[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]




                       FULL COMMITTEE HEARING ON
                     MEDICAID DRUG REIMBURSEMENTS:
                  ARE CMS CUTS BAD MEDICINE FOR SMALL
                     BUSINESSES AND BENEFICIARIES?

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












                      COMMITTEE ON SMALL BUSINESS
                 UNITED STATES HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 18, 2007

                               __________

                          Serial Number 110-36

                               __________

         Printed for the use of the Committee on Small Business


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


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                   HOUSE COMMITTEE ON SMALL BUSINESS

                NYDIA M. VELAZQUEZ, New York, Chairwoman


HEATH SHULER, North Carolina         STEVE CHABOT, Ohio, Ranking Member
CHARLIE GONZALEZ, Texas              ROSCOE BARTLETT, Maryland
RICK LARSEN, Washington              SAM GRAVES, Missouri
RAUL GRIJALVA, Arizona               TODD AKIN, Missouri
MICHAEL MICHAUD, Maine               BILL SHUSTER, Pennsylvania
MELISSA BEAN, Illinois               MARILYN MUSGRAVE, Colorado
HENRY CUELLAR, Texas                 STEVE KING, Iowa
DAN LIPINSKI, Illinois               JEFF FORTENBERRY, Nebraska
GWEN MOORE, Wisconsin                LYNN WESTMORELAND, Georgia
JASON ALTMIRE, Pennsylvania          LOUIE GOHMERT, Texas
BRUCE BRALEY, Iowa                   DEAN HELLER, Nevada
YVETTE CLARKE, New York              DAVID DAVIS, Tennessee
BRAD ELLSWORTH, Indiana              MARY FALLIN, Oklahoma
HANK JOHNSON, Georgia                VERN BUCHANAN, Florida
JOE SESTAK, Pennsylvania             JIM JORDAN, Ohio

                  Michael Day, Majority Staff Director

                 Adam Minehardt, Deputy Staff Director

                      Tim Slattery, Chief Counsel

               Kevin Fitzpatrick, Minority Staff Director

                                 ______

                         STANDING SUBCOMMITTEES

                    Subcommittee on Finance and Tax

                   MELISSA BEAN, Illinois, Chairwoman


RAUL GRIJALVA, Arizona               DEAN HELLER, Nevada, Ranking
MICHAEL MICHAUD, Maine               BILL SHUSTER, Pennsylvania
BRAD ELLSWORTH, Indiana              STEVE KING, Iowa
HANK JOHNSON, Georgia                VERN BUCHANAN, Florida
JOE SESTAK, Pennsylvania             JIM JORDAN, Ohio

                                 ______

               Subcommittee on Contracting and Technology

                      BRUCE BRALEY, IOWA, Chairman


HENRY CUELLAR, Texas                 DAVID DAVIS, Tennessee, Ranking
GWEN MOORE, Wisconsin                ROSCOE BARTLETT, Maryland
YVETTE CLARKE, New York              SAM GRAVES, Missouri
JOE SESTAK, Pennsylvania             TODD AKIN, Missouri
                                     MARY FALLIN, Oklahoma



                                  (ii)
















           Subcommittee on Regulations, Health Care and Trade

                   CHARLES GONZALEZ, Texas, Chairman


RICK LARSEN, Washington              LYNN WESTMORELAND, Georgia, 
DAN LIPINSKI, Illinois               Ranking
MELISSA BEAN, Illinois               BILL SHUSTER, Pennsylvania
GWEN MOORE, Wisconsin                STEVE KING, Iowa
JASON ALTMIRE, Pennsylvania          MARILYN MUSGRAVE, Colorado
JOE SESTAK, Pennsylvania             MARY FALLIN, Oklahoma
                                     VERN BUCHANAN, Florida
                                     JIM JORDAN, Ohio

                                 ______

            Subcommittee on Urban and Rural Entrepreneurship

                 HEATH SHULER, North Carolina, Chairman


RICK LARSEN, Washington              JEFF FORTENBERRY, Nebraska, 
MICHAEL MICHAUD, Maine               Ranking
GWEN MOORE, Wisconsin                ROSCOE BARTLETT, Maryland
YVETTE CLARKE, New York              MARILYN MUSGRAVE, Colorado
BRAD ELLSWORTH, Indiana              DEAN HELLER, Nevada
HANK JOHNSON, Georgia                DAVID DAVIS, Tennessee

                                 ______

              Subcommittee on Investigations and Oversight

                 JASON ALTMIRE, PENNSYLVANIA, Chairman


CHARLIE GONZALEZ, Texas              LOUIE GOHMERT, Texas, Ranking
RAUL GRIJALVA, Arizona               LYNN WESTMORELAND, Georgia

                                 (iii)



















                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page

Velazquez, Hon. Nydia M..........................................     1
Chabot, Hon. Steve...............................................     2

                               WITNESSES


PANEL I
Smith, Dennis, U.S. Department of Health and Human Services......     5


PANEL II
Osterhaus, Matthew, Owner, Osterhaus Pharmacy....................    23
Civello, Anthony N., National Association of Chain Drug Stores...    25
Sewell, Charlie, National Community Pharmacists Association......    27
Hagan, Ed, Food Marketing Institute..............................    30

                                APPENDIX


Prepared Statements:
Velazquez, Hon. Nydia M..........................................    38
Chabot, Hon. Steve...............................................    40
Altmire, Hon. Jason..............................................    42
Braley, Hon. Bruce...............................................    43
Smith, Dennis G., U.S. Department of Health and Human Services...    45
Osterhaus, Matthew, Owner, Osterhaus Pharmacy....................    49
Civello, Anthony N., National Association of Chain Drug Stores...    55
Sewell, Charlie, National Community Pharmacists Association......    61
Hagan, Ed, Food Marketing Institute..............................    69

Statements for the Record:
National Grocers Association.....................................    76

                                  (v)










 
                   FULL COMMITTEE HEARING ON MEDICAID
                   DRUG REIMBURSEMENTS: ARE CMS CUTS
                   BAD MEDICINE FOR SMALL BUSINESSES
                           AND BENEFICIARIES?

                              ----------                              


                        Wednesday, July 18, 2007

                     U.S. House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 10:00 a.m., inRoom 
2360, Rayburn House Office Building, Hon. Nydia M. Velazquez 
[Chairwoman of the Committee] Presiding.
    Present: Representatives Velazquez, Shuler, Gonzalez, 
Cuellar, Braley, Clarke, Chabot, Davis, Fallin, and Buchanan.

           OPENING STATEMENT OF CHAIRWOMAN VELAZQUEZ

    ChairwomanVelazquez. Good morning. I call this hearing to 
order to address Medicaid Drug Reimbursement: Are CMS Cuts Bad 
Medicine for Small Businesses and Beneficiaries?
    The matter we discuss today stems from the legacy of the 
last Congress. In February 2006, President Bush signed the 
Deficit Reduction Act, which directed the Centers for Medicare 
and Medicaid Services to recalculate the way it reimburses 
pharmacies for providing generic prescription drugs to Medicaid 
beneficiaries.
    While evidence indicates that the old formula used by CMS 
resulted in some level of overpayment, the new formula clearly 
cuts too far. On July 6, the Centers for Medicare and Medicaid 
Services released a final rule which radically changed the old 
formula and could prove devastating to pharmacies and Medicaid 
recipients.
    The new formula significantly reduces the reimbursements to 
the point where the General Accounting Office has determined 
pharmacies will be paid back for only 64 percent of their costs 
of acquiring generic prescription drugs. That represents a 36 
percent shortfall.
    I have many concerns that the impact of this rule could 
have on small businesses offering prescription drug coverage. 
These pharmacies have low profit margins and small retailers 
will be hit particularly hard. They tend to serve a higher 
proportion of Medicaid beneficiaries and get more of the 
revenue from prescription drugs. As a result of this change, 
many could be forced to close their doors.
    This will not only hurt pharmacies, but it will affect 
overall access to care for Medicaid recipients. If these 
businesses close or drop out of the program, drug coverage will 
be reduced. Medicaid is a critical component of our national 
health care system serving over 50 million. Without it, the 
vast majority of these people would join the ranks of the 46 
million uninsured Americans.
    What doesn't make sense to me is that while the intent of 
this new formula is to save money it, in fact, encourages the 
use of more expensive brand name drugs. The average Medicaid 
generic prescription is $20, while the average brand 
prescription is $120. While this may be good for the 
pharmaceutical companies, costs will be increased for the 
Federal Government and the states.
    I believe the HHS Inspector General's report is a good 
starting point for us when we examine possible solutions to 
this problem. The IG recommends that CMS should find a better 
way to reflect the actual costs of these drugs. The IG's 
recommendation will remove outliers in drug prices that do not 
reflect the realities of the marketplace. It also provides an 
opportunity for pharmacies to alert the states and CMS when 
they can demonstrate their inability to acquire drugs at prices 
at or below reimbursement levels.
    Tellingly, the IG says new federal reimbursement limits 
should be monitored closely. Their report noted that such costs 
could lead to access problems for Medicaid beneficiaries. These 
findings are also supported by the General Accounting Office. 
As the rule is written, it threatens the ability of thousands 
of small pharmacies to keep operating.
    While the previous reimbursement formula may have overpaid 
pharmacies for generic drugs, the new one will make the issue 
worse. Our government should not be eliminating one problem 
only to create another. The General Accounting Office and HHS 
have shown there are better ways to ensure pharmacies are 
adequately paid for these generic drugs.
    Unfortunately, CMS is prepared to move forward despite 
these objections. Today's hearing will hopefully shine some 
light on why the CMS should reconsider the rule.
    I look forward to today's testimony and thank the witnesses 
for their participation. And now I yield to Mr. Chabot for his 
opening statement.

                OPENING STATEMENT OF MR. CHABOT

    Mr.Chabot. Thank you, Chairwoman Velazquez, both for 
yielding and for holding this hearing on the Centers for 
Medicare and Medicaid Services, the CMS, rule implementing the 
Deficit Reduction Act's modification of the reimbursement 
limits for certain prescription drugs in the Medicaid program.
    This hearing continues a long-standing effort by this 
Committee to convince CMS that good regulatory practice 
requires the agencies to promulgate rules that do not adversely 
affect the thousands of small business providers of necessary 
health care in the United States. Drug prices represent a 
rapidly increasing portion of monies devoted to health care in 
the United States. It is not surprising to find, then, that the 
Medicaid program also faces rapidly rising costs for drug 
reimbursement.
    Under the Medicaid program, states are authorized to 
provide for reimbursement of prescription at levels established 
by CMS under authority delegated from Congress. According to 
the Government Accountability Office, the GAO, the cost of such 
reimbursement in the Medicaid program rose by 870 percent in 
the 15-year period from 1990 through 2004.
    Congress recognized that such growth was not sustainable, 
and in the Deficit Reduction Act of 2005--an act which I 
supported--it modified the payment from 150 percent of the list 
price to 250 percent of the average manufacturer's wholesale 
price, referred to by its acronym AMP. Savings are enhanced by 
calculating the 250, not on average of all drugs in therapeutic 
class, but, rather, on the lowest AMP in a therapeutic class.
    The Congressional Budget Office, the CBO, estimated that 
the modification will represent about $1 billion in savings for 
the first few years of implementation, and then about $300 
million thereafter. Congress directed CMS to promulgate 
regulations to implement the modifications in reimbursement 
rates.
    A perusal of the rulemaking record, including comments from 
witnesses before us today, revealed substantial concern that 
the new methodology will not provide dispensers of 
pharmaceuticals with sufficient revenue to cover the costs of 
dispensing drugs under the Medicaid program, nor are these 
concerns simply the cry of the economically self-interested.
    The Office of Advocacy of the United States Small Business 
Administration, the Inspector General of the Department of 
Health and Human Services, and the GAO also have noted that the 
formula will not allow them to recoup their drug acquisition 
costs, much less cover all of the costs associated with filling 
Medicaid prescription.
    The result of the final rule will have unusually perverse 
results--results that could not have been intended by Congress 
in legislation entitled ``Deficit Reduction.'' Pharmacies could 
reject Medicaid patients, leaving such individuals without 
access to drugs. Doctors, recognizing this, will then begin to 
require that specific brand-name drugs will be used, thereby 
raising the costs of drugs under Medicaid, the opposite result 
from what Congress intended.
    Entitlement spending needs to be controlled, but it also 
must be controlled in a sensible manner that actually achieves 
limits on spending. Instead, we have a policy that provides 
rational economic actors, the necessity of finding ways around 
these limits, that will ultimately not lead to reductions in 
entitlement spending.
    I am sure that CMS will testify that they are just 
implementing the law that Congress wrote, and they have no 
discretion to modify the policy to reduce adverse consequences 
on small business. That is an argument that CMS has made to 
Congress one too many times in the past six years, including 
this Committee.
    For one, I am tired of hearing that. Even a quick perusal 
of the rather dense verbiage of the Medicare and Medicaid 
statutes will show that CMS is replete with discretion. But 
unlike other federal agencies, the Medicare and Medicaid 
statutes are ripe with exemptions from judicial review. It is 
about time that CMS rulemaking is subjected to the same 
scrutiny applicable to all federal agencies.
    I look forward to working with the Chairwoman and other 
members of this Committee on ensuring that the provisions of 
the Administrative Procedures Act apply with full force and 
vigor to CMS. Otherwise, CMS will be back before this Committee 
on some other rule blaming Congress while Congress argues that 
CMS has discretion to avoid any potential adverse consequences 
to health care providers.
    I want to thank the witnesses, including Dennis Smith of 
CMS, for agreeing to testify on such short notice. While I 
understand that the preparation may be a hardship, I think the 
efforts of the witnesses will be very helpful to this 
Committee's understanding of the final rule and its effects on 
small business.
    Again, I want to thank you for holding this hearing, 
Chairman Velazquez, and I yield back the balance of my time.
    ChairwomanVelazquez. Thank you, Mr. Chabot. And now I 
recognize Mr. Braley for an opening statement.
    Mr.Braley. Thank you, Madam Chairwoman, and thank you for 
holding this important hearing. I would like to recognize and 
thank one of my constituents, Matt Osterhaus, for taking time 
from his busy pharmacy practice to join us today, and I am 
looking forward to his testimony, along with the testimony of 
all of our witnesses.
    I am deeply concerned by the Center for Medicare and 
Medicaid Services' proposed changes in the reimbursement 
formula for prescription drugs in the Medicaid program. CMS 
claims that this new definition of the average manufacturer 
price is meant to approximate the prices at which retail 
pharmacies purchase generic medications from manufacturers and 
wholesalers.
    Unfortunately, however, the final rule is flawed and will 
result in an AMP that does not reflect the true prices. In 
fact, a December 22, 2006, GAO report shows that the proposed 
rule on the AMP would reimburse pharmacies as an average of 36 
percent below their cost for generic drugs, which account for 
63 percent of all prescriptions dispensed in the United States.
    I have repeatedly urged CMS to reject this proposal to 
classify reimbursements based on the AMP, which would lower 
reimbursements paid to pharmacies for generic drug purchases. 
In my State of Iowa, it is estimated that pharmacists will 
receive an $11.8 million cut in reimbursements in the first 
year of implementation alone. This could force many pharmacies 
out the Medicaid business, which would reduce access to care 
for Medicaid beneficiaries.
    In many underserved areas, it could force pharmacies out of 
business altogether. Also, by making generic drugs 
unprofitable, Medicaid has created an incentive to dispense 
more expensive brand-new drugs which are not subject to the new 
formula. So, ironically, this new formula which was established 
to save money could actually end up increasing costs to both 
the state and the Federal Government for prescription drugs.
    I have specifically fought for Iowa pharmacies on this 
issue, urging CMS to approve a measure that was passed in the 
Iowa General Assembly to offset reductions for reimbursements 
for generic medications. This plan would increase the pharmacy-
dispensing fee to compensate for any reduction in the drug 
product cost reimbursement. However, this provision needs 
approval by CMS before taking effect.
    Although I am pleased that the State of Iowa has stepped up 
to the plate to make sure pharmacies receive appropriate 
reimbursements for generic drugs, I think it is extremely 
unfortunate that CMS has put my state in this position. I am 
concerned that Iowa's increasing its payment to pharmacists 
could place budgetary pressure on other important Medicaid 
services provided by the State.
    I look forward to hearing from our witnesses today, and I 
am hopeful we can shed some light on this proposed change to 
reimbursements for pharmacies.
    Thank you, Madam Chairwoman, and thank you to everyone who 
is participating in the hearing today.
    ChairwomanVelazquez. Thank you. Our first witness is Mr. 
Dennis Smith. He is the Director for the Center for Medicaid 
and State Operation, or CMSO. Mr. Smith has been the Director 
since July 29, 2001. He is involved in the development and 
implementation of national policies governing Medicaid, the 
State Children's Health Insurance Program certification, and 
the Clinical Laboratories Improvement Act. Previously, he 
served as the Director of the Department of Medical Assistance 
Services for the Commonwealth of Virginia.
    Welcome, sir.

 STATEMENT OF MR. DENNIS SMITH, DIRECTOR, CENTER FOR MEDICAID 
                      AND STATE OPERATIONS

    Mr.Smith. Thank you, Madam Chairwoman, and other members of 
the panel, and I appreciate very much the opportunity to be 
with you today, and to talk about the AMP rule, which was--the 
final rule was published earlier this month. The regulation 
actually takes effect until October 1. But what we also did was 
leave open to comment some of the very issues that you have 
highlighted this morning about the definition of AMP itself.
    One of the issues that we struggled with, frankly, was the 
ability to do the type of data analysis that everyone would 
want us to do in reference to the GAO study and the IG. And you 
will find that many of our responses hinge around the lack of 
data that we are able to--that we have to be able to analyze 
the full impact of the final rule.
    So what we did in using our discretion really was to 
continue the comment period which allows them to--allows 
everyone then to be able to start having access to the data to 
get a firm handle on the impact of the rule.
    As Madam Chairwoman referenced, this rule really sort of 
originated with the study of the Office of the Inspector 
General, that in December of 2004 testified in front of the 
House Energy and Commerce Oversight Investigation Committee.
    The IG found that what the states used to establish their 
Medicaid drug reimbursements generally bear little resemblance 
to the prices incurred by the retail pharmacies to purchase 
drugs, and, in fact, that the OIG had found in audit reports 
that it had estimated that the pharmacists' actual acquisition 
costs for brand-name drugs was an average of 21 percent below 
average wholesale price, and for generic drugs an average of 65 
percent below AWP.
    The effect of the difference between the pharmacy invoice 
costs and the amount that Medicaid would have paid for those 
drugs was about $1.5 billion. For drugs specifically under the 
federal upper limit, which is really the focus of the new rule, 
the Inspector General estimated that the invoice price for 
multiple source drugs with the FULs was 72 percent below AWP.
    In another report on the variation between what state drug 
prices were being paid, the OIG found that the difference 
between the highest and lowest paying states ranged by drug 
from 12 percent to 4,073 percent for the 28 drugs that they had 
sampled. That really is the backdrop of the report.
    The OIG, in helping to inform us about moving from a FULs 
that is based on the average wholesale price to the average 
manufacturer price compared the 25 most commonly prescribed 
drugs that the old FUL, the lowest pharmacy acquisition cost, 
compared to that--the old FUL for that drug was as high as 
5,232 percent from the lowest acquisition. On the average 
acquisition, they were still finding drugs that were 1,400 
percent higher than the average acquisition cost.
    So I think everyone did come to a reasonable conclusion 
that the old federal upper limit truly was flawed as it was 
based on the AWP, which was commonly referred to as ``Ain't 
What's Paid.'' I think many folks came together to recognize 
that a system that is built on more exact pricing would be 
better for everyone.
    In terms of want to assure the Subcommittee--I am sorry, 
assure the Committee on small business that we carefully 
reviewed the comments from--assigned by Madam Chairwoman on 
December--on February 23 of this year, on the comments that 
were provided. I want to assure you also that the 
administration very much cares about the impact on small 
businesses.
    Throughout this process, we have met with the national 
representatives of retail pharmacists, we have met with state 
representatives of the retail pharmacists, we have met with 
pharmacists themselves. We are trying to get the rule to 
accurately reflect what was passed by Congress, with also the 
recognition that Medicaid in fact was paying a higher price 
than other payers were. And being a program for poor people, 
that generally Medicaid is getting the best price for the 
services that they have purchased on their behalf.
    So we have been meeting with the representatives and the 
pharmacists themselves. There are a number of things I think 
that clearly the GAO report did raise a great deal of concerns 
about the rule, and our response was, ``Wait until you actually 
see the rule itself.''
    We did change--we did propose an outlier policy to in 
effect disregard the lowest drugs that perhaps would not be 
available to the majority of the purchasers. We had proposed an 
outlier policy in the proposed rule. We increased that outlier 
proposal in the final rule, so we think that in fact does deal 
effectively with the outlier effect, that no one wants to count 
the FULs based on those costs that really pharmacists do not 
have access to.
    We also had--again, on the definition of AMP itself, there 
is a balancing between the use of the definition of AMP for 
which there has been a definition of AMP that has been used in 
the program for many years. And that definition has been used 
on the rebate side of the proposal.
    I think folks commonly accepted the sort of common sense 
approach to use the same definition on both the payment side as 
well as the rebate side, which is what we have done. So if you 
artificially take more things out of the definition of AMP, 
then you are also giving up rebates that are then paid by the 
manufacturers back to the Medicaid program. So these are not--
these are tradeoffs that everyone knew that we would have to 
take account of.
    In terms of the response on the effect of the small 
businesses, again, we are very concerned about the 18,000 small 
business pharmacies in the United States. In our economic 
impact, we estimated--and I believe that it continues to be the 
case--that the rule itself would reduce overall pharmacy 
revenues by about $800 million in the first year, and that does 
reflect about 1 percent of the sales by independent pharmacies 
for their prescription sales itself.
    The National Community Pharmacist Association indicates 
their prescription sales to be $85 billion. That figure I think 
is from 2004, so it is more than that today. But, again, their 
prescription sales are about $85 billion, so the savings does 
represent about 1 percent of prescription drug sales.
    Other small businesses are impacted in the rule as well. We 
have hospitals that fit the definition of small businesses, 
physicians who would fit the definition of small businesses, so 
our rule--we did, again, with some acknowledgement that the 
data is not complete for us to give as specific impact as what 
we would all have liked.
    The Committee also asked us in the comments to consider 
alternatives to the rule itself. And I did want to share with 
the Committee, I think the--again, to bring perhaps a little 
bit more clarity to how the federal upper limits are actually 
used in the Medicaid program. The federal upper limits, those 
are limits in the aggregate to all drugs that are covered by 
the FULs, which are about roughly 700 drugs out of the entirety 
of all the drugs that are available on the market. So we are 
talking about roughly 700 drugs.
    The FULs is calculated on all of those drugs together, so 
while there might be differences in lower drugs, and there 
could be also payments--higher payments, that they in effect 
cancel each other out, what we are looking at is the aggregate 
amount. The aggregate amount that we--
    ChairwomanVelazquez. Mr. Smith, would you try to summarize?
    Mr.Smith. Certainly, Mr. Chair.
    ChairwomanVelazquez. It has been close to more than seven 
minutes already, so--
    Mr.Smith. I apologize. The aggregate in the amount is then 
what the states themselves, we would pay to reimburse the 
states up to that amount. The federal upper limit does not 
include expenditures for dispensing fees. The federal upper--so 
the states themselves, the federal upper limit rule does not 
impact the overall approach to Medicaid reimbursement, which 
rules on the states to set their costs for reimbursement.
    So the states themselves--and, again, in particular the 
states have the authority under current law, and some states do 
this already, and they will have it in the future even when the 
rule is in effect. So the states can pay independent 
pharmacists more than other types of pharmacists. They could 
pay their rural pharmacists more than their urban pharmacists.
    So there are many different ways that the states are likely 
to react, and, in fact, some already have started to adjust to 
the rule to assure that their community pharmacists continue to 
participate in the Medicaid program and to continue to assure 
that our Medicaid beneficiaries have access to the needed 
prescription drugs that they need.
    Thank you very much.
    [The prepared statement of Mr. Smith may be found in the 
Appendix on page 45.]

    ChairwomanVelazquez. Thank you. Mr. Smith, in the 
regulatory flexibility analysis contained in both the proposed 
and interim final rule, CMS analyzed the retail pharmacy 
industry as a whole and did not quantify the impact on small 
independent retail pharmacies. However, the Regulatory 
Flexibility Act requires agencies to consider the impact of the 
rules on small entities. As such, CMS failed to meet the 
obligations under the law by refusing to examine how small 
businesses will be affected.
    So I ask you why you didn't assess the impact to 
independent retail pharmacies separately as required by the 
law.
    Mr.Smith. Madam Chairwoman, I believe that we did meet the 
requirements of the law, and we specifically referred to the 
savings that would be attributed to the 18,000 pharmacies that 
are considered to be small businesses. So I think we did 
address what the law required us to do.
    As I also indicated, the data analysis--we can never get 
enough data. We always want more data, which again is why we 
have provided for additional comment on the rule.
    ChairwomanVelazquez. That is what the General Inspector's 
Office and the General Accounting Office and Inspector General 
of HHS concluded, that you did in fact conduct the impact 
analysis on small businesses? You know, sir, you come here, and 
let me tell you, people love to talk about standards and 
accountability. But the law is clear in terms of the Regulatory 
Flexibility Act. The size standard is very clear, and we do not 
find that you conducted the type of analysis that is required 
by the Regulatory Flexibility Act.
    So let me just say this to you: I will encourage you to go 
back and do the analysis that it is required by law, because 
this Committee is going to be on top of this issue, and we are 
going to have you come back to this Committee over and over 
again.
    Mr.Smith. I am not an expert on the requirements of the 
regulatory act itself. I believe in our--
    ChairwomanVelazquez. Well, you should have legal counsel, 
because it is very clear.
    Mr.Smith. I appreciate that very much, Madam Chairwoman. We 
did in the final rule specifically refer to the small retail 
pharmacies--approximately 18,000--and we specifically addressed 
the financial impacts on those pharmacies.
    ChairwomanVelazquez. Mr. Smith, recent studies have shown 
that the average dispensing fee is less than half of the 
national average of actual dispensing costs. Given that 
pharmacies may soon be no longer adequately reimbursed for 
their acquisition costs, what is the CMS doing to ensure that 
states' dispensing fee structures are actually covering costs?
    Mr.Smith. I think that this is an area that, again, many in 
the industry have--and the states, as well as us, have sort of 
recognized, that over time when you look at the--how 
prescription drugs are paid for, acquisition costs that--the 
payment based on acquisition costs continue to go higher and 
higher and higher while dispensing fees actually have been 
pretty flat over time.
    So the high reimbursement on the acquisition side to some 
extent was masking what--the true costs and dispensing fees 
were held very level. I think what will happen--and in 
discussing with the states from my own experience as Medicaid 
Director in a state, from my own experience dealing with our 
state legislature in how they react, I think there will be a 
reassessment, again, as I said, to assure that there is access 
and to make certain that our small business pharmacists 
continue to participate in the program.
    ChairwomanVelazquez. You are not going--
    Mr.Smith. I am sorry.
    ChairwomanVelazquez. --that this will--
    Mr.Smith. In our own materials, we have pointed out to the 
states, again, that the FULs do not include dispensing fees, 
and have encouraged them to adjust dispensing fees where they 
believe is appropriate.
    ChairwomanVelazquez. So you don't feel that this is a way 
for the Federal Government to dump costs on the states?
    Mr.Smith. I think it is a way of balancing what the true 
costs are on the acquisition side. And, as I said, I think 
states will adjust on the dispensing side.
    ChairwomanVelazquez. Okay. So let me--I hope that you can 
help me understand the intent of the Deficit Reduction Act. 
That was to cut costs of the Medicaid program, and the law gave 
CMS a significant amount of discretion to create the formula 
for reimbursement rates for these generic drugs.
    However, the final rule creates an incentive to move toward 
brand-name drugs. As the average brand-name drugs costs the 
government six times of a generic drug, why was the rule 
created in such a way that more pharmacies would likely 
dispense these expensive drugs?
    Mr.Smith. I have had that discussion personally with 
representatives of the retail, and I have heard that theory. I 
have just really never quite understood it from an economic 
standpoint. So I have just--I have just said we would have to 
politely disagree.
    ChairwomanVelazquez. So are you telling me you are right, 
but the General Accounting Office is wrong? The Inspector 
General of HHS is wrong? The only one that is right here is 
you.
    Mr.Smith. I am giving you my opinion, Madam Chairman, of--
    ChairwomanVelazquez. Well, this is not a matter of opinion. 
This is a matter of analysis.
    Mr.Smith. And for our--
    ChairwomanVelazquez. Facts.
    Mr.Smith. In our analysis, the Office of the Inspector 
General said on the acquisition side Medicaid was spending $1.5 
billion too much. The rule itself saves about half of that 
amount, so there was an adjustment based on what the Inspector 
General--they said we were overpaying by 1.5.
    ChairwomanVelazquez. Sir, let me ask you--
    Mr.Smith. The rule--
    ChairwomanVelazquez. --explain to me how a pharmacy is 
going to sell drugs when they know that they are going to lose 
money on that drug.
    Mr.Smith. I think, Madam Chairwoman--
    ChairwomanVelazquez. What is the incentive?
    Mr.Smith. --they wouldn't do that, by laws of economics. 
But I don't think that the final rule--that it will in fact be 
the impact. The FULs is not a drug-by-drug limitation. It is a 
limitation in the aggregate to what we pay the states.
    ChairwomanVelazquez. So will you agree that this may drive 
up costs to the Medicaid program for certain use of drugs?
    Mr.Smith. I don't agree with that.
    ChairwomanVelazquez. You don't agree with that. So the 
whole world is wrong.
    Mr.Smith. As I said, I have had those discussions, and I 
think that it would be a--states also, again--states have 
mandatory dispensing--mandatory generic dispensing laws 
themselves, etcetera. So I think there is a balance that, 
again, I think--what the future lies, no one has perfect 
clarity of that. But I think through experience we think that 
the final rule will do what it was set out to accomplish.
    ChairwomanVelazquez. Let us talk about the cost to the 
states. It seems to me that the new rules put a burden on the 
states to figure out how to cover acquisition costs by 
pharmacists. Does the new rule set any kind of guidance for the 
states? What are the states doing to make up for the shortfall?
    Mr.Smith. Well, the states themselves, of course, will want 
to assure that there is no shortfall. And in terms of the 
states, we will be providing the data to the states about what 
the AMPs are, not only for the drugs on the FULs but for all 
drugs, which in--again, we talk about transparency in health 
care. This is transparency in health care.
    So I don't think the impact on the states--they want this 
data. States have been asking for AMP data, which by law we 
were required to maintain in confidence and were not allowed--
    ChairwomanVelazquez. Since you are talking here about 
transparency, are you giving clear guidance to the states under 
this rule?
    Mr.Smith. That certainly is my intent, Madam Chairwoman. 
And we have had briefings with the states, and, as I said, they 
want this AMP data.
    ChairwomanVelazquez. Can you talk to us under the 
Regulatory Flexibility Act, if you have given or examined any 
alternatives to the proposed rule?
    Mr.Smith. We did. We talked a great deal about what the 
AMP--the definition of AMP, for example, what fits in there. 
And as I said earlier, the definition of AMP has been long-
standing in the Medicaid program on the rebate side of the 
program. So if--
    ChairwomanVelazquez. Okay. Can you mention to me at least 
one alternative that will minimize the impact of the rule on 
small businesses and small pharmacies?
    Mr.Smith. Certainly, our outlier policy that, again, we use 
through our discretion, we think is very much a mitigating 
effect on the FULs.
    ChairwomanVelazquez. In the report, the Inspector General 
of HHS concluded that was inadequate.
    Mr.Smith. What we also said with the Inspector General was 
they also didn't have the benefit of the final rule itself when 
they did their analysis, again, which is why we have extended 
the comment period so that sort of analysis will be available 
before the final rules go into--before the first new FUL goes 
into effect.
    ChairwomanVelazquez. How would you respond to those who 
will be testifying in the second panel that will say that this 
rule could cause many small pharmacies to close their doors?
    Mr.Smith. I respectfully disagree with that assessment. As 
I said, this rule, in the aggregate, represents about 1 percent 
of all sales that they make. I also am from a small town. I 
very much understand small businesses, and that they are the 
backbone of the American economy.
    I don't think the states will jeopardize the access of the 
Medicaid beneficiaries, and I think that they will continue to 
pay overall reimbursement to the pharmacists to make sure they 
continue to participate.
    ChairwomanVelazquez. I really appreciate you coming here 
and saying you understand small businesses, but this is not 
about that. This is about impact analysis under the law.
    And now I recognize Mr. Chabot.
    Mr.Chabot. Thank you, Madam Chair. And let me just note for 
the record, as I think everybody knows, members of Congress are 
on various committees, and I am also on the Judiciary Committee 
and the Foreign Affairs Committee. And we are marking up the 
Patent Reform Bill, and we have several important amendments to 
the bill, so I am going to, unfortunately, have to leave here 
shortly, and some of my colleagues will be filling in as the 
ranking member for different parts of the morning. So I want to 
thank them for that. I greatly appreciate it. So I just have a 
couple of questions.
    Mr. Smith, do you concur with the findings of the GAO and 
the Office of Advocacy of the United States Small Business 
Administration that the reimbursement rate does not recoup the 
costs of acquisition of covered pharmaceuticals, much less the 
cost of the pharmacies to dispense the drugs?
    Mr.Smith. We have disagreed with what GAO--their analysis 
in the studies that they have published, again, on the basis 
that they didn't--they didn't know what was in the final rule, 
and, again, didn't have the--no one has the data, including 
GAO, to make their final analysis, again, which is an important 
reason as to why we have delayed the effectiveness of the first 
new federal upper limit.
    Mr.Chabot. Okay. Thank you. So just to be clear, so you do 
not concur with that, is that correct?
    Mr.Smith. That is correct, yes, sir.
    Mr.Chabot. Thank you. Now, next, do you know how Congress 
arrived at the 250 percent of average manufacturers' price for 
the reimbursement?
    Mr.Smith. In the Deficit Reduction Act, the Senate and the 
House passed very different types of proposals. What came out 
of conference differed between both approaches. Both approaches 
were designed to create savings for the Medicaid program. The 
final amount, I couldn't speak to how precisely they arrived at 
250 percent, but I think that is an important consideration to 
bear in mind.
    We are talking about two and a half times of what the 
lowest acquisition cost is. So that leaves I think a very 
significant cushion between the lowest and the upper limit now, 
which is two and a half times that.
    Mr.Chabot. Thank you. Next, in failing to quantify the 
economic impact on small retail pharmacies, what efforts did 
CMS undertake to determine what economic data was available?
    Mr.Smith. We did look at--again, I assure you we looked at 
the data that we have, and we certainly did understand the 
impact to be on the pharmacists' side, and the 18,000 small 
pharmacists. We, again, consulted with our Office of the 
Actuary. We looked hither and yon for as much data as we could 
get.
    As I said, we did talk with the pharmacy organizations 
themselves. I do believe we went looking for as much data as we 
possibly could get.
    Mr.Chabot. Has CMS considered amending its final regulatory 
flexibility to address any inadequacies in the statutory 
reimbursement rate?
    Mr.Smith. We left some very important parts continued to be 
open for comment that, again, the data that everyone would want 
to have. With their AMP reporting, under the new rules, then we 
will start having that data. So that is why we left it open to 
comment between now and the first new federal upper limit.
    ChairwomanVelazquez. Mr. Chabot?
    Mr.Smith. Certainly, our intent was to be able to have that 
sort of data analysis to then determine whether or not we 
should make any further changes.
    Mr.Chabot. Yes, Madam Chair.
    ChairwomanVelazquez. I just would like, before my blood 
pressure goes up--
    Mr.Chabot. I would yield to the--
    ChairwomanVelazquez. --for the record to reflect what you, 
in your statement on the final rule, said about the data. We 
are on--although it is clear the effects will be small on the 
great majority of pharmacies, whether chain or independent, we 
are unable to estimate the effects on small pharmacies, 
particularly those in low income areas where there are high 
concentrations of Medicaid beneficiaries. This is your own 
rule.
    Mr.Smith. And, Madam Chairman, I think I also said we 
realize that we all want more data than what we had at our 
disposal.
    Mr.Chabot. Madam Chair, I am being called down to the 
Judiciary Committee, so I am going to yield back my time.
    Mr.Smith. And now I recognize Mr. Shuler.
    Mr.Shuler. Madam Chair, thank you. Back to the data, if you 
recognize that the backbone and the success of our, you know, 
economy depends upon the small businesses, then why didn't you 
request and ask for more data?
    Mr.Smith. The data has to relate to what the final 
definition is. If it doesn't reflect what the final definition 
is, then the data continues to be flawed, which is why when a 
number of groups and individuals, including the pharmacies 
themselves, asked us not to publish data as the law required, 
going back to January of this year, their rationale was the 
data will be flawed because you don't have a final definition.
    We agreed with that, which is why we have not released the 
AMPs under the old definition. But we won't have the data until 
we have--
    Mr.Shuler. Until after the rule?
    Mr.Smith. Which is why we have delayed the comment period, 
which is why we have delayed the effectiveness.
    Mr.Shuler. So will there be a rule on--a judgment on the 
final rule after the fact?
    Mr.Smith. Yes, sir. That is what an interim final with 
comment is, that it allows, then, to make further adjustments 
without going through the entire APA process all over again.
    Mr.Shuler. So why can't you submit the data from the AMP to 
the states? Is it HIPAA, because of HIPAA compliance?
    Mr.Smith. We can. But, again, folks have not wanted us to 
submit AMP data under the old definition of AMP. The pharmacy 
community itself didn't want us to allow that, I believe.
    Mr.Shuler. So it is more important to--hey, I mean, there 
is nobody that supports the pharmacists more than I--I mean, 
both the chains and the small communities. But, I mean, don't 
you think it is more important to make sure that we have the 
proper data for them, and for the patients as well?
    Mr.Smith. Absolutely. And--
    Mr.Shuler. So which is more important?
    Mr.Smith. I think that what is important is to have 
accurate data to balance any other decision makers on the final 
rule. I would be very surprised, though--and you can ask the 
next panel--I would be very surprised if they told you that 
they wanted us to release the old AMPs.
    Mr.Shuler. We will ask that.
    Madam Chair, I would request that if--
    Mr.Smith. We realize that we all want more data on--
    Mr.Shuler. Yes, don't you think we should delay the rule 
until we have the final data?
    Mr.Smith. The rule, in fact, has been delayed to some 
extent. And we have delayed different parts of it. As I said, 
the law said--had given us a January date to start releasing 
publicly data. We believed it was--our concern was that data 
would be inaccurate, and that could have a negative impact as 
payers start looking at data that would be inaccurate, and then 
start making decisions about their own pricing.
    We did delay that. We have also delayed the publication of 
the new first federal upper limit--would have, could have, 
should have gone into effect July 1. That really is now the end 
of the year. In between time, now everyone--manufacturers will 
then start reporting their data based on the new AMP 
definition. Then, that data will be available for analysis to 
make a final determination.
    Mr.Shuler. Madam Chair, I would request that you would 
submit the information on the impact on small business to the 
Committee. I know there is--you said there is not a lot, but 
the quantifiable evidence and effects on small business, we 
would like to receive that information.
    Mr.Smith. We did--as I said, we responded to--in the final 
rule--
    Mr.Shuler. Not just the information from what is in the 
final rule, but the entire information that actually impacts 
small business.
    ChairwomanVelazquez. Without objection.
    Mr.Smith. I will do the very best I can to provide whatever 
data that we are going to be able to have.
    Mr.Shuler. Madam Chair, I yield back.
    ChairwomanVelazquez. Thank you. Mr. Buchanan.
    Mr.Buchanan. Yes, thank you, Madam Chair. I think the 
concern with all of us is I know I have a pharmacist in our 
community that is out of business. There is so much pressure 
already on a lot of these small retail pharmacists because of 
whatever reason--national chains, other issues.
    That is why it is concerning all of us up here, because 
sometimes it is just that tipping point that one more something 
like this put on them puts a lot of them out of business. And I 
know right down the street from me we just had one close in the 
last six months. I am not saying it is because of this. It 
might be part of this, but I am concerned that we are going 
to--we are not going to see a lot of retail pharmacists.
    I would be interested to see 18,000 retail pharmacists, how 
many have--how many there were five years ago and what it is 
today. So I think--I don't even know, but I have got to imagine 
that trend is coming down.
    I guess the big thing is getting back to this when you 
looked at the final rule. Did you spend much time working with 
the states or anybody--any other entities to get a sense of the 
impact on the analysis? Or was this something that you did 
yourself or--
    Mr.Smith. We did, Mr. Buchanan. We asked data from the 
states themselves. We asked manufacturers to verify their data. 
We had the benefit of hearing from the community pharmacists 
themselves as they came in. States themselves--some states have 
said very--may have very little impact on us, because we 
already have our own what are called maximum acquisition cost 
lists that are below the old FULs.
    So the impact will vary by state, comparing their 
acquisition cost limitations that they already had in place 
versus the new FUL. So we did go looking--we--
    Mr.Buchanan. Yes. When you said you had the community 
pharmacists come in, how did that work out? I mean, how many 
did you have come in over what period of time, and in terms of 
doing an analysis?
    Mr.Smith. I don't recall how many meetings I have had, but 
I--
    Mr.Buchanan. Well, what is the reaction?
    Mr.Smith. --had several--
    Mr.Buchanan. What was the reaction, the feedback you had 
from the community?
    Mr.Smith. Certainly, the reaction was of concern. 
Certainly, the rule was, and the law was, designed to generate 
savings. We understand that and know that would be a concern.
    Mr.Buchanan. The other question I had, why are brand-name 
drugs not part of the modified reimbursement plan? What is the 
rationale there?
    Mr.Smith. Because to be on the federal upper limit you have 
to have a competitor. So the FULs is only to those roughly 700 
drugs, not the entire 55,000 drugs. So you have to have a 
competitor to be on the FULs in the first place.
    Mr.Buchanan. How did they decide on the 700 drugs? Why was 
it not 700, 800, what was the--
    Mr.Smith. They come on as a generic manufacturer to--as a--
you have a brand-name drug all by itself, and then you have a 
generic manufacturer that comes in and is doing the generic 
equivalent of that. They go to the FDA, and then FDA says now 
there is a generic equivalent, so that is how you get on the 
FUL is by having a generic competitor.
    Mr.Buchanan. And you touched on this, but what is your view 
of the discretion that CMS has in developing the average 
manufactured price?
    Mr.Smith. I think we--I think the--again, what we did was 
to introduce an outlier, a policy in the first place, in the 
proposed rule, which we increased in the final rule. We went 
from 30 percent to 40 percent. That was in our discretion.
    In terms of who is in within the definition of AMP, we 
disregarded sales to nursing homes. We disregarded certain 
sales that would have had an impact on the AMP. However, if you 
swing too much to the other side, and start taking more and 
more transactions out of the list, then Medicaid will start 
losing rebates from the manufacturers.
    Mr.Buchanan. Thank you, Mr. Smith. And I yield back, Madam 
Chair.
    ChairwomanVelazquez. Thank you. Mr. Braley.
    Mr.Braley. Thank you, Madam Chairwoman. Mr. Smith, I was 
pleased to hear that you looked hither and yon for as much data 
as you could get. Frankly, I have not heard that word used 
since the last time I watched the movie Robin Hood.
    But I think that one of the things that you are not getting 
from this bipartisan panel is that all of us are concerned 
about the AMP formula, the criteria you use to define the 
formula, and its adverse impact upon the community pharmacists 
that we represent.
    And I think that attitude on the part of the agency you are 
here to represent is reflected in the fact that on May 18, 
2007, over 100 of my colleagues, including Ms. Fallin, Mr. 
Shuler, myself, in a bipartisan spirit, probably one of the 
most bipartisan outreach efforts I have seen since coming to 
Congress in January, asked a simple request of Leslie Norwalk, 
and that was to recognize the practical reality of the 
implementation of this rule when it is going to be applied by 
many states whose legislatures are no longer in session.
    Your rule comes out on July 1, 2007. My legislature 
adjourned in May and won't reconvene until January. And I think 
that is the case in many smaller states, and in probably some 
of the larger states of this country. And one of the reasons 
why we made this outreach effort in a bipartisan fashion was to 
address the simple, practical realities of giving states an 
adequate opportunity to provide the input and feedback to your 
rule after final publication, before implementation.
    And from my understanding, rather than acceding to our 
request to delay that until December 31, 2007, your agency has 
decided to begin the implementation in October. Is that true?
    Mr.Smith. If I can take a minute to explain, and the impact 
on the states and how, again, this is enforced with the states, 
because I think you raise a very important point. The data that 
we all want we can't get until you get to a final definition.
    We have delayed the effectiveness of the new federal upper 
limit. The new federal upper limit itself, in terms of our 
relationships with the states, is a calculation that we do--
that we would do in terms of enforcement with the states once a 
year. So while the new FUL--the first new FUL will come out 
roughly December, we would not be taking any action against a 
state roughly for a year after that.
    So I think legislatures will come back in time to make any 
modifications that they deem to be necessary, before we take 
any adverse action against a state.
    Mr.Braley. In fact, several of these states, including my 
State of Iowa, the State of Kansas, which the original co-
authors of this letter--Jerry Moran and Nancy Boyda--represent, 
and the State of Louisiana have plans to revise their 
dispensing fee requirements in anticipation of just what we are 
talking about. Can you describe how these states are going to 
be able to try to bridge a gap that nobody here seems to be 
able to understand or define?
    Mr.Smith. I think between now and the end of the year we 
will start having--we will get the data that everyone is 
looking for in time for them to make any adjustments. As you 
indicate, states are already, in anticipation of savings on the 
acquisition side, re-balancing that to--at least to some extent 
with increase in dispensing fees, which I said in my earlier 
remarks have really been flat for several years now.
    So states have the--all of the authority they need to make 
those changes in dispensing fees, and by the time they come in 
next year they will have the data before CMS has taken any 
enforcement action against them.
    Mr.Braley. Have you had the opportunity to review any of 
the proposals from the states that are submitting requests?
    Mr.Smith. We have, yes, sir.
    Mr.Braley. And have you seen anything in any of the 
components of those state programs that you believe will be 
particularly effective in addressing some of the issues we have 
been discussing here today?
    Mr.Smith. Well, the states have the authority to set their 
reimbursement rates, which generally includes acquisition costs 
and dispensing fees. The dispensing fees do need to be 
reasonable and are supported by data. The extent to which Iowa 
or any other state that comes in and says, ``Look, we need to 
increase our dispensing fee, we believe we need to increase our 
dispensing fee to our rural pharmacists to assure access,'' 
then they would have the right to do so. They would submit a 
state plan amendment, and we would approve that state plan 
amendment.
    ChairwomanVelazquez. Ms. Fallin.
    Ms.Fallin. Thank you, Madam Chair. Thank you for coming 
today to visit with us about a very important issue. We 
appreciate you being here. I have a question about legal 
authority and about CMS. And what legal authority does CMS have 
to delay the statutory deadlines on this rulemaking?
    Mr.Smith. The statutory deadlines we take very seriously, 
and do our very best to meet them. The statutory definition was 
to have an AMP rule by July 1. We were a couple of days late, 
but I think any significant delay beyond that then calls into 
question whether or not we met our statutory obligation.
    Ms.Fallin. Well, if CMS missed that deadline, which you 
did--I think it was July 7 by the time it was--received July 6 
to register the rule, and then publication in the Federal 
Register on July 17--and if we missed those deadlines, I guess 
would that mean that we could also play with other statutory 
deadlines, too, in other areas?
    Mr.Smith. The risk of missing the statutory deadline I 
think is an issue for lawyers to kind of debate and that I am 
not really the expert to do that.
    Ms.Fallin. Okay.
    Mr.Smith. Sorry.
    Ms.Fallin. That is all right. Thank you.
    Thank you, Ms. Chairman.
    ChairwomanVelazquez. Mr. Gonzalez.
    Mr.Gonzalez. Thank you very much, Madam Chair. And welcome, 
Director Smith. Quickly, you know, this is all a result of the 
Deficit Reduction Act. When we were debating that--I still 
remember that well, because I serve on Energy and Commerce, and 
the way I figure it really happened like this, and this is 
where we find ourselves today.
    The White House said, ``We are going to reduce spending X 
amount of dollars.'' Then, it filters down to Congress. And you 
look at each Committee that has certain jurisdiction, and they 
say, ``You have jurisdiction over these departments or 
agencies, and we are going to cut X amount of dollars.'' 
Whether it is realistic or not, it does not matter. These are 
arbitrary, mandatory figures pulled out somewhere, and that is 
the genesis of this thing.
    And what you are dealing with, of course, is the end 
product. So Energy and Commerce comes out, we have got 
jurisdiction on Medicaid, and they say, ``We are going to cut 
$10 billion.'' We are trying to figure out, how did you get to 
that figure? Well, we are not real sure, but we think we need 
to cut $10 billion, because in the big picture that is how much 
you have to save from your particular program under that 
particular agency that comes under the purview of your 
Committee.
    We debated and debated. The Chairman at that time, Chairman 
Barton, a fellow Texan, promised me that less is more when it 
comes to Medicaid. So on the Committee we have Mr. Ross from 
Arkansas, who has--I think his wife is a pharmacist, and they 
own a small community pharmacy. And I wish he was here today, 
because he could explain this in a way that no one else can, 
because he is intimately acquainted with all of the details of 
what it takes to be a pharmacist in today's economy.
    So that is where we are today. Now, I hope Mr. Barton is 
right that less is more. He promised he would come to my 
district to explain this when the impact of the rulemaking--and 
I told him that it--you know, I really don't want to be the 
second Alamo in San Antonio, Texas.
    But, nevertheless, this is where I am getting at. I know 
what you have to do with deadlines and such. You are just going 
to find these savings, because we mandated that when we passed 
that act. And the $10 billion was going to come out of Medicaid 
no matter what, at someone's cost.
    Now, I am going to tell you, we will hit the physician, the 
caregiver, we will hit the pharmacist, but the one that really 
suffers, of course, is going to be the patient. But that is 
where we are today.
    Now, let us just figure out how we can soften this, and 
this is all about damage control. My concern is this, and I do 
appreciate your testimony--but based on some of the questions 
that we have here, the consequences of what we are doing here, 
findings of the GAO, which you have to respect--I mean, you can 
disagree to a certain extent, but somewhere along the way you 
have to figure there has got to be some legitimacy to what they 
are finding here.
    But the consequences of where you are pushing the 
pharmacists, and what is the role of the pharmacist? That is 
the other thing. I am going to tell you something, I don't 
think there is going to be a member here, Republican or 
Democrat, that doesn't appreciate the role of the pharmacist in 
our communities. It is a lot easier for the patient to get a 
lot of the information from the pharmacist than it is usually 
to get it from the doctor--in making the appointment, keeping 
the appointment, being seen, and spending any quality time with 
the physician.
    There is more quality time being spent today by the patient 
with the pharmacist. And at our town hall meetings, I can tell 
you the stories that are recounted. And we are going to impact 
that relationship, I believe, to the neediest patient out 
there.
    But this is what I am getting at. You have indicated that I 
guess there is two parts to this formula--the cost of the drug 
itself, but then this dispensing fee, and I am not sure if you 
hinted at or you spoke directly to the fact that, are you going 
to be able to pass on some of the costs that may be suffered to 
reimburse the pharmacist for the cuts they are going to have on 
the acquisition as opposed to the dispensing fees?
    That really doesn't help any as far as any real savings, 
and I want your opinion on, to what extent is that going to 
happen? Is it going to be allowed? We have had this experience 
in the past with the oncologists in the payment of the drug, 
compensating for administering the drugs, and we are in a huge 
mess over that. But I just want your take on the consequence on 
the dispensing fee side of the equation.
    And, secondly, something that the Chairwoman touched on, 
are you pushing the pharmacists to be prescribing brand-name 
medicines which are going to be more expensive? So I don't know 
where all of the savings is at the end of this whole thing. I 
understand the charge and the mandate that you received over 
there as a result of what we did with the Deficit Reduction 
Act, which obviously some of us opposed and such.
    But, again, I just want to know the consequences on 
dispensing fees and the fact, are you truly going to be pushing 
people to utilize more brand-name and, thus, negating what the 
generic drug prescription is supposed to be delivering in the 
way of savings.
    Mr.Smith. Thank you, sir. On the--and pharmacists do get 
paid in two components in general--on the acquisition cost, and 
that is what the Inspector General--that is sort of where the 
ball started rolling. When then Inspector General said you are 
paying--Medicaid is paying $1.5 billion too much based on 
acquisition cost, them looking at acquisition cost.
    Then, the states are also looking at the dispensing fee, 
and the other side of the payment--what a state determines 
under Medicaid what a provider actually gets paid. So they set 
the reimbursement rates to the states, and a state can say--
they have all of the authority to say, ``We need to increase 
our dispensing fee. We are concerned about access, particularly 
in the rural areas, so we are going to pay our rural 
pharmacists more.''
    We are particularly concerned about the impact on the 
independent pharmacists, so we can--we will pay them more than 
what we will pay a chain. So the states still have the 
authority to make the adjustments and decisions that they 
believe are needed to assure access for our Medicaid 
beneficiaries.
    Mr.Gonzalez. Doesn't that work against your very savings 
goal? I mean, what I am saying is, all right, let us say GAO, 
everybody, and probably the individuals who are going to 
testify in a few minutes, are correct--that it is not going to 
be adequate compensation for the generic drug and such with the 
new formula that you have come out now. So can you just push 
and make up for some of that shortfall on the dispensing side? 
And if you can, and which they will if you can, then where are 
the savings?
    It is all--I mean, a dollar is a dollar is a dollar. We can 
split up the cost between dispensing and the cost of the drug 
itself, but at the end of the day, isn't it basically the same 
budget, the same amount of money? And the troubles that we have 
been experiencing in Texas regarding the state's failure to 
really meet its obligation under the Medicaid program, and 
making sure that it is available, it is only going to get 
worse.
    And so I guess I just--I don't see, isn't it the potential 
is any perceived savings be gobbled up by some other component?
    Mr.Smith. I think that we have accomplished something that 
is very important in the rule on the acquisition cost in 
itself. Now we will have much better information about what the 
true acquisition cost is in itself. So that is an important--
that is an important gain in itself.
    The extent to which states then make a determination that 
they have to raise a dispensing fee, they will--again, I think 
then they will go through the analysis that they very well may 
need to increase the dispensing fee, but not the entire amount 
to offset the savings that is paying on the acquisition cost 
more specifically.
    ChairwomanVelazquez. Time has expired.
    Mr.Gonzalez. Thank you.
    ChairwomanVelazquez. Mr. Smith, I have two more questions. 
First, we all know that there was a statutory requirement for 
issuing the rule. My question is: was there a statutory 
requirement for the implementation of the rule?
    Mr.Smith. Well--
    ChairwomanVelazquez. Yes or no? Simple answer.
    Mr.Smith. I think there is an expectation that we 
implement--
    ChairwomanVelazquez. No, no, no, no.
    Mr.Smith. --the statute.
    ChairwomanVelazquez. That is--
    Mr.Smith. I am not--
    ChairwomanVelazquez. No, I am talking to you about 
statutory requirement of implementing the rule. And if there is 
not, my question is: would you hold off at that line of 
implementation until you have all the data that you admitted 
here you don't have? So that, then, you can have a final rule 
that accounts for the needs of small pharmacies?
    Mr.Smith. I think we were required to issue the 
implementation. I am sorry--to issue a final rule, which is 
what we did July 1.
    ChairwomanVelazquez. Yes, but that is not my question.
    Mr.Smith. In terms of the effective date, we have delayed 
the effective date by delaying when the first new federal upper 
limit will go into effect.
    ChairwomanVelazquez. Well, I am not talking about issuing 
the rule and the effective date. I am talking to you about the 
implementation of the rule.
    Mr.Smith. I am sorry. The implementation--the new federal 
upper limit is implementation.
    ChairwomanVelazquez. Okay. Let me ask you another question 
since cost saving is an issue here, right? Can you tell me why 
do you think funding was cut for only generic drug 
reimbursement and not for brand name drugs?
    Mr.Smith. I think this did stem from a realization that 
where there is competition between generics and brand names, 
that is how you get on a FUL in the first place; that Medicaid 
was overpaying and not getting the best price, which is in many 
respects an underlying assumption about the Medicaid program 
that Medicaid should be getting the best deal for 
reimbursements.
    ChairwomanVelazquez. So let me ask you a last question now. 
Could there have been cost savings if the reimbursement formula 
for brand name drugs was altered?
    Mr.Smith. Presumably. I mean, Congress could have enacted a 
number of different ways to find savings.
    ChairwomanVelazquez. So why do you think we did not? You 
have been saying all along, ``I think, I think, I think,'' in 
the many questions that I have been asking you.
    Mr.Smith. I think there was a clear indicator from the 
Office of Inspector General that drugs that have competition on 
the folds, Medicaid was overspending by a million and a half 
dollars.
    ChairwomanVelazquez. Ms. Clarke, do you have any questions? 
You will be recognized for five minutes.
    Ms.Clarke. Thank you very much, Madam Chair.
    Madam Chair, why don't you come back to me? I am sorry. I 
defer at this time.
    ChairwomanVelazquez. Yes. So we are going to finish this 
round, and, Mr. Smith, you are going to be excused. Are you 
ready? Okay.
    Mr.Smith. Thank you, Madam Chair.
    A little freshman SNAFU, and I want to thank you and the 
Ranking Member for holding this hearing, and it will have an 
impact on all of our congressional districts.
    On July 6 of 2007, CMS released a final rule on Medicaid 
drug pricing that would redefine the average manufacturer's 
price, also known as the AMP, and cut Medicaid reimbursements 
to pharmacies for generic drugs by $8 billion over the next 
five years.
    Unfortunately, the final rule remains fundamentally flawed. 
It includes a final definition of AMP that could severely 
underpay retail community pharmacies if used as a reimbursement 
metric. In my community, this is a huge, huge concern.
    These reductions could force many pharmacies to close or 
reduce hours, jeopardizing Medicaid beneficiaries' access to 
retail pharmacies. If payments to pharmacies end up below their 
cost for generic drugs, pharmacies could earn a greater margin 
by dispensing a higher priced brand medication in Medicaid, 
about $150, which is more than seven times higher than the 
average payment for generic medication, around $20.
    As you know, too, Madam Chair, there are about 8,750 
community pharmacies active in our state. Community pharmacies 
employ more than 117,000 employees, including over 13,000 
employees who work at independent pharmacies. Medicaid is 15.9 
percent of the marketplace.
    ChairwomanVelazquez. Mr. Smith, I'm very concerned that the 
final rule that CMS has promulgated as it relates to how 
Medicaid reimburses pharmacies for generic medications will 
threaten the ability of low income beneficiaries and seniors in 
my district in Brooklyn, New York to access prescription drugs 
and services at their local retain pharmacies.
    CMS was instructed by Congress and the Deficit Reduction 
Act of 2005 to define AMP to accurately reflect retail pharmacy 
acquisition costs. However, based on my understanding of the 
final rules, CMS chose to completely ignore congressional 
intent and has done nothing to help mitigate the unprecedented 
level of cuts to community pharmacies.
    Do you believe that the final rule that CMS has issued 
provides for an accurate benchmark to reimburse pharmacies and 
provide an adequate level of reimbursement to pharmacies to 
help insure their continued participation in the Medicaid 
program?
    Mr.Smith. I believe the final rule is a reflection of 
payment on the acquisition costs. The acquisition costs for the 
drugs on the federal upper limit, that limit would now still be 
two and a half times the lowest drug that is available. So on 
the acquisition side we do believe that is a margin that is 
allowable.
    Secondly, it is all drugs on the FUL in the aggregate. So 
there is a relationship that this is not a drug by drug. This 
is all of the drugs together in the aggregate.
    Ms.Clarke. And inherent in that is an unintended 
consequence.
    Mr.Smith. Well, again, I think we will all have a much 
clearer understanding of what actual acquisition costs are, 
which I think is a good thing for everyone, and the savings 
themselves to the independent pharmacists represents about one 
percent of their pharmacy sales.
    Ms.Clarke. Mr. Smith, I have been hearing from my 
pharmacies that the implementation of the tamper proof 
prescription pad requirement mandated by Congress in the 
recently enacted Iraq supplemental earlier this year could 
cause some difficulties. Pharmacies tell me there may not be 
enough pads available for all prescribers at the time of the 
October 1st launch, and that pharmacies could be faced with 
either turning Medicaid beneficiaries away who show up with 
prescriptions written on non-compliant pads or risking a 
subsequent denial of reimbursement of prescriptions dispensed 
under those circumstances.
    Would CMS be willing to delay implementation of the 
requirement or to at least phase it in over a period of 180 
days beyond the mandated October 1st effective date?
     And would CMS be willing to use some discretion in 
enforcing the requirement over the first six months?
    Mr.Smith. As you are aware, Congress just passed that law 
very recently. We are going to do our very best to meet the 
effective date, and we are doing our very best to comply with 
what Congress told us to do.
    We have worked with the pharmacists. We have heard from the 
pharmacists. We have heard from the states. The tamper proof, a 
number of states have said in many effects we already do this. 
So it will have no impact on it.
    So this is going to impact pharmacists in those states that 
have not already moved to the tamper proof, which the intent 
itself is to prevent fraud and abuse in the Medicaid programs. 
So the impact is on states that do not already have tamper 
proof, and we are working hard with them to find ways that they 
can come into compliance.
    Ms.Clarke. So you are up here to help mitigate those 
circumstances.
    Mr.Smith. We will continue to assess the ability to make 
that date and adjust.
    Ms.Clarke. Accordingly. Thank you.
    Thank you very much, Madam Chair, and I will yield back.
    ChairwomanVelazquez. Any other member?
    Mr. Smith, I will excuse you, but before you leave this 
room, again, I just want to reiterate the impact that this is 
going to have not only on local pharmacists, but Medicaid 
recipients throughout this country, and I will hope that you 
will provide more time before implementing the AMP until you 
have the data that is required by the Regulatory Flexibility 
Act.
    If I am one of those pharmacists sitting here in this room, 
by the way, I just will ask you. Have you heard of any pending 
lawsuit in light of the Regulatory Flexibility Act?
     Mr.Smith. I understand that is something that is being 
considered.
    ChairwomanVelazquez. Okay. Well, with that, you are 
excused.
    Mr.Smith. Thank you very much.
    ChairwomanVelazquez. And I will ask the next panel to come 
forward and take your seats, please.
    Okay. We are going to proceed with our second panel. Our 
first witness is Percy Bellow. Is he here?
    Okay. So let's go with Mr. Osterhaus. Mr. Osterhaus is a 
community--sorry. And I will recognize Mr. Braley for the 
purpose of introducing his constituent.
    Mr.Braley. Thank you so much. It is my distinct pleasure to 
introduce one of my constituents who is uniquely qualified to 
testify here today.
    Matt Osterhaus is a community pharmacist and consultant and 
co-owner of Osterhaus Pharmacy in Maqueketa, Iowa.
    Osterhaus Pharmacy has been a family owned operation since 
1965, and Matt is actively involved in community development, 
as well as an adjunct faculty member at the University of Iowa 
College of Pharmacy, and he has had the great fortune of 
practicing with his father, also a community pharmacist who 
served in the Iowa legislature and has a great background in 
how these Medicaid adjustments impact patients, as well as 
community pharmacists.
    And we welcome you here today

STATEMENT OF MATTHEW OSTERHAUS, PHARMACIST, OSTERHAUS PHARMACY, 
ON BEHALF OF ASSOCIATION OF COMMUNITY PHARMACISTS CONGRESSIONAL 
                            NETWORK

    Mr.Osterhaus. Thank you very much, Congressman Braley.
    Members of the Small Business Committee, thank you for 
allowing me to testify this morning on behalf of the 
Association of Community Pharmacists Congressional Network and 
the independent pharmacies they represent across the country.
    Since the launch of Medicare Part D, the prescription 
program in January of 2006, hundreds of pharmacies have closed. 
It is my belief and the belief of thousands of pharmacists and 
pharmacy owners across the nation that if the economic 
environment of pharmacy remains as it is today and CMS 
implements average manufacturer's price, or AMP, a reported in 
the recent ruling, the citizens in the nation may see an 
unprecedented loss of pharmacies, in particular, independent 
community pharmacies.
    The one-two punch of Medicare Part D along with AMP, the 
way that has been thrown out at us really threatens the 
survival of the community pharmacy. The loss of these 
businesses will potentially impact the access for our citizens, 
our patients who depend on pharmacies for their prescription 
and health care needs.
    I see independent community pharmacy as kind of the classic 
example of small business in the United States. We have 
survived through a lot of ups and downs for several centuries. 
I think we have survived because we do add value along with the 
dispensing of medications and the care for our patients.
    Many of these businesses serve as the anchor of their small 
towns, including Osterhaus Pharmacy who is, I guess the 
downtown anchor of Maqueketa, Iowa. We are in a community of 
6,000 people. We employ 25 people in our pharmacy, including 
seven pharmacists. We provide medication therapy management for 
patients with private insurance, with Medicaid, with Medicare 
Part D. Approximately 30 percent of my patients have Medicaid 
as either their primary or their secondary insurance.
    As we face crises over the years, we have come out of 
those, but I see none other that has ever been as hard hitting 
as the potential AMP legislation. With the creation of Medicare 
Part D, the PBMs, or pharmacy benefit managers, began setting 
reimbursement on a huge percentage of the prescriptions that we 
dispense to our patients.
    And there are a lot of small businesses, pharmacies, across 
this nation who closed their doors due to the slow and low 
reimbursements in this plan. It has been estimated that a third 
of our health care dollars are being spent on administration, 
benefit management, and frequently not allowing benefits.
    I feel we need to reallocate our health care resources and 
refocus them on the care of patients. I think we also need to 
insist that the providers provide value for the dollars spent.
    Independent pharmacy is somewhat unique as a small business 
group in that we have very little control over the cost of what 
we pay for the medications. There is a limited number of 
wholesalers or sources for the prescription drugs, and we have 
almost no control over the price that is set that we are paid 
for it.
     Yet when it comes time to squeeze savings from the system 
in this escalating cost environment, both state and federal 
government turn to pharmacy as if we had full control.
    Now, through CMS and the establishment of AMP, generic 
pricing structures is striving to save billions of dollars by 
cutting payments on medications to pharmacies across the 
country, and many people think that there is a lot of fat to be 
cut.
    But if we set up the system the way that is certainly out 
there right now, if we pay $100 to bring a medication in to our 
pharmacy from the wholesaler and Medicaid decides to reimburse 
us 85, and then we wait four to six weeks to be paid for it, we 
cannot stay in business very long.
    Utilizing a formula to establish product reimbursement is 
fundamentally flawed. Bringing it in at less than the 
acquisition that pay my wholesaler is not a recipe for success. 
Utilizing mail order pharmacies and hospital out-patient 
pharmacies in the formula I think is a significant flaw, and it 
is an inequity that needs your attention today, and I certainly 
appreciate the opportunity and the attention you have given it 
in this hearing.
    I think it is obvious that a small business of any type 
cannot survive if the revenue that comes in does not match the 
cost of the product being sold and the overhead that we need to 
provide quality service to our patients or the consumer.
    I submit to you that hundreds of independent pharmacies may 
be lost if AMP is implemented as currently designed. This is a 
blow to small business, but it is devastating to the patients 
served by these small business.
     Pharmacists across the country are agonizing over the 
thought of not being able to serve their patients, and those 
patients will be distraught over the thought of losing their 
pharmacies.
    People up here maybe on the Hill or people at CMS may think 
that there is not an access issue in pharmacy. When I come to 
Washington, D.C., I can see four pharmacies on one corner 
sometimes, but in Iowa, a prime example of rural America, there 
are several counties that only have one pharmacy, and these 
patients understand that if they lose that pharmacy it could be 
30 to 40 miles to the closest pharmacy.
    I think of my own patients. I think of Don who has a 
seizure disorder, was totally uncontrolled. Our pharmacists 
worked with him to help him adhere to this regimen. He has not 
been back in the emergency room or the hospital sense.
    I think of Peggy, my patient with multiple sclerosis. We 
have collaborated with her physician to better control her 
pain, who helped her quit smoking. Community pharmacies care. 
Pharmacists care and want to partner with Medicaid to take care 
of these patients.
    I feel we serve a vital role in our health care system. 
These are small businesses that provide entry level health 
services to the patient. We need to have a system of 
reimbursement that is fair so that we can continue to be in 
business. The average number of employees in an independent 
pharmacy is 12, but they all expect to receive their paychecks 
every week, and we expect to be able to give them a decent 
living.
    There are a lot of ways that pharmacists could help save 
health care dollars.
    Am I pushing my time?
    ChairwomanVelazquez. Mr. Osterhaus, we have five minutes 
and it is up, but I will give you an extra minute so that you 
could summarize.
    Mr.Osterhaus. Thank you.
    The Iowa Medicaid pharmaceutical case management project is 
working to provide extra value to the patients of Iowa that are 
covered under Medicaid. Pharmacists want to partner with 
Medicaid to take good care of these patients.
    I would ask you to direct CMS to rework the formula for AMP 
and to delay implementation until states can establish an 
equitable fee for the services we provide. We can increase the 
value and increase the quality of care given to these patients, 
but we need to work on it together.
    Thank you again for the opportunity to testify today.
    [The prepared statement of Mr. Osterhaus may be found in 
the Appendix on page 49.]

    ChairwomanVelazquez. Thank you, sir.
    Our next witness is Anthony Civello, Chairman, President 
and Chief Executive Officer of Kerr Drug, Inc., in Raleigh, 
North Carolina. He is testifying on behalf of the National 
Association of Chain Drug Stores. Mr. Civello is the Chairman 
of the NACDS Board of Directors. He has served on this 
institution sine 1998.
    Welcome, sir, and you will have five minutes to make your 
presentation.

    STATEMENT OF ANTHONY CIVELLO ON BEHALF OF THE NATIONAL 
                ASSOCIATION OF CHAIN DRUG STORES

    Mr.Civello. Thank you very much, Madam Chair, and members 
of the Committee. I thank you for your interest, and I thank 
you for your understanding.
    As you said, I am a CEO of a chain of drugstores. There are 
102 drugstores. They are all based in North and South Carolina. 
Sixty-five percent of these stores, however, are in rural North 
Carolina. So we service many Medicaid patients.
    I would like to ask the Committee if you mind if I do not 
use my prepared notes and I maybe just refer to some of the 
comments that Mr. Smith made earlier on. And I, quite frankly, 
as amazed that Mr. Smith feels he is an expert on community 
pharmacy economics. He made a joke about AWP, ain't what paid. 
We call AMP ain't my price because it does not reflect what we 
are paying.
    Also, the comments about independent pharmacies or chain 
pharmacies will lose one percent of their sales based on the 
implementation of AMP, and that is categorically wrong. Our 
rural stores particularly fill up to 50 percent of their total 
prescriptions in Medicaid prescriptions. Our Durham County 
stores fill 30 to 40 percent of their prescription. Sixty-one 
percent of all of our prescriptions are generic.
    The OIG and the GAO has said that AMP will equal 36 percent 
below our cost. I cannot see how he gets the math to work to 
state that one percent will be affected, and I take offense to 
that.
    First of all, NACDS has worked with Grant Thornton and our 
Coalition for Community Pharmacy, and we have done a nationwide 
study on the cost to fill prescriptions. We did it with 23,000 
pharmacists participating, and we used over 832 million 
prescriptions. We accounted for all costs, and it cost $10.50 
on average to fill a prescription. This flat out will not work 
with an AMP that is 36 percent below our cost.
    The comment was made that there was a comment period. Well, 
I'd like to reflect on that a minute. That is, for the last two 
years we have provided comments. I believe the comments have 
been heard but not listened to.
    We have provided data indicating that the AMP as being 
described in the role, in the projected role, at the time by 
CMS was flawed and inaccurate, but again, it fell on deaf ears.
    The bottom line is just very simple, and I repeat what Mr. 
Osterhaus said at the outset. The bottom line is this is going 
to be very damaging to community pharmacy. I have been in the 
business for 40 years as a pharmacist, and I do not only 
represent the chain drug industry today. I represent also all 
of pharmacy as a pharmacist.
    And I can tell you that we have not faced the situation 
like this in my history. It is very damaging and will be very 
damaging. That is the bottom line.
    The comment was made that this will not serve as a 
disincentive to generics. That is patently incorrect. This will 
be a disincentive for generics. The fact is across our nation 
generic utilization varies from a low of 45 percent in New 
Jersey to a high of over 60 percent in the State of Washington. 
There is a lot of room for savings by increasing utilization in 
generics.
    This AMP role will decrease that incentive. It will, in 
fact, incentivize brands. The comment was made earlier that 
brands cost six times more. That is fact. That I agree with.
    It will do something else for brands that you should be 
aware of, and I believe you are. It will lower rebates. The 
lower the AMP, the lower the rebates. So we will have increased 
utilization of brands and less rebates. I just cannot make the 
math work and to accept any of Mr. Smith's remarks.
    There are solutions. Quite frankly, we have approached the 
administration on many occasions and again fallen on deaf ears. 
We need action now. As an industry I call upon you for all of 
community pharmacy to act now.
    We need legislation. The implementation is upon us. It will 
be here by year end. We have got to act now. We need 
legislation. There are a number of things that we could bring 
to the table. We need people that will listen to us. Every day 
we negotiate with our state legislators, and the comment was 
made we are not dumping on our states. We are. We are, in fact, 
dumping on our states.
    And our states are trying because we are a part of that 
business. We are members of the community, and they are 
reacting by trying to increase the dispensing fees. But this is 
clearly dumping.
    Let me just give you a couple, if I could take 30 seconds 
here, a couple of areas that I would suggest the Congress 
address. Clarify the definition of AMP and include only sales 
to wholesalers for drugs distributed.
    Quite frankly, just make it be the price we pay. It is that 
simple. Do not publish a list that is below our cost.
    Establish federal payment limits on drugs with as little as 
two sources of supply. We need you to go back to the pre-DRA, 
which is three sources of supply versus the two that the AMP 
ruling has in it right now.
    I will conclude by saying, again, I appreciate your 
listening. I stand ready to answer any questions today and in 
the future as it relates to this dire situation.
    Thank you.
    [The prepared statement of Mr. Civello may be found in the 
Appendix on page 55.]

    ChairwomanVelazquez. Thank you, Mr. Civello.
    Our next witness is Mr. Charlie Sewell. He is the Senior 
Vice President of Government Affairs at the National Community 
Pharmacists Association. The National Community Pharmacy 
Association represents 24,000 independent pharmacies and 50,000 
community pharmacists and their patients across the country.
    Prior to joining NCPA, Mr. Sewell was President of ACG 
Enterprises.
    Welcome, sir, and you will have five minutes for your 
presentation.

  STATEMENT OF CHARLIE SEWELL ON BEHALF OF NATIONAL COMMUNITY 
                    PHARMACISTS ASSOCIATION

    Mr.Sewell. Thank you, Madam Chair and Committee members.
    We really appreciate the opportunity today to talk about 
our concerns with the AMP rule.
    You mentioned that we represented 24,000. We used to 
represent 24,000. Today unfortunately we only represent a 
little over 23,000. Frankly, community pharmacy was doing very 
well for the last five years, until a year ago. We were holding 
steady in terms of our number of pharmacies.
    In fact, we were showing a little bit of growth, and now 
what has happened in the last year, we had an intervening 
variable, Medicare Part D. In the last year we have lost 1,152 
pharmacies across the nation. That is five percent of 
independent pharmacy. We certainly have been staggered with the 
low and slow reimbursements associated with Medicare Part D, 
but we are still trying to do the best for out patients.
    Unfortunately, we are looking at a situation now with the 
Medicaid proposal that is now in the final rule where we are 
going to be knocked to the canvas and knocked to the canvas 
hard, and we are going to find it very difficult to get up.
    We have ten percent of our pharmacies, over 2,300 
pharmacies across the country. Over 50 percent of their 
business is Medicaid. If they are going to be reimbursed at 36 
percent below their cost and with the minuscule state 
dispensing fees as they are now, there is now way they are 
going to be able to stay in business.
    You know, CMS talk about having a further comment period. 
That further comment period is going to be way too late for a 
lot of these pharmacies because they are going to start going 
out of business almost overnight.
    Congressman Gonzalez mentioned that it is all about quality 
time with our pharmacists. We do spend an extraordinary amount 
of time with our patients. It is because of our pharmacists 
that patients day in and day out avoid adverse drug 
interactions. It is because of our pharmacists that patients 
take their much needed medicines on time and properly.
    When that relationship is done away with, and that is what 
is going to happen, Medicaid patients are going to suffer, but 
also patients across the board are going to suffer, as has been 
mentioned by Mr. Braley. We have a lot of pharmacies. We have a 
lot of pharmacies. We are the only pharmacy within 30, 40 
miles. If we are not there, there is nobody to go to for their 
medical needs. The pharmacist is really the front line to 
defense.
    Uncle Sam unfortunately has become our business partner. 
That was not our choice. Now about 50 percent of the average 
independents' pharmacy, their business is government, either 
Medicaid, Medicare or Tri-Care.
    And what we have discovered is Uncle Sam is a lousy 
business partner. He does not do a very good job, and now we 
have been handed the average manufacturer's price. Now, we knew 
it was going to be bad. We just did not know how bad it was.
    When Congress voted on this measure in the Deficit 
Reduction Act, they had no numbers. They had no AMP data 
because the AMP data was always confidential information that 
was reported between the manufacturer and CMS. We asked CMS to 
release data to us on a confidential basis so we could respond 
with their specific concerns and show them exactly what this 
impact was going to be. They failed to provide us that data.
    I mean, they say that we did not want it published. Of 
course we did not want inaccurate data published. It would be 
misleading, but we wanted the data so that we could show them 
the net effect. Unfortunately, we were not able to do that. So 
the only data that is out there is what GAO and OIG have, and 
they have shown exactly, exactly the same results when you look 
at GAO they say they are going to be reimbursed at 36 percent 
below our cost for 59 of the 70-some total drugs that they 
looked at. They actually looked at 77 drugs which represented 
over 50 percent of the marketplace in Medicaid. On average we 
are going to be reimbursed at 36 percent below our cost.
    OIG looked at the top 25 high expenditure drugs in the 
Medicaid program. They said that for 19 of the 25 we would be 
reimbursed below our costs, and then if you look at the five 
out of the other six and you factor in our cost to dispense 
that Mr. Civello related, you are looking at a situation where 
we are going to lose money on those drugs as well because they 
are not going to come close to covering the 1050 that it costs 
to run your pharmacy. That is what it costs to run the 
pharmacy, to pay for the pharmacist, to pay for the rent or the 
mortgage, to keep the utilities paid for. I mean, that is 
simply the operation of a pharmacy, and if you don't cover the 
cost of the drug and what it costs to actually operate the 
pharmacy, you can't stay in business.
    I mean, you hope you also eke out a meager profit. That is 
certainly not being allowed by this rule.
    CMS made a number of sweeping generalizations in the rule, 
and you heard some of those today from Mr. Smith. They 
essentially reject out of hand OIG and GAO. Yet they have never 
provided any specific reputation to either of those studies. 
They just say they disagree with them.
    CMS suggests that the shortfall can be made up by 
increasing dispensing fees a the state level. Talk about an 
unfunded mandate, that is an unfunded mandate to the states 
given their budgetary pressure.
    And what we find of interest is they are really talking out 
of both sides of their mouth. There was an increased dispensing 
fee. It was just offered up by Louisiana, and their plan? Guess 
what. CMS rejected it. So they say they are going to allow the 
states to increase the dispensing fees. In fact, the first 
opportunity they had they rejected the plan that was put 
forward by the State of Louisiana out of hand.
    They go on to say in the rule that there is a significant 
impact. They did not address that impact at all. They shirked 
their responsibilities with regard to the Regulatory 
Flexibility Act. I mean, there has been no analysis whatsoever 
of the 18,000 pharmacies all whom we represent and what kind of 
impact this is going to be.
    We are looking at it and saying it is going to wipe out 
almost our entire net profits. Any business that does not make 
a profit does not stay in business.
    With that, Madam Chair, I would be glad to answer any 
questions at the appropriate time.
    Thank you very much.
    [The prepared statement of Mr. Sewell may be found in the 
Appendix on page 61.]

    ChairwomanVelazquez. Thank you, Mr. Sewell.
    Our next witness is Mr. Ed Hagan. He is the Director of 
Pharmacy at the Associated Food Store in Salt Lake City, Utah. 
He is testifying on behalf of the Food Marketing Institute, 
which has member companies with retail pharmacists. The Food 
Marketing Institute conducts programs in research, education, 
industry relations, and public affairs on behalf of its 1,500 
members.
    Prior to joining Associated Food Store, Mr. Hagan was the 
Director, Pharmacy at Woodtry Food and Drugs.
    Welcome.

  STATEMENT OF ED HAGAN, ON BEHALF OF FOOD MARKETING INSTITUTE

    Mr.Hagan. Good morning, Chairman Velazquez and members of 
the Committee.
    I very much appreciate this opportunity to testify before 
the Committee about an issue of significant importance to all 
of its supermarket pharmacies, particularly those that are 
small businesses and the Medicaid beneficiaries that we serve.
    FMI is extremely concerned about basing reimbursement for 
prescription priced drugs on the artificial concept of AMP. We 
believe that this use of AMP in the way it has been implemented 
by CMS will cause severe hardships for pharmacies and Medicaid 
recipients alike.
    Associated Foods is a member owned cooperative based in 
Salt Lake City, Utah. In addition to the independent stores we 
serve, we own 21 stores and with three other wholesalers co-own 
the Western Family private label. Seventy-five of our stores 
across eight states and Guam have pharmacy operations. These 
pharmacies range in size from some locations filling as few as 
70 prescriptions a day to larger that fill between four and 
500.
    While some of our stores are located in large metropolitan 
areas, Associated Foods also includes stores with pharmacies in 
small towns, such as Twin Bridges, Montana, Kamas, Utah, and 
Raymond, Washington. Many of our stores in these small towns 
represent the only pharmacies available.
    Medicaid represents a little over ten percent of our 
business overall, but this figure jumps to more than 15 percent 
in many of our rural areas. Our generic percentage, currently 
is 61 percent of our prescriptions are filled with generic 
drugs.
    Pharmacy profit margins, particularly in the case of small 
supermarket pharmacies, are a small percentage of total store 
revenues and a far lower percentage than most other pharmacy 
retail businesses. The gross margin for associated food store 
pharmacy operations is in the range of 20 percent with net 
profits lower than two percent.
    A recent GAO study on this issue suggests that many 
pharmacies will lose money when AMP based FULs are implemented. 
Because pharmacy margins are razor thin, many pharmacies will 
not be able to sustain such losses and will either have to 
leave the program or go out of business.
    Most of the associated food stores with pharmacies are 
single store owned operations. These stores generally encounter 
the same per store expenses of the stores of larger chains, the 
same salaries for pharmacists, same liability and other 
insurance requirements, the same operating costs, but without 
the ability to minimize the losses imposed by AMP policies 
through economies of scale and better purchasing power of 
larger chains.
    The opinion on how the states and various private payers 
react to the implementation of AMP as a benchmark: my rough 
estimate is that this policy has the potential to decrease 
pharmacy margins by five to seven percentage points, which 
would cause many of the small stores represented by Associated 
Foods to lose money.
    Even if the damage is solely limited to Medicaid, this 
would be a devastating cut for retail pharmacy and could result 
in the failure of some of our small business members.
    Facing these cuts, Associated Foods' pharmacies and other 
FMI may find it extremely difficult to serve Medicaid patients. 
This issue will only be compounded as states such as California 
seek to move to an AMP based payment for all prescription drugs 
that are not subject to the FUL and as other payers turn to AMP 
for their own purposes.
    Complicating the AMP problem is the fact that dispensing 
fees do not begin to cover the costs we incur when dispensing a 
Medicaid or, for that matter, any other prescription. By 
dictating that CMS use AMP for both the Medicaid rebate program 
and FUL for multiple source drugs, the Deficit Reduction Act 
left the agency with an almost impossible balancing act.
    We believe that CMS failed to adequate use its discretion 
to mitigate the severity of the problem. Our industry believes 
that the competing roles of AMP as currently defined can really 
never be successfully reconciled.
    To reconcile the AMP problem, we believe Congress needs to 
act in creating a separate benchmark for pharmacy 
reimbursement, separate from the calculations needed for 
Medicaid rebates. The use of this new benchmark would remove 
the need for some of the contortions CMS undertook in its 
proposed rule to balance the needs of pharmacies and drug 
manufacturers, and it would allow for a clear and accurate 
reimbursement metric without interfering with the Medicaid 
rebate program.
    While we believe that a division of the two sets of 
responsibilities currently assigned to AMP is most appropriate, 
if Congress decides not to undertake a change of this 
magnitude, Congress should at least take steps to mitigate the 
negative effect of the AMP policy on retail pharmacies. These 
steps can include a more accurate definition of the retail 
pharmacy class of trade that excludes from AMP rebates and 
discounts that simply are not available to us at retail 
pharmacy.
    This definition should exclude all mail order pricing, 
including PBM discounts to mail order, and all other entities 
such as hospitals and nursing homes that are not typical retail 
pharmacy.
    In conclusion, I appreciate the opportunity to testify on 
this important health care issue on behalf of the FMI members 
who operate in store pharmacies in their supermarket. We are 
hopeful that the House Small Business Committee and the 
Congress will act to address the potentially devastating cuts 
that retail pharmacy is now facing as a result of the changes 
to the Medicaid prescription reimbursement policies.
    I will be happy to answer any questions the Committee may 
have.
    [The prepared statement of Mr. Hagan may be found in the 
Appendix on page 69.]

    ChairwomanVelazquez. Thank you, Mr. Hagan.
    Mr. Sewell, I would like to address my first question to 
you. I understand that independent community pharmacists get 92 
percent of the revenue from prescription drug sales and tend to 
serve a higher proportion of Medicaid beneficiaries than all of 
the retail pharmacies. My question to you is with many 
community pharmacists working only within two or three percent 
profit margins, what will be the consequences if this new 
formula is implemented?
    Mr.Sewell. The average community pharmacies' net profit is 
under three percent right now, and when you translate that to 
dollars, it is about $128,000 is all you are able to eke out in 
the way of profit for a year.
    We are looking at a situation where almost all of that is 
going to disappear under this rule. You know, we deliver 
Medicaid services to such a higher percentage of Medicaid 
patients, and while the national average is about eight 
percent, we really are delivering right now about 16 percent in 
terms of our average store. That is how many Medicaid patients 
we are dealing with, 16 percent of our total business.
    So a disproportionate amount of the cuts are going to fall 
on our shoulders, and we are going to be first in line to go 
out of business. We are already going out of business because 
of Part D, and now we are going to see this added to that let 
of lows.
    ChairwomanVelazquez. Ms. Civello, given the numerous 
challenges with producing a stable and accurate AMP, what 
alternative benchmarks do you feel would be better suited for 
calculating Medicaid reimbursement fees?
    Mr.Civello. And I am very happy to answer that. I would 
like to reflect on the question you asked Mr. Sewell first.
    ChairwomanVelazquez. Sure.
    Mr.Civello. And clearly state that the National Association 
of Chain Drug Stores, the majority of our members have less 
than 50 stores. So there is much serious concern on our 
members' parts because we are all part of community pharmacy.
    In fact, the 92 percent number you mentioned at Kerr Drug 
is 85 percent. So we're like a bit independent. The average for 
al of NACDS is over 70 percent. It's a serious issue for all of 
community pharmacy.
    In regard to your question what benchmark, you know, very 
clearly what we as an industry are prepared to step to the 
plate to do is accept reimbursement for the product cost that 
equates to what we pay. Now, there are a number of formulas 
that can be used. There's a number of terms. WAC is a term, but 
I don't think we should talk just about what might replace AMP. 
I think we need to talk about the fact that AMP is flawed and 
does not represent what we pay for the product. The industry, 
community pharmacy, is prepared to accept reimbursement at what 
we pay for the product.
    ChairwomanVelazquez. Thank you.
    Mr. Hagan, FMI estimates that supermarket pharmacies 
account for roughly 14 percent of all out-patient prescription 
drugs dispensed in the United States. It is anticipated that 
the percentage will increase over the next few years.
    How will the implementation of this rule impact small 
businesses in the supermarket industry?
    Mr.Hagan. One of the things that I noted when doing the 
research for this testimony is, like I stated, that in our 
rural areas we have much higher percent of Medicaid 
prescriptions. In our rural areas we also tend to have lower 
prescription volumes than, say, our metro Seattle, metro Salt 
Lake stores, but yet we have the same fixed costs. So our labor 
percentage tends to run quite a bit higher in a rural area, and 
those are the people that are going to lose money, close the 
doors, or stop accepting first.
    And so the more that grows in the rural area, the faster 
that they are going to make some real decisions.
    ChairwomanVelazquez. Okay. Mr. Osterhaus, I really am 
interested in hearing directly from independent retail 
pharmacists. I want to ask you two questions. First, how will 
the new reimbursement formula impact your business?
    And, two, do you think that you will be able to continue to 
participate in the Medicaid program if the new formula is 
implemented?
    Mr.Osterhaus. Well, I do not think there is any question 
that implemented the way it is now, we would have to make a 
serious decision about what we can do to stay in business. As I 
said, 30 percent of our patients have either Medicaid as a 
primary insurer or secondary insurer. So it affects a lot that 
we do every day.
    We are from a poor county, and it is just the way it is. I 
think the impact would be significant. I do not think that in 
my case in a town the size that I live in that I could really 
stay in business and not take care of Medicaid patients. I 
think in my heart these are the patients who need us more than 
anybody else, and I could not stay in business and turn people 
away.
    I mean, we are the only independent pharmacy in Maqueketa. 
So they would have no place else to go to see a pharmacist who 
takes the time to counsel them, to identify problems and solve 
problems.
    ChairwomanVelazquez. Thank you.
    I will now recognize Mr. Shuler.
    Mr.Shuler. Madam Chair, thank you.
    And to the gentlemen, thank you for your testimony and, 
more importantly, thank you for your commitment to communities. 
Far too often I think we forget how much work and dedication 
our pharma system, what they mean to our community. I mean just 
in your testimony you talk about how many people really and 
truly, they have their doctors, but they certainly lean on 
their pharmacists a great deal on all of their problems and 
issues, and far too often we don't tell you thanks enough, and 
so thank you for the pharmacists.
    And to Kerr Drugs, living in Bryson City, growing up there, 
obviously Kerr Drugs was our pharmacist, and that was the only 
pharmacist we've had for quite some time, and so you've really 
been a staple in our community. I commend you not only for the 
work that you do in the pharmacist, but sponsoring Little 
League programs and stuff like that, I think it goes a long 
way, and so I commend you and thank you.
    You know, Mr. Osterhaus has talked about how it is going to 
impact him, but from FMI, how will it affect you on the 
reimbursement side?
    And maybe some of the others of you, how is the 
reimbursement? Is it six weeks with you? Maybe having a little 
more leverage with the larger, more franchises. How is it 
impacting you?
    Because that has to be a tremendous amount. I mean, my 
local pharmacy, we spoke about this particular issue. He was to 
the point that not only was he banking with one bank, but he 
was banking with three just because of lines of credits to be 
able to run and operate his business.
    Mr.Hagan. That is a very accurate observation, and I 
believe the lag time between filling a prescription and when 
you are reimbursed does vary between a number of insurers, but 
very accurate to say four to six weeks after you fill a 
prescription you will get the check.
     So there again it is the more business you do, the more 
exposure you have and we find that to be just exactly the same.
    Mr.Sewell. If I might add, we have just done a study of all 
of independent pharmacy and sine the advent of Part D, we have 
now had to take out a credit line on average of $70,000, but 
for many of our pharmacies, it is in the hundreds of thousands 
of dollars. We are banking the program while the Part D plans, 
the PBMs are getting paid up front and sitting on that money 
because they have a vested interest in doing so, so that they 
can make interest on the float.
    That does not make any sense.
    Mr.Shuler. Mr. Civello.
    Mr.Civello. Thank you, and thanks for your comment about 
Kerr Drug in Bryson City. I appreciate that.
    I think you need to understand what the days outstanding 
were with Medicaid prior to the dual eligibles went from 
Medicaid to Medicare, and it was anywhere between ten and 14 
days.
    When you take that ten and 14 days and more than double it 
to 30-plus days, it is a big number whether you are one or 
whether you are 100 stores. To Kerr Drug, we already have a 
credit line. There is $5 million more on that credit line 
because of that delay. It is significant dollars. It is costing 
our industry a lot of money, and it is not right because the 
government still pays in a timely fashion, seven to ten days. 
Where is the money for the other 20 days?

    Mr.Shuler. It is being floated, I guess.
    [Laughter.]
    Mr.Shuler. Well, thank you all for your testimony, and once 
again, on behalf of the Committee, thank your pharmacists and 
your staff for the hard work and dedication they do for our 
people.
    I yield back.
    ChairwomanVelazquez. Thank you.
    Mr. Braley.
    Mr.Braley. Mr. Shuler and I share the distinction of both 
having under performed in the recent congressional baseball 
game we claimed due to injuries we received before the game, 
but his comment about Little League baseball sponsorship took 
me back 40 years to Brooklyn, Iowa when Crosson's Rexall Drug 
had their name on the back of Little League baseball uniforms 
when I was growing up in a town of 1,500, and I think that type 
of story is what we really need to be talking about because we 
run the risk of losing the valuable role that many pharmacists 
play not just in taking care of patients, but in the role they 
play in making their communities a wonderful place to live and 
work.
    And, Mr. Civello, you made the comment that your comments 
have been heard but not understood, and that they have fallen 
on deaf ears. Well, I invite you to join the club.
    [Laughter.]
    Mr.Braley. On February 16th of 2007, I was proud to send a 
letter to Administrator Norwalk, along with 70 other members of 
Congress, asking on behalf of Medicaid beneficiaries and retail 
pharmacies in our districts and writing to express our deep 
concern about CMS' proposed changes in the payment for 
prescription drugs in the Medicaid program and concluding with 
the request that the proposed payment formula would be 
devastating to many retail community pharmacies, Medicaid 
beneficiaries.
    And in response to that we got a classic nonresponse from 
the Administrator, and I received this copy on April 12th of 
2007, and it gives you some sense of our frustration in dealing 
with the same issues you're talking about.
    ``Dear Mr. Braley:
    ``Thank you for your letter on behalf of your constituents 
regarding the definition of average manufacturing price.''
    And then it goes on to recite what that means, and it 
concludes by saying, ``A summary of the comments and our 
responses will be included in the final rule which we expect to 
publish by July 1st, 2007. I appreciate you sharing your 
comments. I will also provide this response to the co-signers 
of your letter.''
    The letter itself did nothing to address the concerns 
raised by 70 members of Congress. So if you think you are 
frustrated, join the party.
    I talked to you about the letter that 109 members of 
Congress signed as a response to this letter on May 18th of 
2007. My staff and I have not received any response to that 
letter, despite the pending date of the release of the final 
rule.
    And then on July 11 of 2007, I wrote to the Administrator 
after the final rule is released asking for clarification about 
how the proposed Iowa plan that I mentioned was going to be 
impacted by all of this we are talking about.
    So we share your frustration, and we want to work with you 
because I can tell you based upon 109 signatures across the 
board on a bipartisan basis, people understand your concerns 
and we need to do more to help you.
    I want to start, Mr. Osterhaus, by asking you this 
question. We have talked a lot about the adverse impact on 
rural communities. Over ten percent of Iowa's 1,066 pharmacies 
are in rural areas and are operated independently, and I assume 
your pharmacy fits both of those bills.
    Mr.Osterhaus. Yes.
    Mr.Braley. Can you tell us what in your opinion CMS should 
do to insure that access to drug care in rural communities is 
not jeopardized by this new reimbursement rule?
    Mr.Osterhaus. Well, I think my comments would stand that we 
need to have a fair reimbursement policy, and I think that as 
Mr. Mr. Civello said, I think pharmacy is ready to be 
transparent on the product cost side. But it is a two-headed 
animal. The fee has got to take care of the cost of what it 
takes to be in business. If we want to have community 
pharmacists on the ground being partners in this program to 
make the program both successful and efficient and of high 
quality, we need to have fair reimbursement.
    How they come about getting what really is acquisition 
price is one thing, but shoveling off to the states to let them 
decide what they are going to pay for a fee really splits this 
into two pieces that I think we are just looking for another 
problem.
    So I would certainly say that Mr. Hagan's comment about 
taking a total different look at AMP with not bringing it into 
the rebate picture, which is a whole other rat's nest that 
probably should not be part of our health care system to begin 
with, I think maybe makes some sense. But if we're going to 
utilize what we call acquisition cost, it needs to be accurate, 
and if the only thing we have to go on is the GAO report, which 
says that did not happen.
    Mr.Braley. Madam Chairwoman, I see that my time has 
expired, but I just want to make this closing observation and 
join in Mr. Shuler's comments about the tremendous benefit that 
we receive from the pharmacists and pharmacy employees that you 
all represent.
    When I was running for Congress, I spent a lot of time in 
December of '05 and January and February of 2006 touring 
community pharmacies in my district, and I saw dedicated, 
committed individuals who were spending inordinate amounts of 
time, up to 80, 100 hours a week, trying to make sure that the 
patients they served got the best information about the 
difficult choices they were being faced under Medicare D.
    I want to applaud everyone that you represent and please 
take back our best wishes and our thanks for the valuable 
service they provide and under very difficult circumstances.
    ChairwomanVelazquez. Thank you, Mr. Braley.
    And now I recognize Ms. Clarke.
    Ms.Clarke. Thank you, Madam Chair.
    I just want to commend you and the Committee for really 
highlighting this issue. I want to thank our panelists for 
really bring to us in real time, you know, the absolute impact 
of this rule.
    Let me just say that I think it is imperative that we 
address this. This is a crisis upon a crisis upon a crisis not 
only for the delivery of pharmaceuticals in our communities. I 
think about the public health implications of it because we in 
the government have now put a huge obstacle in the way of our 
community's receiving quality medications that are required to 
contain certain types of public health diseases and illnesses 
in addition to the wellness factor for our communities. It just 
compounds what we know is the challenge for most communities, 
be they rural or urban like mine.
    And so I want to thank you once again. The remedies, I 
think, are well spelled out in these gentlemen's testimony here 
today, and I do not want to reiterate them. I want to thank you 
for being on the forefront and really driving home for us this 
impending crisis.
    And, Madam Chair, once again thank you and thank you to my 
colleagues as well.
    ChairwomanVelazquez. Thank you.
    Any other member wishing to make any other questions?
     No. Okay. So I want to thank all of you for coming here 
today. This we understand is an important issue, and you know, 
sometimes all of these federal agencies come here, they issue 
regulations, and then when we ask them if they consider other 
alternatives, well, you know, they put the blame on Congress.
    I want to say this. I know that this Committee does not 
have jurisdiction over this issue, but we do have jurisdiction 
over the Regulatory Flexibility Act, and we will continue to 
press upon CMS to refrain from implementing this rule until 
they have all the facts, all the data, and they really conduct 
an impact analysis on the adverse effect of this rule on small 
and community pharmacists.
    So with that I will ask unanimous consent that members have 
five legislative days to submit a statement for the record. 
Without objection, so ordered.
    And this hearing is now adjourned.
    [Whereupon, at 12:12 p.m., the Committee was adjourned.]
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