[Senate Hearing 109-23]
[From the U.S. Government Publishing Office]



                                                         S. Hrg. 109-23

  INTERNET PHARMACY AND DRUG IMPORTATION: EXPLORING RISKS AND BENEFITS

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

                                HEARING

                               before the

                       SPECIAL COMMITTEE ON AGING
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                             WASHINGTON, DC

                               __________

                            JANUARY 26, 2005

                               __________

                            Serial No. 109-1

         Printed for the use of the Special Committee on Aging


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                       SPECIAL COMMITTEE ON AGING

                     GORDON SMITH, Oregon, Chairman
RICHARD SHELBY, Alabama              HERB KOHL, Wisconsin, Ranking 
SUSAN COLLINS, Maine                     Member
JAMES M. TALENT, Missouri            JAMES M. JEFFORDS, Vermont
ELIZABETH DOLE, North Carolina       RUSSELL D. FEINGOLD, Wisconsin
MEL MARTINEZ, Florida                RON WYDEN, Oregon
LARRY E. CRAIG, Idaho                BLANCHE L. LINCOLN, Arkansas
RICK SANTORUM, Pennsylvania          EVAN BAYH, Indiana
CONRAD BURNS, Montana                THOMAS R. CARPER, Delaware
LAMAR ALEXANDER, Tennessee           BILL NELSON, Florida
JIM DEMINT, South Carolina           HILLARY RODHAM CLINTON, New York
                    Catherine Finley, Staff Director
               Julie Cohen, Ranking Member Staff Director

                                  (ii)

  
?

                            C O N T E N T S

                              ----------                              
                                                                   Page
Opening Statement of Senator Gordon Smith........................     1
Opening Statement of Senator Herb Kohl...........................     3
Opening Statement of Senator Larry Craig.........................     4
Opening Statement of Senator Ron Wyden...........................     5
Opening Statement of Senator Bill Nelson.........................     6
Statement of Senator Hillary Rodham Clinton......................    25
Prepared Statement of Senator Russ Feingold......................    73
Prepared Statement of Senator Susan Collins......................    74

                                Panel I

Richard H. Carmona, M.D., M.P.H., F.A.C.S., Surgeon General, U.S. 
  Department of Health and Human Services, Washington, DC........     8

                                Panel II

Jeffrey Kimmell, R.Ph., vice president, Healthcare Services and 
  Chief Pharmacy Officer, drugstore.com, Inc., Bellevue, WA......    33
Gary A. Schnabel, R.Ph., R.N., executive director, Oregon State 
  Board of Pharmacy, Portland, OR................................    46
Mary Jorgensen, prescription drug information coordinator, 
  Coalition of Wisconsin Aging Groups, Madison, WI...............    55
Rogert Pilon, vice president for Legal Affairs, CATO Institute, 
  Washington, DC.................................................    62

                                 (iii)

  

 
    INTERNET PHARMACY AND IMPORTATION: EXPLORING RISKS AND BENEFITS

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



                      WEDNESDAY, JANUARY 26, 2005

                                       U.S. Senate,
                                Special Committee on Aging,
                                                    Washington, DC.
    The committee convened, pursuant to notice, at 10:02 a.m., 
in room 628, Dirksen Senate Office Building, Hon. Gordon H. 
Smith (chairman of the committee) presiding.
    Present: Senators Smith, Craig, Kohl, Wyden, Nelson, and 
Clinton.

      OPENING STATEMENT OF SENATOR GORDON SMITH, CHAIRMAN

    The Chairman. Good morning. I would like to welcome 
everyone to the Senate Special Committee on Aging's first 
hearing for the 109th Congress.
    We have an outstanding hearing planned for today with 
testimony from Surgeon General Richard Carmona--we welcome you, 
sir--and other witnesses who can speak to the topic of 
``Internet Pharmacies and Prescription Drug Importation: 
Exploring the Risks and the Benefits.''
    At this first hearing, I would like to inform everyone that 
we will continue with the committee's practice of allowing all 
members of the committee to make a 5-minute opening statement, 
if they wish. Following their remarks, we will turn to the 
Surgeon General for his testimony and then allow everyone to 
ask their questions. To ensure everyone has an opportunity to 
ask questions, I will request that on the first round, we limit 
them to 5 minutes.
    The Aging Committee has a storied history. For over four 
decades, this committee has given voice to millions of 
Americans over the age of 65 by researching, publicizing, and 
legislating on issues of importance to them. It has shined a 
light on unspeakable abuses, brought justice to those who would 
defraud America's seniors, and helped shape public policy. It 
has done so in a very bipartisan spirit, a spirit which I 
eagerly embrace and which I intend to carry forward in this 
committee.
    I am honored to be the 13th chairman of this committee and 
to have an opportunity to continue to lead in issues of 
importance to our seniors. For the coming year, I am eager to 
work with all of my colleagues on this committee from both 
parties to impact key legislative priorities. I also plan to 
continue the committee's tradition of performing oversight 
activities of the appropriate agencies and will rigorously 
investigate allegations of wrongdoing against seniors.
    The President has challenged the Congress to devote time 
and resources to reviewing the Social Security program and to 
determine the best means to ensure its long-term solvency. Over 
the next 6 months, this committee will be holding a series of 
hearings focused on this issue, as well. We will be looking at 
Social Security's long-term solvency and also discussing the 
larger picture of financial security for retirees. You see, 
Social Security is one of the important components in a bigger 
picture that we as a nation must understand if we are to 
preserve Social Security, maintain its importance as it relates 
to the broader issue of retirement security.
    Along with Social Security, the Medicare program has been a 
key component to ensuring seniors' independence and health. It 
delivers access to health care for all. In 2003, as a member of 
the Senate Finance Committee, I was a part, with my colleagues, 
of drafting legislation that modernized the Medicare program 
and added a prescription drug benefit. This benefit alone is 
the largest enhancement of Medicare in its history. It was an 
important modernization, and as the Centers for Medicare and 
Medicaid begin implementation, it is the committee's 
responsibility to oversee this process and to ensure that the 
new benefit meets the needs of Medicare's beneficiaries. To do 
so, the drug program must be simple, easy to navigate, and 
provide real savings to seniors.
    We also must ensure that as we transition the so-called 
dual eligibles into the Medicare drug program that they receive 
comparable assistance to the benefit provided by Medicaid. 
Often, these are the oldest and the poorest and the sickest of 
our fellow citizens and we must ensure that they are taken care 
of.
    Given that it is the health care safety net for over 50 
million people and provides the only coverage for long-term 
care, the committee will also spend time reviewing the future 
of the Medicaid program. Many challenges have faced this 
program over the past few years, and during that time it has 
become apparent to me that Congress must take an extensive 
review of that program and chart its course for the next 
generation. Medicaid has served our country's low-income and 
disabled populations well. But to ensure that it continue, we 
must revisit its mandate and determine how to make 
improvements.
    In preparation for reauthorization, we will also review the 
Older American Act. This Act, which funds seniors' programs 
under both the Department of Health and Human Services and the 
Department of Labor is the cornerstone of seniors' service 
programs. Significant changes were made in 2000 and it is the 
responsibility of this committee to review those changes, 
assess their effectiveness, and determine if other enhancements 
are necessary.
    As you can see, this first session of the 109th Congress 
promises to be exciting and busy. I pledge to do my best as 
chairman to lead the committee fairly and in a bipartisan 
fashion. I am especially pleased to have the opportunity to 
work closely with Senator Herb Kohl of Wisconsin, who is our 
ranking member. Herb, whatever you want, we are going to make 
sure your side is accommodated. We have already discussed 
various panels. We will do more of that in the future to make 
sure that both sides get to present their perspective on issues 
of importance to our seniors.
    I want to thank Chairman Craig for his service as chairman 
of this committee, and his continued interest in these issues 
is certainly appreciated. I will look forward, Larry, to 
leaning on you for advice and I thank you in advance.
    I especially want to note my colleague, Ron Wyden, whose 
entire career, if it has a polar star to it, is a concern for 
seniors, he having been critical in the founding of the Gray 
Panthers. His presence here this morning is evidence of his 
commitment to that, so Ron, thank you for being here and your 
continued interest in this committee.
    With that, I will turn the mike to Senator Kohl for his 
opening statement.

             OPENING STATEMENT OF SENATOR HERB KOHL

    Senator Kohl. I thank you, Mr. Chairman, and I want to 
congratulate you on your role as chairman of this committee. 
You have been a leader on issues that affect our nation's 
senior citizens. We have worked together in the past and you 
have always brought a thoughtful, practical approach to your 
work that will serve you well as you steer this committee. The 
committee is clearly in good hands and I am most happy to have 
the opportunity to work with you.
    The Chairman. Thank you.
    Senator Kohl. This first hearing is on a topic that is 
critical for many of our nation's senior citizens. Prescription 
drugs have become so expensive here in America that many 
seniors cannot afford to buy the medicines they need. This is a 
system in dire need of reform.
    Today, American taxpayers foot the bill for most all of the 
research on the drugs we are talking about today. At the same 
time, Americans are charged the highest prices in the world for 
those drugs, which are sold in other countries for a fraction 
of the price.
    Faced with the choice of buying the medicines they need to 
keep them healthy or paying for food and rent, many seniors are 
turning to Canada and the Internet to find drugs at more 
reasonable prices. Last August, I met with seniors from 
Wisconsin who are getting their medicines from Canada. Mary 
Ellen Hayes from De Pere, WI, told me how she was able to cut 
her $582 drug bill to $370, and Carol Johnson of Eau Claire 
saves 30 to 50 percent on most of her prescriptions by going 
through Canada.
    Many States and local communities are doing the same thing. 
The State of Wisconsin launched a website last February that 
connects Wisconsin consumers with three approved Canadian 
pharmacies. So far, the website has already had nearly 1.4 
million hits. Today, we will hear from Mary Jorgensen from the 
Coalition of Wisconsin Aging Groups about their efforts to help 
their members find low-cost drugs, often through Canadian mail 
order and Internet pharmacies.
    The programs in operation today are based on Canadian and 
Internet pharmacies that have been inspected and certified to 
be legitimate, but there are also many unregulated sites in 
operation today. As long as the Federal Government refuses to 
put a sound regulatory system in place for drug importation, 
then we are leaving Americans at risk of falling prey to 
unscrupulous people who might well try to taint the drug 
supply.
    This is a legitimate safety issue and I believe that we can 
and must address it. Several bills have already been introduced 
to create stronger safety standards, but as Congress continues 
to debate this issue, the reality is that drug importation is 
already happening, so it is time for the administration to stop 
defending the status quo, issuing reports and setting up new 
roadblocks, and start working with Congress to give Americans 
the price relief and safety assurances they need and deserve.
    Again, I want to thank you, Mr. Chairman, for holding this 
hearing. I know we share some of the same views on this topic 
and I look forward to working with you to move this important 
issue forward.
    The Chairman. Thank you, Senator Kohl.
    Senator Craig.

            OPENING STATEMENT OF SENATOR LARRY CRAIG

    Senator Craig. Mr. Chairman, thank you. Let me say at the 
outset of my comments that I appreciate those kind words that 
you have just offered on my behalf. I leave the chairmanship of 
this committee with some concern, not that it is in good hands, 
I know that, but because I tremendously enjoyed my tenure here. 
I spent many hours behind that microphone, chairing hearings of 
the nature that you are continuing. You are so right. This is a 
forum that speaks on behalf of America's seniors. It can be 
very probative. It can be illustrative. Most importantly, it 
can build a record for all of us here in the Senate.
    Your dual service on Finance is so important because much 
of what we ultimately do ends up in Finance, and yet Finance, 
because of its workload, oftentimes doesn't hold the kind of 
hearings that should be held, that can be held, that we have 
held and that you are going to hold at this committee, so thank 
you.
    I come today not to hand you the gavel, because I know you 
will handle it well, but to support you in that effort and to 
continue my work on behalf of seniors. As you know, this year, 
in October, is the White House Conference on Aging. I am 
continuing to chair the Subcommittee on Economic Security for 
Seniors and want to work very closely with you and this 
committee to make sure that the voices are effectively 
amplified at that forum. It is a forum that occurs every 10 
years. It is a very important one.
    When people think, gee, what does something like a White 
House Conference do, it came up with an idea called Medicare. 
It came up with an idea that was the basic product for the 
Older Americans Act. It really has been a most effective 
gathering of America's seniors to put forth concepts and ideas 
that have ultimately resulted in public policy. So let us stay 
close and work on that issue.
    What we are about today and the hearing that you have 
assembled and the witnesses that you have in front of us are 
critically important, from the Surgeon General who is before us 
to many others who will speak to us.
    I must tell you that in my new life as chairman of the 
Veterans' Affairs Committee that this past week, I visited a 
pharmacy at a veterans' hospital in Spokane, WA. The line was 
long, but fast, and it was interesting to me that a very small 
pharmacy was handling a large volume of people. I asked, how is 
that being done? Here is how it is being done, and quite 
effectively and with great efficiency.
    There are six regional robotic centers of large warehouses 
of pharmaceuticals, prescription drugs that the government buys 
in volume effectively. So if I am standing at the pharmacy 
window of a veterans' facility, I may get a two- or three-day 
supply, but in my mail will arrive the balance in 24 hours, 
filled by a machine with a 99.9 percent accuracy at one of 
these regional centers, the Spokane Center, the Spokane 
Hospital and Spokane patient being served by a very effective 
center in California that serves regionally.
    I am going to be visiting those. It is certainly an 
approach that the Veterans' Administration has proved very 
efficient and serves its clientele well. Always, the question 
is access, and there it is not so much the cost as it is 
actually gaining access to the system because of the ultimate 
costs involved.
    So what we do here is important. Pharmaceuticals, 
prescription drugs are the new medicine of this century, the 
new health care of this century. We know that. For all of us 
who are seniors-in-waiting, this committee's role is certainly 
important for our future. For those of us who think we are 
seniors-in-waiting, I am quite confident we have already been 
found by the AARP, so I guess we are now one.
    But thank you again for being willing to accept the 
leadership of this committee. I ask unanimous consent that my 
full statement become a part of the record and I look forward 
to working with you on the continuation of all of these 
valuable issues that you are pursuing, that we have pursued, 
and I know that this committee will want to continue doing into 
the future. Thank you.
    The Chairman. Without objection, your statement will be 
included in the record.
    The Chairman. Senator Wyden.

             OPENING STATEMENT OF SENATOR RON WYDEN

    Senator Wyden. Thank you, Mr. Chairman. I just want to say 
it is a thrill to see you, a personal friend and an Oregonian, 
with the gavel in your hand. Back when I was director of the 
Gray Panthers, as you noted, we couldn't even contemplate the 
day when an Oregonian would have this kind of clout on issues 
important to seniors, so we are really thrilled that this day 
has come about.
    The Chairman. Thank you, Ron.
    Senator Wyden. Mr. Chairman and colleagues, I think Senator 
Smith has chosen an important topic because in my view, current 
Federal policies for regulating Internet pharmacies and 
prescription drug imports virtually ensure that many vulnerable 
elderly people get ripped off today. Specifically, I believe 
that because the policies for overseeing Internet sales do not 
have the muscle to ensure that our country stays in front of 
the rip-off artists who constantly get more inventive in trying 
to come up with ideas to exploit the elderly.
    Second, our policy with respect to the importation of 
pharmaceuticals that can be certified as safe has become so 
frustrating that many, particularly our States, have gone off 
on their own to try to address this issue. It seems to me, our 
inability to come up with a coherent national policy again 
ensures that many older people aren't given the opportunity to 
purchase medicines that are affordable.
    The other reason that this is such an important hearing is 
the Wall Street Journal reported yesterday that just in the 
last few weeks, pharmaceuticals have spiked again very 
significantly. They report, for example, Lipitor, the very 
popular cholesterol drug, just in the last few weeks has gone 
up about 5 percent. They note that of the 50 biggest selling 
medicines 31 had price increases since November.
    So I think this question of how we look at the matter of 
containing pharmaceutical prices is important. Senator Smith 
always works in a bipartisan way, and I think he knows that is 
my interest. Toward that end, Senator Snowe and I will be 
introducing legislation next week so that Medicare would be in 
a position to start using the kind of cost containment tools 
that the private sector uses in our country to hold down the 
cost of medicine.
    It is incredible that everybody in the United States who 
purchases medicine in the private sector, when they purchase a 
significant volume and then they look at buying more, they ask, 
what kind of a discount will you give me? What can I get when I 
negotiate with you? The Medicare program is, as far as I can 
tell, one of the few, if not the only, program that isn't using 
marketplace forces, isn't using what is available in the 
private sector to hold down the cost of medicine. Senator Snowe 
and I will be going after that in a bipartisan way next week.
    Mr. Chairman, again, I look forward to many of these kinds 
of sessions and particularly the opportunity to work in a 
bipartisan fashion on issues that are so important to millions 
of seniors and their families.
    The Chairman. Thank you, Ron.
    We are joined by the Senator from Florida, Senator Nelson, 
for your opening statement.

            OPENING STATEMENT OF SENATOR BILL NELSON

    Senator Nelson. Thank you, Mr. Chairman. Mr. Chairman, each 
of us are vitally concerned because of our own States. As you 
all know, I have the privilege of representing a State that has 
a greater percentage of the population that is elderly, and as 
a result, this discussion that we will have today is of 
enormous consequence to our State.
    Now, we have gone through all of the trauma of having 
storefront pharmacies that are either by mail order or 
telephone, now Internet. They have been closed down. Senior 
citizens, I am sad to say, in the year 2005 in my State, some 
of our senior citizens are still having to choose between food 
or their prescription medicines and that just simply should not 
be in America in the year 2005.
    Indeed, we have had a situation where people have ordered 
drugs by the Internet or by telephone and all of those packages 
have been confiscated, confiscated by Customs, not just the 
particular senior citizen ordering it at that moment, but a 
whole load of these prescriptions as an attempt to crack down. 
So what you are hitting here today specifically with regard to 
the Internet portends a discussion of a whole wider range of 
issues and that is how do we prevent disruption of getting 
available and affordable prescriptions to seniors whose lives 
and quality of life those prescriptions are absolutely 
necessary.
    So I am looking forward to it, Mr. Chairman. It is a 
pleasure as a new member of this committee to be a part of it.
    The Chairman. Thank you very much, Senator.
    Obviously, you are all here to talk about reimportation. I 
think it goes without saying, while it is illegal, importation 
is happening and it is happening on a very large scale. It does 
seem to me that if we can import cars and other farm products 
and even regulate beef from Canada that of late has had some 
concern, we have to find a regimen for allowing this to happen 
legally.
    Last year, to that end, Senator Judd Gregg and I introduced 
a bill called the Safe Import Act, which would have both 
regulated Internet pharmacies and legalized importation. We are 
reintroducing that bill today because we continue to believe 
that importation should be legalized. However, this bill is 
just a marker. We are reaching out to colleagues on both sides 
of the aisle to fine-tune the policy and plan to reintroduce a 
new version in March.
    Since 1990, the amount of money American consumers spend on 
prescription drugs has quadrupled to over $160 billion. At the 
same time, the growth in importation has exploded. According to 
IMS Health, U.S.-Canadian cross-border sales of drugs totaled 
$695 million in 2003. Of this spending, almost two-thirds was 
done via the Internet. So I guess they didn't catch it all, 
Senator Nelson. But this is what is happening.
    I decided to call this hearing today to look into the 
relationship between Internet pharmacies and importation. I 
know that many of the Internet pharmacies are unsafe. There are 
some unsafe ones. But clearly, there are some very safe ones.
    I have read the report and spoken with the FDA experts. 
However, I continue to feel that we have become so focused on 
debating whether importation should be legalized that we have 
lost track of the reality that importation happens.
    So at today's hearing, we are privileged to have as our 
first witness the Surgeon General of the United States, Richard 
Carmona. We thank you, General, for your presence here. I 
promised you that we would go easy on you, but clearly, there 
are some strong feelings in the room. But given your diverse 
experience in health, I am certain you will add a very valuable 
perspective to our discussions. Welcome, sir, and thank you.

STATEMENT OF RICHARD H. CARMONA, M.D., M.P.H., F.A.C.S, SURGEON 
    GENERAL, U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES, 
                         WASHINGTON, DC

    Dr. Carmona. Thank you, Mr. Chairman. Good morning. Mr. 
Chairman, distinguished members of the committee, thank you for 
asking me to join you today. My name is Richard Carmona and I 
am the United States Surgeon General.
    I was also the Chairman of the HHS Task Force on Drug 
Importation, which was comprised of 13 senior executives with 
diverse experience from across the Federal Government. 
Secretary Thompson created the task force in February 2004 to 
advise him on the questions posed by Congress in the Medicare 
Modernization Act about the safety issues surrounding the 
importation of prescription drugs.
    As you know, the role of the Surgeon General is to protect 
and promote the health and well-being of the American people. 
Everything I do as Surgeon General is based in science and that 
was my guiding principle in leading this task force. We went 
there where the facts and the science led us. In doing so, we 
also ensured an open and transparent process.
    The task force held six listening sessions, heard from more 
than 100 presenters, and received information from over 100 
individuals and organizations via an online docket.
    In addition, I led a site visit to the John F. Kennedy 
International Airport in New York City to see how imported 
drugs are processed by the United States Customs and Border 
Protection and by officials of the Food and Drug 
Administration. This visit demonstrated to us the huge 
challenge of ensuring the safety of imported drugs.
    The report has eight key findings and they are: Our current 
system of drug regulation has been very effective in protecting 
the public safety, but it is facing new threats and new 
challenges. Any change to our current regulatory system must be 
done with great care to ensure the continued safety and 
efficacy of our nation's drug supply.
    There are significant risks associated with the current 
illegal importation of drugs for personal use. To just name a 
few, there are 355 points of entry for access into the United 
States. This includes 14 international mail branches, 29 
express consignment facilities, and 312 ports. FDA inspectors 
are already stretched thin reviewing the millions of 
prescription drug packages that currently pass through these 
points of entry each year.
    We all know that illegally purchasing prescription drugs 
over the Internet without a prescription is relatively easy to 
do. The reality is that this lack of a relationship between the 
doctor and the patient is extremely dangerous and potentially 
fatal. Although some licensed Internet pharmacies provide a 
legitimate way for people to buy medicines, many Internet 
pharmacies are not licensed. They are rogue operations. They 
pretend to be legitimate and are actually providing dangerous 
products. Now, by dangerous, I mean these drugs are often 
grossly mislabeled, expired, sub-potent, super-potent, or 
placebos, and have usually been transported improperly with a 
complete disregard for safety precautions.
    The task force found that it would be extraordinarily 
difficult and costly for personal importation to be implemented 
in a way that would ensure the safety and effectiveness of all 
prescription drugs.
    Looking at commercial prescription drug importation, the 
overall national savings would likely be small. Building the 
infrastructure to support commercial importation would cost a 
tremendous amount of money and require significant changes in 
the law. Consequently, the savings to consumers would be less 
than one percent of total spending, while intermediaries would 
probably capture any other savings.
    The public expectation that imported drugs are less 
expensive than American drugs is generally not true. For 
example, the prices of generic drugs in other countries are, on 
average, 50 percent more than the prices that Americans pay for 
the same generic drugs.
    Legalized importation most likely would reduce the future 
development of new drugs for American consumers. It is no 
secret that pharmaceutical research and development spending 
would drop. This would result in fewer new drugs at a high cost 
to Americans' health and well-being.
    The effect of importation on intellectual property rights 
are also likely to be significant.
    Finally, the task force concluded that importation raises 
new liability concerns for consumers, manufacturers, 
distributors, pharmacies, and other entities.
    In closing, I want to state to you that, like you, I truly 
appreciate the critical role of prescription drugs in our 
public health system. Science has brought us medications that 
can reduce the risk of heart attack and stroke, lower blood 
pressure, cure infection, and save and enhance life. We must 
find more ways to provide these life-saving medicines to those 
who need them. This is being addressed through the Medicare 
Modernization Act and the new Medicare Drug Discount Card. 
Today, millions more seniors have access to the drugs they 
need, and when the Medicare Modernization Act is fully 
implemented less than a year from now, even more seniors will 
have even more access to benefits through this new law.
    We are also seeing pharmaceutical companies working with 
the government to ensure greater access to medications. For 
example, the Prescription Access Card allows uninsured 
Americans to save money on more than 275 brand-name 
prescription medicines with even greater savings on generic 
drugs. On the average, card holders will save between 25 and 40 
percent on their prescriptions.
    In addition to the new drug discount cards, there are other 
ways for consumers to save money on prescription drugs. Over 
the past few years, the FDA has worked hard to speed generic 
drug approval and availability and consumers are encouraged to 
comparison shop and to ask their doctor or pharmacist for 
prescription generic alternatives when possible.
    Mr. Chairman, this concludes my oral statement. I would ask 
that you accept my full written statement for the record. Thank 
you for the opportunity to be here with you and I would be 
happy to answer any questions.
    The Chairman. Thank you, General. We will include your full 
statement, if there is no objection.
    [The prepared statement of Dr. Carmona follows:]

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    The Chairman. You talk about many of the drugs that are 
being imported as unsafe, that they are placebos, that they are 
sub or super potent. What percentage would you think? I mean, 
clearly, a lot of drugs are being imported that are safe. Do 
you have a sense of that?
    Dr. Carmona. Mr. Chairman, we asked those questions, but 
since we don't know the universe, it is very difficult to tell. 
What I can tell you, which is exemplified in some of the 
handouts that we provided you, when we visited the JFK mail 
facility, there was literally a warehouse full of packages from 
all over the world, from developing countries, from 
industrialized nations, many of them packaged in very unsafe 
ways, and if you look through any of those handouts, you will 
see sub-potent, super-potent drugs, knock-offs, blatant copies 
of what we have here in America but really not containing what 
was purported to be contained.
    So I can't give you an absolute number, but based on the 
volume we saw in that warehouse, which the Federal 
investigators told us represented only a very small amount 
because that is all they had the resources to deal with now, it 
was really very concerning to us.
    The Chairman. Given that importation is happening, if the 
U.S. Government set about, irrespective of the cost, and we 
have to consider that, obviously, but say that were not the 
obstacle, what would be the impact upon the national purchasing 
agencies of Canada and Europe if all of a sudden America 
started getting a tremendous amount of its drugs from these 
countries? Wouldn't it have a downward pressure on the price of 
our drugs?
    Dr. Carmona. Well, sir, not being an economist, having some 
general knowledge of the area, that is why in our hearings we 
brought in economists, some who specialize in this area, some 
from overseas asking about the issues of the global impact as 
well as some on the United States. Generally, what they told us 
was what we end up doing is reimporting or importing price 
controls and that there were consequences of that. Yes, to the 
individual, there may be an appreciated discount on one 
medication or another. But in aggregate, as a matter of policy 
as to what are the intended and unintended consequences of that 
policy, they would be significant and may, in fact, eventually 
erode our robust research and development as it relates to 
innovation and new drugs, more people less likely to invest in 
that. It really changes the dynamics of an open market and 
creates one of a fixed market or one that is being controlled, 
as other countries do.
    So there were some very complicated and difficult issues 
that we asked truly world experts about to give us input on 
this issue. So as is stated in the report, if Congress thinks 
about this and they decide that they want to embark on some 
form of importation, what we wanted to make sure in the report 
is that you have all the scientific information to do that 
risk-benefit, cost-benefit analysis.
    The Chairman. This is purely anecdotal, but in the five 
town halls Ron Wyden and I did together around the State of 
Oregon, the comments you hear from seniors, and I am not here 
to tell the pharmacy companies how to run their business, but 
they readily say, ``You know, if pharmaceutical profits are 
just for research,'' fine. But if they are just for advertising 
Levitra, then they are not interested. A lot of people are, 
frankly, quite irritated by the amount of advertising that goes 
on. That is their business decision, but there is a lot of 
money that goes into advertising prescription drugs that, 
frankly, many seniors do not like and would rather that 
companies reduce their prices. But they have to run their 
business.
    But it seems to me your task force found that legalized 
importation raises liability concerns for consumers, 
manufacturers, distributors, pharmacies, and other entities. 
Yet liability, to me, is not a reason to ban it. It is a reason 
to work on safety.
    Dr. Carmona. Yes.
    The Chairman. So the lack of liability or the prospect of 
liability to me means that there needs to be more attention. 
Right now, there is a big dispute in agriculture on beef from 
Canada. If we can import beef and do it safely, if this issue 
is of this kind of focus and concern to seniors, it seems to me 
we ought to be able to come up with some kind of Federal safety 
standard, not a State standard but a Federal standard to allow 
this to be done safely.
    I, for one, having been in the commodity business myself, I 
think importation would put tremendous pressure on these other 
countries, not that it would import price controls to us, but 
it frankly would change the behavior of some of these 
countries. It wouldn't if you just did one country, but if you 
included Europe in the market basket of what is available to 
seniors, it would have a tremendous market force to the benefit 
of seniors in this country without necessarily sacrificing 
research and development, which I think seniors do value.
    Do you have a comment on that?
    Dr. Carmona. Yes, sir. Well, I appreciate your comments and 
generally am in agreement with them, as was our task force. The 
information we presented, including liability concerns, was not 
meant to preclude or suggest that importation could not be 
done, but simply to allow Congress to consider that during 
their deliberations, that there may be liability implications 
as well as economic implications, both globally and within the 
United States.
    The Chairman. Without a standard, liability is very 
elusive. It seems to me if we had a safety standard or some way 
to regulate it, liability would be able to be pinned more 
readily on some of these rogue actors.
    My time is up. If there is no objection, we will go back 
and forth, so Senator Wyden?
    Senator Wyden. Doctor, thank you, and let me start by 
seeing if I can give a fairly simple example. I find it 
compelling with respect to the case for importation from 
Canada, because in Canada, they have a lengthy review process 
for their pharmaceuticals and many on-line pharmacies there can 
get certified. They have an actual program for it.
    What would be wrong, then, with having a U.S. policy that 
would allow for U.S. citizens to be directed to those on-line 
pharmacies?
    Dr. Carmona. Senator, from our standpoint, it is not a 
right or wrong issue. We were looking at the science to provide 
information to you. From our perspective, we have stated that 
commercial importation could be a viable option. We wanted to 
make sure that you all in your deliberations had all of the 
information as you move forward to decide it.
    Senator Wyden. Would you support that policy, you 
personally? I think what is so striking about this is, and 
again, it comes back to the town meetings that Senator Smith 
and I have had, and I have had this in other sessions with 
other colleagues because this is the area I have tried to 
specialize in. It seems like every time we bring this issue up, 
those of us who have worked in a bipartisan way--I was one of 
those Democrats who voted for the prescription drug bill. I 
have got the welts on my back to show for it. [Laughter.]
    Every time we work with the administration on this issue, 
the goal posts keep moving and we just never seem to have an 
opportunity to get it across.
    So would you be supportive personally of a policy related 
to Canada, that when the drugs went through a lengthy review 
process and a pharmacy was certified, it ought to be possible 
to direct our citizens to those on-line pharmacies should that 
be U.S. policy?
    Dr. Carmona. Let me say, Senator, that as it relates to any 
specific policy, before I commit, I would certainly have to 
look at it.
    Second of all, the goal posts for us are pretty fixed. They 
are all stated in this report quite emphatically based on the 
questions that Congress posed and we answered those. My job as 
Surgeon General is to ensure the health and safety of the 
citizens of the United States, as I know all of you are working 
in that direction, also. So any policy that you look at that 
you would like to move forward, the magnifying glass I will 
hold to it is, is it safe? Can we certify this policy that 
every American will be guaranteed safe medications? In that 
case, if that is your will, I would be happy to support such a 
policy.
    Senator Wyden. Why don't we do it this way. I would like 
you, if you would, within 30 days, to get back to me and tell 
me what, if any, problems you see with respect to the proposal 
I have made. I have given you a concrete example as it relates 
to an area where I think there is lengthy documentation 
attesting to the safety, that could work and could provide a 
tangible opportunity to address this issue. If you would, 
within the next 30 days, simply tell me what, if any, problems 
you see with that and----
    Dr. Carmona. Yes, sir, I would be happy to.
    Senator Wyden. Very good. The second area that I want to 
talk to you about is rip-off artists with respect to Internet 
sales of pharmaceuticals and other products to seniors. Who at 
the Federal level is responsible for being the watchdog against 
these rip-off sales in the health care area? I think one of the 
reasons we have problems and that the bad guys always seem to 
be out in front is I can't find who is responsible for making 
sure that the Internet is not a safe haven for rip-off artists. 
In your view, who is responsible?
    Dr. Carmona. As it relates to the----
    Senator Wyden. Health care.
    Dr. Carmona. Well, I am saying, as it relates to the health 
care of the public and the commerce involving drugs and 
devices, it would be our Federal Drug Administration who is 
looking at that. But I think one of the problems--you have hit 
the nail on the head, that there are many that take advantage 
of the Internet. We have found hundreds of websites that 
purport to be Canadian websites, some with a stamp of approval 
saying, ``sanctioned by the FDA,'' who really are nothing more 
than somebody in a foreign country placing that in Canada, 
drugs being shipped from another country, billings going to 
someplace in the Caribbean, and so people do take advantage of 
it.
    I agree with you. I think there are multiple jurisdictions 
there because if you were marketing a product that was not, 
say, a pharmaceutical, the FDA would have no responsibility. I 
think then it becomes a trade issue and there are a lot of 
people who are stakeholders in that endeavor.
    Senator Wyden. Do you have the sense that it would increase 
the measure of safety if we let the pharmacists rather than the 
individuals drive these retail sales over the Internet? Oregon, 
for example, has a proposal Senator Smith and I have been 
interested in that essentially uses the pharmacist as the hub 
of the effort to both ensure safety and have oversight. Would 
that make for a more compelling case for Internet sales, if you 
used the pharmacist as the focus rather than the individual 
simply going online and searching for what is out there?
    Dr. Carmona. Senator, if you are saying American licensed 
pharmacists working in regulated pharmacies in the United 
States who would partner with Internet companies who were FDA-
regulated and sanctioned and we had a pedigree on the drugs 
that could guarantee the safety, I think that would be a viable 
option.
    Senator Wyden. I hope if the administration takes that 
position that the goal posts won't move again and that we will 
have to find yet another way to get over the bar, because I 
think what our constituents are frustrated about, Oregon has a 
proposal right in front of the Federal Government. We haven't 
been able to even get a meeting with the Federal agencies to 
talk about it. Every time we get right up to the football, kind 
of like the cartoon figure, the football gets snatched away. We 
would like to find a way to do this in a bipartisan way.
    Thank you, Mr. Chairman.
    The Chairman. Thank you. Senator Craig?
    Senator Craig. Doctor, thank you for being with us. As I 
began in a small way to examine this issue a year ago and 
looked at the briefings of your visit to JFK, I visited with 
Rudy Giuliani, who was involved in reviewing this, I began to 
recognize a near impossible task. Let me say this because we 
are expressing a great deal of concern about safety. The 
positive-negative here is that the American consumer, when it 
comes to drugs, has been taught since childhood that drugs are 
safe----
    Dr. Carmona. Yes.
    Senator Craig [continuing]. Because they go through a very 
rigid protocol. We have a phenomenally rigid system for the 
Food and Drug Administration certification of drugs, the 
testing. We are not always perfect. We have just seen a few 
pulled from the market. But we are very, very good and it is 
very expensive, what we do, that time line and all of that.
    Dr. Carmona. Yes.
    Senator Craig. So if it is a prescription drug, it has got 
to be safe. I believe that is the mindset of the average 
consumer in our country today.
    Now they enter into a pure free market environment, the 
Internet. You have just stated where those websites may send 
them. They have no idea where it sends them. Websites are 
phenomenally misleading. It takes a near expert to detect a 
truly legitimate website versus one that is illegitimate, and 
my guess is we don't have enough money to hire enough people to 
build the expertise inside government today to control it and 
regulate it effectively. These pictures alone of what you saw 
are a perfect example of a phenomenal problem. How do we deal 
with it?
    Well, I believe safety is the issue. I think that is 
clearly what the chairman is concerned about, what I am 
concerned about. As my seniors enter into a free market 
environment, they put their hands on the keyboard, they go to 
the Internet. Is it safe? Are they getting a legitimate 
product? Can we possibly control it? We have been very careful 
not to step into the business of controlling and shaping the 
Internet. We have done it very apprehensively as a Congress.
    I guess my question to you would be, you testified that to 
maintain the levels of safety, current U.S. standards would 
need to be applied to all foreign drug suppliers. First of all, 
is this possible? What would it take to accomplish this level 
of standardization internationally?
    Dr. Carmona. Senator, it is possible if you are considering 
commercial importation. If you are thinking about personal, we 
believe that would be impossible because there are just far too 
many points of entry and you would have an open system.
    Right now, the system that we have that is the gold 
standard for the world is a gold system. We know where every 
medication is manufactured, how it is distributed, how it is 
packaged. There is a pedigree from the lab right to the 
patient----
    Senator Craig. Yes.
    Dr. Carmona [continuing]. That we can assure the safety. 
Once you open it from a closed system to an open system, we 
could not sustain that degree of safety.
    So if we are speaking strictly on commercial importation, 
an option would be to consider that, but on a limited fashion, 
that it wouldn't be open to everybody. It wouldn't be an open 
system. But you all would define how many portals of entry, who 
should be involved, what are the standards, but if you do that, 
then the FDA needs new authorities. The FDA needs new 
inspectors commensurate with the program that you would build, 
because right now, they cannot keep up with the volume that is 
coming in. There is no way that they can ensure safety now, 
even with a commercial system.
    Senator Craig. Well, my brief view of it would suggest that 
your answer is very accurate. There just isn't any way today, 
unless we gear up in a phenomenal fashion, to deal with this 
issue, looking at the activity that's going on out there.
    I have a son-in-law who his business is in the Internet and 
shaping websites and working to control product quality and 
monitoring. He is involved in a company of nearly 1,000 
employees now who do nothing but monitor the legitimate use of 
a label and notifying a website if it is an illegitimate use, 
and companies are paying big money to secure their trademarks 
today and he is involved in it. So I can sit with him at the 
Internet and move across it and he will say, no, this one is a 
phony one, Dad. Look at this. You look at this, you look at 
this, you look at this. He is an expert in the field now. Yet 
in viewing that, I see this phenomenal volume going on out 
there that just grows by the hour, not by the day, and therein 
lies our greatest problem.
    Having said that, is there any specific indication that 
manufacturers will impose quantity restrictions if prescription 
drugs are eligible for importation? In other words, product A 
moving out of the United States into Canada to move back into 
the United States, if that becomes a standardized process, then 
what is to stop a U.S. company, or any company, for that 
matter, from reshaping their market if we have caused a market 
to move in a different direction by actions of this Congress?
    Dr. Carmona. Senator, your point is well taken. We had 
testimony from various stakeholders who came before us that 
that could be a problem when dealing with reimportation, that 
in looking at Canada, for instance, that they have a very small 
amount of pharmaceuticals globally that supply their country.
    Senator Craig. Yes.
    Dr. Carmona. If all of a sudden they become the pharmacy 
for the United States or some part of the United States, or the 
world, for that matter, we have heard from their health 
ministry that they could not do that, that they could not 
sustain the support of their own people. In fact, during our 
task force meetings, we had information from the Canadian 
health minister that they were running into shortages, where 
some of their people in certain provinces had to be sent to 
adjacent provinces to get medication because U.S. citizens had 
already depleted the supplies of the Canadian medications.
    Senator Craig. Thank you. Thank you, Mr. Chairman.
    The Chairman. Senator Nelson.
    Senator Nelson. Thank you, Mr. Chairman. Mr. Chairman, I am 
going to have to get a cushion to sit up in these chairs. 
[Laughter.]
    You have got me sitting on the floor here. [Laughter.]
    Senator Craig. Just a moment---- [Laughter.]
    Full-service committee here.
    Senator Nelson. That is great. I am curious. Under the 
existing law, there can be reimportation of drugs from Canada 
if certified that they are safe by the Secretary of HHS. What 
role do you play in the certification of the safety?
    Dr. Carmona. Senator, I really play no specific role. My 
role was as the chair of the task force. As it relates to the 
regulation of the movement of pharmaceuticals, the Surgeon 
General has a peripheral role as he would in any issue that 
affects the health and safety of the United States. But I have 
no authority in that area.
    Senator Nelson. Why do you think that the Secretary would 
be withholding his approval of the safety of these drugs that 
would be coming from licensed pharmacies or distribution 
centers, as Senator Wyden has suggested?
    Dr. Carmona. I don't know that I can answer on behalf of 
the Secretary, not having asked him that question specifically, 
but from my standpoint, the issue may be broader than that. As 
during President Clinton's administration when Secretary 
Shalala was challenged with this and now when Secretary 
Thompson was, both of the Secretaries felt they could not 
certify safety for the same reasons, that the universe was far 
too large and we didn't have enough inspectors to be at every 
portal 24 hours a day and every individual to guarantee safety.
    Now, we have stated pretty clearly within our report that 
if Congress chose to consider some form of limited commercial 
importation from those sites who are well known, FDA regulated, 
pedigree of the medication known, then that certainly is an 
option, but we also provided information to suggest if you do 
that, here are the cost implications, the economic implications 
of such a program.
    Senator Nelson. Would that meet with your approval from the 
safety standpoint?
    Dr. Carmona. Sir, any program that you all would support 
that takes into account the issues that we pointed out in the 
report, that is safety first, yes, sir, I would have no problem 
with looking at that. But again, I would reserve my final 
opinion for when I saw what the proposal was and when and if 
Congress asked me to render that opinion.
    Senator Nelson. What about the program in the State of 
Illinois?
    Dr. Carmona. I have met previously with the Governor in the 
State of Illinois. I don't remember the specifics. If you want 
me to address any of the specifics, please let me know, but I 
don't remember any of the specifics of that program, because as 
you well know, across the border and through many States, there 
are many, many programs, all of which have some particular 
nuances. So before going on record, I would like to see 
specifically, and then I would be happy to address those 
issues.
    Senator Nelson. Mr. Chairman, is this a new way of telling 
me my time is up? [Laughter.]
    The Chairman. It is another way, I guess, but you do have 
more time. I don't know if anybody is hitting the lights, but--
oh, thank you. They are back.
    Senator Nelson. Well, in the Illinois case, it is my 
understanding that participants are saving upwards of 25 to 50 
percent of the cost. How do you explain that success?
    Dr. Carmona. Sir, again, I would have to look at the 
specifics of the program, but generally when we see programs 
like this, there are individual successes that can be reported. 
The confounding factors, variables that haven't been looked at, 
though, are sometimes there is a comparison between patented 
medications where generics could be substituted, is one 
example. So the public is not always well informed of the 
options before them, to use generics, to ask a physician for a 
generic prescription, that may be in their own backyard. 
Through comparison shopping, drug discount cards, they may get 
the same or better benefits.
    So often, it is difficult to compare the programs, because 
as I said, there are such nuances in each of them and the 
populations are uncontrolled. From my standpoint, I am looking 
at it from the safety issue and then the cost effectiveness to 
follow.
    Senator Nelson. I want to give you some unsolicited advice.
    Dr. Carmona. Yes, sir.
    Senator Nelson. This is kind of like prohibition. We 
thought the evils of this drink that drive men out of their 
homes into deprivation, that split up families and so forth and 
so on, and so a constitutional amendment was passed. The fact 
was is that the people weren't going to agree with this 
constitutional amendment, in this particular case the law, and 
so it was ultimately repealed.
    What you have is a situation that you have an unequal force 
out there and that is drugs across the border that are much 
cheaper than here, and you have an extraordinary need by senior 
citizens. Sooner or later, the equalization--it is almost the 
law of physics is going to occur unless we realize and update 
the law.
    Dr. Carmona. Yes, sir.
    Senator Nelson. Instead of the fiction of just saying that 
they are unsafe, there has got to be a way that people can come 
together instead of just for protection of a particular 
interest, economic interest, and say that there is a greater 
good here, and that is to find the common denominator whereby 
we can lower the cost of drugs so that people who depend on 
them for their livelihood and do not have the financial means, 
that we can get them.
    Dr. Carmona. Yes, sir.
    Senator Nelson. I think that this is just one manifestation 
of the problem, is the differential between Canada and the 
United States. I think the overall way to look at this is, 
particularly with regard to prescription drugs for Medicare, is 
to allow competition in the marketplace, free market 
enterprise----
    Dr. Carmona. Yes.
    Senator Nelson [continuing]. Whereby there can be a 
negotiation on the price of those drugs through bulk buying. 
But that is against the law, too, in the law that was passed 
here a couple of years ago.
    So my advice to you is, we had better start finding a way 
or ultimately you are going to have just a tremendous reaction 
in the body politic and it is not going to inure to anyone's 
benefit unless we do it in an intelligent, methodical fashion.
    Thank you, Mr. Chairman.
    The Chairman. Thank you. Senator Clinton, Senator Kohl had 
just stepped out when you came in. You are OK? Senator Clinton, 
we would also welcome your opening statement if you want to 
make it.

             STATEMENT OF SENATOR HILLARY CLINTON,

    Senator Clinton. Thank you so much, Chairman Smith, but I 
would just ask unanimous consent to submit my opening 
statement.
    The Chairman. Without objection.
    [The prepared statement of Senator Clinton follows:]

          Prepared Statement of Senator Hillary Rodham Clinton

    I'd like to thank Senator Smith and Senator Kohl for 
convening this hearing on the important topic of prescription 
drug reimportation, and allowing us to begin discussing this 
issue for the 109th Congress. I'd also like to thank the 
panelists for providing testimony to us today.
    Today's hearing is my first as a member of the Senate 
Special Committee on Aging. I'm extremely pleased to have the 
opportunity to serve on this committee with Senators Smith and 
Kohl, both of whom have provided great leadership on aging and 
senior issues. I look forward to working with all the 
committee's members to help our nation's seniors.
    I know that many of my colleagues on the Aging Committee 
share my deep concern with skyrocketing prescription drug 
costs, and are eager to pass legislation to facilitate their 
safe reimportation as quickly as possible. We had a good 
bipartisan bill the--Pharmaceutical Market Access and Drug 
Safety Act--which I was proud to cosponsor last session. I look 
forward to continuing to work with Senator Dorgan and Senator 
Snowe on this issue.
    I would urge Leadership to help move this legislation as 
quickly as possible, because as my colleagues on the Aging 
Committee are certainly aware, our senior citizens need cheaper 
drugs.
    Older Americans pay higher prices for the exact same 
prescription drugs being taken by their counterparts in other 
industrialized countries. The Congressional Budget Office has 
found that prices for brand name prescription drugs are 35%-55% 
higher in the United States.
    Seniors, many of whom are on fixed incomes, are finding 
that their prescription drug costs just keep increasing. The 
price of medications is rising faster than inflation, and our 
seniors end up spending larger portions of their income on 
drugs.
    In a recent American Association of Retired Persons (AARP) 
survey, 71% of seniors said that paying for prescription drugs 
posed a financial problem for them.
    The increasing cost of these drugs means that many of our 
seniors face tough choices about their health, choices that no 
one should have to make. We've all heard stories about seniors 
who try to stretch their dosages by splitting one pill over two 
days, or seniors who have to choose between buying food and 
getting a prescription filled. I think it's unconscionable that 
our health care system forces seniors to make these choices.
    Because of these high prices, many seniors are willing to 
take any measures to access cheaper drugs. For seniors in 
border states like New York, a logical choice is to purchase 
drugs from places like Canada, where safe, high-quality drugs 
are available at cheaper prices--prices about 1/3 less than 
what they could find at the local drugstore.
    I have constituents like Jeanne Brennan, a 73-year old 
retired nurse from Manhattan, who has a monthly drug bill of 
$450. She needs her medications to help control her high blood 
pressure, arthritis, and ulcers. She buys drugs in Canada 
because it makes economic sense--a three-month supply of her 
arthritis drug costs $163 in Montreal, as opposed to the $654 
it would cost her in the United States. A senior on a fixed 
income with multiple health needs should have access to this 
kind of savings without having to go to Canada.
    I believe we need to help our seniors get the lowest 
possible prices for their medically necessary treatments. We 
need to make drug reimportation safe, we need to make drug 
reimportation safe, we need to make drug reimportation 
unambiguously legal, and we need to so do as quickly as 
possible.
    We also need to make sure that the many seniors who do go 
online to purchase drugs can do so safely, and the legislation 
that Senators Dorgan and Snowe will introduce in the 109th 
Congress will help create a safe environment through which 
seniors can purchase drugs over the internet, and I look 
forward to supporting these efforts.
    Indeed, the Dorgan-Snowe legislation contains many 
provisions that will ensure safety while giving seniors access 
to cheaper drugs. This bipartisan bill will allow seniors to 
safely access drugs from Canada starting 90 days after 
enactment. It will provide the needed authority and funding to 
the FDA to regulate foreign pharmacies and wholesalers, so that 
we can be sure that any drugs that enter the United States are 
safe for our seniors. It will increase the consumer protections 
involved with internet pharmacies, so that seniors who don't 
live near the border can access imported drugs without being 
defrauded.
    Senator Smith and Senator Kohl, thank you again for 
convening a hearing on this important topic. I look forward to 
learning more about this issue from our panelists today.

    Senator Clinton. I have to express my delight on joining 
this committee and serving with you and Senator Kohl and I look 
forward to the work of this committee. I must confess that with 
the low height of the chair and the lights going off, I thought 
maybe I was in a test about how quickly I am aging, you know, 
whether I can get up out of a low chair and see what is going 
on---- [Laughter.]
    Which is something that, I guess if that goes with 
committee membership, I will do my best.
    Senator Craig. It does. [Laughter.]
    Senator Clinton. I guess I would also ask unanimous consent 
that I, too, have a chair pillow next time, too, Senator Craig. 
I changed chairs, so I am fine.
    The Chairman. We will add some pillows. [Laughter.]
    Senator Clinton. I want to thank both Senators Smith and 
Kohl for convening this hearing because it is such an important 
topic. The issues it raises really do go to the heart of the 
expectation, as Senator Craig eloquently stated, that Americans 
will be able to trust their prescription drugs.
    On the other hand, it also goes to the point that Senator 
Nelson was making, which I think Secretary Thompson in a sense 
conceded last year when he said that legislation for drug 
reimportation was inevitable and it will happen either under 
our control or out of our control after a lot of damage has 
been done because of the breakdown in the system, because of 
Internet purchases and the like.
    So I really commend you for holding this hearing because we 
need to shed a lot more light on this matter and try to come to 
a consensus about how we intend to proceed.
    I appreciate the Surgeon General being here and also for 
your leadership on the HHS task force. As I read the task force 
report, I think that it clearly states the issue, and the 
conclusion of the task force members is that the task force 
believes that access to drugs that are safe and effective, as 
well as affordable, is a critical policy goal and that all 
approaches to achieving this challenging goal should be 
explored thoroughly. I very much agree with that.
    I have worked with several of my colleagues in introducing 
a framework for implementing safe importation of prescription 
drugs. Senators Dorgan and Snowe have taken the lead on this. 
Does the task force or does HHS have a position on the Dorgan-
Snowe reimportation bill?
    Dr. Carmona. Senator, from the standpoint of our task 
force, we took no position on any bills. Our goal was to answer 
the questions and provide you the best information for you to 
make your decisions. But I think the statement that you read 
truly reflects the task force in a unanimous way, that we 
really understand the dynamics here and the complexity of this 
issue, but every and all opportunities need to be explored.
    Senator Clinton. General, I would appreciate your reviewing 
the Dorgan-Snowe legislation because what we attempted to do, 
and really Senators Dorgan and Snowe deserve the credit for 
this, was to deal with the concerns outlined in Secretary 
Shalala's letter that you referenced earlier, because when the 
Congress did pass legislation asking that importation, 
reimportation take place, President Clinton tasked Secretary 
Shalala with responding to that. Her December 26, 2000, letter 
reflects some of the difficulties that tied up the 
negotiations. There were a lot of concerns on the part of 
different Members of Congress with different stakeholders at 
the table.
    What the Dorgan-Snowe legislation tries to do is to deal 
with the labeling issue by requiring that commercial shipments 
of drugs to importers be labeled with FDA-approved labeling, 
dealing with the discrimination issue by making discrimination 
against foreign distributors and pharmacies illegal and 
imposing treble damages, dealing with the timing issue without 
having a sunset, because one of Secretary Shalala's biggest 
problems with the legislation that was being proposed back in 
2000 is that it was sunsetted. So that doesn't provide 
certainty to anyone.
    I mean, part of our job legally, legislatively, 
regulatorily, is to look at legislation, figure out how it is 
working, and make improvements or solve problems, if necessary. 
But if you put a sunset on it from the very beginning, that 
doesn't provide much of an incentive.
    Finally, providing sufficient funding, an issue that is a 
critical one as to how we would police such a system, and in 
the Dorgan-Snowe legislation, there is a requirement that each 
importer and exporter pay a one-time registration fee of 
$10,000 and semi-annual inspection fees capped at one percent 
of the total price of drugs so that we can use those dollars to 
enhance the inspection process, hire the necessary people.
    We are going to spend the money one of two ways. We are 
going to spend the money going after counterfeiters trying to 
deal with Internet problems, as Senator Wyden pointed out, or 
we are going to spend the money trying to get a system in place 
that we then can regulate.
    So I would appreciate very much, General, that you provide 
a response with respect to the Dorgan-Snowe bill. I look 
forward to the new Secretary of Health and Human Services also 
working on this issue because the inevitability of it is clear 
to all of us. The problems are clear to all of us. I think that 
there are enough people of good faith and intelligence to 
figure out how to deal with this.
    So I thank you for taking on this task force, but we need 
now to move beyond the inevitability and the belief of the task 
force members to actually find some solutions.
    Dr. Carmona. Thank you, ma'am.
    Senator Clinton. Thank you.
    The Chairman. Thank you, Senator Clinton.
    Senator Kohl.
    Senator Kohl. Thank you. I will just make one observation 
and ask for your reaction.
    Dr. Carmona. Yes, sir.
    Senator Kohl. I think the American people are rather 
perplexed with this whole issue for many reasons, but the thing 
that comes to mind with me is that we are importing and 
ingesting food stuffs all over the country and have been for 
many decades, whether it is fruits and vegetables, poultry, 
beef. Enormous amounts of things that are brought into this 
country under standards of inspection and as much safety as we 
can impose on the system are bought and put into our systems 
every day and we have managed to set up a process that, for the 
most part, works.
    Why would pharmaceuticals fall totally outside of that 
ability that we have to control other imports?
    Dr. Carmona. Well, sir, I don't know that they fall totally 
outside. It is a slightly different market if you are deciding 
to eat a certain food that may be imported from another country 
versus a medication that is going to be life-saving or prevent 
a disease.
    However, philosophically, I think the approach is the same, 
and as we pointed out in the task force report, there can be 
systems set up for commercial importation that would allow that 
to occur. We believe that they would have to be much more 
stringent than just usual food products that are coming in and 
out that we are mostly looking at for the purpose of safety and 
were they refrigerated and processed appropriately so that the 
American public is safe of any disease. We have the added 
threat today of the new threats upon us of terrorism and the 
fact that that presents a new challenge to us.
    But notwithstanding that, we do agree that there are 
options to set up systems that can be well-defined and 
considered a closed system to ensure the safety of the American 
public. We also add, and we had recommended to Congress that if 
you consider such a system of importation that is well defined, 
prospectively determined, and regulated by FDA guidelines, that 
you consider the economic implications both short-term and 
long-term, and we had very robust discussions about that with 
world economic leaders to find out just what would be the 
implications of such.
    But I am in agreement with you. It can be done.
    Senator Kohl. Thank you. Thank you, Mr. Chairman.
    The Chairman. To Senator Kohl's point, General, I have one 
follow-up. As I read your report, you estimated the cost of 
setting up a system was $3 billion. But that was using, as I 
understand it, existing authorities. What I took from that is 
that estimate did not take into account the cost savings of 
setting up additional authorities or new approaches 
specifically to regulate Internet pharmacies. Was there an 
inclusion of such new authorities in that cost or is it limited 
to traditional types of border inspections that----
    Dr. Carmona. This was for personal importation and 
encompassing a great deal of factors, but this was a number 
that was generated in some of the discussions with our 
stakeholders as more or less a best guess.
    We recognize that the cost variables and the incremental 
variables leading up to a total cost will be entirely dependent 
upon what Congress determines is an appropriate system. I think 
once you all, if you embark on that path, decide on a certain 
system, we can work back with you to give you cost estimates at 
that point. But right now, without a true definition of what a 
system would look like, it is very difficult to put a price tag 
on that, although we recognize it would be very expensive.
    The Chairman. Well, to Senator Clinton's point, we are 
going to pay for it one way or the other----
    Dr. Carmona. Yes.
    The Chairman [continuing]. We are going to pay for it in 
poor health, bad medicine. We are going to pay for it in 
criminal interdiction. So it seems to me that an Internet 
registry where people wanting to be legitimate players could 
qualify, and seniors could be alerted to the availability of a 
safe place to do importation, that that should, frankly, with 
technology, greatly reduce the cost from $3 billion.
    Senator Wyden.
    Senator Wyden. Thank you, Mr. Chairman. I just wanted to 
ask one additional question.
    I think you heard me, Doctor, go through this problem of 
the significant price spike we have seen in prescription 
medicine just in the last few weeks. Lipitor is up 5 percent, 
for example. Lipitor is a blockbuster drug. Now since you in 
your testimony talked about the prescription drug bill and its 
impact on cost containment specifically, I would be interested 
in your thoughts as to why prescription drugs have spiked up so 
dramatically in the last few weeks. I wouldn't have asked you 
this question unless you put the topic in play in your 
testimony, but I came concerned about the price spike. I noted 
your comments in your testimony. I would be curious, your 
thoughts about why prescription drugs have soared yet again in 
the last few weeks.
    Dr. Carmona. The spike that you are speaking of, I am aware 
of only through the media. We haven't studied that spike. The 
question of cost of prescription drugs and why there was a 
perception of the American public bearing an unfair share of 
that cost is one that we did discuss during the task force and 
received a great deal of testimony from economists as well as 
from the drug industry and many stakeholders who had expertise 
in the area. A lot of it was fueled by the issue of the cost of 
research and development, the time it takes from bench to the 
market for a drug being 15 to 20 years at $800 million per drug 
and maybe only 20 percent of the drugs make it, so there is a 
huge overhead even for your failures. That was one component.
    Senator Wyden. But that is year in and year out, Doctor.
    Dr. Carmona. Yes.
    Senator Wyden. I don't want to belabor this, but I know the 
Wall Street Journal, has said that possibly one of the factors 
in the price spike in the last few weeks has been that 
companies are maneuvering given the fact that the bill is about 
to kick in. Do you see that as a factor?
    Dr. Carmona. Sir, it very well could be, but I have no 
knowledge. I would be guessing right now since I have not 
studied that. The only factual information I could give you is 
what we have studied within the task force report, which is why 
I reverted my answer back to what we had found.
    Senator Wyden. Your testimony said that the law contains 
provisions to hold down costs. So you obviously have been 
looking at the cost containment issue. What provisions in the 
law contain costs? I ask you that as somebody who voted for the 
bill. I would be interested in your thoughts as to what 
provisions in the law contain costs.
    Dr. Carmona. Well, the open market, first of all, is maybe 
one of the best ways to contain costs and foster competition. 
So any provisions that we have that would allow for open market 
competition, I always think would be in the best interest of 
the American public. When we begin to manipulate markets or 
have price controls in one sector and not another, it becomes 
very difficult then to start comparing. You are comparing 
apples and oranges.
    I mean, it is deceivingly simple to say that let us bring 
in a drug from Canada because it is cheaper. That is OK, but 
again, not being the expert but asking the questions at the 
task force with my task force was, well, what are the 
implications of not just one but millions of drugs flowing 
across the border, not just today, but next year and in 10 
years? What will happen to our markets? Is this going to hurt 
us in the long run even though it may help those in need today?
    That is the information that we solicited and have in this 
report. Outside of that, I was not asked to look at or study 
those issues, and specifically the spike in the last couple of 
weeks. I don't have that information, sir.
    Senator Wyden. You have got six United States Senators here 
who are not exactly a price controls caucus. I mean, we are, 
all of us, Democrats and Republicans, talking about marketplace 
approaches, and yet we just don't seem to be able to get 
anywhere with the administration in terms of advancing ideas 
that will allow us to do it. But Senator Snowe and I will be 
taking another crack at it next week.
    Dr. Carmona. Yes, sir.
    Senator Wyden. The Medicare program is not even doing what 
smart private sector buyers are doing when it buys medicine. 
Every private sector buyer who buys in volume says, ``Look, 
here is an opportunity to get a better deal if I am buying in 
volume.'' This is not a government program. This is what 
Weyerhauser does or an auto company does or a hardware store or 
anybody else. So when you said in your testimony that the law 
contains provisions to contain that cost, there has been a 
price spike in the last few weeks with respect to medicine. I 
would like to see what we are going to do with it on a 
bipartisan basis and I hope we can continue to work with you in 
that regard.
    Thank you, Mr. Chairman.
    Dr. Carmona. Thank you, sir.
    The Chairman. Senator Nelson has an additional question.
    Senator Nelson. Dr. Carmona, is it the policy of the 
administration to allow a 90-day supply of prescription drugs 
to be imported from Canada for a senior citizen?
    Dr. Carmona. There is an FDA discretionary policy that was 
put into effect some years ago that would allow certain 
medications that are maybe produced in another country and 
known to be safe to the FDA and are needed, for instance, for a 
cancer therapy or such by a citizen to do so, but small amounts 
for their personal use only. It was always thought of as a 
courtesy to certain people who may be traveling overseas.
    Historically, as we looked at it, I guess in the 1990's or 
so as Internet pharmacies popped up and the trade in 
pharmaceuticals cross-border really started to become quite 
robust, it became a problem and questions were posed regarding 
that discretionary policy because people were taking advantage 
of it.
    Senator Nelson. So, in fact, via the Internet or by mail or 
by telephone, you are saying that it is or is not the policy 
now that is allowed for a 90-day supply of prescription drugs 
to be imported from Canada for personal use?
    Dr. Carmona. As I said and I think is reflected in the 
report, there is a discretionary part of the law which allows 
for certain products that people would need, and I think, as I 
said, historically, when we looked at this, certain products 
that were available overseas that were approved that might not 
be available in the U.S. but that we knew were safe could be 
bought in a limited fashion for personal use, and I think that 
is the 90-day exception you are speaking of. I just want to 
make sure that I am addressing your question specifically.
    Senator Nelson. Well, the FDA has issued a statement that 
says that they are going to allow a 90-day supply for personal 
use to come in from Canada, and I want to make sure that this 
is squaring with your position as the Surgeon General.
    Dr. Carmona. My understanding, sir, is that those were 
products that were available out of the U.S. that were deemed 
to be safe and necessary for the health of that individual. 
From my standpoint as Surgeon General, whether it is Congress 
considering a new program or an existing program, the first 
question I would ask is, is this safe? How do we know the 
pedigree of the medication? Where was it made? Who packaged it? 
Who is selling it, and so on?
    Senator Nelson. All right. When these drugs are seized, is 
it the policy of the administration that a notice must be given 
to the receiver of the drugs that they have been seized?
    Dr. Carmona. My understanding is that a notice is given to 
the sender, and if there is any question as to the authenticity 
or the legality of the shipment that they are given a window of 
opportunity to respond and provide evidence that this is indeed 
a legal shipment of a medication. If not, those medications 
remain confiscated and are sent back to the sender.
    Senator Nelson. Well, I want to give you an example of the 
trauma that one of my constituents from Florida went through. 
Ms. Jean Eads of Mount Dora, FL, had ordered by the Internet, 
had used her Master Card, was charged $276 through a Canadian 
pharmacy called Avcare. Her drugs were seized along with a big 
shipment, so she is out $276. She doesn't receive the notice, 
which, by the way, is required under law, under U.S. code. She 
needs her medication. For her to purchase the same medication 
in the United States, it is going to cost her twice as much 
and, of course, she is a senior citizen on a fixed income.
    Now, this is the kind of personal experience that is 
happening day in and day out and we have got to get it 
corrected. But for the fact that she wrote her handy-dandy 
Senator and that I got into it and jumped on it with all fours 
and finally shook enough of the bureaucracy loose so that we 
found the drugs, otherwise, she would have been out drugs, she 
would have been out $276, and she couldn't afford any of that. 
What is hanging in the balance is her health and that is what 
we have got to correct.
    Dr. Carmona. Senator, I couldn't agree with you more and I 
think that your statement really bespeaks the fact that if 
Congress decides that we want to have a legalized system of 
importation, that it has to be closely regulated, because as we 
found when I visited the JFK center, these packages, hundreds 
and hundreds of them, come from all over the world. The Federal 
investigators confiscate them because often they don't have 
labels. They are not what they are purported to be. So 
sometimes we look and there may be a question. They are not 
sure. Is this good or not? They are going to err on the side of 
public safety.
    But with a well-regulated system that you all would empower 
the FDA to oversee for commercial importation, that goal, which 
is desirable to us all, is achievable.
    Senator Nelson. Let me just conclude, I guess, Doctor, and 
thank you for your public service.
    Dr. Carmona. Thank you, sir.
    Senator Nelson. When all of this was occurring a year ago 
or so, did you hear in the administration there was an attempt 
to get the credit card companies to back-check on who is 
charging for prescription drugs in Canada and to stop it? Did 
you ever hear of that?
    Dr. Carmona. No, sir, I am not aware of that.
    Senator Nelson. Well, it did happen and the FDA finally 
rescinded that, as well as--well, the FDA has backed off of 
that warning. But they did. They, in fact, put out that kind of 
warning. As a matter of fact, one of our colleagues from 
Minnesota, if he hadn't gotten into it, Senator Dayton, there 
were a group of senior citizens that had gone across the 
Canadian border to buy drugs coming back into Minnesota. 
Customs boarded their bus and started confiscating their 
prescription drugs. Only because, again, the intervention of a 
United States Senator did that get worked out. But this is the 
kind of nonsense that is going on for poor people that need 
help.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator.
    General Carmona, thank you. You have been very forthcoming 
and answered our questions. We thank you for your service, for 
your report and your presence here today.
    Dr. Carmona. Thank you, sir.
    The Chairman. With that, we will call up our next panel, a 
very distinguished panel. First is Jeffrey Kimmell of 
drugstore.com; Gary Schnabel, my constituent, from the Oregon 
Board of Pharmacy; Mary Jorgensen--I believe Senator Kohl will 
introduce Ms. Jorgensen; and Roger Pilon of the CATO Institute.
    I would indicate for members there is scheduled to be a 
vote at 11:30. We would briefly recess and reconvene here if, 
in fact, we don't conclude. But that vote may be pushed back, 
as well.
    We will proceed starting first with Jeffrey Kimmell.

STATEMENT OF JEFFREY KIMMELL, R.PH., VICE PRESIDENT, HEALTHCARE 
   SERVICES AND CHIEF PHARMACY OFFICER, DRUGSTORE.COM, INC., 
                          BELLEVUE, WA

    Mr. Kimmell. Mr. Chairman, my name is Jeff Kimmell. I am 
the Vice President of Healthcare Services and Chief Pharmacy 
Officer at drugstore.com. I am a licensed pharmacist and I have 
been involved in the pharmacy business for more than 30 years.
    I want to thank you, Chairman Smith and Ranking Member 
Kohl, for your leadership and for holding this hearing today. 
We share your concerns about the safety of millions of 
consumers who purchase prescription drugs over the Internet.
    Congress needs to regulate appropriately, establish clear 
rules that protect consumers, and prevent Internet shopping for 
prescription drugs from becoming an uncontrolled free-for-all. 
Since its inception, my company, drugstore.com, has taken the 
high road, imposed high standards and submitted to voluntary 
third-party review. But too many others have not.
    There are three sections to my remarks today and I 
encourage you to review the written testimony for more detail. 
First, I will tell you about the general benefits of online 
pharmacies. Second, I will provide additional detail about 
VIPPS, a voluntary certification standard, and how that can 
serve as the basis for a single national standard for online 
pharmacies. Finally, I will offer some insight into how 
Congress might provide appropriate enforcement authority to any 
legislation designed to protect consumers.
    Before going into the details of these remarks, I would 
like to note that many of these ideas reflect provisions in 
bills previously introduced in the 108th Congress by Senators 
Judd Gregg and Gordon Smith and Representatives Greg Walden and 
Jim Davis. The drugstore.com web store is a leading online 
retailer. Our pharmacy is licensed to dispense medications in 
all 50 States.
    Licensed online pharmacies, such as drugstore.com, do 
provide a safe, efficient, and cost-effective alternative to 
more expensive brick-and-mortar pharmacies. The Internet 
business model operates with less overhead than a typical 
retail chain, allowing us to offer prescription drugs up to an 
average of 20-30 percent off the prices typically offered by 
U.S.-based bricks-and-mortars.
    It is also a little known fact that our generic drug prices 
are significantly better--often 50 percent less--than those of 
most foreign-based competitors.
    In addition, we offer our customers online e-mail drug 
recall alerts, an extensive drug price index that allows for 
easy comparison shopping, a detailed drug information data 
base, and a variety of other specialized customer care features 
that are detailed in the written comments.
    But drugstore.com does more than provide good service at 
affordable prices. We practice good pharmacy. We are fully 
compliant with the Health Insurance Portability and 
Accountability Act of 1996.
    We respect and honor the sanctity of the patient-physician 
relationship and adhere to American Medical Association policy 
by requiring patients to see a physician before doing business 
with our pharmacy.
    We accept prescriptions only from licensed health care 
providers. We do not prescribe medications or otherwise 
practice medicine. Like traditional retail and mail service 
pharmacies, we accept, verify, and cross-check all 
prescriptions. Consumers can identify whether an Internet 
pharmacy adheres to a variety of standards associated with good 
pharmacy practice by looking for the Verified Internet Pharmacy 
Practice Sites, or VIPPS, seal. VIPPS is a voluntary program 
developed by the National Association of Boards of Pharmacy, or 
NABP, in conjunction with a coalition of State and Federal 
regulatory associations, professional associations, and 
consumer advocacy groups. A list of detailed verification 
procedures is included in the written testimony.
    To ensure reliability and safety, drugstore.com strongly 
supports a single, national standard for online pharmacies and 
advocate that, in order to legally sell pharmaceuticals online, 
all Internet pharmacies should be required to meet such a 
uniform certification standard. Based on our experience in 
complying with the stringent requirements of the VIPPS 
certification process, drugstore.com believes that VIPPS can 
and should be the basis for a federally mandated program. We 
encourage Congress to move in this direction as soon as 
possible.
    Certification, however, isn't enough to effectively stem 
the tide of rogue online pharmacies and ensure the integrity of 
our drug delivery system. Any certification standard must be 
backed up with clear lines of enforcement authority. The 
following outlines one approach that, we are convinced, would 
discourage illegal Internet pharmacies before consumers are put 
at risk:
    First, make it illegal for online pharmacies to advertise 
on Internet search engines unless they meet the approved 
certification standard.
    Second, stop credit card payment to pharmacies that do not 
meet the certification standard criteria, to stop funding at 
the source.
    Third, motivate third-party shippers to refuse shipments 
from pharmacies who do not meet the certification standard.
    As a final point, there are multiple layers of jurisdiction 
regarding oversight and enforcement of our nation's drug 
delivery system. We suggest consolidation or coordination of 
efforts, and encourage you to carefully examine the existing 
legal and regulatory structure and its adequacy to address the 
rogue Internet pharmacy problem.
    As the U.S. Congress looks for ways to keep the Internet a 
safe, drugstore.com stands ready to act as a resource. U.S. 
consumers should feel confident that the online marketplace is 
safe and secure, especially for purchases that are as important 
to public health as prescription drugs. We are confident that a 
uniform certification process and the three-tiered approach to 
enforcement outlined above would most effectively address this 
growing public health problem. Thank you for providing us with 
the opportunity to offer this testimony. I look forward to 
answering any questions you might have.
    The Chairman. Thank you very much, Jeff, for your testimony 
and for your work.
    [The prepared statement of Mr. Kimmell follows:]

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    The Chairman. Gary Schnabel, welcome. It is nice to have 
you here. I appreciate your traveling this long way.

STATEMENT OF GARY A. SCHNABEL, R.PH., R.N., EXECUTIVE DIRECTOR, 
             OREGON BOARD OF PHARMACY, PORTLAND, OR

    Mr. Schnabel. Thank you. Thank you, Mr. Chair and Senator 
Kohl. My name is Gary Schnabel. I am executive director for the 
Oregon State Board of Pharmacy, located in Portland, OR. I want 
to thank you and Senator Kohl for the opportunity to appear 
before the Special Committee on Aging to take part in this 
discussion of Internet pharmacies and prescription drug 
importation.
    I am delighted and honored to be here on behalf of the 
Oregon Board of Pharmacy to describe the Board's recent 
experience in that regard. I am also currently serving as a 
member of the Executive Committee of the National Association 
of Boards of Pharmacy, the NABP. My appearance here today is in 
no way connected with or related to my position or 
responsibilities with the NABP. I am appearing here solely on 
behalf of the Oregon Board of Pharmacy and in my capacity as 
its executive director.
    I have submitted a written statement generally describing 
the Oregon Board of Pharmacy's activities over the past several 
years in relation to foreign drug importation and Internet drug 
distribution. With the exception of the Board's work with 
Governor Kulongoski and his staff on the Pioneer Prescription 
Drug Project, the Board's experience in Oregon is similar to 
what State Boards of Pharmacy all across the country have 
experienced.
    I understand the focus of this committee is directed more 
toward drugs purchased over the Internet than the general 
subject of drug importation. To that end, I will focus my 
comments on the Board's experience with the Internet.
    The topic of prescription drug distribution via the 
Internet is a broad and complex topic and a tendency exists to 
confuse the related public policy issues in the absence of a 
fairly strong understanding of the terms used in the 
professional jargon and in the details of drug distribution. To 
most effectively identify and analyze policy issues that exist, 
this broad context can be dissected into distinct manageable 
components.
    Those who sell drugs over the Internet fall into one of 
three categories. They are either pharmacists dispensing drugs 
through legitimate licensed pharmacies regulated by the State 
Boards of Pharmacy, they are licensed physicians or other 
legitimate prescribing practitioners regulated by their State 
regulatory boards, the Boards of Medical Examiners, Boards of 
Dentistry, et cetera, or they are neither authorized dispensers 
nor authorized prescribers.
    These individuals in the third category are most deserving 
of the committee's focus. These are operating fraudulent, rogue 
websites, deceiving consumers into believing they have some 
authority to prescribe, dispense, or distribute prescription 
drugs. These are the sites advertising prescription drugs 
without a prescription. They may be pharmacists or doctors who 
are not licensed or who are licensed and operating in violation 
of the State and/or Federal drug distribution laws. They may 
not be pharmacists or doctors at all. They may be prescribing 
real, approved drugs, unapproved imported drugs, counterfeit 
drugs, or outdated, contaminated, or inappropriately 
manufactured drugs. They may be operating from locations 
anywhere in the world.
    These are the criminal elements that evade the individual 
Boards of Pharmacy, not only because of the Board's limited 
resources and authority, but because of the invisibility and 
anonymity afforded by the Internet. These sites have become 
pervasive and they can be very professional and convincing in 
appearance.
    The regulation of legitimate pharmacy and medical practice 
websites currently falls under the jurisdiction of the State 
professional regulatory boards. The Board of Pharmacy, using 
the Internet and intending to operate in compliance with the 
laws of States in which it does business, is no different from 
any mail-order pharmacy currently licensed by the States that 
use more traditional forms of communication, such as a 
telephone, fax, and e-mail. The Internet site is simply a means 
of communication.
    To put it another way, any pharmacy licensed by the Oregon 
Board of Pharmacy to do business in the State, regardless of 
its location, can use the Internet as long as it maintains 
compliance with the prescription recordkeeping, licensing, and 
professional practice requirements of the Board. The key is not 
the method of communication. The key is compliance with 
licensure, recordkeeping, and other professional practice 
requirements. The Internet has simply made life easier for 
those who want to violate the law and avoid detection.
    If I walked down the street here in Washington or in any 
city in the U.S., I can tell if the shop I am entering is a 
pharmacy because of the existing pharmacy regulations. If I go 
onto the Internet, I cannot tell if the website I see is a 
pharmacy or not. I think that is the simplest statement of the 
problem.
    The solution would be to create a method by which a person 
could identify positively whether a website representing itself 
as a pharmacy was actually a legitimate licensed pharmacy, just 
as if the person were seeing the sign on the street. The NABP's 
Verified Internet Pharmacy Practice Site, or VIPPS program, 
provides one such solution. Only a pharmacy operating in full 
compliance with State and Federal laws can display the secure 
VIPPS website seal. Consumers who understand the importance of 
confirming the legitimacy of a pharmacy website can do so by 
looking for that seal. Public education is very important in 
providing this understanding.
    Other possible solutions could include mechanisms to 
require that the credentials of the pharmacy be confirmed 
before being allowed to display a pharmacy webpage or before 
credit card payment could be authorized. This is where the 
Board believes the resources and authority of the Federal 
Government and Congress is sorely needed. The State Boards of 
Pharmacy and Medicine can handle the regulation of pharmacies 
and doctors in the U.S. However, foreign drug sources, 
legitimate or not, fall outside the States' jurisdiction and 
the States' regulatory efforts are disabled in the face of the 
invisibility, anonymity, and covert mobility enjoyed by the 
operators of rogue Internet sites.
    The Oregon Board of Pharmacy has stated that it does not 
believe Federal licensure or regulation of pharmacies is 
necessary. The Board believes that if the legitimacy of a 
pharmacy must be documented or confirmed, it can be done so by 
or through the State Boards, where pharmacies and pharmacists 
are currently licensed and a traditional regulatory mechanism 
already exists.
    The Chairman. Do I understand, Gary, you are saying that 
that already exists so that we don't need to reduplicate that 
cost at the Federal level? What we need to do is have a Good 
Housekeeping Seal of Approval at the Federal level so seniors 
know on the Internet they have entered a pharmacy that is safe?
    Mr. Schnabel. Yes, Senator. If something like that, that 
would be absolutely correct. I think that information to 
confirm the legitimacy of those pharmacies does exist in the 
States currently.
    The Chairman. Is that expensive to do? Would that cost $3 
billion to do, as was proposed in the report?
    Mr. Schnabel. I don't know. I really haven't looked at 
that. I do know that the process the NABP uses is very 
effective, but it is a voluntary program. Only those sites who 
want to display the seal to prove themselves have to do it. It 
costs, I don't know, what, $3,000 to $5,000 is a guess.
    The Chairman. Wouldn't legitimate players readily want to 
sign up for a legitimate site and wouldn't there be a 
presumption for those that didn't sign up that they were not 
legitimate, that they were selling bad medicine?
    Mr. Schnabel. Yes, Senator, and that is one of the 
problems. Because of the costs of becoming certified, the 
larger legitimate pharmacies that want to be certified and 
prove they are willing to do that. They are doing business in a 
number of States or all the States. A pharmacy in Portland who 
just wanted to put up a website for his or her patients in 
Portland to reorder their refills, they could do that, too, but 
they probably wouldn't be able to afford to go through the--
they may be a legitimate pharmacy, but for a small pharmacy, 
that is problematic.
    The Chairman. Have you concluded?
    Mr. Schnabel. I have just one final comment.
    The Chairman. OK.
    Mr. Schnabel. The Board of Pharmacy believes that to allow 
consumers to freely import prescription drugs from foreign 
sources via the Internet without a massive public education 
effort would subject consumers individually and the population 
generally to an unprecedented risk of the introduction of 
contaminated, counterfeit, or otherwise unconfirmed drug 
products and provide unprecedented opportunities for the 
unscrupulous individuals to take advantage of unsuspecting U.S. 
consumers.
    Legislation providing tools to assist in the prevention, 
detection, and prosecution of the unlicensed, illegitimate 
prescription drug traffickers over the Internet would be 
strongly supported and encouraged.
    I thank you and I am happy to respond to questions.
    The Chairman. Thank you very much, Gary.
    [The prepared statement of Mr. Schnabel follows:]

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    The Chairman. Senator Kohl, would you like to introduce 
your constituent?
    Senator Kohl. Thank you, Mr. Chairman. I am pleased to 
introduce today Mary Jorgensen, who is here from Madison, WI.
    For the past 16 years, Mary has worked for the Coalition of 
Wisconsin Aging Groups, a nonpartisan grassroots organization 
serving Wisconsin's senior citizens. She has a long history of 
working with seniors to improve their quality of life, most 
recently as Coordinator of the Coalition's Prescription Drug 
Information Center.
    So Mary, we welcome you here today and we look forward to 
your testimony.

  STATEMENT OF MARY JORGENSEN, PRESCRIPTION DRUG INFORMATION 
 COORDINATOR, COALITION OF WISCONSIN AGING GROUPS, MADISON, WI

    Ms. Jorgensen. Thank you, Senator. Good morning. My name is 
Mary Jorgensen and I am the Coordinator of the Prescription 
Drug Information Center of the Coalition of Wisconsin Aging 
Groups, as Senator Kohl has stated.
    As early as 1998, CWAG's members have been concerned about 
the high cost of prescription drugs in the United States. As an 
elderly advocacy organization, we began to look for affordable 
options for seniors other than ones available in Wisconsin. We 
also wanted to be able to counsel folks on the various cost-
saving options available to seniors in Wisconsin.
    Several of our 600 member groups were able to organize bus 
trips to Canada to purchase their drugs, where they saved 
substantially. This led to collaboration with our counterparts 
in other States to pursue additional options for seniors to 
save on their costs of prescription drugs.
    After actual visits to Canada by CWAG staff and our 
counterparts, the decision was made to enter into an agreement 
with CanadaRX out of Ontario, Canada, where we would be able to 
assist seniors in purchasing their drugs. Our decision to work 
with CanadaRX was predicated, No. 1, on cost, since this is the 
main concern of our members. Our considerations were that 
CanadaRX has been in existence for over five years providing 
drug reimportation to the United States with a good reputation, 
and they are a licensed Canadian pharmacy.
    In August 2002, CWAG began its Prescription Drug 
Information Center, where seniors could call for assistance. 
This provided an opportunity for seniors who have high 
prescription drug costs and were afraid to check into 
purchasing drugs from Canada on their own. CWAG provides all 
the tools necessary to purchase drugs from a reputable Canadian 
pharmacy and save on their prescription drug costs. Within the 
past year, we have added another licensed Canadian pharmacy, 
the Canadian Drug Service, to our list of options.
    Many of our inquiries are from low-income seniors who do 
not qualify for other programs. Some have told me they could 
not continue to eat and buy their prescription drugs. Others 
told me they take their medications only every other day so 
their supplies last longer. This is a travesty.
    We believe that unaffordable drugs are neither safe nor 
effective. People are being forced to choose between drugs and 
nutrition. Through prescription drug reimportation, they are 
able to afford both. Many of the seniors I speak with have 
cardiovascular disease, have suffered stroke or heart attack, 
or they have diabetes that requires several expensive drugs 
they simply cannot afford any longer from their local pharmacy.
    Safety seems to be the No. 1 concern of the FDA regarding 
reimportation. These reimported drugs are shipped in the 
manufacturer's sealed packaging. Drugs sold in our U.S. 
pharmacies are being manually counted out by pharmacy 
technicians. The chance of the wrong drugs being dispensed is 
much greater than if the drugs were shipped in their original 
packaging. Purchasing drugs in the United States does not make 
it any safer than purchasing drugs from another country where 
the drugs are carefully manufactured and regulated.
    As a grassroots organization of seniors, CWAG is more 
concerned about affordability than reimportation. CWAG 
continues to believe that unaffordable drugs are neither safe 
nor effective. We realize that reimportation is not for 
everyone. Not all drugs are available through reimportation, 
and some drugs are not cheaper, either.
    The main purpose of my being here today is to support the 
legalization of prescription drug reimportation so that people 
have a choice to obtain cheaper drugs through this process if 
this is the best way of saving prescription drug costs on an 
individual basis.
    With the implementation of the Medicare Modernization Act 
in 2006, seniors will be experiencing huge cost increases on 
their prescription drugs due to the doughnut hole in the 
prescription drug benefits. Why are seniors being asked to 
participate in such a confusing program when life should become 
simpler in their old age?
    A simple solution, CWAG believes, would be for the Federal 
Government to be able to negotiate prices with the drug 
companies just as they do in Canada and other countries. 
Wisconsin is experiencing great success in reducing 
prescription drug costs for Medicaid enrollees and State 
employees. If States can successfully negotiate prices with 
drug companies, it seems that the Federal Government would have 
more clout in negotiating prices. If drugs were affordable 
here, we wouldn't need to go elsewhere.
    In summary, CWAG will continue to advocate for Wisconsin's 
seniors. We again want to emphasize we do not believe drug 
reimportation is for everyone, but we will continue to fight 
for legislation to ensure safe reimportation of prescription 
drugs as an option.
    Thank you for the privilege of being able to speak to you 
today on behalf of Wisconsin's seniors.
    The Chairman. Thank you very much, Mary. We appreciate your 
traveling here to share your story. We wish you and all the 
people in your organization very well.
    Ms. Jorgensen. Thank you.
    [The prepared statement of Ms. Jorgensen follows:]

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    The Chairman. Roger Pilon, thank you, from the CATO 
Institute. I am informed there is a vote that has just started, 
but I think we have time to complete your testimony first.

  STATEMENT OF ROGER PILON, VICE PRESIDENT FOR LEGAL AFFAIRS, 
                 CATO INSTITUTE, WASHINGTON, DC

    Mr. Pilon. All right. Then I will try to hurry right 
through it, Mr. Chairman.
    The Chairman. Thank you.
    Mr. Pilon. Let me thank you and Senator Kohl for your 
invitation to be here this morning. I am going to summarize the 
written testimony I provided the committee, which itself is a 
summary of a much larger study that I made available to the 
committee, which is available at the CATO Institute website.
    Let me begin by making very clear what I am here to urge 
and what I am not here to urge. I am not urging the committee 
and the Senate generally to enact a drug reimportation program 
or to set one up. I think that reimportation is the wrong 
answer to the problem that is before us. Lifting the ban on 
reimportation, however, is the right answer because it will 
allow market principles to surface, and they alone can sort out 
the competing interests in this matter.
    Indeed, let me say that I was delighted to hear on the 
minority side so much talk of market principles. I only wish 
that the Bush administration, which speaks often of market 
principles, would adhere to them more often. But I digress.
    The reimportation debate is before us, of course, as we 
have heard, because of the high cost of drugs in this country, 
and more particularly because of the disparity, the 
international disparity, between prices for drugs. So we want 
to know, why are there such high prices and why is there such 
an international price disparity?
    The reason drugs cost so much to begin with, of course, is 
because it takes, as we have heard, some $800 million, on 
average, and 12 to 15 years before the FDA efficacy and safety 
standards are met; and, that means of course, that a drug 
company is in a large hole right off the bat. They have to 
recover those costs before they can make their first dime, and 
that means that they are going to have to charge whatever the 
market will bear to do that.
    That doesn't answer, however, why there is such a price 
disparity internationally. For that, you have to look at a much 
more complex picture. When a drug company looks out at the 
world, it sees essentially one free market, in America, and 
here it charges whatever the market will bear. When it looks 
out at the rest of the world, however, it sees socialized 
medical systems abroad and price controls. Essentially, the 
companies tell us they have to take what the foreign 
governments offer them. They can afford to do that, however, 
only because they can fall back on the relatively free American 
market, which is about half the world market, to make up the 
amount that they need in order to cover their R&D costs and the 
profit that is necessary to attract capital for future R&D--
which, of course, we all want to see done.
    There is another explanation, however, that puts the 
companies more in the driver's seat, and it draws from economic 
theory. It is that the companies see different levels of demand 
in different countries, and what they try to do is segment 
markets and price differentially. If you charge too high, you 
are going to attract too few buyers. If you charge too low, you 
will exclude buyers who are willing to pay more. So they are 
trying to find the optimal price in each market.
    The only problem with that is when you segment markets and 
discriminate with prices, you have to guard against parallel 
trading--that is to say, buyers in low-price markets reselling 
to high-price markets--because if that is the case, what you 
will have is all the drugs flowing to the low-price markets and 
not to the high-price markets and it will undercut the profit 
margin that you have to have to sustain your business.
    There are two legitimate ways to go about that--to prevent 
the kind of parallel trading that I have just spoken of. The 
first is through no resale contracts; and the second, if those 
should fail, is through supply limits.
    What companies did in 1987 however, was take the 
illegitimate route and imposed a statutory ban. They sought, in 
effect, a public law solution to a private law problem, and the 
problem with that is this. First of all, if you don't have no 
resale contracts in place, it is preventing willing sellers 
from getting together with willing buyers. If you do have no 
resale contracts in place, you are going after the wrong 
person, the American buyer. The person who is breaching the 
contract is the person that the company should go after.
    So if the company wants to try to have market segmentation 
and price discrimination, the way to do it is to go to these 
countries and say, look, we will give you a lower price, but 
you police your exports. It is not up to the American 
government to police imports.
    Now, it is my view that if that strategy were to be 
followed, you would probably have a good test as to whether it 
can be sustained, and my sense is it cannot. That is to say, 
the greater the disparity between the prices, the greater the 
incentive to breach the walls separating the markets, and we 
are seeing this already when we have got a statutory ban. We 
have already heard testimony this morning about how people are 
simply ignoring the law. Indeed, State officials are ignoring 
the law.
    So it strikes me that even with no resale contracts and 
with supply limits, eventually, you are going to have to have 
the third remedy, namely companies are going to have to 
readjust their prices, raising them sufficiently abroad and/or 
lowering them here, to stall reimportation; and that means, in 
effect, that you will not have reimportation. That is why I 
have urged in my testimony that you really don't need these 
complex kinds of bills that have been introduced that are all 
aimed at safety because reimportation is not the answer to this 
issue. If you allow market principles to surface, you simply 
won't have reimportation. You will have the threat of 
reimportation--and that will do the job.
    It seems to me that what you do have to do, then, is look 
at these bills, like the Dorgan-Snowe bill that was discussed 
earlier this morning. Look at the ``anti-gaming'' provisions 
that have been put in that bill. Those are absolute killers. 
That is not a market approach. Those are anathema to markets. 
They would prohibit companies from raising prices abroad or 
limiting supplies abroad. In other words, they are tantamount 
to importing foreign price controls, exactly what the drug 
companies fear, and rightly so, because they would mark the end 
of the money for research for the future miracle drugs that we 
all want to see produced. So it seems to me that if you are 
going that route, you need to seriously think about it.
    Let me say finally that I have listened to you beating up 
on the administration here this morning. With all due respect, 
the problem is not in the administration. The executive branch 
doesn't write the laws. The legislative branch writes the laws. 
The problem with this ban is right here in Congress.
    So I submit that the answer is very simple. Lift this ban 
and let the market work.
    The Chairman. Thank you very much, Roger. That was very 
insightful.
    [The prepared statement of Mr. Pilon follows:]

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    The Chairman. We appreciate your attendance, all of you. 
Out of respect for your time, rather than reconvene after a 
recess, I will leave the record open and any Senators wishing 
to ask you questions in writing may do so.
    At this point, I would like to insert into the record a 
statement from Senator Russ Feingold.
    [The prepared statement of Senator Feingold follows along 
with prepared statement of Senator Collins:]

              Prepared Statement of Senator Russ Feingold

    I first want to take a moment to congratulate the new 
leadership of this Committee. Mr. Chairman, I look forward to 
working with you to address the many pressing issues facing our 
aging population.
    I especially wish to acknowledge the new Ranking Member of 
this Committee, my fellow Senator from Wisconsin, Senator Kohl. 
The Committee will be well served by his leadership. He has 
long been a strong advocate for seniors in our state, and will 
continue to be a champion for seniors across the country in 
this new role.
    I am pleased that Mary Jorgenson of the Coalition of 
Wisconsin Aging Groups is here before the Committee today to 
offer her insight into an issue of great importance to the 
people of Wisconsin. The Coalition of Wisconsin Aging Groups is 
the gold standard for advocacy--they have helped to put 
seniors' issues at the forefront of public debate. One of the 
many issues they have tirelessly worked to address is the 
skyrocketing cost of prescription drugs. The Coalition has 
fought to help seniors have access to affordable and safe 
prescription drugs from Canada, and I know that Ms. Jorgenson 
has a lot to say about this issue from her experiences working 
with the Coalition.
    Mr. Chairman, I also want to thank you for making this 
issue a priority by addressing it during your first hearing as 
Chairman of the Committee. The skyrocketing costs of 
prescription drugs is one of the most important issues this 
Committee should examine this year. While I pleased that 
seniors will soon have some help with these costs through the 
new prescription drug benefit under Medicare, we must do more 
to make prescription drugs truly accessible for all seniors. 
While we need to ensure that prescription drugs purchased from 
other countries, especially over the internet, are safe and 
effective, we also need to also keep in mind that if it is 
neither safe nor effective to have seniors who cannot afford 
prescription drugs.
    Each year, I travel to all 72 counties in Wisconsin and 
hold a listening session in each one. And for the past twelve 
years, the high cost of health care, and specifically the 
skyrocketing prices of prescription drugs, has been one of the 
top issues raised at these meetings by my constituents all 
across Wisconsin.
    I am a strong supporter of the bipartisan bill introduced 
last Congress by Senators Dorgan and Snowe that will help 
Americans purchase prescription drugs at reduced prices, 
through the internet and through their local pharmacy. Without 
it, Americans are at the mercy of the pharmaceutical companies, 
which are raising the prices of the most commonly prescribed 
brand name drugs at twice the rate of inflation. It is our duty 
in the Senate to provide some relief. People in the United 
States pay substantially more for prescription drugs than 
people in any other industrialized country.
    I have long supported efforts to create a competitive 
marketplace for prescription drugs. Drug manufacturers are free 
to move their factories to countries that have cheaper labor or 
greater tax incentives and to buy supplies from countries with 
the lowest costs, but Americans cannot purchase the drugs they 
need that are offered at lower prices in other countries. That 
doesn't make sense.
    A growing number of American seniors, including a growing 
number of Wisconsinites, are obtaining their prescription drugs 
from Canada, whether they cross the border in person, order 
their prescriptions online, or go to one of the Canadian-
company storefronts that have opened in this country.
    Seniors are forced to go to Canada because the price of 
prescription drugs in this country is out of control. The 
Congressional Budget Office estimates that brand-name drugs 
cost, on average, 35 to 55 percent less in other industrialized 
countries than they do in this country.
    Drug companies say that they need to charge high prices to 
recover the enormous research costs involved in bringing new 
medicines to market. Yet that argument overlooks the fact that 
Americans already fund much of the research and development of 
prescription drugs through taxpayer-funded research conducted 
at the National Institutes of Health and through tax breaks to 
the drug industry.
    It is simply unfair that some Americans cannot afford the 
prescription drugs that their tax dollars help develop. It is 
far past time for Congress to allow Americans access to safe 
prescription drugs at the prices that the rest of the 
industrialized world enjoys.
                                ------                                


             Prepared Statement of Senator Susan M. Collins

    Mr. Chairman, I want to commend you for holding this 
important hearing to examine the risks and benefits associated 
with prescription drug importation and the purchase of 
prescription drug over the Internet.
    One of the greatest challenges facing American consumers is 
the high cost of prescription drugs. Soaring prescription drug 
costs have placed a tremendous strain on family budgets. They 
have also imposed a heavy burden on employers--both public and 
private--who are struggling to provide affordable health 
insurance coverage to their workers. It is therefore no wonder 
that American consumers everywhere are looking across the 
border and into their computer screens in search of more 
affordable prescription drugs.
    It is well-documented that the average price of 
prescription drugs is much lower in Canada and Western Europe 
than in the United States, with the price of some drugs in my 
home state of Maine being twice that of the same drugs that are 
available only a few miles away in a Canadian drug store.
    It simply does not seem fair that American consumers are 
footing the bill for the remarkable, yet costly, advancements 
in pharmaceutical research and development, while our neighbors 
just across the border receive those same medications at 
substantially lower prices. That is why I have long supported 
legislation to allow American consumers to benefit from 
international price competition on prescription drugs by 
permitting FDA-approved medicines made in FDA-approved 
facilities to be re-imported into this county. But I am also 
concerned that we make certain that this is done safely and 
responsibly.
    I am pleased that this morning's hearing will also focus on 
a slightly different but closely related issued--the safety 
challenges posed by the sale of prescription drugs over the 
Internet.
    The growth of the Internet in recent years has created many 
new opportunities for consumers to shop on-line for health-
related products, information and services. The Internet offers 
many advantages for on-line shoppers--convenience, competitive 
prices, privacy, and easy access to health and medical 
information. Moreover, through the Internet, individuals with 
disabilities, the elderly, and patients living in remote areas 
can easily obtain information, products and services that they 
previously acquired only with great difficulty. As a 
consequence, the sale of consumer products over the Internet 
has grown rapidly, including the sale of prescription drugs.
    The number of on-line pharmacies has increased dramatically 
from the 190 identified by the Government Accountability Office 
(GAO) in October of 2000 to an estimated 1,400 sites in April 
of 2004. While online drugs sales by reputable pharmacies can 
have many advantages for patients, they also present new and 
unique challenges for regulators, law enforcement and 
policymakers. And rogue online pharmacies can be a prescription 
for disaster for unwary consumers.
    Last June, I participated in a hearing held by the Senate 
Permanent Subcommittee on Investigations (PSI) which revealed 
disturbing evidence about the ease with which U.S. consumers 
can purchase dangerous and often addictive controlled 
substances from Internet pharmacy websites. I was particularly 
alarmed to learn that more than 90 percent of on-line sites do 
not require a prescription or validate that there is a 
legitimate patient-physician relationship.
    I believe that we need legislation to protect consumers 
from these rogue internet pharmacies. This is one of the 
primary reasons that I have joined Chairman Smith in 
cosponsoring Senator Gregg's Safe IMPORT Act, which establishes 
federal licensing requirements and penalties for all Internet 
pharmacies that conduct or solicit business in the United 
States. The legislation also requires verification of a 
legitimate patient-prescriber relationship, and establishes 
verification procedures for all prescriptions.
    Mr. Chairman, while I believe that we must do all that we 
can to make prescription drugs more affordable, we must also do 
all that we can to ensure patient safety. This hearing is an 
important part of that process, and I commend the Chairman for 
raising these important issues.
    The Chairman. With that, we thank you again and we are 
adjourned.
    [Whereupon, at 11:53 a.m., the committee was adjourned.]

                                 
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