[Senate Hearing 109-780]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-780
 
                      INCREASING GENERIC DRUG USE:
                    SAVINGS FOR SENIORS AND MEDICARE

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

                                HEARING

                               before the

                       SPECIAL COMMITTEE ON AGING
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                             WASHINGTON, DC

                               __________

                           SEPTEMBER 21, 2006

                               __________

                           Serial No. 109-33

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

                                  (ii)



                            C O N T E N T S

                              ----------                              
                                                                   Page
Opening Statement of Senator Herb Kohl...........................     1
Opening Statement of Senator Gordon Smith........................     3
Opening Statement of Senator James Talent........................     4

                                Panel I

Mark McCllelan, M.D., Ph.D., administrator, Centers for Medicare 
  and Medicaid Services, U.S. Department of Health and Human 
  Services, Washington, DC.......................................     5

                                Panel II

William Vaughan, senior policy analyst, Consumers Union, 
  Washington, DC.................................................    34
Timothy Antonelli, R.Ph., clinical program manager, Blue Cross 
  Blue Shield of Michigan, Southfield, MI........................    46
William H. Shrank, M.D., MSHS, Division of Pharmacoepidemiology 
  and Pharmacoeconomics, Brigham and Women's Hospital, Harvard 
  Medical School, Boston, MA.....................................    55

                                APPENDIX

Prepared Statement of Senator Susan Collins......................    77
Prepared Statement of Senator Ken Salazar........................    77

                                 (iii)




     INCREASING GENERIC DRUG USE: SAVINGS FOR SENIORS AND MEDICARE

                              ----------                            



                      THURSDAY, SEPTEMBER 21, 2006

                                       U.S. Senate,
                                Special Committee on Aging,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:06 a.m., in 
room SD-562, Dirksen Senate Office Building, Hon. Herb Kohl 
presiding.
    Present: Senators Kohl, Smith, Collins, Talent, Nelson and 
Lincoln.

             OPENING STATEMENT OF SENATOR HERB KOHL

    Senator Kohl. We will call this hearing to order now and 
welcome our witnesses. As always, I thank Chairman Smith for 
allowing us to put together this hearing.
    Everywhere I go in my State of Wisconsin, I see how 
prescription drug costs are a drain on seniors, families and 
businesses, all of whom are struggling to pay their health care 
bills. They need help, and we can respond by expanding access 
to generic drugs. Generics, which on average cost 63 percent 
less than their brand-name counterparts, are a big part of the 
solution to health care costs that we all know are spiraling 
out of control.
    Prescription drugs make up 11 percent of national health 
care spending, but are one of the largest and fastest growing 
health care expenditures. The U.S. spent over $250 billion on 
prescription drugs in 2005, with generics accounting for 56 
percent of the prescriptions, but only less than 13 percent of 
the cost. One study estimates that every 1-percent increase in 
generic use can save up to $4 billion. That means that a modest 
5-percent increase in generic use could save as much as $20 
billion.
    The private and public sectors are looking for relief, and 
our Committee has heard some remarkable success stories from 
some who have turned to generic drugs. General Motors, for 
example, testified that in 2005 they spent $1.9 billion on 
prescription drugs--40 percent of their total health care 
spending--and their program to use generics first saves General 
Motors nearly $400 million a year.
    We know generic drugs have the potential to save seniors 
thousands of dollars and curb health care spending for the 
Federal Government, States, employers and families. Every year, 
more blockbuster drugs are coming off patent, setting up the 
potential for billions of dollars in savings, and so the 
question is what are we going to do about it.
    Well, first, we need to get the word out to Medicare 
beneficiaries. This month, millions will exceed the initial 
$2,250 drug benefit and will fall into what is called the donut 
hole, where they must pay full price for their drugs. CMS needs 
to steer seniors more so toward generic drugs to help them 
survive the donut hole and publicize the 13 percent of drug 
plans that actually cover generic drugs during this gap so that 
seniors can seek out those plans during the open season.
    Second, we need to do a better job of educating seniors. 
Many are still reluctant to switch to generic drugs because 
they think that expensive or brand name means better. Many 
don't know or don't believe that generic drugs are just as safe 
and effective as the brand-name drug that they see advertised 
on television. Often, their own physicians compound the 
problem. With little information available to doctors comparing 
brand name to generics and patients demanding the newest drugs, 
doctors too often prescribe medications that are more 
expensive, but not necessarily more effective.
    CMS and HARQ are currently compiling some comparative 
information about different drugs that treat the same diseases, 
but we need more comprehensive studies. We need to get this 
information into the hands of doctors so that they can 
prescribe better, and we should get it to the Medicare drug 
plans, also, so they can consider it when designing their 
formularies.
    It is clear that generic drugs can be a big part of reining 
in health care costs. The first battle in this fight is to 
break through the roadblocks that stop generics from reaching 
patients. In the agricultural appropriations bills, we are 
boosting funding for the FDA to reduce their backlog in 
approving generics, and I and others are also sponsoring 
legislation to end back-room deals and frivolous citizen 
petitions used by the pharmaceutical industry to prevent 
generics from coming to market faster. It is also time to 
create a system to approve generic biologics which are 
increasingly used to treat disease, but currently have no 
generic equivalents at all.
    Once generics are on the market, it is just as important to 
win the next battle, which is to make sure that every senior, 
every family, every business and every government program knows 
the value of generics and uses them to bring costs down. So we 
look forward to hearing more from our panels.
    Now, we turn to our Chairman, Gordon Smith, for his opening 
comments.

     OPENING STATEMENT OF SENATOR GORDON H. SMITH, CHAIRMAN

    The Chairman. Thank you, Senator Kohl, and my thanks to you 
for helping to organize this hearing and to your staff. We 
appreciate so much the working relationship we have with you. 
But, more, we thank you for all that you have done to help 
seniors reduce their prescription drug costs and what you 
continue to do.
    I also want to make note of what I have been told. This may 
be Dr. Mark McClellan's last Senate hearing. I don't know 
whether that makes you happy or sad, but we are honored that 
you would come here, Mark, to this Committee, it being one of 
your last hearings, if not the last. You have presided over 
this enormous program, this enormous agency, at a historic and 
important time, and I know you have had your full measure of 
challenges. But I just think heart-felt thanks are due on 
behalf of the Senate, on behalf of this Senator, and certainly 
on behalf of the seniors of this country, who I think in 
increasing numbers are recognizing that while we didn't pass a 
perfect bill for you to administer, we have passed a bill that 
is proving already a real benefit to their lives and to their 
quality of living.
    Today, we turn our focus to the demand side of the equation 
by exploring ways generic drugs can be used more frequently 
when they are deemed medically appropriate. We are familiar 
with the skyrocketing costs of prescription drugs and the 
potential savings that could be achieved if generics were used 
more effectively in our Nation's health care system. This is 
true both for individual consumers and the government, but 
neither can achieve those savings unless we continue working to 
break down the barriers that Senator Kohl just talked about.
    Medicare's new prescription drug benefit is saving seniors 
a great deal of money on their health costs, but they could 
save even more by choosing to use generic alternatives their 
plans offer. Considering some reports show that drug prices and 
Medicare Part D are increasing at rates equal to or even faster 
than the rest of the market, the gains seniors have made with 
their new benefit may soon be lost.
    We cannot afford to allow out-of-control drug prices to 
erode seniors' access to vital drug therapies. But simply 
getting more prescription alternatives to the market will not 
guarantee that they will be used by doctors or patients. The 
savings generics could provide our health care system can only 
be fully realized if we raise awareness about their 
effectiveness and their affordability.
    In order to accomplish this, there needs to be more 
information available to the public regarding generic drug 
benefits. Fortunately, interest from the government and other 
health care purchasers has sparked more research in this area. 
Programs like the Drug Effectiveness Review Project, 
spearheaded by the Oregon Health Sciences University, are 
providing policymakers and health care purchasers a wealth of 
evidence-based materials about the effectiveness and safety of 
prescription drugs, including generics.
    We are all aware of concerns that brand-name marketing 
efforts influence physicians' prescribing behavior. Since 
generic drug companies typically do not engage in such 
activities, a doctor may not be aware of the availability of 
more affordable drug options. If we expect to realize all the 
benefits generics have to offer, both providers and patients 
need greater access to objective prescription drug information.
    The Internet is one source consumers are using to make 
comparisons between brand-name and generic drugs. Hopefully, as 
seniors learn more about their options, they will more readily 
talk to their doctors about finding the prescription drugs that 
are not only most effective, but most affordable.
    So I look forward to our discussion today and I expect it 
will provide us with more ideas on how we can further raise 
awareness about the value and safety of generic prescription 
drugs. Senator Kohl has assembled a fine group of witnesses and 
I know their input will be very useful.
    Senator Kohl. Thank you very much for your fine statement, 
Mr. Chairman. Now, we turn to Senator Talent.

           OPENING STATEMENT OF SENATOR JAMES TALENT

    Senator Talent. I want to join Senator Kohl and the 
Chairman in welcoming Dr. McClellan. Thank you for your 
tireless efforts in implementing the Medicare prescription drug 
program which is benefiting over 700,000 seniors in Missouri. 
While there are certainly things about the bill that I want to 
improve--and you and I have talked about some of them--I am 
pleased about the benefit to Missourians and the fact that the 
model has succeeded in getting prescription drug costs 
discounted and then paying a part of the discounted price for 
our seniors around the country.
    I also join with you in the belief that in addition to just 
providing a benefit that people need, it is going to be very 
important in moving Medicare toward a system that focuses on 
helping people manage their health and manage any diseases they 
may have so they stay as healthy as possible, rather than just 
paying bills when they get sick. That is the key to the health 
of our seniors in the future. Certainly, increased reliance on 
generics is an important part of that and we need to keep 
emphasizing that, and I am glad you are here today to talk 
about what you think we can do.
    Thank you, Mr. Chairman.
    Senator Kohl. Thank you, Senator Talent.
    We will turn now to our first witness, Dr. Mark McClellan. 
Dr. McClellan has been the Administrator of the Centers for 
Medicare and Medicaid Services, known as CMS, since March 2004. 
Unfortunately, as we know, Dr. McClellan recently announced 
that he will be leaving his job. Of course, we wish you the 
very best. We certainly appreciate how accessible you have been 
to this Committee, and we thank you for agreeing to come here 
today.
    Dr. McClellan will discuss CMS' efforts to encourage 
generic drug use under Medicare and their preparations for the 
upcoming open season, when beneficiaries can switch their drug 
plans.
    We welcome you here today and we look forward to your 
testimony.

   STATEMENT OF MARK McCLELLAN, M.D., Ph.D., ADMINISTRATOR, 
CENTERS FOR MEDICARE AND MEDICAID SERVICES, U.S. DEPARTMENT OF 
           HEALTH AND HUMAN SERVICES, WASHINGTON, DC

    Dr. McClellan. Thank you, Senator Kohl, and Mr. Chairman, 
Senator Talent. Thank you very much for your kind words, for 
your bipartisan leadership on the issue of generic drugs, and 
especially for your leadership on safe and effective ways to 
lower drug costs for Americans.
    Generic drugs are just as safe and effective as the brand 
name version, they are inexpensive in the United States as a 
result of our competitive pricing system, and they are a 
critical element to providing health care to Americans that is 
effective and affordable. As a result of the new Medicare 
prescription drug benefit, generic drug use is up 
significantly, leading to billions of dollars more in savings 
for people with Medicare and taxpayers.
    I am pleased to report that the Medicare drug benefit is 
proving less expensive than anticipated at any previous time 
and that we expect continued savings throughout 2007. These 
savings are in part being driven by promoting the use of 
generics, where appropriate, in the design and implementation 
of the drug benefit, and I am pleased to have the opportunity 
to discuss how we can do even more in this area.
    Based on updated figures from the 2006 mid-session budget 
review, the estimated cost of the drug benefit over 5 years is 
down by $35 billion compared to the estimates earlier this 
year, and is $110 billion lower than the estimates just a year 
ago. The average Part D premium for 2006, now estimated to be 
under $24 a month, is lower than estimates from last year which 
came in at over $37 a month. Based in part on these strong 
competitive bids for 2007, average premiums next year will 
again be around $24 if beneficiaries stay in their current 
plan.
    Because the vast majority of beneficiaries will have access 
to Medicare drug plans that have lower premiums, actual 
premiums in 2007 are likely to be even lower if some 
beneficiaries decide to switch. With lower bids and smart 
choices by our beneficiaries, costs to taxpayers will be even 
lower in 2007 than the much lower than expected costs we are 
already seeing in 2006.
    Along with aggressive drug price negotiation and effective 
benefit design, the utilization of generics has played an 
important role in bringing down these Medicare drug benefit 
costs. As you pointed out, generic drugs typically cost 50 to 
70 percent less than their brand-name counterparts, and prices 
for generic drugs in the United States, drugs that account for 
most of the prescriptions in this country, are much lower than 
in many other countries. For example, a study by the National 
Opinion Research Center at the University of Chicago reported 
that people living in Canada pay 37 percent more for generic 
drugs than people living in the United States.
    Because of these low prices and strong competition, the 
Medicare drug plans are providing excellent low-cost coverage 
for generic drugs. Generics are widely available on planned 
formularies and co-pays for these drugs are typically low, 
often just a few dollars, and some Part D plans are even 
providing generic prescriptions for free.
    Because of the low prices and because of the personalized 
information that Medicare beneficiaries are getting about how 
they can save using generics, Medicare beneficiaries are using 
generics at a high rate. Nationwide, the proportion of generic 
usage stands at 51.9 percent. Data that CMS is gathering on the 
drug benefit show that generic usage among all types of Part D 
plans was 60.1 percent in the first two quarters of 2006.
    In addition, many Part D plans report an increased growth 
rate of generic utilization that is faster than in the overall 
market. This is very good news for Medicare beneficiaries in 
the Medicare program because it translates into billions of 
dollars in savings, while still delivering the same high 
quality of health care.
    One of the most important tools in helping beneficiaries 
find out about how much they can save using generics is our 
Drug Plan Finder tool which is available online at Medicare.gov 
and on the phone at 1-800-MEDICARE. Millions of beneficiaries 
and the family members and counselors who work with them have 
seen how much they can save personally by switching to generic 
versions of their drugs. We are enhancing this tool for 2007 
for the upcoming fall open enrollment period, and we will also 
highlight generic availability in the Medicare & You Handbook 
which is being sent out next month.
    Additionally, during our outreach events and through our 
extensive partner network, we are advising beneficiaries that 
asking their doctor or pharmacist about generics or lower-cost 
brand-name drugs that treat the same condition can help them 
delay reaching the coverage gap if they choose a plan that 
doesn't fill in the coverage gap. Consumers Union has concluded 
that seniors can save hundreds, if not thousands of dollars by 
switching to generics, potentially enabling them to avoid any 
coverage gap altogether. Other studies have found similar 
savings of 60 to 75 percent by switching to generics, and next 
year I am pleased to report that even more plans will offer 
coverage of generics in the gap.
    CMS is also working with a broad range of stakeholders in 
the Pharmacy Quality Alliance to develop consensus measures of 
pharmacy quality that will be available starting later this 
year. Generic utilization is expected to be one of these key 
quality measures. Low-cost generic drugs are one of the reasons 
why a broad range of recent surveys, including J.D. Power and 
the Kaiser Foundation, are consistently showing high 
beneficiary satisfaction rates with the new drug benefit. 
Satisfaction rates are consistently over 80 percent, with even 
higher rates for dual-eligible beneficiaries.
    We are continuing to work hard to build on these successes 
and improve the benefit further. For example, in 2007 more 
plans will be offering options with coverage in the gap, and as 
I have already mentioned, Part D costs will be lower for 
taxpayers. The cost savings are due in no small part to price 
negotiation on drugs, and also to effective use of generics 
that cost much less than drugs that seniors have used in the 
past.
    Mr. Chairman, Senator Kohl, Senator Talent, thank you again 
for inviting me to speak with you today about generic drugs and 
how we can work to continue providing a high-quality, low-cost 
prescription drug benefit for people with Medicare. The drug 
benefit provides much-needed coverage for our beneficiaries, 
and generic drugs serve as an important and safe way to save a 
lot of money for beneficiaries and the Medicare program. I look 
forward to any questions that you all may have.
    Senator Kohl. Thank you for your statement. You say that 
generic drug use rates under all Part D plans during the first 
two quarters were just a bit above 60 percent, which is very 
good. I assume that that is an average and that there are some 
plans which did a better job and others which did not do so 
well.
    What kind of range are we talking about here? In other 
words, what were the generic use rates of the plans with the 
lowest and the highest generic use? Do you have some 
information on that?
    Dr. McClellan. This is preliminary data, Senator. We have 
just gotten second quarter data recently. In the first quarter, 
I am not sure that is going to be real representative because 
that was the transition period for many people onto the benefit 
and many people continued their previous drugs for the first 3 
months of 2006.
    We are going to keep analyzing these data and we do want to 
make them available by plan. We hope to do so by November, so 
we should have those numbers for you by plan soon. What I can 
tell you is that some of the Medicare Advantage plans, the HMO 
and PPO and private fee-for-service plans in Medicare, tend to 
have a somewhat rate of use of generic drugs, over 60 percent, 
but we don't have any systematic numbers on that quite yet. We 
will have them soon.
    Senator Kohl. Will that information be available to seniors 
by the time the open season starts in November so that they and 
we and everyone can know which plans are doing a better job and 
which are not doing well?
    Dr. McClellan. That is exactly our goal. I know that is 
very important to you from our staff discussions and we intend 
to make that information available by mid-November.
    Senator Kohl. For those plans with well below the average 
generic use, what is CMS intending to do to encourage them to 
increase their use of generic drugs?
    Dr. McClellan. Well, I think that those plans are going to 
have a hard time doing well in this program in the longer term 
because we are seeing strong competition. The premiums are very 
low. The cost of the overall drug coverage is much lower than 
expected and if plans aren't implementing effective ways of 
telling people about the savings with generics and helping 
people switch over, then they are not going to do well.
    That is why I think we are seeing such good coverage for 
generic drug use, with many plans having generic drugs 
available for no cost at all. We are going to highlight those 
plans this fall, and I think the most important message for the 
drug plans is because we are making available information on 
generic use, because we are telling people how much they 
personally can save on their drug needs by switching to safe 
and effective generic drugs, the plans that don't do well with 
generics are not going to do well in this program.
    Senator Kohl. Dr. McClellan, a growing number of drugs that 
seniors take today, as you know, are biotechnology drugs, which 
have been a growing expense under Medicare Part B and are now 
also covered under Part D. Today, as you know, there are no 
generic versions of biotech drugs because the FDA has no system 
to approve them.
    Don't you believe it is time that we do create a system to 
approve generic biotech drugs, and wouldn't those generics 
produce additional real savings for Medicare and for seniors?
    Dr. McClellan. Senator, during my time at FDA, we spent a 
good deal of effort starting to look into what would be 
required for generic biologics to be available safely and 
effectively and I know FDA is continuing to work very hard on 
that issue.
    The challenge that biologics present is, as you know, they 
are much more complicated molecules. They are not a simple, 
small-molecule drug. Many biologics are complex. They are part 
of complex formulations with complex manufacturing processes, 
and what that means is that they present some more challenging 
safety issues.
    The FDA is working hard to find ways to address those 
safety issues, but frankly I think we need to put some 
resources into developing methods that can assure the safety of 
generic versions of biologic drugs and maybe focus first on 
some of the relatively simple generic biologics. FDA has 
already got a process underway for a generic version of 
Omnitrope, which is a relatively small biologic molecule. There 
are several other biologics that were approved a long time ago 
under the FDA's new drug authority, as opposed to the BLA, the 
biologics authorities, and that might be a good place to start. 
But I agree with you that it is time to look closely at the 
safety issues, and if we can address those safety issues, then 
this is an important policy to consider.
    Senator Kohl. Thank you.
    Mr. Chairman.
    The Chairman. Thank you, Senator Kohl.
    I wonder, Mark, in your view, to the degree that there is 
resistance to generics, is it just perhaps a placebo belief 
that the brands are just better, because, in fact, aren't the 
medicines darn near identical?
    Dr. McClellan. They are identical; the active ingredients 
are identical. They are regulated in the same way. They have to 
meet the same safety and effectiveness standards. According to 
the FDA, the oversight is tight.
    I think, Mr. Chairman, it is maybe a bit of a carryover 
from when people hear the term ``generic,'' they think about 
knock-off purses or watches that you might buy on the street 
that aren't the same as the brand-name version. It is very 
important for the public to know that that is absolutely not 
the case when it comes to FDA-approved generic drugs in the 
United States. These drugs are just as safe and just as 
effective as the brand-name version.
    We have been making that information available every 
opportunity we get. It is on our website. It is in, as I 
mentioned, our outreach materials to beneficiaries, and I think 
as long as we have a concerted effort with all of us focusing 
on this very important education message about safe and 
effective and low-cost medicines, we can make sure that all 
Americans are aware of it.
    The Chairman. Ultimately, will the best educator be the 
price savings that people individually can enjoy?
    Dr. McClellan. What we have found is what seems to motivate 
a lot of seniors is being able to give them personalized 
information about the price savings, not just telling them, in 
general, that generics are 50 to 70 percent, or more, savings 
compared to the brand-name drug, but being able to give them a 
print-out when they call us 1-800-MEDICARE or when they go to 
Medicare.gov. If you tell us what drugs you are on, we will 
tell you if there is a generic version available and we will 
tell you how much you can save each month by switching to that 
drug.
    That is a print-out that you can take with you the next 
time you see your doctor or pharmacist. In many States, you 
don't even need to go to the doctor to switch over to a generic 
version of your drug; you can just do it. So that has proved to 
be a strong motivator for many of our beneficiaries.
    The Chairman. It keeps them out of the donut hole for a lot 
longer, doesn't it?
    Dr. McClellan. It sure does. That is what Consumers Union 
has said that you can save hundreds or thousands of dollars by 
switching over, and that can keep you out of the donut hole if 
you choose a plan that has a donut hole.
    The Chairman. If I hear any complaint at this point on 
Medicare Part D. it is the donut hole. I think that was 
foreseeable, but again I hope your Department is getting that 
message out. If you want to stay out of the donut hole for a 
lot longer, use generics.
    Dr. McClellan. It is very important. On our website and 
when people call us at 1-800-MEDICARE, we have a whole set of 
steps that people can take to lower their drug costs. Even if 
they are not in the donut hole, these are important things to 
look at anyway to keep your drug costs down. It includes 
getting this personalized information about generic drug 
availability and lower-cost brand-name drugs for your medical 
needs, something you can talk about with your doctor and 
pharmacist.
    It includes using your Medicare card because you get 
discounts on the drug prices when you do that. It includes 
looking at a lot of programs that are out there to help you 
with costs in the donut hole. So we want people to get in touch 
with us about all of these opportunities for saving.
    The Chairman. I describe generics as nearly identical, and 
I want to emphasize your response was that they are identical.
    Dr. McClellan. Just as safe and effective. They have the 
same active ingredient, they work in the same way in the body 
as the brand-name drug.
    The Chairman. Mark, something that is not specifically to 
generics, but Medicaid, and a concern I have on Medicaid. I 
want to talk to you about some recent news reports that I am 
aware of that a couple of States, specifically Kentucky and 
Idaho, are offering Medicaid so-called benchmark plans without 
describing to the beneficiaries that that doesn't disqualify 
them from Medicaid. Frankly, they need to be told what the 
differences are, and they shouldn't be asked to make a choice 
between a benchmark plan and Medicaid. If they are going to 
make that choice, they need to be given the choice.
    I am wondering, has CMS authorized these two States to 
pursue these alternatives without making clear their choice?
    Dr. McClellan. Mr. Chairman, under the Deficit Reduction 
Act, as you know, because I know this is a provision very 
important to you, for certain populations the States must 
continue to offer a traditional Medicaid option as well as 
these new kinds of benefit plans.
    What we have heard from beneficiaries in the two States is 
that they are pleased by the new benefits coming along. In 
Idaho, there are some additional benefits to help people stay 
well that they didn't get before. In Kentucky, there are new 
home and community-based services that are very important and 
very much supported by many advocates for people with a 
disability to help people get services that they need in their 
homes.
    But I want to be very clear that under the law and under 
our interpretation of the law, the States must offer the basic 
traditional Medicaid version, too, for people who want it. For 
beneficiaries that feel that they are not getting access to 
needed benefits, they have appeals rights and we intend to 
enforce that provision.
    The Chairman. As far as you know, are Kentucky and Idaho 
making clear----
    Dr. McClellan. Well, Idaho has not yet even initiated their 
program. It is not even underway yet. In Kentucky, people do 
have the option of staying in the traditional Medicaid program, 
and we will be happy to provide you with additional information 
on this.
    The Chairman. You have provided no waiver from the statute?
    Dr. McClellan. No. I want to be very clear that the States 
must provide the basic traditional Medicaid approach as an 
alternative for beneficiaries.
    The Chairman. One other comment I have. My staff is working 
with your agency to try and work out a solution to the problems 
that have occurred with Part D premium withholding. I 
appreciate your willingness to develop solutions, but I want to 
make clear that CMS and SSA need to work with beneficiaries to 
develop options to repay past-due premiums over a period of 
time. This is a problem not of their making.
    Dr. McClellan. Absolutely.
    The Chairman. So I hope, come November, or whatever the 
deadline is for an individual, they won't have their check 
confiscated in one lump sum. I think too many seniors would 
face a real financial burden.
    Dr. McClellan. If I can just say a word about that, this 
was our mistake and it is our responsibility to fix it and to 
make sure that the money that the seniors wanted to go to pay 
their drug plan premium does go to do that, but does it in a 
way that is not burdensome on the senior.
    The Chairman. So you are not proposing a--you are not just 
going to grab their money?
    Dr. McClellan. You know, some people do want to just get 
the money back and be done with it, and that is fine. For most 
people, the amount of money involved was under $200, and so 
many people just want to be done with it. None of our low-
income beneficiaries were affected. But some people want to 
have the option of paying it out over time and we have made 
available an option of paying out for as much as 7 months, and 
we will talk to beneficiaries about even longer if they have 
concerns.
    We have a toll-free number set up for people to call in if 
they have any questions about this, and we definitely want to 
work with our beneficiaries to make sure the money goes where 
they intended it to go in the least burdensome way possible.
    The Chairman. Well, I thank you for your flexibility on 
that very much.
    Thanks, Mr. Chairman.
    Senator Kohl. Thank you, Mr. Chairman.
    Senator Nelson from Florida.
    Senator Nelson. Thank you, Mr. Chairman.
    Dr. McClellan, as you know, there have been 45 of us 
Senators that have introduced what is called the Medicare Late 
Enrollment Assistance Act, including several of the members of 
this Committee. It is headed up by Senator Grassley and Senator 
Baucus.
    We filed this bill the day after the deadline, the deadline 
having been May 15, in order to eliminate the 1-percent-a-month 
penalty which, in effect, for senior citizens that did not sign 
up, as they sign up at the end of the year for the Part D 
Medicare prescription drug benefit, they are going to be 
penalized with a 7-percent increase in their premium. It is 
estimated by one of the agencies--I think it might be CBO--that 
this includes 3 million senior citizens in the country.
    So I would like to know if your outfit, CMS, supports 
waiving this late enrollment fee for these seniors at this 
particular time.
    Dr. McClellan. Senator, we have very strong interests in 
making sure that everyone takes advantage of this benefit, so 
we certainly share your goal of getting more people into the 
program. I think we did have some concerns about the way that 
this bill might be paid for by taking away money that is needed 
for providing other benefits to seniors, Medicare Advantage 
support and things like that that many seniors are counting on.
    What I can tell you, as well, is that we have been looking 
at these numbers closely and it is not, we don't think, 3 
million beneficiaries that would be subject to the penalty. 
Remember that because of our authority, we have been able to 
waive the penalty for any low-income beneficiaries that have 
not yet enrolled, and that is a very hard population to reach 
and they actually account for probably most of the people who 
have not yet signed up, most of the few million people who are 
not yet in good drug coverage.
    We also want to emphasize that everybody who is in drug 
coverage now can switch to a different plan with no penalty at 
all later this year if they are not happy with their current 
coverage. So it is a pretty small population that is subject to 
this penalty. It is actually fewer people, we think, than would 
be subject to the Part B penalty if they ended up enrolling in 
Part B. So we will try to continue to work with you on this.
    Senator Nelson. Well, I hope so because 3 million is not a 
trifling number of people.
    Dr. McClellan. It is less than that. I agree any 
population, even if it is a few hundred thousand, that is 
something that we are concerned about; we want to get them into 
the coverage.
    Senator Nelson. Particularly when you are dealing with 
senior citizens who sometimes have to make the tough choices of 
how they are going to make financial ends meet. If you wanted 
to hang that penalty over their head in order to get them into 
the system, OK, the system deadline came and went. Now, for 
whatever reason, a number of them, many of them confused, did 
not sign up. Now, they are going to sign up at the end of the 
year. Why have that penalty of 7 percent on these people 
forever?
    Oh, by the way, you can pay for it with an offset because 
there was a sinking fund, a set-aside fund that was to help the 
private companies enroll people. Because people went ahead and 
enrolled, there is money left there that can be used to offset 
this penalty, so you have got a net no additional money. If it 
is for the good of the seniors, we ought to do it.
    Dr. McClellan. We definitely agree with you that we should 
be doing what is for the good of the seniors. We are concerned 
about taking away funds for other programs that may be needed 
and make sure we continue to provide the best possible coverage 
to seniors. Again, we have been watching the numbers closely. 
Ninety percent of people already have drug coverage. Most of 
those who don't, we have already said do not have to pay any 
penalty at all.
    If you are a low-income senior, there is no penalty. Please 
find out about this program and enroll in it right away. So it 
is only that smaller group, and again we do want to keep 
working with you on this to make sure we are using the dollars 
that we have as effectively as possible to help as many seniors 
as possible.
    Senator Nelson. Why can't you just say yes? [Laughter.]
    Dr. McClellan. People ask me that a lot, but there is----
    Senator Nelson. Well, I mean it is not funny.
    Dr. McClellan. I don't think it is funny. I think that the 
issue is a very important one and that is why we have tried to 
get the word out and that is why we are very pleased that so 
many people did enroll in drug coverage, and that is why we 
have done all we can under the authority we have to eliminate 
the penalty for low-income seniors. It is that remaining group, 
and again we want to continue to work with you. I just don't 
want to take money away from one important priority and put it 
on this one unless we are sure that that is the best thing to 
do.
    Senator Nelson. Well, since I have an opportunity to give 
you a little advice here, I would suggest also, since we have 
had a discussion here about the donut hole and I think a good 
discussion has come out here about how you can avoid having 
seniors go into the donut hole with the generic drugs--and by 
the way, Wal-Mart is starting a pilot project in my State, in 
Tampa, FL, in which they are going to start promoting the 
generics giving people prescriptions at something like four 
bucks a prescription. So on the basis of this experiment, this 
pilot project, maybe it will work.
    But over and above that, I would, Mr. Chairman, like to 
take the privilege of suggesting that one way that we could pay 
for the donut hole is to let the free market private enterprise 
work by having Medicare be able to negotiate through bulk 
purchases the price of the drugs down and take those savings 
and start to plug the donut hole.
    Thank you, Mr. Chairman.
    Senator Kohl. Thank you, Senator Nelson.
    Senator Talent.
    Senator Talent. Dr. McClellan, in your testimony you gave 
some figures about savings on the Part D program, updated 
figures, and I was writing them down and I didn't see them in 
your written testimony. Would you give me that again?
    Dr. McClellan. Sure, and we can give you a full report. 
This was included in the President's mid-session budget review 
update for 2007, and then we also made some further 
announcements in August when we released information on the 
2007 bids, the costs that the plans will have for the drug 
coverage in 2007.
    Based on the numbers that we saw through the budget in 
2006, the costs for the drug benefit in the first 5 years, 
starting in 2006, are $110 billion lower than had been 
projected just a year ago.
    Senator Talent. That is over 5 years?
    Dr. McClellan. That is over 5 years. The costs in 2006 are 
25 percent lower than had been projected just a year ago. That 
is billions of dollars in savings for beneficiaries through 
lower premiums and savings for taxpayers.
    Senator Talent. So the taxpayers are spending less than we 
thought?
    Dr. McClellan. Taxpayers are spending a lot less. Now, 
those numbers don't yet account for the fact that the cost of 
the prescription drug benefit is going to go down in 2007, and 
that is because the average bid, the average cost for providing 
a drug plan to beneficiaries--the average cost to taxpayers is 
going to go down by 10 percent. It may go down even more if 
seniors do what they did this year, which is look into the 
program and take some effort.
    I know it wasn't easy especially this first time for many 
of them, but they looked into it and they overwhelmingly chose 
low-cost plans. They are very satisfied with those plans, and 
so we could see even more savings.
    Senator Talent. The cost to the taxpayers is $110 billion 
less over 5 years than we thought?
    Dr. McClellan. Yes, and again I think those numbers are 
going to be down----
    Senator Talent. The cost to the seniors, because the 
average premium is staying the same----
    Dr. McClellan. It is 40 percent lower than had been 
projected.
    Senator Talent. Yes, 40 percent lower. It sounds like there 
is some bargaining going on someplace, isn't there?
    Dr. McClellan. There is a lot of bargaining going on and we 
are going to see even more savings.
    Senator Talent. So it is costing the taxpayers less and it 
is costing the seniors less.
    Dr. McClellan. A lot less.
    Senator Talent. The two objects of the bill were to force 
the prescription drug companies to discount their prices, which 
they have, and then pay a part of the discounted price for the 
seniors. It is an insurance feature.
    Dr. McClellan. If I could just add to that, we have an 
update. We have been tracking the cost of drugs in the program 
and tracking the prices that the plans are negotiating over 
time. We are going to have an update on those numbers released 
this afternoon. What we are seeing is large and stable savings 
of typically 50 to 70 percent for commonly used combinations of 
drugs by seniors. In the drug plans, the average price of the 
drugs for the first 8 months of the program has increased by 
less than one percent. So it is not only below medical 
inflation, it is below general inflation.
    Senator Talent. Of the folks who haven't signed up--and I 
support waiving the penalty, too, in part because the cost of 
that will be so much less than we think since there are just 
not that many people that we haven't already waived it for 
anyway.
    Dr. McClellan. Yes.
    Senator Talent. But in any event, most of the folks who did 
not sign up are eligible for the more generous benefit that 
lower-income Americans can get. Isn't that right?
    Dr. McClellan. That is correct.
    Senator Talent. My experience in Missouri was that part of 
the problem was there were so many allegations about the plan 
being thrown out there that a lot of people, I think, were 
afraid. They just didn't get the information adequately, and 
now that they have got it, I am hopeful that they will sign up 
because those are exactly the folks who need it.
    Now, you mentioned in your testimony on page 7 that the 
Pharmaceutical Care Management Association released a study 
earlier this year indicating that Medicare drug plans offer 
significant price discounts compared to what beneficiaries 
would pay without coverage. Now, you are talking about just the 
discounts off the original prescription drug price. Is that 
what study----
    Dr. McClellan. That study was looking just at the discounts 
off the price.
    Senator Talent. Not the insurance feature that the 
government pays?
    Dr. McClellan. Not the insurance, not the payments.
    Senator Talent. Did that study give an average discount? I 
mean, can I get some figures on that?
    Dr. McClellan. They did, and I am sure PCMA would be happy 
to talk about it. I think they have actually testified before 
this Committee, too, and I think the numbers are in the range 
of 30 to 50 percent.
    Senator Talent. OK, that would be good. Now, one other 
thing you mentioned--and it was kind of you to talk about the 
strong support that Members of Congress gave. I know that you 
are testifying before members of the Senate, and so I 
understand why you said that. But I want to just point out--and 
I am sure you will agree with this--that we had tremendous help 
on the ground, and continue to have it, from our community 
pharmacists and from our senior centers and those who implement 
the Older Americans Act.
    Dr. McClellan. Yes.
    Senator Talent. We found in Missouri that those two groups 
absolutely were priceless and indispensable in getting 
information about the Medicare benefit, and I hope you feel the 
same way.
    Dr. McClellan. They have been phenomenal, and I think they 
are going to be so. The No. 1 source for beneficiaries was 
pharmacists and these local counselors. Senator, we are 
continuing that same grass-roots approach for the open 
enrollment period for 2007. We have launched a new initiative 
called My Health, My Medicare. We looked at what happened this 
past year and we found that this personalized support really 
helps people get better care. It is, as you were saying 
earlier, turning Medicare from a program that just pays the 
bills when people get sick to a program that is a partner to 
help them stay well.
    In addition to the information about lower-cost drug 
coverage options for next year and generics, they will also be 
helping us get the word out about our new preventive benefits. 
Medicare has closed the preventive benefits gap, but we still 
have a prevention gap among our seniors where many seniors 
aren't taking advantage of it. I know you know about the fact 
that we have got free screening for heart disease and diabetes 
and many types of cancers.
    Senator Talent. One more comment and then I am done. Thank 
you for your patience, Senator Kohl.
    I have been talking a lot with pharmacists about the 
medicine management program, the pilot program that we put in 
the Medicare Modernization Act, and I want to encourage you to 
continue moving in this direction and I am going to do this 
with your successor. Also, you are talking about wellness and 
it is very important to move Medicare in that direction.
    It is very important that we have people who have regular 
contact with their patients, helping them to understand 
wellness programming and move in that direction. Well, who is 
that if not the pharmacists? As we begin to implement 
electronic medical records more and more, we can network in all 
these health care professionals. I just want to urge you to 
think in these terms. Getting these pharmacists more involved 
and expanding that pilot program so they get compensation for 
how they work with seniors is not going to cost us money. It is 
going to save us money because they are part of the group of 
people who will show these seniors how to do these wellness 
aspects. So think in those terms about it because we have had 
some resistance on that.
    Dr. McClellan. I agree completely with you, and because of 
your interest in this issue, we helped support a new Pharmacy 
Quality Alliance that is being led by pharmacy groups that 
includes all the health care stakeholders to help make these 
better medication therapy management and other quality pharmacy 
services available not just to Medicare beneficiaries, but we 
need this throughout our health care system, Senator.
    Senator Talent. I completely agree, and one of the things I 
regret about the bill is that the pharmacists have borne such a 
burden under it and, as you know, they are economically 
squeezed and this would be a great way to help them, but also 
to help move this progress toward a wellness system.
    Dr. McClellan. We will follow up on this.
    Senator Talent. Thank you and your staff.
    Thank you, Senator.
    Senator Kohl. Thank you, Senator Talent.
    Senator Susan Collins from Maine.
    Senator Collins. Thank you.
    Dr. McClellan, the debate over the use of generic drugs 
versus brand-name drugs becomes largely an academic debate if 
patients don't have access to physicians that can diagnose them 
and write the appropriate prescription. So though I am 
extremely interested in this issue and very concerned about it, 
I am going to use my time this morning to question you about 
policies that the Department is pursuing that threaten a number 
of small medical residency programs in the State of Maine that 
provide absolutely critical family physicians for the most 
rural areas of my State.
    I also have to express some frustration to you because I 
have called your office every single day for a week to talk to 
you about this issue and have been unable to get a return call. 
So with the Chairman's indulgence, I am going to use my time 
here today to pursue this issue and then I will submit my 
questions for the record on the generic drug issue, which is an 
extraordinarily important issue.
    As I have said, we have five small medical residency 
programs in Maine. They have been the subject of audits by the 
fiscal intermediary focusing on their graduate medical 
education programs, specifically their use of non-hospital 
teaching sites. Over the past 4 years, they have been asked to 
repay millions of dollars and have had the cap on their overall 
FTE reduced.
    Most recently, the fiscal intermediary has told two of the 
programs that they may have to pay $5.4 million. I have to tell 
you, Doctor, if that stands, these programs will close; they 
will be forced to close their doors. I am not crying wolf about 
that; that is the financial reality. These hospitals and 
teaching programs have dedicated themselves to training primary 
care physicians and placing their graduates in rural Maine 
communities. They are non-profit institutions that provide 
health care to Maine's most vulnerable populations. With all 
due respect to your fiscal intermediaries, they are doing their 
best to comply with a set of regulations that are inconsistent, 
vague and contradictory.
    If we lose the two teaching programs that are at issue 
right now, we will lose approximately one-third of our graduate 
medical education population and our major pipeline for future 
primary care physicians. The result of that is that citizens in 
my State are going to have reduced access to health care. I 
understand that CMS has a fiduciary responsibility, but I just 
plead with you to take a look at the implications of the 
decisions that are being made. I think your agency is not 
seeing the forest for the trees.
    Over the past 4 years, I have written letters to you. I 
have talked to you personally about this, I have talked to 
Secretary Leavitt, I have talked to your predecessor, and I 
believe that CMS' actions are in direct conflict with 
congressional intent, as expressed in the 1997 and 1999 
Balanced Budget Act which were designed to encouraged rural and 
out-of-hospital experiences in these residency programs.
    Congress put in place a 1-year moratorium on the kinds of 
payment denials as part of the Medicare Modernization Act. Yet, 
the recent audits threaten to deny payments for rotations that 
occurred during the moratorium. I don't even think you can 
legally do that. It is extremely frustrating. I don't want to 
take the time of this Committee to go into it in more detail, 
but this has to be resolved.
    These are small residency programs. They are not large 
teaching hospitals, and we have reached a level of technicality 
here that none of them, even with the best of intentions, can 
meet. When my staff looks at the regulations, we can't figure 
out why the denials are being issued.
    Let me just give you one example. The most recent audit of 
the Maine-Dartmouth Family Residency programs denies the 
reimbursement for time if the written agreement between the 
teaching program and the supervising physician is not dated 
prior to the time training was begun even though everything 
else was fine. Yet, we can't find any regulation that 
stipulates that requirement. So this is extremely serious.
    I would ask that you at least consider delaying the 
issuance of the notice of program reimbursement by the fiscal 
intermediary for Maine General Medical Center and Southern 
Maine Medical Center so we can continue to work to resolve 
these issues. I have to tell you the situation is dire. These 
programs will close if we can't get this to be resolved, and 
that means that senior citizens in our State and disabled 
individuals are not going to be able to get the care they need. 
It is not going to be a choice for them between a brand-name 
and a generic drug; they are not going to be able to see a 
physician in their community to get any kind of prescription. 
So I plead with you to give this your personal attention before 
you leave, and I hope we can talk further about it.
    Thank you, Mr. Chairman, for your indulgence on this issue.
    Dr. McClellan. If you don't mind, could I have a couple of 
minutes?
    Senator Kohl. Yes.
    Dr. McClellan. This is a very important issue and, Senator, 
one of the things I have come to appreciate in this job is that 
no matter how hard my staff works, how well-meaning they are 
out of Baltimore and our offices around the country to get the 
program right and make sure it works for people, unless we 
listen to those who are on the ground actually delivering 
services, we aren't going to do an effective job in running 
this program and we aren't going to serve all of our 
beneficiaries as well as we should.
    One of the things that I have truly appreciated in my time 
working with you here at CMS is your input to us on those 
issues in Maine. Maine, like many States, has very distinctive 
kinds of provider arrangements that involve serving a lot of 
beneficiaries who don't have great access to health care to 
begin with and need all the help they can get to maintain and 
improve quality of care.
    I remember one of our first meetings when I came into this 
job. You brought up this issue of the need for residency 
training programs that work and the need for getting primary 
care doctors out into parts of rural Maine that otherwise would 
have no access to medical services at all and how important the 
programs that Southern Maine Medical Center and Maine General 
Medical Center are to achieving that critical public health 
goal for the State of Maine.
    You have been with us every step of the way over the last 
couple of years that we have tried to work through this issue. 
No one has put as much time and effort into identifying this 
problem and trying to find constructive ways to address it as 
you have. While we haven't connected over the past week, that 
doesn't mean my staff hasn't been working on this.
    What I would like to tell you right now is that as a result 
of your actions and your involvement in this issue, we are 
going to suspend the notice of program reimbursement. It is not 
going to end up being many millions of dollars. We are going to 
have to address this a little bit further and I intend to do 
that over the next few weeks while I am still at the agency. So 
you will hear from me about this first as we take further steps 
to resolve this issue. I am not sure we are going to be able to 
do every single thing that the medical centers would like, but 
you have raised some valid and important and critical issues 
all along in this process, and as a result of that we are 
suspending the NPR while we work this out over the next few 
weeks, and I will be giving that my personal attention before I 
leave the agency.
    Senator Collins. Thank you very much. I really appreciate 
that answer. Thank you, Mr. Chairman.
    Senator Kohl. Thank you, Senator Collins.
    Senator Blanche Lincoln from Arkansas.
    Senator Lincoln. Well, thank you, Senator Kohl and Chairman 
Smith. Thank you both for the incredible work you all do in 
this Committee. We appreciate so much Co-Chairman Kohl bringing 
up such a great issue here on generic drugs. It is so vitally 
important to getting it right in this program of providing the 
kind of needed prescription needs that our seniors need.
    Just a couple of quick comments, if I may, and I do want to 
compliment my colleague from Maine, Senator Collins. I work 
with her on many things and am proud to do so, and she does 
bring up very critical issues for Maine and for those specific 
residency programs she has. But I would like to also broaden 
that issue, Dr. McClellan, to simply say she is exactly right; 
without the physicians out there, there are no prescriptions 
that are going to be written that will help our seniors get 
either a brand name or a generic.
    A couple of issues that I think we could certainly address 
there are the physician reimbursements, which we time and time 
again here have tried to address in terms of the cuts that they 
are going to see in January 2007. I was doing a seniors meeting 
in northwest Arkansas and visited with several constituents who 
said, you know, we have just now hit 65, but we can't find 
doctors that are taking new Medicare patients. Physicians are 
waiting to see what it is we are going to do in terms of the 
priorities and the values we place on this program and the 
importance of seniors getting that kind of health care and 
being able to see the medical professionals they need to see.
    One of the other things that we have written to you about, 
or we actually wrote the President about and many of us are 
concerned about was that the funding for the geriatric 
education centers was eliminated in the budget. Just bringing 
it back to 2005 levels would provide the medical professionals, 
the physicians and others the ability to access training and to 
get those services out to the seniors particularly in rural 
areas, but all across the country.
    So I hope that we will take a very serious look at the 
whole package of health care delivery to our seniors, not just, 
as Senator Collins mentioned, in the major medical areas and 
teaching hospitals, but also how we get that information out. I 
know your group saw it firsthand because they traveled across 
the State of Arkansas with me last fall as we had those seniors 
meetings and talked to seniors out there.
    Being able to access information over the Internet about 
what drugs are available in a generic form is just not 
sufficient; it is not enough. I have way too many seniors that 
don't access the Internet, don't have a way to access the 
Internet. So I hope is that we can certainly look at some of 
these delivery programs that have been successful that are 
being cut out of the budget that could be very helpful in that 
education.
    I know my colleague from Florida mentioned what one of our 
constituents in Arkansas is doing. Wal-Mart has piloted a 
program in Florida, in the Tampa Bay area, making generics 
available to the insured and the uninsured for a co-pay, which 
I think is a wonderful start to test and see how it is that we 
can get delivery and confidence among consumers about generics. 
I think that is great, so we are looking forward to seeing how 
that gets expanded.
    I would like to also just follow up a meeting we had with 
you in the Finance Committee about the premium refunds. I know 
you have been working extra hard with Kentucky. When we were in 
that meeting, we knew we had some constituent problems; we 
didn't know how many. I would like to see if I can't get the 
same kind of attention Kentucky is getting on those premium 
refunds.
    Dr. McClellan. Absolutely. We will follow up with you.
    Senator Lincoln. We are starting to hear an awful lot about 
that from our constituency, so we appreciate that.
    I guess the last thing I would just like to add is I know 
you are not representing FDA here today, but I would like to 
know the steps you are taking at CMS in the encouragement of 
moving the generics through FDA. There was a front-page story, 
I guess, on Monday in USA Today talking about some of the 
issues of FDA, not necessarily with generics, but just getting 
through those processes and a lot of drugs that have not been 
approved that are out there on the market and being used.
    What are we doing to encourage FDA to step up to the plate 
and deal with the backlog that they have in terms of generics 
and really get the process going of making sure that our drug 
industry is being properly regulated and put out into the 
marketplace?
    Dr. McClellan. Well, on this last issue I know that the FDA 
is very concerned about that. When I was there, faster access 
to generic drugs was an important priority. We were able to 
increase the budget for the staff that reviewed the generic 
drug applications, and we also took some steps to help the 
generic manufacturers get their applications right the first 
time so you could reduce the time it takes to determine that a 
generic is equivalent to the brand-name drug and it is just as 
safe and effective, which is the FDA standard.
    Senator Lincoln. Did they stop doing that when you left?
    Dr. McClellan. Well, I know the agency is very concerned 
about continuing this priority. I think one thing that they 
really need, frankly, is confirmation of their commissioner. 
Andy von Eschenbach is very passionate about these issues of 
affordable access to innovative medicines, and getting him as a 
fully confirmed commissioner would definitely help the FDA move 
on in important----
    Senator Lincoln. He is acting now, correct?
    Dr. McClellan. Right, and as a fully confirmed commissioner 
it would definitely help him undertake initiatives like that 
this that I know are very important to him and to the agency.
    There are a couple of constraints. One is how good the 
applications are coming in. If they are not acceptable, if they 
don't meet the safety standards, they are not going to get 
approved and it is going to take another round of going back 
and filling in the additional safety data and evidence that is 
needed to approve the generic drug.
    Second is just the resources that FDA has available to deal 
with the applications. With tight resources, that is a 
challenge, and I know that, frankly, additional resources for 
reviewing the generic drugs could help with that, too.
    Senator Lincoln. So resources is something we should be 
pushing for. Will you help us do that? It certainly benefits 
your program.
    Dr. McClellan. It certainly does, and I mean working with 
the generic industry on getting those applications right the 
first time is another step that could really help.
    Senator Lincoln. What is the difference between being 
acting and confirmed? Can't he still do the same job?
    Dr. McClellan. Well, he is still acting in the job, but, 
you know, speaking as someone who had the privilege of being a 
confirmed FDA Commissioner, it is just different. I mean, 
people look to you to lead the agency in new directions and to 
undertake major new initiatives. When you are acting without 
the support, the endorsement of the Senate, it is a little bit 
harder to do that.
    Senator Lincoln. Thank you.
    Senator Kohl. Thank you, Senator Lincoln.
    We thank you again, Dr. McClellan. You have been great this 
morning, you have been wonderful to work with, and we wish you 
well.
    Dr. McClellan. Thank you so much, Senator.
    [The prepared statement of Dr. McClellan follows:]
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    Senator Kohl. On our second panel, the first witness will 
be Bill Vaughan, who is a senior policy analyst in the Health 
Sector for Consumers Union. Consumers Union is the non-profit, 
independent publisher of Consumer Reports. Since 1965, Bill has 
worked for various members of the House of Representatives on 
the Ways and Means Committee and has served as director of 
Government Relations for Families USA. He is here today to 
describe Consumers Union's national drug project to help 
consumers and doctors use the most effective, safest and 
lowest-cost drugs.
    The second witness will be Tim Antonelli. Mr. Antonelli 
serves as Pharmacy Services Clinical program manager at Blue 
Cross Blue Shield of Michigan. He is responsible for developing 
programs to encourage efficient prescription drug utilization. 
He will explain the success of the Blue Cross Blue Shield of 
Michigan program; the Unadvertised Brand, it is called, which 
is a program to promote generic drug use.
    Our third witness will be Dr. William Shrank. Dr. Shrank is 
an internal medicine physician at the Brigham and Women's 
Hospital and an instructor at the Harvard Medical School. His 
research focuses on improving the efficiency and effectiveness 
of drug coverage policies. Dr. Shrank will discuss physician 
prescribing behaviors and a project that he is working on with 
the State of Pennsylvania to educate physicians on low-cost 
drug alternatives, including generic drugs.
    We thank you, gentlemen, for being here. Mr. Vaughan, we 
will take your testimony.

STATEMENT OF WILLIAM VAUGHAN, SENIOR POLICY ANALYST, CONSUMERS 
                     UNION, WASHINGTON, DC

    Mr. Vaughan. Thank you all very much for inviting us to 
testify. Consumers Union do publish Consumer Reports, and we 
don't just test cars and toasters; we try to help people with 
better drugs and with good health insurance policies. I would 
like to take just a second and say we at Consumers Union's 
Washington office strongly second your very kind comments about 
Dr. McClellan's very excellent public service.
    We strongly encourage the use of generics as a way for 
consumers to save money, while obtaining quality health care. 
We also try to help consumers use the most effective drugs 
through our Best Buy Drugs program, a free service to everyone. 
I have attached in the testimony several examples of these 
projects by class of drugs. Basically what it comes down to is, 
don't believe all the hype you hear in the TV ads. There is a 
lot more to what is a good drug than what you see on 
television.
    Briefly, we take the scientific work that the Chairman 
mentioned, the work of the Oregon Health and Science 
University's Drug Effectiveness Review Project, DERP, and 
translate their very technical reports into plain English. Then 
we match the findings of drug safety and effectiveness with 
recent average prices for the various drugs to come up with 
recommended best buy drugs. This is not cookbook medicine. We 
really stress you have got to talk to your doctor, one-by-one. 
But this best buy drugs list is a starting point to have the 
discussion. We clearly recognize that different people may need 
different drugs, and that is why we strongly support effective 
exceptions and appeals processes in private insurance and 
public insurance programs.
    But where safety and effectiveness is similar, usually the 
best buy drug is a generic. As you see, Dr. McClellan often 
cites the studies we have done. I would just say they also 
apply to folks under age 65. But if a senior switched from 
brands to generics, they could save so much that in many cases 
they would not fall into the donut hole.
    In my testimony there is an attached press release. We have 
done these in December and in March and just yesterday, showing 
that on five drugs that a senior often uses, switching to a 
generic you could save somewhere between $2,300 and over 
$5,000. I might say we are also doing some of the academic 
detailing work that Dr. Shrank will describe in his testimony.
    But having said all that, I want to make it clear we would 
like to see the donut hole eliminated. But until such 
legislation is enacted, using the free tools of the Best Buy 
Drug program can help many seniors safely and effectively avoid 
the gap.
    We hope Congress can do more to help consumers and doctors 
increase the use of generics.
    As for this autumn, there is great news today that CMS will 
make Part D plan specific generic dispense rates public so that 
enrollees can pick the plans that are really good for the 
pocketbook. We all need to publicize that list. I suspect that 
that decision was speeded up by the scheduling of this hearing, 
so congratulations to you all.
    Second, this fall when Congress deals with the physician 
payment problem or considers pay for performance, we hope you 
could put in as one of the performance items how much a doctor 
cares about finding the generic drug to help his patients so 
they can actually fill the prescription and take it.
    In the 110th Congress, we hope that Congress will do more 
to promote generics in the FDA. As Senator Lincoln has 
mentioned clearly next year there has to be major FDA 
legislation that will involve, we hope, increased resources to 
that agency that could end this huge backlog they have in 
generics. As Senator Kohl said, that legislation could begin to 
get us to deal with the biogeneric issue that the Europeans are 
dealing with--we are just not dealing with it and close the 
loopholes, the bill that you are sponsoring, sir, S. 2306, that 
lets the PhRMA big drug companies delay the entry of generics 
into the market.
    We also hope that people might take a look at all the drugs 
out there and say, gee, could some of these move to over-the-
counter, where they would be a lot cheaper, if they are safe. 
Claritin moved a few years ago and the price came way down. I 
am not sure what the difference is with, say, Allegra. It would 
be a good review.
    As for the long run, someone has said that the whole 
Medicare prescription drug debate is silly. The real debate 
should be why the cost of drugs is so high. We believe that the 
high cost of drugs could be moderated by better funding and 
aggressive use of the MMA's. Section 1013 where the AHRQ agency 
does comparative studies on what works and doesn't work, and we 
need to quit paying for things that don't work well.
    We also hope that you might consider a hearing on whether 
there are more effective ways than patent monopoly and high 
consumer prices to encourage the research on really 
breakthrough, life-saving drugs. For example, there is the 
prize idea that is out there, or using Medicare's buying 
power--I describe this in our statement--to encourage research.
    Thank you very much for your time. I would like permission 
to enter the full statement in the record, if I may. Thank you, 
sir.
    [The prepared statement of Mr. Vaughan follows:]
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    Senator Kohl. Thank you, Mr. Vaughan.
    Mr. Antonelli.

    STATEMENT OF TIMOTHY ANTONELLI, R.Ph., CLINICAL PROGRAM 
  MANAGER, BLUE CROSS BLUE SHIELD OF MICHIGAN, SOUTHFIELD, MI

    Mr. Antonelli. Good morning, Chairman Smith, Ranking Member 
Kohl, members of the Committee. I am Tim Antonelli, a 
pharmacist and clinical program manager at Blue Cross Blue 
Shield of Michigan. We are a non-profit health care corporation 
that provides or administers pharmacy benefits to more than 2.7 
million members, including 183,000 Medicare Part D 
beneficiaries. I am pleased to be here to share our efforts to 
educate our members, professional providers and the public 
about the safety, effectiveness and value of generic drugs.
    Generic drugs provide considerable value to consumers, 
especially those over age 65 who have the highest average per 
capita prescription use compared to all other age groups. In 
2001, we began the Unadvertised Brand Campaign, a comprehensive 
effort to provide useful, authoritative information on generic 
drugs and to encourage their use. Since that time, our members' 
use of generic prescriptions has increased from 37.7 percent of 
total prescriptions to over 52 percent.
    Of course, we do recognize that various market forces, 
including access to first-time generics, are important pieces 
of the puzzle here. Nonetheless, what we have learned through 
our experience is that it takes concerted, ongoing efforts to 
provide practical information and to ensure that effective 
incentives are in place to promote the use of generic drugs 
when appropriate.
    Today, our campaign continues to evolve and to date has 
included a pharmacy competition, a consumer awareness campaign, 
a health care professional conference, a website dedicated just 
to generic drugs, a shift in benefit design and a move to value 
partnerships with physicians, all of which I will talk about 
briefly in the next few minutes.
    In the fourth quarter of 2001, we launched our campaign 
with a pharmacy competition. It was designed to enlist 
pharmacists as contacts to educate consumers about generics and 
increase their use. As a result, we saw the first uptick in 
generic use in 4 years. Following our competition, we launched 
a $1 million, five-part series of consumer awareness ads. The 
ads appeared in many Michigan newspapers and business journals, 
and helped to promote generics as safe, effective, low-cost 
alternatives to expensive brand-name drugs. We then used our 
brand marketing survey to measure the impact and found that 
after the advertising, 6 percent more respondents agreed that 
generic drugs produced the same effects as their brand-name 
counterparts.
    Also, in response to our marketing efforts, we garnered 
early interest from many within the managed care industry which 
resulted in our hosting a full-day generic drug marketing 
conference for health care professionals. This conference was 
attended by more than 100 representatives of 50 different 
organizations, including representatives from the U.S. 
Department of Defense.
    We also created a consumer generic drug website, 
www.theunadvertisedbrand.com, which provides consumers with 
generic drug facts, cost comparisons, and more. As well, 
because member cost-sharing can play such a vital role in 
engaging members in the choice between brand and generic 
medications, there has also been a shift in benefit design 
offerings from flat co-payment designs into benefit offerings 
that encourage the use of generics, such as dual-tier, triple-
tier and percentage co-payment options. Our Medicare Part D 
program is included in this segment of tiered benefits and 
currently has a generic dispensing rate around 60 percent.
    In addition, we also work closely with 4,500 Michigan 
physicians through our Value Partnerships program. This program 
focuses on generic drug opportunities, as well as a wide range 
of health care quality, safety and cost initiatives, and 
rewards performance and best practices. Through the efforts of 
these physicians, in 2005 alone they have helped save $7 
million through increased generic use.
    Last, in addition to all the efforts previously mentioned, 
we also continue to explore and use new opportunities to 
encourage generic use with co-pay waiver programs, e-
prescribing initiatives and other clinical programs.
    In summary, we have found that it takes concerted, ongoing 
efforts to educate and create incentives that encourage generic 
drug use and we remain committed to this effort because generic 
drugs provide considerable value to consumers, especially those 
over age 65. Furthermore, we applaud Congress for its 
continuing efforts to address issues affecting timely 
availability of generic drugs. Chief among those efforts is 
ensuring adequate FDA funding and addressing loopholes in the 
law that can delay the entry of generic drugs into the market.
    We are pleased to have had the opportunity to testify here 
today and I would be happy to answer any questions for the 
Committee.
    [The prepared statement of Mr. Antonelli follows:]
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    Senator Kohl. Thank you very much, Mr. Antonelli.
    Dr. Shrank.

    STATEMENT OF WILLIAM H. SHRANK, M.D., MSHS, DIVISION OF 
PHARMACOEPIDEMIOLOGY AND PHARMACOECONOMICS, BRIGHAM AND WOMEN'S 
          HOSPITAL, HARVARD MEDICAL SCHOOL, BOSTON, MA

    Dr. Shrank. Good morning, Chairman Smith, Ranking Member 
Kohl, members of the Committee. My name is William Shrank. I am 
an internal medicine physician at the Brigham and Women's 
Hospital and a drug policy researcher at Harvard Medical 
School. I spend most of my time researching how to improve 
efficiency and effectiveness of drug coverage policies. It is 
an honor to testify before you today.
    There is a tension at the heart of all prescription drug 
policies in this country. On the one hand, we need to stem the 
rising costs of prescription drugs. We spend well over $200 
billion annually on prescription drugs, the fastest growing 
sector of our health care economy. On the other hand, we have a 
quality problem. There is substantial under-use of effective 
medications, especially for chronic diseases, and we need to 
make sure that more patients with chronic diseases get the 
drugs they need.
    So how do we reconcile this tension? By steering patients 
toward less expensive, equally effective medications. Greater 
use of generic drugs can do just that. A number of studies have 
shown that greater use of generic drugs can lead to a 
substantial savings, frequently estimated at over $20 billion 
annually in this country, as noted by Senator Kohl.
    In my research, I have also looked at how greater use of 
generic drugs may improve the under-use problem. Most patients 
who have drug coverage are enrolled in tiered plans that charge 
them greater co-payments when they receive branded drugs and 
smaller co-payments when they receive generic drugs. Virtually 
all patients in Part D are enrolled in such plans. The idea is 
that cost-conscious doctors and patients would make thoughtful 
cost/benefit decisions about drugs and that market forces would 
lead to efficiency.
    I surveyed patients and physicians to explore their 
knowledge and communication about patients' costs for drugs. I 
found that doctors are rarely aware of patients' formularies 
and costs, and they don't think it is their job to be aware. 
Patients also are frequently unaware of their costs until they 
reach the pharmacy and rarely communicate with their doctors 
about medication costs. Overall, the basic market assumptions 
are not being met.
    My next study evaluated how the decision to prescribe a 
generic versus a branded drug affects patients' adherence to 
chronic medications. I studied patients in a large health 
plan--all were enrolled in tiered drug coverage--and found that 
when patients were started on generic drugs, they were 
substantially more likely to adhere to chronic therapy, to take 
the medications that they were prescribed. Patients had over 
60-percent greater odds of adequate adherence when they 
received generic drugs as compared to the most expensive 
branded drugs. So steering patients toward more generic drugs 
not only saves money for the system and for patients, it 
increases the chances that patients will take important 
medication.
    That is not to say that generics are appropriate for 
everyone. Branded drugs that do not have a generic equivalent 
may offer clinical benefits not possible with generics, and for 
some patients effectively treated with a branded medication it 
may not be appropriate to switch to a generic. The best 
opportunity to stimulate generic use occurs when new 
medications are prescribed. For most conditions, patients 
should be started on a generic and, if ineffective, can be 
switched to a more expensive branded drug.
    This leads to the first of three suggestions I would 
propose to the Committee. First, we need better prescribing 
systems that provide doctors and patients with information 
about drug costs and formularies at the point of prescribing to 
steer patients toward generic drugs when they are available. 
Broader use of electronic prescribing could greatly assist in 
providing this information.
    Second, we must simplify coverage. In Part D alone, doctors 
and patients are overwhelmed with the complexity of the dozens 
of formularies they must navigate. Now that the Government is 
the biggest purchaser of drugs in this country, the Government 
should take steps to simplify prescribing decisions by reducing 
the number of formularies that doctors must prescribe from. 
Additionally, Medicare should develop and require coverage 
standards for Part D plans, requiring all participating plans 
to include highly cost-effective drugs for very low co-payments 
or no co-payments at all.
    Third, we need to educate doctors and patients about 
generic drugs and drug costs. Branded manufacturers are winning 
the education war, spending tens of billions of dollars to 
provide free samples to physicians, to detail doctors, and to 
educate patients through direct consumer advertising. Consumer 
Reports' Best Buy Drugs and Blue Cross in Michigan should be 
commended for providing information to patients, offering 
objective resources about costs and benefits for drugs. But 
many patients are not engaged enough or are incapable of 
participating in these decisions.
    Our division has developed a counter-detailing strategy 
known as academic detailing to educate physicians. We train 
nurses and pharmacists to visit doctors in their offices and 
educate them about evidence-based, cost-effective prescribing. 
The PACE program in the State of Pennsylvania has contracted 
with our group to implement a statewide academic detailing 
program. Such programs have been shown to reduce costs and 
improve the quality of prescribing.
    Considering that Medicare alone now spends well over $40 
billion a year on prescription drugs, if they were to spend 
just one-tenth of a percent of that budget to create academic 
detailing programs to educate doctors, they would likely find 
they could save resources for the Government, reduce health 
care costs in general, and help create a culture of cost-
effective prescribing.
    Thank you very much, and I would be happy to answer any 
questions.
    [The prepared statement of Dr. Shrank follows:]
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    Senator Kohl. Thank you, Dr. Shrank. How much has been 
invested in the academic detailing program that you have been 
working on in Pennsylvania?
    Dr. Shrank. It is about $1 million a year.
    Senator Kohl. What is the potential of it in terms of 
dollars?
    Dr. Shrank. The potential is great. Previous studies have 
demonstrated that there is generally about a two-to-one 
benefit-to-cost ratio, that these plans tend to save money.
    Senator Kohl. When you surveyed physicians in California, 
you found that most are not only unaware of patients' out-of-
pocket drug costs, but they also don't believe it is their 
responsibility to consider that when writing prescriptions. So 
what can we do to change this and change the conversation and 
make them more aware of it and more concerned about it?
    Dr. Shrank. Well, I don't think it is a lack of concern. I 
think it is a lack of time and easily accessible resources. We 
have done some other studies that have shown that doctors do 
really care about helping patients manage their out-of-pocket 
costs, and they know that it is critically important to helping 
patients access appropriate medications.
    But it is not really feasible on a very busy schedule to go 
look on the Internet or find a handbook or try to figure out 
what any particular patient's costs are going to be for any 
particular drug. Better systems can answer this, and there is a 
lot of attention that has been given here in this Committee 
about improving electronic prescribing. Electronic prescribing 
with very specific standards that require that with electronic 
prescribing comes some sort of information about the patient's 
formulary and the comparative costs of medications that are 
within the class that the patient could be prescribed could be 
very, very useful for doctors.
    Senator Kohl. For the panel--and, Mr. Vaughan, maybe you 
want to respond first--Dr. McClellan made it clear that in most 
every case the generic drug is just as effective and, without 
any question, just as safe as the brand-name drug. That being 
the case, if we don't want to challenge his statement, which I 
think is for the most part accurate and true, what is the 
responsibility of those of us who work here in the public 
sector to see to it that every physician understands this and 
knows what the alternative is to the high-cost brand-name drug 
when or he she prescribes to the patient? Mr. Vaughan?
    Mr. Vaughan. Well, again, I think we are moving toward pay 
for performance. We hope so, and once the e-prescribing is in 
place and the kinks are worked out on these hand-held devices--
doctors are busy and the formularies and all the complexity is 
overwhelming for an individual doctor to just keep thinking, 
gee, what generic will this person be covered for and is it on 
their formulary. But once the electronics are there, let's have 
that as a rating that people can either see or it is part of, 
P4P, we will pay you extra for doing it or we will pay you less 
if you don't. But Congress, as it amends Medicare and Medicaid, 
in the future can reward the doctors who really say, gee, I am 
going to be aggressive in helping my patients meet these costs. 
It is not there today, but it will be there soon, and we ought 
to plan for it and lay the groundwork.
    Senator Kohl. Mr. Antonelli.
    Mr. Antonelli. I would have to agree with the statements of 
both my colleagues here. At Blue Cross Blue Shield of Michigan, 
we have been involved in programs such as academic detailing. 
In fact, that is what I started doing at Blue Cross Blue Shield 
of Michigan in 1999 when I hired on board, and we continue to 
do that today. It has been rolled into our Value Partnerships 
program and we have found that it has been very, very 
motivating for physicians because they now have a pay-for-
performance program which will allow them to get services from 
pharmacists which provide information on their prescribing, as 
well as new information about what drugs might be available as 
generics, as well as cost information.
    In addition, we also are pursuing e-prescribing efforts. We 
have secured some work with the Southeastern Michigan E-
Prescribing Initiative and it is very exciting. We have about 
600 physicians that have signed on to the program and we are 
currently awaiting some study results from them; we expect it 
this fall. It was actually a grant study by CMS which will 
provide the answers to our questions of how much did e-
prescribing affect generic dispensing rates.
    So at Blue Cross Blue Shield, we see this, too, as being 
very important, both e-prescribing, academic detailing, as well 
as all the other things I talked about because it is a very 
comprehensive package that we have to think about. There is no 
silver bullet to this.
    Senator Kohl. To what extent are the pharmaceutical 
companies involved in this whole thing? I don't want to call 
them a villain because they are not, but they are the 
opposition, in a sense, at least at this hearing. What is their 
influence and what do you perceive their influence to be here 
in Washington at the political levels as we try to move from 
what it is now?
    You know, 60 percent of all the prescriptions that are sold 
are generic prescriptions, which is not at all bad, but we 
understand for every one percent, you can save as much as $4 
billion. So if you get from 60 to 80, well, you know, that is a 
fortune; that is $80 billion in savings if you can get from 60 
to 80.
    How are the brand-name pharmaceutical companies involved in 
this, and what do you perceive their influence to be here in 
Washington and what do you think we should and can do about it?
    Mr. Vaughan.
    Mr. Vaughan. I think it is an enormous influence. If you 
look at these Best Buy Drug examples, for example, the purple 
pill that you see all the time is a tiny bit better for heavy 
upper esophagal bleeders. But the difference in price is like 
$171 a month compared to an over-the-counter that does just as 
good for $24. Yet, Americans see it on TV and they say, my 
gosh, I saw it on TV, I want the thing I saw on TV. There are 
good peer-reviewed journals, studies showing where patients 
come in to the doctor and the doctor wants to keep the patient 
happy, so he writes a script for something he knows is way 
over-priced and not particularly better.
    When it comes to all the pressure on our social programs, 
advertising is driving costs and you ought to consider a user 
fee. Let's just say your advertising works; that is why they do 
it. You are driving Medicare and Medicaid expenses up. 
Therefore excuse us, we are going to have a user fee and we 
will use it to make sure we check every ad for accuracy. Many 
of the ads admit relevant adverse effects, but some fail to. 
This user fee will help fund Medicare and Medicaid because you 
are making the cost higher because of your ads.
    We are the only country in the world that allows this kind 
of direct-to-consumer advertising. I think the New Zealanders 
still do it, but they are getting out of that business; they 
are saying no thanks, this is crazy. The rest of the 
industrialized world says no.
    I am sorry. I get excited on this one.
    Senator Kohl. Dr. Shrank.
    Dr. Shrank. We have a very lopsided competition for how we 
get information out about medications, and the drug companies 
do this very, very well. They give $15 billion a year in free 
samples to doctors, and that is incredibly effective at 
stimulating that first prescription to be filled for the 
branded drug. Certainly, in many cases that is not the right 
drug or not the most cost-effective drug for that patient, but 
that works. Once the patient is started on that free sample and 
it worked and they feel comfortable with it, it is pretty hard 
to switch.
    The effect of direct-to-consumer advertising may be waning 
a little bit in the setting of a lot of recent Vioxx problems 
and things like that, but it is still very, very popular and it 
is very common and it is very powerful. As a practicing 
physician, many of my patients come into my office and say I 
saw a commercial for the purple pill. There is nothing wrong 
with the purple pill; it works just fine, but it is a lot more 
expensive than an identical medication that would be able to 
provide an equal amount of results.
    So from the payer side, there are some very innovative, 
smaller-scale programs that are happening, but there is nothing 
that can compete with the massive educational approach that the 
pharmaceutical manufacturers have undertaken. The great 
opportunity here is that Medicare is a huge player in 
purchasing prescription drugs. It is very hard for a single 
insurer in a fragmented health care system to do much because a 
big investment from a single insurer actually helps all of 
their competitors as much as it helps the single insurer.
    Medicare now is the big gorilla. It is a huge player and it 
has an opportunity to really influence this debate. If Medicare 
wanted to educate doctors or educate patients, they would have 
the ability to do that.
    Senator Kohl. A very good point.
    Mr. Antonelli.
    Mr. Antonelli. I would just like to add that when you see 
products like Lunesta and Nexium having advertising campaigns 
that are over $200 million direct to consumer and we have a $1 
million advertising campaign for generics, it is quite 
lopsided.
    One thing that we have learned over time is that this 
direct-to-consumer advertising is new and can be improved. The 
FDA has been holding hearings over the last few years to 
collect information from different resources to find out what 
are the best means for making changes to this. One researcher 
in particular from Duke University--her name is Ruth Day, a 
very bright woman--has done some research on the advertising 
and looked at these ads and found that most of the risk 
information is functionally absent from these ads.
    People watching these ads very easily understand what the 
benefits are, but cannot figure out what the risks are. So they 
are going to their physicians asking for the purple pill and 
the physician feels obliged to actually take the purple pill 
and write for it. It is kind of a conflict of interest and I 
think the FDA does need to take a look at these guidelines and 
really update what they have done in 1999 so that we do have 
better quality advertising.
    Senator Kohl. As you know--and I think you referenced it, 
Mr. Vaughan--we have legislation here that we are trying to 
move now that would it illegal for the pharmaceutical companies 
to pay off generic companies when it comes to introducing new 
products, either to delay or to go away entirely. I assume you 
all would support this legislation.
    Mr. Vaughan.
    Mr. Vaughan. Absolutely, and congratulations. A bill that 
has Senator Lott and yourself and Senator Stabenow on it should 
have some legs.
    Senator Kohl. Senator Grassley, too.
    Mr. Vaughan. Grassley. That is great.
    Senator Kohl. Hopefully Senator Smith. I get the sense here 
that it really is important for an opposing force to confront 
the pharmaceutical companies, and that takes a lot of money, as 
we have all indicated. To the extent that it is legal and 
possible, the Government ought to be doing this, ought to be 
doing a better job on behalf of the people we represent all 
across this country in seeing to it that the pharmaceutical 
companies, with all of the financial resources they have, do 
not succeed in overwhelming the system and getting their way 
with consumers all across the country when it comes to 
prescription drugs.
    Would you agree with that, Dr. Shrank?
    Dr. Shrank. I would certainly agree with that.
    Senator Kohl. Any other comments you guys wish to make 
before we conclude?
    Mr. Vaughan. I think it is news today that Medicare will be 
making those generic-specific data available on the plans. I 
don't know if the Committee does prints or something on plan 
quality, but this is something we will all want to publicize, 
because it is a great advance for consumers to get that kind of 
data.
    Senator Kohl. To know which plan is doing a better job or a 
worse job in getting generics in front of the people who are 
with that plan.
    Mr. Vaughan. Yes, sir.
    Senator Kohl. That is very important.
    Well, we thank you fellows for coming. You have been very 
useful. I think this has been a really good hearing and we will 
adjourn at this time.
    [Whereupon, at 11:38 a.m., the Committee was adjourned.]
                            A P P E N D I X

                              ----------                              


              Prepared Statement of Senator Susan Collins

    Mr. Chairman, thank you for calling this hearing to examine 
current efforts to encourage broader use of generic drugs as a 
means of keeping drug costs down for our nation's seniors.
    The United States currently spends a staggering amount--
over $200 billion a year--on prescription drugs. Rising drug 
costs are a particularly heavy burden for Americans who don't 
have drug coverage. They are also putting the squeeze on our 
nation's employers who are struggling in the face of double-
digit premium increases to provide health care coverage for 
their workers. And they are putting increasing pressure on 
public programs like Medicare, which will spend over $40 
billion a year on the new Part D prescription drug benefit.
    Today the average cost of a brand-name drug is $96, while 
the average cost of a generic is less than $30. Generic drugs 
therefore have the potential to greatly reduce the health care 
cost burden for all consumers, but particularly for our 
nation's seniors.
    Earlier this year, the Consumers Union did a study the 
found that Medicare beneficiaries who take five common drugs 
could save between $2,300 and $5,000 a year by switching to 
equally-effective, but lower-cost alternatives. Lower-cost 
generics therefore have the potential to help seniors 
significantly stretch their drug coverage under Medicare, and 
can even help them to avoid falling into the coverage gap known 
as the ``doughnut hole.''
    There do, however, appear to be barriers that have 
prevented more widespread use of generics. Physicians may not 
be attuned to limitations in their patients' drug coverage and 
they also may not feel it is their responsibility to help steer 
them to lower-cost medications. The patients themselves may not 
be aware of these limitations, and they may also be hesitant to 
talk to their doctor about costs. Generic manufacturers also 
don't tend to employ fleets of salespeople marketing their 
products directly to physicians, and there also is far less 
``direct-to-consumer'' advertising for generics. Many consumers 
may simply not be aware that there is a lower-cost alternative 
to ``that little purple pill.''
    I do want to make it clear that I do not believe that 
generic drugs are always the right choice for everyone. Many 
patients are better served by the newer, branded drugs, and 
efforts to increase the use of generics should not come at the 
price of diminished patient care. Programs should be flexible 
enough to enable the physician to prescribe the drug that he or 
she thinks is most appropriate for the patient.
    That said, I do think that we can do a better job of making 
sure that consumers, pharmacists and physicians have all of the 
information and incentives that they need to choose the safest, 
most effective and lowest cost prescription drugs available. 
This morning's hearing will give us an opportunity to learn 
about some innovative programs that are working to do just 
that, and once again, I want to thank the Chairman.
                                ------                                


               Prepared Statement of Senator Ken Salazar

    Thank you, Chairman Smith and Ranking Member Kohl for 
organizing this hearing and for inviting this panel of experts 
to discuss the importance of improving seniors' access to 
generic prescription drugs. I also want to thank the Centers 
for Medicare and Medicaid Administrator, Dr. Mark McClellan, 
for joining the Committee today to discuss this important 
issue. And thank you to the entire panel for your time, as well 
as your work.
    I look forward to hearing expert testimony on how the 
federal government, the states, drug providers, drug 
representatives, pharmacists and physicians can help our 
seniors in gaining access to information on lower-cost and 
generic drugs. I believe increased information for 
beneficiaries about their drug choices is necessary to lower 
their personal costs, and serves to educate them to become 
better advocates for their own health care.
    Medicare provides the majority of our seniors their health 
care services. Colorado has an estimated 515,000 Medicare 
beneficiaries. Over 38 percent of these beneficiaries are low-
income. Today America's seniors are living on tighter budgets 
and paying the increased costs of living in this country. It 
costs more today to heat homes, get transportation, purchase 
food, and as we are discussing here today--pay for health care.
    The costs of prescription drugs have increased dramatically 
over the past two decades. According to the Kaiser Family 
Foundation, U.S. spending for prescription drugs has more than 
quadrupled since 1990. And prices continue to rise. Even the 
cost of drugs being covered by the Medicare Prescription Drug 
Plan have risen in the short time since it was implemented. 
According to a report done by Families USA, ``virtually all 
Part D plans raised their prices for most of the top 20 
[medications] prescribed to seniors.'' The report estimates the 
prices have increased by 4% since the program's implementation 
in January.
    Meanwhile, as our graying population grows, the need for 
prescription drugs grows. We need to talk about solutions that 
actually help in lowering the costs of drugs for Americans. One 
such solution to lowering costs for Americans is the use of 
more generic drugs.
    This hearings casts light on the fact that there are drug 
options other than brand names for our seniors. But seniors 
need to know about these options. The major challenge to this 
is the lack of information available to individuals about their 
drug options. The providers of this information are not doing 
enough. They include physicians, pharmacists, and government 
agencies. However, there are groups and states that have 
started to take action on this.
    The state of Pennsylvania, with the assistance of Harvard 
researchers, has created an innovative program to reach out to 
physicians to help them in becoming a conduit of this 
information for their patients. The Pennsylvania ``Unsales 
Team'' program hires staff to reach out to physicians--
educating them about generic and alternate drug options to 
brand-name drugs. This program is unique because these ``drug'' 
representatives are working on behalf of patients, rather than 
the bottom-line of a pharmaceutical company. They want to help 
doctors in providing better advice on how seniors can get the 
best prices for their drugs. This program deserves our 
attention.
    I also look forward to hearing more about the relationship 
between physicians and pharmacists. According to a survey of 
physicians done by the American Journal of Managed Care, 
physicians said they receive phone calls from pharmacists 
concerning formulary issues after 18.6 percent of the 
prescriptions they write. More communication between these 
health care professionals could make a difference for patients. 
Physicians should be utilizing pharmacists' information on the 
costs of drugs as part of the care-management of a patient. In 
turn, pharmacists should be providing this information to 
physicians. I hope to hear more from these groups on how we can 
provide better drug management assistance to seniors in dealing 
with their drug costs.
    I appreciate the work of the Chairman and Ranking Member, 
who are responsible for this discussion of the increased costs 
of prescription drugs for seniors and the options seniors have 
in controlling these costs through increased use of generic or 
low-cost drugs. I will use the comments and ideas presented 
here today in my discussions with the health care community, as 
well as with my fellow legislators. I believe we can come up 
with solutions to help our seniors in accessing information on 
their health care needs and lowering their health care costs.

                                 
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