, when I was talking about that--not just generic 
substitutions, but the way plans design their formularies by 
lumping different classes of drugs together for the purposes of 
lumping a new class of drugs, perhaps, with a class that has 
some older, generic alternatives that you could then opt the 
patient onto.
    A good example of this is the ASE inhibitors and the ARBs, 
two classes of antihypertensive medication that for most 
patients probably have similar benefits if you are prescribing 
it just for blood pressure lowering. But for certain patients, 
those drugs have quite different profiles. There are reasons 
why you might want to prescribe one to a diabetic patient with 
certain kidney problems.
    But even when you look in the existing classes of drugs, 
like statins, for example, lipid lowering statins, you see 
high-dose statins and low-dose statins. You see statins that 
work in different ways and are co-formulated with different 
molecules. And there are very good reasons why, as a physician, 
you would opt to put a patient one drug versus another, and the 
decision is being made at the formulary level, and the designs 
of a lot of formularies at lot of plans really are taking away 
that kind of decisionmaking.
    So it is not just a question of whether or not the plan is 
going to put you on the new calcium-channel blocker versus the 
old calcium-channel blocker, that are largely equivalent 
molecules--or in fact, the same molecule because it is just a 
generic version of the branded drug--but the decisions that are 
being made are the decisions that you pointed to, which are 
decisions to substitute drugs that are either in another class 
or within the same, broad class, but in fact, have much 
different profiles. And the examples in medicine are just as 
countless where for a certain percent of patients, the 
different drug will make a difference. You know, we always say 
for 95 percent of patients or 90 percent of patients, it might 
not matter; but the 5 or 10 percent of patients who it does, 
that is where you want to have very easy ways to opt around the 
kinds of restrictions that the plans sometimes put in place.
    Mr. Ferguson. Dr. Berger, how does this work in practice? 
How does therapeutic substitution work in practice? Are there 
incentives that you offer to either doctors who are prescribing 
the drugs or to pharmacists who are filling the prescriptions 
with regard to therapeutic substitution?
    Ms. Berger. No, there are no incentives. We do, in some 
classes and in some cases, do therapeutic substitution, where 
we call the physician and ask them would this be a clinically 
appropriate consideration for them. But as I said earlier, at 
the end of the day, it is always the physician's decision 
because they do know the patient best.
    Mr. Ferguson. Is there a tone of voice in that call?
    Ms. Berger. What? What was that?
    Mr. Ferguson. I said is there a tone of voice in that call?
    Ms. Berger. No, and actually we have team that oversees to 
make sure there is no tone of voice. The other thing, I want to 
take a step back----
    Mr. Ferguson. So there is an accent, but no tone of voice?
    Ms. Berger. There you go. The one thing I do want to say 
and take this a little further is any of the activities that we 
do, including requests for therapeutic substitution, go through 
our P&T Committees, our Pharmacy and Therapeutics Committee, 
which is a 100-percent external committee to anybody within 
Caremark. It is physicians across specialty, across the 
country. It is pharmacists. It is a dean of a pharmacy school. 
And they make the decision that this is a reasonable question 
to ask. Then, that goes forward in those cases to the physician 
to say is this reasonable, and the physician makes the 
decision. The physician is not incentivized, nor is a 
pharmacist, into doing anything different than what they feel 
is appropriate.
    Mr. Ferguson. And is this your policy in your practice 
because you recognize the risks of therapeutic substitution and 
the problems that that can cause?
    Ms. Berger. We feel it is the clinically correct way to go.
    Mr. Ferguson. Thank you, Mr. Chairman. My time is just 
about up, but I just wanted to, again, stress that as I 
understand it, this is not wise. It is in many cases, as we 
have heard, a dangerous practice. And certainly, we should be 
making sure that folks who are in the business, as you are--a 
crucial position of being a part of that decisionmaking chain 
about what medicines patients end up getting, that we make sure 
that we really draw this distinction on a policy level and a 
practice level, the difference between generic substitution and 
therapeutics.
    I thank you, and I yield back.
    Mr. Deal. Thank the gentleman. Mr. Strickland.
    Mr. Strickland. Thank you, Mr. Chairman. I think the reason 
that so many of us love this committee is the fact that what we 
discuss here effects, directly, the lives of our constituents.
    Dr. Gottlieb, you said a few moments ago that--you made 
reference to the fact that you may be concerned that government 
is starting to interfere with the practice of medicine. And 
some years ago, we had a TV ad where a sweet lady with white 
hair said, ``I don't want the government in my medicine 
cabinet.'' But I think we don't want the pharmaceutical 
companies determining what is in our medicine cabinet or the 
insurance companies determining what is in our medicine cabinet 
either. We want our physicians making that decision.
    Which leads me to my experience with my 79-year-old sister 
last weekend, who had a blood pressure problem, and she gets 
her medicine through the mail, and it didn't show up as it was 
scheduled to show up, and so when she puts through a call she 
was told that, we no longer pay for that medicine. We asked 
your doctor if he would agree to a substitute; he said no. And 
then, they asked her--they said, do you want it, because you 
will have to pay for all of it. And she said, well, of course, 
if my doctor wants me to take it, I want it. So I think there 
is problem out of the hands, away from the judgment, of those 
who are capable of making the decisions.
    In my own case, with the statin medication--I took a statin 
medication for cholesterol for over a year, and it did nothing 
to lower my cholesterol level. And then I was changed to 
another one, and immediately, it was dramatically lowered, with 
no change in my behavior or my eating habits. I don't know how 
to explain that. Maybe you can as a physician.
    But having said those things, I have one particular 
question, and I think this has been answered to some extent, 
but I want to make it as crystal clear as I can. Name-brand 
companies can diminish generic drug companies incentive to 
challenge patents or to develop the generics by marketing 
virtually identically versions at a lower cost, thereby 
directly competing with a company that has developed the 
generic by using the so-called authorized generic drugs. Now 
this, obviously, would have a disincentive for companies to 
pursue the development of a generic drug.
    In your opinion--and any of you can answer this. But in 
your opinion, do authorized generics impact the incentives to 
develop what I would call true generic drugs? And if that is 
the case, what can we do about this? And if we do nothing, what 
will be the result?
    Ms. Jaeger. I shall take that question.
    Authorized generics are basically brands masquerading as 
generics, and they do come in and they are tying to compete 
with the generic. And what they are doing is devaluing the 180 
days of generic exclusivity, and that is the exclusivity that 
is rewarded to the generic company for challenging those 
patents and being successfully in going to the marketplace.
    But if a generic company is not guaranteed that 180 days, 
they are going to have to look long and hard about how many 
challenges they bring in the future. Now, there may be a short-
term gain, and the opposition will say, you are getting some 
competition; but it is the long-term consequences to our 
healthcare system that are at stake here. And so we believe 
that authorized generics, the whole process, should be stopped, 
and 180 days exclusivity should be just that, excusive, 
exclusive for the generic manufacturer.
    Mr. Strickland. Do the others agree with that answer, or do 
you take exception?
    Ms. Gottlieb. Well, I am by no means an expert in this 
area. But you know it should be noted, just generally, that a 
lot of the recent court cases have gone in favor of the branded 
companies on their policy here. I understand Ms. Jaeger's 
position and have heard some of the criticisms of the FDA's own 
posture in this area, but the court cases have spoken pretty 
clearly about whether or not the branded companies have the 
ability to do this as a commercial activity.
    Mr. Strickland. Anyone else? If not, I would just like to 
say, Mr. Chairman, that this may be something that we need to 
address because I think it gets to the very heart of whether or 
no generics are going to be incentivized. And if they aren't, 
they are not likely to be developed. And if the courts are 
making certain decisions, perhaps it is appropriate for us to 
consider legislation----
    Mr. Deal. Would the gentleman yield on that?
    Mr. Strickland. I would yield.
    Mr. Deal. I think there is an amplification of that issue 
that Ms. Jaeger touched on in her opening statement. It might 
deincentivize that.
    As I understand it, you are advocating that these 
alternative generics be included in the computation of the best 
price, which would significantly change the rebate formulations 
that are used. Is that correct?
    Ms. Jaeger. That is correct.
    Mr. Deal. That is a complicated question. If you would like 
her to explain what it meant, I shall be glad for her to do it 
on your time. I think we have got a little bit left.
    Mr. Strickland. You want her to tell you what you asked.
    Mr. Deal. Tell what I just said; that is right. But you 
would agree with that?
    Ms. Jaeger. And Mr. Chairman, we also just wanted to 
correct the record. Our industry does challenge patents, and 
for the most part--the FTC put out a report a couple of years 
ago and said that the generic industry did prevail in about 75 
percent of the cases they actually brought into court. Now, we 
certainly don't win on every patent, but the vast majority we 
do actually win on. And so a lot of these patents are not the 
basic compound patent; they are not the formulation patent; 
they are not the indication of use patent. There are actually 
peripheral patents out there that are actually just needless 
barriers to generic entry. And so it is imperative that the 
generic industry be able to challenge those patents and be 
rewarded. Otherwise, the companies decide not to take on those 
challenges; they sit on the sideline; and we have just given 
the brand company de facto patent extension. So again, that 
would be very, very harmful to the healthcare industry.
    Mr. Deal. Thank you. Ms. Myrick?
    Ms. Myrick. Thank you, Mr. Chairman. And thank you all for 
being here. I am sorry I missed your testimony, but we have got 
the written one.
    And I have got a question on something that Dr. Gottlieb 
had said, and really if Dr. Berger or Dr. Perry or both of you 
want to answer--and it is related to brain disease drugs--or 
some people call them mental disorder drugs. But Dr. Gottlieb, 
I understand that in your testimony you stated that, in 
general, generic use among people with a brain disease has been 
relatively low. Is the low generic-substitution rate due to the 
physical differences between the brand-name and generic drugs, 
or would you say there are other factors that make brand names 
more prominent for mental health-type prescriptions?
    Mr. Gottlieb. I am actually not sure that the mix between 
generic and brand drugs in the different--at least in 
depression, I would imagine that it is exactly as you state, 
that the overwhelming use is in branded drugs. I think there 
are certain areas of medicine where the prescriptions choices 
of physicians are more finely tuned to the patients, and mental 
health happens to be, perhaps, at the top of the list or near 
the top, maybe with the exception of cancer and some very 
specific diseases, because the drugs, by and large, within the 
classes have subtly different profiles that become very 
important in trying to match the drug to a patient's particular 
tolerance. So for example, Prozac might have more sexual side 
effects than a newer drug, and you might not want to give it to 
a young patient if you are worried about compliance. Some of 
the typical antipsychotics might have a greater propensity for 
patients to gain weight. You might not want to give one to a 
patient who is worried about weight gain. One of the typical 
antipsychotics that is used to treat schizophrenia is more 
sedating, so you might want to give it to a patient who is more 
agitated. One of them, I know, makes you more agitated, so 
might want to give it to a patient who is sedated.
    And so these become very subtle choices that the doctor 
needs to make, and by and large, since you don't have a lot of 
generic drugs in these classes, if you are going to make very 
specific prescription choices, closely matched to the patient, 
you are not going to just push everyone toward the generic 
drug, just for economic reason in this kind of a therapeutic 
category, where you are really considering the patient's 
characteristics in how you are prescribing.
    Ms. Myrick. Is it possible to make nearly exact generic 
copies of some of these drugs?
    Mr. Gottlieb. Well, most of--I am thinking of the typical 
antipsychotics. They are all on patent. The older 
antipsychotics are off-patent, a drug like Haldol, but has a 
very different safety profile than the newer ones, the ones 
that are called atypical, so most physicians wouldn't want to 
use it as a first-line agent, except in specific circumstances.
    And with the SSRIs, selective serotonin reuptake 
inhibitors, for example, there are--there is a drug off patent. 
There is more coming off patent. But again, the drugs have very 
specific characteristics, so there might be a reason that you 
might opt, in that kind of a therapeutic class, for some of the 
branded drugs, even though the generic exists, because the 
branded drug might have a slightly different profile.
    So when the patents are up on the entire class, certainly, 
but right now, a lot of those drugs are still under patent 
protection.
    Ms. Myrick. For the other doctors: is this, when you have 
to deal with this type of thing, with a brain disease type of a 
problem, do most doctors take this into consideration when they 
are prescribing, and do most insurance companies literally 
accept that? Or is there a challenge with the insurance 
companies saying, well, I shall pay for Zoloft, but I won't pay 
for Prozac or something like that--because I know exactly what 
Dr. Gottlieb said. There really is a difference in how they 
affect, and there is so much trial and error in this field 
anyway, and if you find one that works, it is really a 
challenge, so----
    Mr. Perry. Let me speak to the most common mental health 
issue, and that is depression. And we do, in depression, have, 
I believe, three of the drugs that are now generic, and we also 
have brand drugs to treat depression.
    In a large review of multiple studies that was done 
recently, the conclusion was that you did need to have a range, 
but there was no one magic bullet; that it is perfectly 
permissible to start with one of the generics; and some people 
will respond to that; and about 20 percent of people will not. 
And then you can try another generic, and some will respond and 
some will not. You can go to a more expensive brand drug, and 
about the same percent will respond and the same percentage 
will not.
    Ms. Myrick. Really?
    Mr. Perry. And so what we have done with our formulary is 
have a range of options. We do encourage the generics, but we 
have a range of options, knowing that people respond 
differently. And so I thin it is perfectly permissible, if you 
know your patient, to start with a generic, but there are some 
people that you ay not. But again, I think a generic strategy 
is a ration way to go.
    Ms. Myrick. Would you agree?
    Ms. Berger. Absolutely. It is the same way that Caremark 
looks, especially at the antidepressant area. And we have found 
that as we educate physicians that there are generics in that 
class and to begin with them, we are seeing a greater uptake on 
the use of generics as a first line----
    Ms. Myrick. Right.
    Ms. Berger. [continuing] with the knowledge and great 
success. But we also don't tend to intervene once somebody is 
stable on an antidepressant, asking them to go to a different 
generic.
    Ms. Myrick. Thank you very much. I yield back, if I have 
time.
    Mr. Deal. I believe you had another response. Would you 
indulge his response on that? Dr. Gottlieb, if you wanted to 
make a comment?
    Mr. Gottlieb. I was just going to make the observation that 
in some areas of medicine, you only get a limited opportunity 
to get the patient feeling better or else they fall out of your 
care. And this is one of those areas of medicine where you have 
a very--and with a lot of patients, you have a very narrow 
window to get it right because if they don't feel like they are 
getting better, they just won't--they will fall out of 
treatment. So if you think that you are making a decision where 
you are matching a drug closely to the patient, you would want 
that to come into play right away and not have to be forced 
into a certain treatment paradigm, just on economic 
considerations.
    Mr. Deal. That is where you said you do not think the Fail 
First approach is not appropriate here?
    Mr. Gottlieb. No, not here. I think that the overwhelming 
evidence that I have looked at is that Fail First in this realm 
could, in fact, end up increasing cost instead of saving it, 
and not maximize overall public health benefit.
    Mr. Deal. Thank you. Mr. Shadegg?
    Mr. Shadegg. Thank you very much, Mr. Chairman. I want to 
begin by saying thank you to the panel. This is phenomenally 
complex. I am sorry I wasn't able to be here at the beginning 
for your testimony.
    It is difficult, sitting here, to know how to proceed and 
how to do what is right for the consumer. I personally feel 
that the No. 1 consideration ought to be the recommendation of 
the physician; but that ought not to be influenced improperly 
by a formulary. Yet I think a formulary that guides both 
physicians and patient to the least expensive, effective drug 
is the right thing to do. And so it seems to me that it is very 
difficult to find that precise balance. I also would want to 
encourage the use of generics where they can be used 
effectively.
    Dr. Perry, Dr. Berger described the process by which her 
company goes through making a decision to allow someone to use 
something that is not on a formulary and trying to make sure 
that that decision is ultimately made by the physician. Do you 
agree with--does your company operate in the same fashion?
    Mr. Perry. Let me describe how we operate.
    Mr. Shadegg. Okay.
    Mr. Perry. And I think that would be the best. We do have a 
large formulary; there is one formulary. So the advantage of 
being a Permanente physician is that there is only one 
formulary that we have to deal with. And I do hear my 
colleagues out in the general medical community when they have 
six or seven or eight they have to deal with. But there is one 
formulary, and it is a large formulary.
    But when the physician wants to prescribe a non-formulary 
drug, our process is that he or she writes that medication 
out--I am talking about our process in my medical group--and a 
30-day supply is given, no questions asked. And then, the 
physician is asked to submit some documentation on the reasons 
why that prescription was written, and again, very high 
approval rate on this exception process because our physicians 
already bought into the formulary. They know their 
representatives developed it. It was evidence-based; it was 
based on the literature. And so when they write that 
prescription, there is usually a very good and rational reason, 
and so we have this exception process that is not a pre-
approval process.
    Mr. Shadegg. Ms. Berger, does that parallel what you do, 
then?
    Ms. Berger. No. Because of our formulary being what we 
would call an open formulary, every drug is available. If it is 
FDA approved, it is available to the participant. What their 
out-of-pocket cost is is what is the alternatives of drugs----
    Mr. Shadegg. It is a variant?
    Ms. Berger. [continuing] on the formulary--so it is a 
varied--you know, whether you want to call it tiered or varied 
methodology of out-of-pocket cost, and that is determined by 
our clients, by the health plans or the employers who chose to 
utilize Caremark.
    Mr. Shadegg. Two things concern me. One is doctors who want 
to keep the plan happy so they never write a script out of the 
formulary because they just want to keep the plan happy because 
they figure keeping the plan happy is the way to stay employed. 
And sometimes, there is a danger that the patients' health 
becomes secondary to that factor. That is one that concerns me.
    The second one that concerns me is demand-pull advertising. 
And you know I am a First Amendment guy, but I have some real 
problems with demand-pull advertising, and I guess I am 
interested in how you see that affecting what you do each day 
and how you get the doctors--the doctors I know tell me that 
they have to fight demand-pull advertising with patients who 
come in and say, well, I need this drug. And then they have to 
get into an argument with the patient about whether or not, in 
fact, they need that drug. Do you have a comment?
    Ms. Berger. It is a challenge. We do--again, getting back 
to those 150 pharmacists that we utilize to sit with the 
physicians and educate them. We use that as an alternative way 
of educating physicians and supporting them when the patient 
does come in and say, I saw X on TV, and I want that. And so it 
is a big issue.
    I think the one other thing that is a hard challenge--at 
the end of the day, generics are very patient-friendly because 
the No. 1 reason we hear people don't take their medicine is it 
costs them too much. And so if we can find the methodology 
where it costs them less--and you know, Dr. Gottlieb talked 
about people staying adherent or compliant to medicine. If we 
can find ways to get the medicines that they can afford to stay 
on--you know. And that is the thing we try to work with the 
physicians on because most of us as physicians, including 
myself, don't have a clue how much the drugs cost or how much 
each of our patients are paying for each drug that we are 
writing for. And so that is a challenge.
    Mr. Shadegg. Dr. Perry, what impact do you see form demand-
pull advertising?
    Mr. Perry. Let me speak as a physician first. I understand 
what your friends are saying. It really is when you are trying 
to deal with somebody's diabetes, what they want to talk about 
is the ad they have torn out of the paper, and you are talking 
about getting them to have better diabetes control. So it is a 
significant issue. And we try to interact by having great 
patient-education material, helping our Permanente physicians 
with those difficult conversations, so they can take what is 
the desire of the member to get better and focus it away from 
the ad and focus in on how do I improve my own care? So we have 
course; we have classes. We have ways to try to build that 
skill, but it does have a significant impact when I am sitting 
in front of a patient.
    Mr. Shadegg. Dr. Gottlieb did you--it looked like you were 
jumping to make a comment.
    Mr. Gottlieb. Well, I have certainly heard the concern that 
you are expressing when I was at FDA, and we undertook studies 
during that time, before that, and since to look at what impact 
advertising was having on the doctor-patient relationship and 
the predilection to use certain drugs, and the overwhelming 
evidence that FDA was able to accumulate in its own survey data 
was that most physicians didn't really feel it was an intrusion 
into their relationship with the patient or a significant 
burden on their time. And that was offset by significant 
evidence that advertising drove patients into the physician's 
office and prompted them to seek treatment for things that 
might not have otherwise been aware of, and that was a 
significant, overall, public health benefit.
    Now, that said, there are probably things that we can do to 
try to create a regulatory environment that allows for, if not 
encourages, the creation of more ads that are diseased-focuses, 
that are help-seeking, that encourage patients to be aware of 
specific conditions and away from advertising that just might 
be more promotion in nature for a specific product and doesn't 
have an educational component, but that is a function of the 
way in which advertising is regulated, I think, to be looked 
at.
    But to certainly think of limiting the adverting, I think 
the public health argument there would be that it would 
probably do more harm than good.
    Mr. Shadegg. I thank all of you. I am way beyond my time. 
Thank you, Mr. Chairman.
    Mr. Deal. Thank you. And once again, thanks to all of the 
panel members for your patience with us. And we have had fairly 
good attendance. We just come and go like the weather 
sometimes.
    With Mr. Brown's indulgence, I would like to raise one 
issue--and I don't expect it to be answered here, but I feel 
sure your association might want to provide us with a written 
response to it.
    My concern is the TEVA case--I guess it is--that, as I 
understand it, is not appealed to the Supreme Court. As I 
understand that case, it says that the fact that a drug is in 
the orange book list, and somebody has come in with a generic 
application in the 45-day window period and no suit has been 
file, that the fact that there is a patented drug out there, 
that that in and of itself does not create sufficient 
controversy for a declaratory judgment action.
    I think our intention was that it would be a situation 
where declaratory judgment would be proper. Otherwise, the 
generics operate under the cloud of a trouble/damages lawsuit 
down the road.
    Would you be so kind--and any of you who else might have 
some involvement in that--would you be so kind as to provide us 
some insight as to what the impact of that might be and what 
solutions, if any, might be appropriate?
    Ms. Jaeger. We'd be absolutely thrilled to do that, sir.
    Mr. Deal. And also, in conclusion, I want to thank Mr. 
Brown for his being here for the hearing. He was here longer 
than I was today. I had to go to the floor. I apologize for 
that.
    There are certainly things that we did not cover that are 
very closely related to your testimony today, and biogenerics 
being one of those. And with Mr. Brown's cooperation and 
assistance, I would look forward, maybe, to having a hearing 
that would focus on that particular issue. It is very 
different. It is more complex, and solutions might be more 
difficult to arrive at. But I do think it is a timely issue, 
and perhaps, we can work together to have a future hearing on 
that, and some of you may be invited back for that one.
    But for this, for today, thank you very much for our 
attendance in our hearing.
    Ms. Jaeger. Thank you.
    Mr. Deal. The committee is adjourned.
    [Whereupon, at 3:24 p.m., the subcommittee was adjourned.]
    [Additional material submitted for the record follows:]
    Prepared Statement of National Association of Chain Drug Stores
    Chairman Deal and members of the House Energy and Commerce 
Committee Health Subcommittee, the National Association of Chain Drug 
Stores (NACDS) is pleased today to offer our perspective on the value 
of generic pharmaceuticals, their potential to achieve significant cost 
savings in the U.S. healthcare system, and the role of community 
pharmacists and chain pharmacies in helping to address the rising cost 
of prescription drugs by encouraging use of generics.
    The National Association of Chain Drug Stores (NACDS) represents 
the nation's leading retail chain pharmacies and suppliers, helping 
them better meet the changing needs of their patients and customers. 
NACDS members operate more than 35,000 pharmacies, employ 108,000 
pharmacists, fill more than 2.3 billion prescriptions yearly, and have 
annual sales of over $700 billion. Other members include--almost--1000 
suppliers of products and services to the chain drug industry.
                  the value of generic pharmaceuticals
    The United States health care system values the contributions made 
by brand name pharmaceutical companies in providing the innovative 
therapies that many of us rely on to maintain life and health. Brand 
name pharmaceuticals are priced at a premium, in part, to help brand 
name manufacturers pay for their research and development costs. 
Alternatively, prices for generic drugs are typically much lower 
because generic drug makers do not face the same developmental costs as 
do brand name drug makers.
    In contrast to the brand name drug market, where there may be a 
single source of supply, and pharmacies are ``price takers'', in the 
generic market, retail pharmacies are ``price makers.'' As more and 
more versions of generic drugs are approved, retail pharmacies create 
the competitive pressures that force generic manufacturers to compete 
on price, lowering the overall generic prescription prices for cash 
paying individuals, as well as public and private payers.
    In 2004, the average price of a brand name drug was $96.01, while 
the average price of a generic drug was $28.74--roughly 30 percent of 
the average brand name price.1 Generics in the United States 
are also competitively priced relative to drugs in other countries. An 
FDA analysis compared the seven most often used generic prescription 
drugs for common chronic conditions in the United States. For six of 
the seven drugs, the generics were priced lower in the United States 
than the brand name versions in Canada. Five of the seven U.S. generic 
drugs were also less expensive than the Canadian generics.2
---------------------------------------------------------------------------
    \1\ NACDS, Industry Facts-at-a-Glance, on the Web at http://
www.nacds.org/wmspage.cfm?
parm1=507. Last accessed May 16, 2005.
    \2\ FDA Consumer Magazine, July-August 2004.
---------------------------------------------------------------------------
             generic pharmaceuticals offer dramatic savings
    Simply based on the average prices, use of generic pharmaceuticals 
instead of their brand name equivalents clearly is a cost-effective way 
of achieving savings in both private and public health care programs. 
Seventy-three percent of drugs listed in the FDA's Orange Book have 
generic counterparts.3 In recent years, generic versions of 
a number of leading prescription drugs have been introduced. Today, 
roughly half of all prescriptions are filled with generic drugs. 
However, in 2004, brand pharmaceutical sales in the United States 
totaled $235 billion while generics accounted for just $18.1 billion in 
sales.4
---------------------------------------------------------------------------
    \3\ Generic Pharmaceutical Association (GPhA), ``Generic 
Pharmaceutical Facts at a Glance.'' On the Web at http://
www.gphaonline.org/aboutgenerics/factsabout.html. Last accessed May 16, 
2005.
    \4\ IMS Health
---------------------------------------------------------------------------
    Given the volume of generic drugs on the market today, it might be 
assumed that the percentage of all prescriptions being dispensed with 
generic equivalents--as well as spending for generics--might have 
increased. However, both percentages have remained relatively flat over 
the last few years.
    Prescription growth for generics remained at 10 percent in 2004 for 
the third straight year and sales of generics constituted only 8 
percent of U.S. prescription drug sales.5
---------------------------------------------------------------------------
    \5\ 2004 Year-End U.S. Prescription and Sales Information and 
Commentary, IMS National Sales Perspectives, February, IMS Health, 
2005.
---------------------------------------------------------------------------
    Similarly, although many state Medicaid programs have passed laws 
mandating the prescribing of generics, 6 data from the 
Centers for Medicare and Medicaid Services reveal the average state 
Medicaid generic dispensing rate was still only about 51 percent for 
the 12-month period ending September 2004. Generics accounted for less 
than 17 percent of all Medicaid expenditures for prescription drugs 
over that period. States can increase their use of generics by 
implementing step therapy programs in the appropriate cases where a 
lower-cost generic might be tried first instead of a higher-priced 
brand name drug. We believe that there are significant savings to 
Medicaid from adopting step therapy approaches used by the private 
sector, and we will be discussing these ideas with policymakers during 
the upcoming Medicaid debate.
---------------------------------------------------------------------------
    \6\ Medicaid Outpatient Prescription Drug Benefits: Findings from a 
National Survey, 2003, J.S. Crowley, D. Ashner, and L. Elam, Kaiser 
Commission, 2003.
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    A 2001 study by the Center for Pharmacoeconomic Studies at the 
University of Texas estimated that a 10 percent decrease in the rate of 
brand name dispensing would save $16.6 million across Texas each 
year.7 Given continued growth in drug prices and 
utilization, even greater dollar savings could be achieved today. The 
FDA estimates that drug costs per day for ``typical'' patients can fall 
by 14 to 16 percent if patients use generics instead of branded drugs, 
depending on their medical needs, while patients whose needs can be 
fully satisfied with generics could experience reductions of 52 percent 
in the daily costs of their medications.8
---------------------------------------------------------------------------
    \7\ Estimating the Economic Impact of Increasing Generic 
Substitution of Multi-Source Brand Name Prescription Products in Texas: 
Policy Report, Center for Pharmacoeconomic Studies, The University of 
Texas at Austin, May 2001.
    \8\ FDA Center for Drug Evaluation and Research, ``Savings From 
Generic Drugs Purchased at Retail Pharmacies' On the Web at http://
www.fda.gov/cder/consumerinfo/savingsfromgeneric
drugs.htm. Last accessed May 16, 2005.
---------------------------------------------------------------------------
    Generic drugs can also help slow the annual increase in drug 
spending. A recent GAO study found that average usual and customary 
prices for brand drugs increased about three times faster than for 
generic drugs. Between January 2000 and June 2004, average prices for 
52 frequently used brand drugs increased by 26.4 percent, a 5.5 percent 
average annual rate of increase, while prices for 47 frequently used 
generic drugs increased 8.3 percent, a 1.8 percent average annual rate 
of increase.9
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    \9\ GAO, ``Prescription Drugs: Trends in Usual and Customary Prices 
for Drugs Frequently Used by Medicare and Non-Medicare Enrollees'' GAO-
05-104R (October 6, 2004).
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    Potential savings from generic substitution should significantly 
increase when several high-volume brand name drugs come off patent 
between now and the end of 2007. For instance, top-selling brand name 
drugs Nexium (GERD/ulcer), Pravachol, Zocor (cholesterol), and Zoloft 
(antidepressant) are all expected to come off patent. The experience 
with Prozac coming off patent in 2001 indicates that the first generics 
arriving on the market can be expected to cost at minimum 30 percent 
less than their brand name equivalents. Once additional generics enter 
the market, the market price for the generic versions of these drugs 
will likely be about 60 percent less than the price of the brand name 
drugs.

                 Scheduled Patent Expirations with Significant Generic Substitution Opportunity
----------------------------------------------------------------------------------------------------------------
                                                                                     Scheduled
          Brand Name                Generic        Manufacturer     Approximate  $    Patent        Purpose/
                                                                        Sales       Expiration     indication
----------------------------------------------------------------------------------------------------------------
Zofran.......................  ondansetron.....  GlaxoSmithKline.     $800,000,000       2005   Prevents nausea
                                                                                                 in chemotherapy
Prevacid.....................  lansoprazole....  Tap Pharma......   $4,000,000,000       2005   Gastrointestinal
                                                                                                 distress
Zithromax....................  azithromycin....  Pfizer..........   $1,506,000,000       2005   Macrolide
                                                                                                 antibiotic
Pravachol....................  pravastatin.....  Bristol-Myers-     $2,000,000,000       2006   High cholesterol
                                                  Squibb.
Zoloft.......................  sertraline......  Pfizer..........   $2,250,000,000       2006   Antidepressant
Lamisil......................  terbinafine.....  Novartis........     $646,000,000       2006   Nail fungus
Risperdal....................  risperidone.....  Johnson &          $2,200,000,000       2007   Anti-psychotic
                                                  Johnson.
Norvasc......................  amlodipine......  Pfizer..........   $2,000,000,000       2007   Hypertension and
                                                                                                 angina
----------------------------------------------------------------------------------------------------------------
SOURCE: NFM Research, 2004, published in Drug Store Management, August 2004.

     THE ROLE OF PHARMACISTS, PHARMACIES IN ENCOURAGING GENERIC USE

    The FDA and many insurance plans provide consumers with materials 
encouraging them to contact their physician or pharmacist for 
information on generic drugs. Given their expertise, pharmacists can be 
valuable resources for physicians and health plans in determining 
appropriate treatment and encouraging generic utilization. Pharmacists 
work with patients and insurers in many different ways to encourage 
generic use.
    We believe that the economic incentives for pharmacists to dispense 
lower-cost generics must be aligned with the interests of health plans, 
patients, and payers. For example, many plans encourage the use of 
generics by requiring lower cost sharing on generic drugs as compared 
to brand name drugs. Some are waiving the copays for generics. Some 
plans provide an increase in the dispensing fee for pharmacies to 
dispense a generic drug rather than a brand. Other plans have created 
contests to encourage pharmacists to dispense generics. Some plans are 
providing generic samples to physicians so that patients start on 
generics rather than brand name drugs. All these initiatives help 
increase generic drug use and help lower the rate of growth of 
prescription drug spending.

Obstacles to Increased Generic Use
    While pharmacists in community-based practice settings work with 
patients and physicians to maximize the use of lower-cost generics when 
they are available on the market, there are many factors that affect 
the ability of pharmacists to dispense generic equivalent drugs. 
Efforts to encourage greater use of generics may be limited by several 
factors. Despite holding generally favorable views concerning generics, 
physicians may be less likely to prescribe them due to familiarity and 
trust in brands. Some consumers express a reluctance to use them 
because of misunderstandings about safety and efficacy. Patients may 
not be aware that a generic may be available to treat their condition, 
particularly when the generic is a different chemical entity (a 
therapeutic alternative) from the medication prescribed.
    Extensive direct-to-consumer advertising and physician-centered 
marketing by brand name pharmaceutical manufacturers likely influence 
prescribing patterns. Surveys have shown direct-to-consumer advertising 
to be a substantial driver of consumer  preference,  with over 50 
percent of patients asking their health care pro-
viders to prescribe drugs seen on television.10 Sales forces 
and marketing efforts targeted at physicians also tend to be much 
bigger for brand drugs.
    The rebates paid by the manufacturers of the more expensive sole 
source, brand name drugs to PBMs and third-party payors may create 
incentives for those payors to switch consumers from inexpensive 
generic equivalents--for which the payor does not receive a rebate--to 
sole source, brand name drugs for which a high rebate is paid. The 
purchaser may perceive greater savings from use of brand name drugs 
because of rebates.
    Pharmacy benefit managers (PBMs), which manage the drug benefit for 
most people with private health insurance, also may have disincentives 
to promote the use of generic drugs if they make more money from the 
rebates from brand name drug manufacturers. Because PBMs draw a 
significant portion of their income from rebates, this switching could 
result in a significant over-utilization of sole source, brand name 
drugs and under-utilization of generic drugs. Similar incentives may 
apply to mail order pharmacies, some of which are owned by PBMs. Many 
consumers using mail have chronic conditions and are more likely to 
fill the same prescription again and again and may not be informed if a 
generic becomes available. Retail pharmacies tend to switch patients to 
generics as soon as they become available.
    This clearly lowers health care costs for those that are uninsured, 
as well as those who are insured because the insured usually pay lower 
copays for generic drugs as compared to brand drugs. As a result, 
community pharmacies dispense generic drugs in about 50 percent of all 
prescriptions filled, while the generic prescription rate for mail 
order prescriptions is only about 37 percent.11
    We are also concerned, as public news reports have suggested, that 
some PBMs may not pass along all the savings from generics because they 
charge the plan a higher price for dispensing a generic than they would 
pay the pharmacist for dispensing the generic. The plan keeps the 
spread, which should have been passed through to the payer and the 
patient. This is an issue that Congress should closely monitor as the 
new Medicare Part D prescription drug program is implemented.

Summary
    With expenditures on health care costs increasing, it becomes ever 
more crucial to maximize the substitution of generic drugs.
    Emphasizing the broad use of generics should yield significant cost 
savings to the prescription drug plans participating under Medicare 
Part D, and in turn to the federal government, particularly over the 
next three years as a number of top-selling brand name drugs lose their 
patents.
    We appreciate the opportunity to submit a statement for the record, 
and look forward to working with the Committee on policies that make 
generic drugs more available and affordable for patients.
------------
    10 Influence of Patients' Requests for Direct-to-
Consumer Advertised Antidepressants, Richard L. Kravitz, M.D., MSPH et 
al., Journal of the American Medical Association, April 27, 2005, Vol. 
293, No. 16.
    11 IMS Health Data, January 2003.