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



                                                        S. Hrg. 110-797
 
   SMALL MARKET DRUGS, BIG PRICE TAGS: ARE DRUG COMPANIES EXPLOITING 
                       PEOPLE WITH RARE DISEASE?

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

                                HEARING

                               before the

                        JOINT ECONOMIC COMMITTEE
                     CONGRESS OF THE UNITED STATES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 24, 2008

                               __________

          Printed for the use of the Joint Economic Committee


                        JOINT ECONOMIC COMMITTEE

    [Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress]

SENATE                               HOUSE OF REPRESENTATIVES
Charles E. Schumer, New York,        Carolyn B. Maloney, New York, Vice 
    Chairman                             Chair
Edward M. Kennedy, Massachusetts     Maurice D. Hinchey, New York
Jeff Bingaman, New Mexico            Baron P. Hill, Indiana
Amy Klobuchar, Minnesota             Loretta Sanchez,  California
Robert P. Casey, Jr., Pennsylvania   Elijah Cummings, Maryland
Jim Webb, Virginia                   Lloyd Doggett, Texas
Sam Brownback, Kansas                Jim Saxton, New Jersey, Ranking 
John Sununu, New Hampshire               Minority
Jim DeMint, South Carolina           Kevin Brady, Texas
Robert F. Bennett, Utah              Phil English, Pennsylvania
                                     Ron Paul, Texas

                  Michael Laskawy, Executive Director
             Christopher J. Frenze, Minority Staff Director
                            C O N T E N T S

                              ----------                              

                                Members

Hon. Amy Klobuchar (presiding), a U.S. Senator from Minnesota....     1
Hon. Charles E. Schumer, Chairman, a U.S. Senator from New York..     6

                               Witnesses

Statement of Madeline Carpinelli, research fellow, Prime 
  Institute, College of Pharmacy, University of Minnesota, 
  Minneapolis, MN................................................     8
Statement of Dr. Alan Goldbloom, M.D., president and CEO, 
  Children's Hospitals and Clinics of Minnesota, Minneapolis, MN.    11
Statement of Danielle Foltz, parent of young patient from Rhode 
  Island.........................................................    14

                       Submissions for the Record

Prepared statement of Senator Charles E. Schumer.................    25
Prepared statement of Senator Amy Klobuchar......................    26
Prepared statement of Representative Carolyn B. Maloney..........    29
Prepared statement of Madeline Carpinelli, research fellow and 
  Stephen W. Schondelmeyer, professor and director, Prime 
  Institute, College of Pharmacy, University of Minnesota, 
  Minneapolis, MN................................................    29
    Figure 1. Extraordinary Price Increases of Drug Products: 
      1988 to 2008...............................................    31
Prepared statement of Alan Goldbloom, M.D., president and CEO, 
  Children's Hospitals and Clinics of Minnesota, Minneapolis, MN.    33
    Article: Drug Pricing in Pediatrics: The Egregious Example of 
      Indomethacin by Alan H. Jobe...............................    36
    New York Times article entitled, ``Co-Payments Soar for Drugs 
      with High Prices'' by Gina Kolata..........................    39
Prepared statement of Danielle Foltz, parent of young patient 
  from Rhode Island..............................................    41
Prepared statement of the National Organization for Rare 
  Disorders (NORD)...............................................    43
Chart entitled ``Extraordinary Price Increases Are Becoming More 
  Common''.......................................................    46
Chart entitled ``Pharmaceutical Companies Earn Higher Profits 
  Than Other Fortune 500 Firms''.................................    46
Chart entitled ``Rare Hodgkins Lymphoma Drug Price Increases 
  7999%''........................................................    47
Chart entitled ``Huge Drug Price Increases''.....................    47


                  SMALL MARKET DRUGS, BIG PRICE TAGS:



        ARE DRUG COMPANIES EXPLOITING PEOPLE WITH RARE DISEASE?

                              ----------                              


                        THURSDAY, JULY 24, 2008

             Congress of the United States,
                          Joint Economic Committee,
                                                    Washington, DC.
    The Committee met at 10 a.m. in room SD-1066 of the Dirksen 
Senate Office Building, the Honorable Amy Klobuchar, presiding.
    Senators present. Klobuchar and Schumer.
    Staff present. Christina Baumgardner, Tamara Fucile, 
Colleen Healy, Jeff Schlagenhauf, Marcus Stanley, and Jeff 
Wrase.

 OPENING STATEMENT OF HON. AMY KLOBUCHAR, A U.S. SENATOR FROM 
                           MINNESOTA

    Senator Klobuchar [presiding]. I call the hearing of the 
Joint Economic Committee to order. I want to thank you all for 
attending this important hearing on rising prices of 
prescription drugs.
    I'm going to be introducing each panelist after opening 
remarks, and I also know there are some other members coming, 
but I'd like to thank each of you for taking your time out of 
your busy schedule to join us to today and to share your 
experiences and your expertise.
    I'd first like to thank Danielle Foltz for her courageous 
effort to share her family's experience. I know that her family 
is there in the front row, very well behaved children, I would 
say.
    Her passionate advocacy on these drug issues has brought to 
light how decisions made in board rooms affect families across 
the country.
    I would also like to thank Madeline Carpinelli of the Prime 
Institute--based in my home State of Minnesota--for her efforts 
to provide context and insight into the impact of drug pricing.
    She has been working with Dr. Steve Schondelmeyer, who 
began collecting cases of enormous data and information on 
overnight drug increases since the 1980s, and thank you both 
for the work that you've done, and I'm proud to have you doing 
that out of the State of Minnesota.
    We're kind of a medical mecca in Minnesota, with the home 
of the Mayo Clinic and the University of Minnesota, and I thank 
you. A lot of the ideas that I've gotten for healthcare reform 
have come right from our State.
    Finally, I'd like to extend special thanks to Dr. Alan 
Goldbloom, the CEO of Children's Hospitals and Clinics of 
Minnesota. Since last July, I have worked with Children's 
Hospital on a number of issues, including this one, but for me, 
the most difficult and important thing was the work that we did 
with the Taylor family, a little girl who was severely injured 
and later died from a malfunctioning swimming pool, and 
Children's did everything that they could for months. Sadly, 
she had a transplant at another hospital and it didn't work, 
but the care she got there, the discussions I've had with her 
parents, and the fact that we're able to pass a bill that 
inspired everyone across the country to do something 
differently with their swimming pools, is a tribute to her 
family and also to the good work of Children's Hospital, so 
thank you for that.
    I know firsthand. My daughter, when she was born, was sick, 
and Children's Hospitals helped her and have helped so many 
young children across this country. And thank you, Dr. 
Goldbloom, and Children's, for calling this very important 
issue to my attention.
    We're here today because we're outraged by what some 
pharmaceutical companies have been doing with pricing for 
important medications that affect all generations.
    These are drugs that, because of aggressive pricing 
practices, have seen dramatic increases in cost. Oftentimes 
because of a limited market or other factors, the drug price is 
more likely to remain at this astronomical level.
    I first became aware of this issue, as I mentioned, when I 
received word from Children's Hospital in Minneapolis that the 
price for a drug called Indocin had increased substantially.
    It's a medication used to treat patients with ductus 
arteriosus, also called PDA, patent ductus arteriosus, a 
disorder that prevents holes from healing in the hearts of 
premature infants. Since its approval in the 1970s, the drug 
has become the most commonly used drug for this type of 
condition.
    Two years ago, Ovation Pharmaceuticals acquired the rights 
to this drug from Merck. This drug had been around since the 
1970s, but it was in 2005 that Ovation acquired this drug.
    The Company quickly increased the price by more than 18 
times, from $100 to $1,875. This is it, Indocin, right here, 
this drug which used to be $100, sold from one pharmaceutical 
company to another; no more research, no changes, same drug, 
the price goes up 18 times.
    Even though it's an American company, the price that they 
charge in the United States--that Ovation now charges for this 
drug--is 44 times higher than they charge for it in Canada.
    So here're the facts: You've got a drug that was going for 
a hundred bucks that went up to $1,800, and then you have the 
fact that they're selling it in the United States for 44 times 
the amount that they sell it for in Canada.
    And as it happens, the only other drug approved by the FDA 
for this heart problem, a formulation of intravenous ibuprofen, 
Ovation is also the sole source for that drug in the United 
States, and, not surprisingly, the price that it charges for 
this medicine is nearly identical to what it charges for this.
    A number of other Ovation products have seen similar 
drastic price increases; drugs that like Indocin, have been 
around for a long time and are the premier treatments for a 
number of diseases.
    In a recent article in the medical journal, Pediatrics, Dr. 
Allen Job of Cincinnati Children's Hospital described Ovation's 
pricing of its two drugs for the premature baby's heart 
condition as quite extraordinary, and he didn't mean that in a 
good way.
    He went on to write words such as ``unconscionable, 
unethical, and socially irresponsible, come to mind.''
    So the issue we have is that an upstart company purchases a 
number of drugs from another company and even though these 
drugs have been on the market for years, the upstart company 
increases the prices drastically.
    But Ovation isn't the only company engaged in this 
disturbing trend, and we have a chart here that shows what's 
been going on when there have been these extraordinary--to use 
the Doctor's words--price increases, which are becoming more 
common.
    [The chart, ``Extraordinary Price Increases Are Becoming 
More Common'' appears in the Submissions for the Record on page 
46.]
    Here, you see a number of branded drug products whose 
prices have more than doubled in one single price increase. In 
other words, you could maybe imagine a price increase going up 
slightly because of factors--research, things like this--but 
we've gone from 5 drugs in 1988, where the prices have more 
than doubled when there was a price increase, to 64 drugs in 
2008.
    So something's going on, and I don't think it's the law of 
supply and demand. Questcor Pharmaceuticals was once losing 
money at a rate of $1 million a month. The Company's fortunes 
turned around after they purchased HP-Acthar from Aventis.
    This drug was approved in the 1950s to treat multiple 
sclerosis, but it is now primarily the gold standard for 
treating infantile spasms, a disorder that affects about 2,000 
families in the United States. Prior to Questcor's purchase of 
the drug, the wholesale price of HP-Acthar was about $2,000 per 
vial; once in Questcor's hands, the price of the drug 
skyrocketed to $23,000 per vial. That's a fourteenfold 
increase.
    And, according to the Prime Institute, we're hitting just 
the tip of the iceberg, because the problem isn't isolated to 
drugs that benefit small numbers of patients.
    Abbott Pharmaceutical's increased the price of Norvir, a 
drug used to treat AIDS. The drug was often used by other 
companies as an ingredient in their drug therapies. In 2003, 
Abbott jacked up the price by 500 percent. You can see the 
prices before and the prices after.
    This was done at the same time that Abbott began marketing 
their new product, Kaletra, another AIDS pharmaceutical drug, 
that included Norvir and served as a replacement for the 
competition's drug therapy. The result forced patients and 
providers to turn to Abbott's Kaletra instead of the formerly 
cost-effective alternative that used Norvir and competitors' 
drugs.
    Previously undisclosed documents and e-mails reviewed by 
the Wall Street Journal in 2007, show that Abbott's leadership 
actively considered ways to promote Kaletra over Norvir.
    Now, we also have another chart here, which shows the 
changes and a few examples of other price increases. Mustargen, 
to treat cancers, a 1,000 percent increase; Cosmogen, to treat 
kidney disease, a 3,500 percent increase; and the price 
increase for Matulane, which is nearly off the chart, was a 
7,999 percent increase.
    [The chart entitled, ``Huge Drug Price Increases,'' appears 
in the Submissions for the Record on page 47.]
    I don't know if they went down a few pennies so they 
wouldn't make 8,000 percent, but that's what we're talking 
about, Senator Schumer, a 7,999 percent increase.
    This appears to me to be simple price-gouging, and I know 
firsthand, from this--which we've looked at at length, the one 
that we had here that came to my attention in Minneapolis, that 
really we have yet to get an answer about why this drug would 
be increased 18 times, a drug that saves little babies' hearts.
    It not only hurts the hospitals that have to purchase these 
expensive drugs, but also the patients who rely on them. An 
elderly woman from Park Rapids, Minnesota who suffers from 
cutaneous cell lymphoma was forced to pay over $8,000 in out-
of-pocket expenses for Mustargen, the drug sold by Ovation 
whose single-dose price increased from around $50 to nearly 
$550, after the company acquired the right for the drug.
    In March, I had the opportunity to meet with the Benson 
family and their twins, Anna and Sophia. Sophia suffered from 
PDA and needed Indocin for treatment.
    They were able to receive the drug through Children's 
Hospital, but with such obscene price increases, it is getting 
more and more difficult for providers to meet these runaway 
costs.
    Remember, this is a drug that is an alternative to much 
more expensive surgery.
    What is the solution? Well, in America, we have a serious 
problem with healthcare inflation and runaway costs, and when 
you hear these stories, it is no wonder. When we have 
pharmaceutical companies like Ovation and Questcor increasing 
prices to astronomical levels because of the lack of 
competition in the market, their actions are able to exploit an 
extremely vulnerable and captive market.
    Now, we have a chart showing how the pharmaceutical 
companies earned higher profits than other Fortune 500 
companies, while at the same time that we saw these 
astronomical increases--doubling increases--of so many drugs 
that save children's lives and other lives in this country.
    [The chart, ``Pharmaceutical Companies Earn Higher Profits 
Than Other Fortune 500 Firms,'' appears in the Submissions for 
the Record on page 46.]
    It is not like the pharmaceutical industry is withering on 
the vine. The chart shows that even when compared to these 
other Fortune 500 companies, pharmaceutical companies' profits 
are much higher.
    The Orphan Drug Act was passed in 1983 to provide 
incentives to drug companies to develop innovative drugs for 
rare diseases, because without incentives, drug companies may 
never be able to recoup research and development costs in niche 
markets.
    What we have seen, however, is that at least a handful of 
drug companies have used this status of orphan drugs to keep 
increasing costs well beyond the cost of research development 
and manufacturing. No one has ever said there was a bunch of 
research done on this drug.
    These staggeringly high prices, in turn, threaten the 
financial stability of middle class families in relying on 
these drugs. Whereas generic drugs have helped to lower the 
costs of many prescription drugs on the market, generic 
competition is also less likely to happen for orphan drugs.
    According to a study published in the Rand Journal of 
Economics, the market size for a drug has to be about $32 
million in 2007 dollars--adjusted for inflation--to ensure 
entry of a generic into the market.
    When we're talking about drugs that have been around for a 
few decades and treat patient populations of only a few 
thousand, there is often just not enough of an incentive for a 
generic drug to enter the market.
    Beyond hospitals and patients, a dramatic, unforeseeable 
increase in price for one of these drugs has a significant 
impact on the Federal Government. If the wholesale cost of a 
drug goes up, then Medicare or Medicaid has to pay the 
increase, so this is also about taxpayers' money.
    We're holding this hearing to uncover this practice, but 
also to look forward to what we can do to curb the dramatic 
increase in drug prices that we've seen in the last few years.
    I've asked the Federal Trade Commission to initiate an 
investigation into any potential anticompetitive conduct, or 
consequence arising out of Ovation's market actions and 
dominance in the area of non-surgical treatments for PDA.
    We need to ensure that the FTC continues to conduct these 
crucial investigations to guarantee competition, keeping costs 
low for consumers and encouraging innovation.
    It's disturbing that our providers, our hospitals, and our 
patients are being blindsided by these exorbitant price 
increases.
    Our Federal Government should be able to track these trends 
in pharmaceutical pricing. If we start to monitor this data, 
there is more of a paper trail, giving us enhanced ability to 
do something about these companies' practices.
    When provided with the right information on drug prices, 
especially in smaller markets, doctors can be alerted of big 
price increases, potentially spurring generic alternatives to 
expensive drugs and keeping the centers for Medicare and 
Medicaid services, giving them the tools and information to 
better track pricing activity.
    Finally, I intend to investigate whether the FDA can fast-
track approval for generic drugs that would be just as safe and 
effective, but much less expensive, creating competition in 
markets with dramatic price increases.
    I understand that we have a market-based economy. It's fine 
for companies to make money on the products that they sell, but 
when you're dealing with the wellbeing of sick patients, babies 
and the elderly and everyone in between, there has to be 
special consideration; that if the competitive market isn't 
working, if it's not allowed to work, if companies are allowed 
to simply jack up prices because they can, on the backs of the 
taxpayers and on the backs of the middle class, on the backs of 
little babies like the one sitting in this front row, then we 
have to do something about it.
    I look forward to hearing our witnesses' thoughts on this 
important issue, and I hope today marks a starting point for 
addressing the problems that accompany such enormous price 
increases, problems that have been plaguing doctors and 
insurance companies, Medicare and Medicaid programs, and most 
importantly, the patients that have gone on for far too long.
    I would also want to mention before I turn it over to our 
Chairman, Senator Schumer, and then to our witnesses, that we 
invited Ovation to participate in this hearing, and they 
declined to come.
    With that, Senator Schumer.
    [The prepared statement of Senator Klobuchar appears in the 
Submissions for the Record on page 26.]

OPENING STATEMENT OF HON. CHARLES E. SCHUMER, CHAIRMAN, A U.S. 
                     SENATOR FROM NEW YORK

    Chairman Schumer. Well, thank you, Senator Klobuchar. I 
want to thank you for your leadership on this issue and for 
spearheading and chairing this hearing.
    I know most of my colleagues--and many of you know this--
Senator Klobuchar has a unique understanding of things that 
hurt average folks, a unique way to solve those problems, and a 
unique way to relate to both the people who are hurt and those 
who need to change their behavior.
    So she is, as I like to say, a natural, and it's perfect 
for her to investigate this issue.
    Now, yesterday, we had a hearing where we talked about the 
middle class squeeze and how American families gather on Friday 
nights around their kitchen tables after dinner, and they talk 
about the things they care about--their children, their future, 
their health--and, more and more, they're talking about how the 
heck are we going to pay these bills?
    The middle class is squeezed, and it's not just food and 
gasoline and college and daycare--which it is--but it's 
prescription drugs and healthcare. Today's hearing focuses on 
the lack of affordability of potentially lifesaving drugs that 
treat rare diseases.
    Imagine being a parent and having your child, who you 
deeply love, and you know there's a drug out there on the 
market that could cure him or her, make them better, take away 
their pain, and it's just so exorbitantly priced that you can't 
afford it. The instinct of most people would be, they'd want to 
rob a bank to save the life of their child.
    No one will do that, or very few--let's hope no one--but 
that's how you'd feel, where you'd want to go into the drug 
company, almost with a gun and go to the CEO and say, I want 
that drug for my child. Again, no one would do it, but that's 
how you'd feel.
    So, this is amazing hearing, and it's heartfelt. And you 
know, we all believe in innovation, and we all believe in 
profitability, and we all believe in the free market system, 
but the prices that Senator Klobuchar showed on her chart and 
the dramatic increases show that something is wrong.
    Something is wrong in the values of a society when a drug 
can go up from $60 to $6,000 and is basically taken away from 
families who need that drug for their children's lives.
    As I said, these drugs have gone up 100, 500, 3,000 
percent, months, weeks, overnight. As Senator Klobuchar said, 
that's more than inflation, more than supply and demand, more 
even than just reasonable profitability.
    And what is our healthcare system doing when things like 
that happen? Again in America, what we try to do is start with 
the free market and use that as our basis, but it doesn't mean 
the free market is always the answer, particularly when you're 
dealing with areas where there is not competition.
    And you know, I've heard about--I won't be able to stay, 
but I heard about your testimony, Ms. Foltz, and the drug 
Acthar to treat your little son for life-threatening epileptic 
spasms, and you have to pay $29,000 a vial--13 times higher 
than the price that it had been 8 months before?
    What's the matter? What is wrong? Something, something, 
something is wrong with our values, our society, our system, 
and our government when things like that are allowed to happen.
    And so I'd ask unanimous consent that my entire statement 
be read into the record.
    [The prepared statement of Senator Schumer appears in the 
Submissions for the Record on page 25.]
    Chairman Schumer. I'd like to make just another point. 
Along with Senator Klobuchar, we've asked the General 
Accounting Office to look into the issue of these price 
increases and see if they're justified. We're not going to 
stop; I want to assure the people here and the people who will 
read or listen to this hearing, that we're going to keep at it.
    One other thing that's indirectly related. I've been a 
leader on generic drugs, and we worked in the Senate with 
Senators Kennedy and Clinton and Enzi and Hatch, to create a 
pathway for generic versions of biologic drugs, which will make 
a huge difference in issues like this.
    I'm pleased that the National Organization for Rare 
Diseases touted the passage of the Pathway for Followon 
Biologics, in their submission for the record in this hearing--
and that's just one of many ways. Not all these drugs are 
susceptible to that, but that's one way that we can help.
    Generics and market competition work, and we need to build 
on these successes and improve our system of approval for 
licensing generics. The research shows that it takes at least 
two or three generic entrants to seriously lower drug prices 
and shows that generic companies are reluctant to enter the 
market for rare diseases, since many of these niche markets 
aren't large enough to sustain more than one or two competitor 
drugs, and therefore, we have to go beyond generics when we 
look at this particular situation.
    But the bottom line is, we owe it to people like Ms. Foltz 
and her family and the thousands and thousands and thousands of 
people who are in that position, and there, but for the grace 
of God, go you or I, and we really want to help. I want to 
thank, once again, Senator Klobuchar for focusing in her usual, 
excellent way, a spotlight on this important issue.
    I apologize to the witnesses, but I wanted to be here to 
lend my support.
    Senator Klobuchar [presiding]. Thank you very much, Senator 
Schumer, and thank you for leadership, particularly in the area 
of getting these generic drugs out, which is one way that we 
can put some downward pressure on prices.
    But there are other ways, as well, and we want to talk 
about those today. First, we're going to hear from Madeline 
Carpinelli. Ms. Carpinelli is a research fellow with the Prime 
Institute, headquartered at the University of Minnesota.
    Her duties include designing and implementing research 
projects related to pharmaceutical economics and other public 
policy issues.
    Before joining the Prime Institute, Ms. Carpinelli served 
as co-Chair of the Department of Health and Human Services Drug 
Pricing Planning Group. In that capacity, she led a team of 
analysts in tracking pharmaceutical industry trends and worked 
on issues relating to drug pricing benchmarks and drug rebate 
programs.
    Ms. Carpinelli.

STATEMENT OF MADELINE CARPINELLI, INSTITUTE FOR PHARMACEUTICAL 
   RESEARCH IN MANAGEMENT AND ECONOMICS AT THE UNIVERSITY OF 
                   MINNESOTA, MINNEAPOLIS, MN

    Ms. Carpinelli. Thank you, Senator Klobuchar, for the kind 
introduction and for this opportunity to present on information 
and insights regarding pricing trends in the pharmaceutical 
market.
    As you said, I'm Madeline Carpinelli, and I'm a research 
fellow with the Prime Institute--currently. In my previous 
life, I was with the Office of the Inspector General, where I 
worked on most of the drug price reporting and compliance 
issues for about the last 10 years.
    I also interfaced with the Department of Justice and the 
OIG Office of Counsel with regards to their prosecutions and 
investigations.
    These remarks present my own findings and views, based upon 
my experience in studying the pharmaceutical marketplace for 
the last nine years, and upon my observations and ongoing work 
in collaboration with Dr. Steven Schondelmeyer with the Prime 
Institute.
    Today, I will provide an overview and preliminary findings 
from research we have been conducting on extraordinary price 
increases in the pharmaceutical market.
    Through our tracking of prices over time, we have become 
aware that certain drug products have experienced extraordinary 
price increases that are well beyond what would normally be 
expected in a competitive market.
    We found hundreds of cases of extraordinary price increases 
for branded drug products. We also found that the incidence of 
such extraordinary price increases has been rising sharply in 
recent years, and today is much higher than it was in the 1980s 
and 1990s.
    The Prime Institute routinely tracks price changes as part 
of our ongoing work, as well as for specific projects such as 
tracking the annual inflation rates for the most commonly used 
drugs by Medicare recipients, on behalf of the AARP.
    As such, we are accustomed to seeing annual price increases 
of between 6 and 7 percent for brand-name prescriptions--two 
times the rate of general inflation.
    We also expect to see the prices for certain commonly used 
brand-name products experience price increases that are 
substantially higher. For example, in 2007 Ambien had an 
annualized price increase of 27.7 percent from 2006, not 
surprising since it's one of the most commonly prescribed 
products.
    In examining the prices of all products that have entered 
the market since 1987, we discovered a pattern that challenges 
our parameters for acceptable price increases.
    In recent years, we've found that some less commonly used 
products had one-time extraordinary price increases of 100 
percent or greater. This rate of inflation is unacceptable and 
has a tremendous impact upon patients, payers, and 
policymakers.
    To examine and understand the magnitude of these 
extraordinary price jumps, the Prime Institute has been 
conducting a study of such price increases. Today, we'll 
present the findings on our analysis with the specific focus on 
brand-name drugs.
    To identify extraordinary price increases, we reviewed 
increases that were equal to or greater than 100 percent at a 
single point in time during 1988 to 2008. In other words, we 
identified those drug products whose cost doubled overnight.
    Excluded from this particular analysis are those prices 
whose percent difference met this criteria--met or exceeded 
this criteria, but over time. Instead, we just looked at those 
that had a single point in time.
    What we found was across all of the drugs, 13.5 percent 
have had 1 or more extraordinary price increase in the last 20 
years. One in 20 of the brand, single-source products and 1 in 
45 of the brand off-patent drugs had seen extraordinary price 
increases.
    We also looked at the timing of these increases over the 
last 20 years. While there were a few extraordinary increases 
in the 1990s, the vast majority have been since the year 2000.
    The number of these has been growing, especially for brand-
name drugs, especially over the last 4 years. If you refer to 
Figure 1 in my written testimony, you'll see this chart.
    [The chart entitled ``Figure 1. Extraordinary Price 
Increases of Drug Products: 1988 to 2008'' appears in the 
Submissions for the Record on page 31.]
    A price increase of 100 percent or more at one point in 
time is remarkable in its own right, but the size of some of 
these extraordinary price increases is staggering. For the 
brand single-source drug products, there were 6 price increases 
of more than 1,000 percent, with the largest being almost 3,500 
percent.
    Another 6 brand single-source drugs had an increase between 
500 percent and 999 percent. One of the brand off-patent NDCs 
had a price increase of over 10,000 percent, and another ten 
had extraordinary price increases of greater than 500 percent.
    This trend of price increases is not limited to just list 
and retail prices. There is a real financial impact on 
financial programs, namely Medicare Part D, Part B, Medicaid, 
and the Public Health Service's 340(b) Drug Discount Program.
    While we intend to investigate this issue on a more 
comprehensive basis, a review of the sample of the drugs in our 
universe against the Medicare Part B average sales price file 
confirms the trend of extraordinary price increases.
    For example, the average sales price reported for Acthar 
Gel, which we've heard about, in January 2007 was equal to 
$1,145, but by January 2008 the ASPs for Medicare-eligible 
patients were reimbursing providers $23,540.
    The pharmaceutical market is extremely complex and vexing 
to most observers. There are many unique institutional and 
structural features to the pharmaceutical market that influence 
the economic behavior of drugs and drug prices.
    The extent and magnitude of drug price increases seen in 
our preliminary study of this issue appear to indicate that the 
extraordinary price increases are not driven by ordinary 
explanations for price increases such as general inflation, 
cost of materials, labor and distribution, or the cost of FDA-
required research for approval.
    The magnitude of these extraordinary price increases is so 
great that these prices do not appear to be the product of an 
economically efficient and competitive market.
    There are many reasons why these increases could 
potentially be explained. We have theorized on a couple of 
these issues.
    Most of the drug products with extraordinary price 
increases are not among the top 100 to 500 drug products on the 
market. In part, these drug companies may have been able to 
implement these extraordinary price increases because they are 
low-volume drugs and they're not often tracked or noticed in 
the marketplace.
    This point speaks directly to Senator Klobuchar's 
discussion about monitoring prices within the Department, which 
they do not.
    Also, many of these drug products are for conditions that 
have a relatively small volume of demand. Some of the products 
have such a small market that it would not be profitable for 
even two competitors to survive.
    Other drug products with extraordinary price increases may 
have been in short supply, either before or after the price 
increase was taken. The fact that some of these drug products 
are sold only through limited distribution channels, for 
example, specialty pharmacies, mail order pharmacies, physician 
dispensers, dialysis care centers, and others, may also play a 
factor in enabling extraordinary price increases.
    The Prime Institute plans to continue research in this area 
to better understand and characterize the market conditions 
that have led to the growth of extraordinary price increases 
for prescription drug products.
    Our research will look for patterns across firms, 
therapeutic categories, market conditions, intellectual 
property and exclusivity status, dosage forms, distribution 
channels, and other factors.
    The continued research will also examine how these 
extraordinary price increases have affected private and 
Government drug programs, market entry and the market for drug 
products, and specific patient populations. Thank you very 
much.
    [The prepared statement of Madeline Carpinelli appears in 
the Submissions for the Record on page 29.]
    Senator Klobuchar. Thank you very much, Ms. Carpinelli.
    Dr. Alan Goldbloom, who is our next witness, became 
president and CEO of Children's Hospitals and Clinics of 
Minnesota--which is the eighth largest children's healthcare 
provider in the Nation--in January of 2003.
    Prior to joining Children's, Dr. Goldbloom served as 
executive vice president and chief operating officer of the 
Hospital for Sick Children in Toronto, responsible for day-to-
day operations of the Hospital, as well as community 
initiatives and partnerships.
    Dr. Goldbloom's career is centered on a passion for 
providing quality care for children and strengthening pediatric 
medicine.
    Dr. Goldbloom.

   STATEMENT OF DR. ALAN L. GOLDBLOOM, M.D., CEO, CHILDREN'S 
      HOSPITALS AND CLINICS OF MINNESOTA, MINNEAPOLIS, MN

    Dr. Goldbloom. Madam Chair, thank you so much for the 
opportunity to testify here today. As you mentioned, I have the 
privilege of serving as president and CEO of Children's 
Hospitals and Clinics of Minnesota and prior to that--I also 
have a background as a pediatrician, but I'm no longer 
practicing.
    Children's is the largest provider of care to children with 
severe prematurity, cancer, heart disease, and complex surgical 
conditions in the upper Midwest.
    My testimony here today will focus on our experiences at 
Children's with two drugs that are used in the treatment of 
serious conditions in infants. My testimony is not a criticism 
of the pharmaceutical industry as a whole, for this is an 
industry that has produced extraordinary advances in healthcare 
from which we all benefit; rather, my concern is focused on the 
practices of some specialty pharmaceutical companies and the 
questionable pricing of some older drugs.
    And, while I will refer to two specific companies, they are 
in no way unique in this practice.
    One condition that we treat in infants is called patent 
ductus arteriosus, or PDA, to which you, Madame Chairman, have 
already referred. This condition affects about 3,000 infants 
annually in the United States and is most common in very 
premature infants.
    I'll try to explain this in very simple, non-technical 
terms. A newborn baby's blood circulation changes within 
moments of being born. As adults, our blood circulates to our 
lungs to pick up oxygen, and then gets pumped out to bring that 
oxygen to the rest of our bodies.
    For a fetus still inside the womb, the lungs are not 
functioning, so the ductus arteriosus is a blood vessel that 
actually diverts the blood away from the lungs. The fetus gets 
oxygen from the mother, instead, through the umbilical cord.
    Once the baby is born and the lungs begin to function, the 
baby takes the first breath, that ductus arteriosus normally 
spontaneously closes itself off; it just tightens up and shuts 
off so that blood does flow to the lungs.
    But in some babies, especially those with prematurity, that 
ductus does not close; it remains open or patent, hence, patent 
ductus arteriosus.
    And while sometimes that will resolve spontaneously, in 
some infants it becomes a serious enough condition to cause 
congestive heart failure and to interfere significantly with 
breathing.
    When that happens, we have to treat, and last year for 
example, at Children's of Minnesota, we treated about 110 
babies with that condition.
    For many years, the only way to treat this was through 
surgery. The surgeons went in and literally tied off that open 
blood vessel.
    But over 30 years ago, it was learned that a very common 
drug, indomethacin--the brand name is Indocin--when given 
intravenously, could often produce the same result without 
subjecting the baby to surgery, and Indocin became the standard 
initial treatment for PDA.
    Until recently, Indocin has been a low-cost, safe, non-
surgical way to treat these babies. In fact, the cost for 
Indocin, up until January of 2006, was just over $100 per unit.
    About 42 of the Nation's largest freestanding children's 
hospitals are members of an organization called Child Health 
Corporation of America, or CHCA, which serves as the group 
purchasing organization for three-quarters of those hospitals.
    And for the members of that group purchasing organization, 
the collective annual cost, up until 2006, was just $136,000 
nationally.
    Well, things changed when the specialty pharmaceutical 
company, Ovation, bought exclusive rights to Indocin and 
several other drugs from the pharmaceutical giant, Merck, in 
August of 2005.
    The price for one unit of Indocin jumped from $108 to 
$1,500, an over 1200-percent increase.
    But Indocin is an old drug. It's been on the market for 
over three decades, so this dramatic price increase cannot be 
attributed to the high cost of research and development.
    As purchasers, our children's hospitals had no other 
options. There have been no other manufacturers of Indocin, so 
effectively, one company has a monopoly and can use it to 
price-gouge.
    The effect of this dramatic price increase in our Hospital 
totaled nearly $150,000 in the first year of that increase, and 
according to CHCA, it cost its member hospitals close to $2 
million in that first year, up from $136,000 just a year 
earlier.
    Like all healthcare providers, we struggle with the issue 
of increasing costs. Often, we're not able to immediately 
recover these costs from insurers, especially when children's 
hospitals rely heavily on Medicaid as the single largest 
insurer of children in this country.
    Eventually, however, increased costs do get passed on and 
are reflected in the premiums that individuals and businesses 
pay and in the tax-supported programs like Medicaid; so from 
our perspective, that extra $150,000 that we pay to one drug 
manufacturer is money we would much rather have spent on 
improved services for patients.
    The children's hospitals who are part of that group 
purchasing organization at CHCA represent only a fraction of 
the nearly 600 neonatal intensive care units nationwide. All of 
them see babies with PDA, so the overall impact is much higher 
than the number I've quoted.
    And Indocin is not the only drug Ovation has marked up in 
such a dramatic fashion. Three other drugs that were purchased 
from Merck--Cosmegen, Diuril Sodium, and Mustargen--have seen 
price increases of 3400, 864, and 979 percent, respectively.
    Cosmegen is an agent used to treat a variety of pediatric 
cancers; Diuril Sodium is a diuretic used to reduced fluid 
overload in infants and neonates, and Mustargen is used to 
treat brain tumors and certain lymphomas.
    A very similar situation developed when specialty 
pharmaceutical company, Questcor, bought Acthar Gel from 
Aventis. Acthar Gel, as you have mentioned, is used to treat 
infantile spasms, a rare, severe, and treatment-resistant form 
of seizures that affects very young infants.
    Acthar Gel is considered the gold standard for treatment of 
infantile spasms and at Children's of Minnesota, we have one of 
the largest epilepsy treatment units and have used Acthar Gel 
nearly 50 times so far this year.
    This drug was originally approved in 1978 for multiple 
sclerosis, and its cost has always been high. However, after 
Questcor bought the rights to Acthar Gel, the list price rose 
from $1,650 per vial to $23,269 per vial. This is a 1400 
percent increase, which costs the CHCA hospitals over $21 
million per year.
    Madam Chair, there are many other drugs, hundreds in fact, 
that are priced this way, both pediatric and non-pediatric, and 
even with good insurance, a 20-percent co-pay on something like 
Acthar Gel is more than many people's monthly mortgage 
payments.
    Sadly, in this time of skyrocketing healthcare costs, the 
burden of expensive healthcare now affects the insured, as well 
as the uninsured or under-insured.
    The market for many of these drugs is quite limited, so it 
is unlikely that other companies will begin to produce or sell 
a low-volume specialty product at a reasonable cost. The 
resulting monopoly is resulting in windfall profit 
opportunities for companies like Ovation and Questcor, and they 
appear to be taking full advantage.
    I want to reiterate, Madam Chairman, that my testimony 
today is not intended as a rant against the industry as a 
whole, because it has produced many great benefits, but my 
concern is focused on the practices I just described in which 
unjustified pricing decisions are taking advantage of some of 
the most vulnerable members of our population and driving 
health costs up unnecessarily.
    Thank you very much for the opportunity to speak with you 
today.
    [The prepared statement of Dr. Alan Goldbloom appears in 
the Submissions for the Record on page 33.]
    Senator Klobuchar. Thank you very much, Dr. Goldbloom. We 
appreciate your testimony and your good work.
    We now have Danielle Foltz, who became a passionate 
advocate for families affected by infantile spasms when her 
son, Trevor, who is with us today, was diagnosed with the 
disorder in November of 2007.
    The incident sparked a passion in Ms. Foltz to help 
families with IS issues. Prior to 2007, Ms. Foltz worked with a 
nonprofit organization, BBF International, for 5 years. She 
lived in Tanzania, East Africa, and assisted in the oversight 
of the feeding center called Nema House, which helped feed 
impoverished children.
    Ms. Foltz holds a B.A. Degree from Louisiana Baptist 
University.
    Mrs. Foltz.

STATEMENT OF DANIELLE FOLTZ, PARENT OF YOUNG PATIENT FROM RHODE 
                             ISLAND

    Ms. Foltz. Madam Chair Kobuchar, I would like to thank you 
for this opportunity to share our personal story today. I am 
Danielle Foltz, as you've already mentioned, from Rhode Island 
and the mother of Trevor Foltz, and I would like to share with 
you our journey to receive critical treatment for our son.
    While I am speaking only on behalf of my own family, I 
would like to acknowledge the support of the Epilepsy 
Foundation. The Epilepsy Foundation represents the 3 million 
Americans who have epilepsy, and their goal is to help those 
individuals gain access to the medications they need, like 
Trevor. I know they will continue to follow this hearing and 
the path from here forward.
    I understand that today's hearing is highly political; I 
get that, but for us and the 2,000 families that are going to 
deal with infantile spasms every year, this is personal.
    How do you find the words to describe the most horrific 
event in your life, your personal valley of the shadow of 
death? Because that is exactly the feeling that clamps your 
heart when you are at a place where the medication needed to 
rescue your child is out of your reach.
    For 7\1/2\ months, we celebrated our beautiful third born, 
Trevor. In fact, we were packing our luggage in anticipation of 
returning to our ministry in Tanzania, East Africa, when we 
noticed him making jerky, odd movements. They resembled newborn 
startle reflexes.
    Devastated does not begin to touch how we felt when we 
learned that those jerky movements were actually seizures. 
Trevor was having as many as 20 seizures in a single 60-second 
span, up to 5 times a day.
    We knew it was serious when his neurologist told us to meet 
with him immediately following that first EEG. It was in that 
meeting that we were given the devastating news that our 
beautiful 7\1/2\-month-old son had the rare and catastrophic 
disorder called infantile spasms.
    All three neurologists we consulted told us the same thing: 
If we did not get control of his seizures immediately, Trevor's 
developing brain would be irreparably damaged.
    We were told that the only thing between our son and a shot 
at a normal life was a drug called ACTH, marketed as Acthar Gel 
by Questcor Pharmaceuticals. Our neurologist prepared us that 
Trevor's treatment would be pricey. He estimated that it would 
be around $10,000 per vial.
    As you can imagine, we went numb. We immediately notified 
our insurance company. The urgency of providing Trevor's 
treatment, was heavy and we needed to move forward as quickly 
as possible.
    As Trevor's seizures continued to intensify, we read the 
information about IS online, and the sorrow of what we were up 
against was emotionally overwhelming. What we did not know was 
that 4 months prior to Trevor's diagnosis, Questcor 
Pharmaceuticals had implemented a new business model.
    This business model included raising the price per vial of 
Acthar Gel from approximately $1,000 each, to over $30,000 per 
vial. And because Trevor was the first child to receive ACTH 
treatment after the price increase, not even our neurologist 
was aware of how dramatically the price had risen.
    What he thought would cost us no more than $50,000, total, 
would now be an astounding $150,000 for the medication alone. 
In hindsight, we have no doubt the excessive price of this drug 
influenced our insurance company against originally approving 
it for Trevor.
    My husband spent days on the phone fighting for Trevor to 
have coverage. We knew there was no way that we could afford 
this treatment ourselves. One vial of Acthar was being quoted 
at a minimum of $30,000, and Trevor was going to need at least 
5.
    We could buy a nice three-bedroom colonial in some areas of 
the country with that kind of money, but because we had given 
our lives to serve a nonprofit ministry in Tanzania, we don't 
own that three-bedroom colonial. We didn't have the house to 
mortgage as collateral for his treatment, which I've heard some 
families have actually been forced to do.
    All of our earthly possessions were in Africa. We had 
nothing to liquidate to come up with this money, but to wait 
was not OK; we needed to save our son.
    And so I was frantically looking for other options. I 
called the Acthar Support and Assistance Line because I had 
learned that Questcor offers the assurance that no child who 
truly needs this treatment will go without. I spoke with the 
call center representative and was informed that the approval 
process included paperwork for ourselves and Trevor's doctors 
to submit.
    When I asked how long the approval process would take, I 
was informed it would be a minimum of 3 business days. When I 
asked if approval was a sure thing in a case like ours, I was 
told, no.
    At that point--I'll be honest--my emotions got the best of 
me, and I informed her that I thought it was a sham, that if 
Questcor was really about providing a vital medication in a 
time of desperation, it wouldn't take 3 business days to reach 
the maybe point.
    When your infant's body is being racked by 40 seizures 
every single day, you do not have 3 business days to play 
Russian Roulette, waiting for a medication that could stop his 
seizures and right your world again.
    Those days following Trevor's diagnosis, for our family, 
were the most emotionally dark that we've lived through. My 
husband and I were pretty much a puddle on the floor.
    Just getting that kind of diagnosis shatters you, but then 
to add the guilt of realizing that you may not be able to 
rescue your son because you can't afford to, it's unimaginable, 
and in my mind, unacceptable.
    We literally thought it was possible that our son would go 
without treatment, or that he would be forced to use a less 
effective medication that could leave him developmentally 
challenged forever.
    I wonder how many other families are living that same 
nightmare right now. How many are being exploited in their 
desperation? For our family, finally on Wednesday, November 21, 
2007, the day before Thanksgiving--after numerous emotional 
phone calls between my husband and our employer--we were told 
to move forward with the treatment.
    It had already been a week since Trevor's diagnosis, and 
each day without treatment was stealing our son from us. We 
witnessed his physical regression and the distress as his 
seizures became ever more violent.
    We were admitted the following day and Trevor's very first 
Thanksgiving was spent at Hasbro Children's Hospital.
    Because the ACTH must be injected into the thigh, a nurse 
was sent to teach us how to administer it for when we went 
home. My husband was asked, was he nervous when he gave Trevor 
the shot for the first time? And he replied that he was more 
nervous holding $5,000 in a single syringe, or worse, dropping 
the vial and breaking it.
    I know that our family was lucky. Trevor is a miracle, and 
our insurance ended up covering the 6-week course that Trevor 
needed of ACTH. Trevor has been seizure-free since his fourth 
injection, and that's why I brought him with me today.
    I believe his face needs to be here, representing all the 
other IS faces. He is the poster child for why this drug needs 
to be available and affordable.
    Today we're celebrating our miracle, and we pray that 
Trevor will remain seizure-free, but what if he doesn't? Are we 
going to have to fight for coverage again?
    I'm going to leave this hearing today, and as you can 
imagine, I'm going to go home. I have a 3-year-old daughter 
waiting for me. I'll return to my life of loving and advocating 
for my son, but my story is inextricably connected to the 2,000 
families this year and next year and the next who will live 
with this horrific diagnosis.
    My heart cannot help but be consumed for those families 
devastated by infantile spasms. Will they have access to this 
drug, or will they be priced out?
    In fact, in preparation for my testimony today, my husband, 
Jonathan, researched the current price for a vial of ACTH. 
Unbelievably, the escalation has not plateaud. The very same 
vial we ended up paying $26,000 to obtain just 6 months ago, 
today can cost as much as $40,000.
    Where does it end? I can't pretend to understand the many 
layers of this issue, but what I can wrap my heart around is 
the terror that a young mother faces when she cannot rescue her 
baby, not because his treatment or his sickness is untreatable, 
but because she cannot financially afford the medication he 
needs.
    And I implore you today to please consider my thoughts and 
to find a way to help families like mine get access to these 
medications. I don't want another family to live with the 
nightmare of IS and not able to treat their child.
    Please help these families dealing with infantile spasmsget 
affordable access to the drug that could be their miracle, too. 
Thank you.
    [The prepared statement of Danielle Foltz appears in the 
Submissions for the Record on page 41.]
    Senator Klobuchar. Well, thank you very much, Mrs. Foltz, 
for that moving testimony and for being willing to have your 
family here. As I listened to you, I could relate a little bit 
to this in a very small way.
    When my daughter was born, she couldn't swallow, and I got 
kicked out of the hospital. It was when you could only stay for 
24 hours, and just that feeling of trying to--having no control 
and trying to come back to find her and help and stand in the 
rooms and try to figure out what was wrong, when you really 
couldn't stay overnight in the hospital.
    Those things were wrong. We changed that and got a 48-hour 
mandatory stay in Minnesota, as well as across the country for 
new mothers and their babies.
    But I just remember that feeling that you're talking about, 
where you would go to any length to protect your child and 
someone's getting in the way for what is nothing more than 
greed.
    Did you feel, when this was going on--did you even consider 
that you wouldn't pay for that drug if you had to find a way to 
do it?
    Ms. Foltz. No, no. I mean, we thought, if worse came to 
worst, we'd be paying for it for the rest of our lives. I mean, 
he needed the medication, and we need to move forward.
    The problem is, the hospital where we were only had one 
vial, and I'm not sure if they could access it. We were working 
with pharmacies and other things, but we needed the medication.
    I mean, ACTH is the front-line treatment for infantile 
spasms, and he needed it. Obviously, he responded to it within 
4 days, so we were going to do whatever it took. It was just, 
how were we going to do it?
    Senator Klobuchar. He just moved his arms. I think he heard 
you.
    Ms. Foltz. He hears mommy.
    [Laughter.]
    Senator Klobuchar. Well, when you said his name, that got a 
move, too.
    So anyway, so your husband kept pushing on the insurance 
company. Did they ever say anything about that it was the price 
of the drug, or that's what you thought it was?
    Ms. Foltz. I mean, that is total speculation. They said 
that because it was not FDA approved or FDA indicated for 
infantile spasms--which I do think is a part of the problem--
that was why they officially told us they wouldn't cover it, 
but they refused to budge until our neurologist actually sent a 
letter telling them that if you don't cover this medication, 
this child will be mentally retarded for the rest of his life, 
and you'll pay millions more than what you expected to.
    Senator Klobuchar. For not covering him?
    Ms. Foltz. Yes.
    Senator Klobuchar. And you think that made a difference?
    Ms. Foltz. That absolutely is what turned the tide with our 
insurance company.
    Senator Klobuchar. And did you have to go to the doctor and 
get the doctor to do it, or how did you get that done?
    Ms. Foltz. She was--you know, our neurologist was amazing. 
She was handling everything for us. She was on the phone with 
the insurance company, I want to say ``duking it out,'' but I 
don't know if that's appropriate, but yes, she was----
    Senator Klobuchar. Anything's appropriate at this hearing.
    [Laughter.]
    Ms. Foltz. She was duking it out for us with them, so she 
definitely was an advocate for us all the way through.
    Senator Klobuchar. And has your son received other medical 
treatment for his disorder, besides the Acthar?
    Ms. Foltz. Yes and no. He is not currently taking any anti-
epileptic medicine, and that's because he has been seizure-
free, but with infantile spasms, babies are really in a danger 
zone, at least until they are school aged, until age 5.
    They are at risk of developing other forms of seizures. 
From my understanding, infantile spasms is really a symptom of 
an underlying condition, and the reason why it's so devastating 
is because these babies are having 40 seizures, sometimes 
hundreds of seizures a day, in the very essence of their 
development. Their little brains are developing.
    So Trevor still is monitored by his neurologist. We see her 
every 6 months. We're still tracking down his underlying cause, 
getting MRIs and EEGs. He's going to have his sixth EEG this 
next week, so he still receives treatment, just not medication.
    Senator Klobuchar. So the idea here is that this drug isn't 
necessarily one he would have to take for a lifetime?
    Ms. Foltz. No.
    Senator Klobuchar. But it was needed at that moment, at 
that time?
    Ms. Foltz. Yes.
    Senator Klobuchar. To stabilize him.
    Ms. Foltz. Exactly.
    Senator Klobuchar. And how long did he take it?
    Ms. Foltz. He took it for 5 weeks.
    Senator Klobuchar. For 5 weeks. It was just for 5 weeks?
    Ms. Foltz. Just for 5 weeks.
    Senator Klobuchar. And how long was the delay in getting 
him the drug?
    Ms. Foltz. It was at least 5 days, and we were actually 
told that if we--and part of the problem was timing. He was 
admitted on Thanksgiving, and no one wants to take their 
holiday and rescue a little baby, unless it is, in their minds, 
life or death, and this wasn't considered that for them.
    But, yes, it took those 5 days to get that treatment.
    Senator Klobuchar. Did the treatment have any side effects, 
or from your perspective, it went well because then he didn't 
have an spasms?
    Ms. Foltz. In Trevor's case, we had minimal side effects. 
He did have elevated blood pressure, which was monitored at 
home by a visiting nurse, and he also took blood pressure 
medication, but that was really the only side effect that 
Trevor had.
    Senator Klobuchar. How is he doing now?
    Ms. Foltz. You can see, he's amazing. If he were awake, I'd 
let him toddle around for you.
    [Laughter.]
    Ms. Foltz. Yeah, he is a miracle, and he's thriving, and 
he's overcoming, and I can only imagine what is in store for 
his future.
    Senator Klobuchar. And what advice would you give to other 
families who find out that they need a drug where the prices 
suddenly had gone up, you know, as we had some examples 8,000 
times, 18 times, 1,000 times; how would you tell them to handle 
it?
    Ms. Foltz. You know, part of the difficulty of that, is 
when you're in that crisis moment, your head is not on 
straight. I mean, you're not thinking what can I do? And I 
mean, I guess, part of my advice would be, and what benefited 
me the most, was getting online and joining a community of 
other infantile spasm parents who have direct resource to the 
different options out there.
    And that's where I've learned most of my information about 
infantile spasms and courses of treatment, so that would be my 
first piece of advice and the second is just keep fighting. You 
fight because your baby deserves the coverage and your baby 
deserves to get treatment, and don't wait.
    Senator Klobuchar. OK, thank you. Now, what's Trevor's 
brother's name, there?
    Ms. Foltz. That's Toby.
    Senator Klobuchar. Hey Toby, thank you for being so good.
    All right, we're going to ask some more questions now. They 
might not be quite as interesting, Toby, as the ones we asked 
your mom.
    [Laughter.]
    Senator Klobuchar. OK, well, why don't we turn to you, Ms. 
Carpinelli, and talk a little bit about just the general state 
of this. Were you surprised by Mrs. Foltz's story?
    Ms. Carpinelli. I had the opportunity to read her online 
blog about it, which was fantastic and just really colorful, 
and it told quite a bit. And it really does speak to the 
personal side of this issue. I'm here to present the dry, 
economic side of things, and I'm glad to hear the experiences 
of Dr. Goldbloom and Ms. Foltz.
    But this is not surprising. There have been issues with 
these types of products for years. It is impacting both private 
and public insurers very much.
    I know that from previous experience that companies are 
going so far as to try to single out individuals that they're 
covering, that have rare diseases, and trying to figure out 
ways to get them treatment at other places, so they don't have 
to cover the cost of their drugs, because it's raising everyone 
else's per-month, per-year, or per-member costs.
    These people that do have rare diseases or hemophilia, for 
example, are getting singled out and asked to get care at a 
place, such as a public health service grantee where at least 
they can purchase the drug at a discounted price, and maybe 
offer you a price break.
    But for those cash payers, this is just outlandish.
    Senator Klobuchar. So how do--to go back to the 
pharmaceutical companies--how do the prices and changes to U.S. 
pharmaceutical products compare to external benchmarks such as, 
you know, overall inflation in the economy or prices that we've 
seen in other countries?
    Ms. Carpinelli. Through our research, we found that the 
increases for drugs is typically two to three times what the 
average rate of inflation looks like.
    What's really interesting is that each time the price 
trends are examined, there are a handful that have increased 
substantially greater than this. But, some of these can be 
between 10 and 30 percent of an annual increase, and not 
acceptable anymore.
    The economic market for pharmaceuticals is so distorted 
that it's OK to have a 10 to 20-percent increase, you know, 
from month to month or from year to year. Increases of this 
magnitude are just viewed as normal now.
    This is not acceptable in any other market. I mean, 
consider the outrage over gas prices now. This isn't gas; these 
are drugs; these are drugs that save people's lives.
    Senator Klobuchar. And what impact do you think this has 
on--well, I know it's 11 percent of our healthcare 
expenditures, pharmaceuticals are totaling about $217 billion.
    Ms. Carpinelli. Right.
    Senator Klobuchar. What impact does this have on Medicare 
and Medicaid?
    Ms. Carpinelli. We at the Prime Institute are still 
conducting research on this issue, but are challenged by the 
amount of confidential data that the manufacturers possess for 
the Part D program and for Medicaid.
    There are a lot of price components that get reported to 
the Government, that are based on actual sales, versus list 
prices. In order to get a really true assessment of that, of 
how it will impact Medicaid and Medicare, you have to have 
access to this data.
    I am glad to hear that the Committee has requested further 
study from the GAO. They will have access to that confidential 
pricing information and will be able to report a much more 
accurate figure.
    Senator Klobuchar. Very good. In your testimony, you 
highlighted drugs that appear to demonstrate effects related to 
monopoly pricing. In a normal market, you know, one would 
expect that the unit cost would decrease as sales increased. 
That's what's supposed to happen, right?
    Ms. Carpinelli. Right.
    Senator Klobuchar. At least that's what I learned in 
Economics 101.
    [Laughter.]
    Senator Klobuchar. Because the manufacturer can afford to 
offer a lower price. However, with some of these products, it 
seems like an increased or stable market, actually exists, but 
the price suddenly gets jacked up a hundred percent, a thousand 
percent.
    Ms. Carpinelli. Right. We at the Institute like to say that 
each individual values their life as exponential but that does 
not mean that the cost for a drug should also be exponential. 
In other words, drug companies could not make pricing decisions 
on what they think the market will bear.
    An individual can't compare the value of their life to how 
much a drug product is going to be. In essence, the prices 
discussed today could be what we refer to as supra-competitive 
prices, or prices above what can be sustained in a competitive 
market.
    Supra-competitive prices are present when a firm has a 
unique position in the market with respect to intellectual 
property or legal status, barriers to entry, product features 
that offer a competitive advantage, or other factors.
    The number and magnitude of these types of price increases 
that we've discussed today also raises the possibility that 
antitrust issues may be present. Going back to the Norvir case 
that you had mentioned, there are several lawsuits that Abbott 
is currently engaged in, for that reason, exactly.
    Senator Klobuchar. Right, well in fact, the FTC filed a 
complaint against Cephalon, in response to its anticompetitive 
behavior for its sleep disorder treatment, Provigil. According 
to the FTC complaint, Cephalon is paying four generic drug 
makers to refrain from selling generic versions of this drug, 
until 2012.
    Ms. Carpinelli. Right.
    Senator Klobuchar. Do you know about that case?
    Ms. Carpinelli. Not those specifics, but that doesn't 
surprise me. That's been a common reason for cases in the last 
years.
    Senator Klobuchar. So they are actually paying off generic 
drug manufacturers, not to----
    Ms. Carpinelli. There is some concern that there are other 
financial incentives to companies that are subsidiaries of 
other companies, that are waiting, that are kind of in cahoots 
with their larger parent company.
    Senator Klobuchar. I think you mentioned the drug, PhosLo, 
in your testimony, and there the gradual increase, as opposed 
to the drastic spike in price that occurs with this particular 
drug. How is that drug different?
    Ms. Carpinelli. You know, there were two drugs whose prices 
we examined that didn't necessarily have a single-point-in-time 
increase, rather, their increase was substantial over time.
    I'm not exactly sure why that drug would have been 
different, but instead, for PhosLo, there were four increases 
over a year and a half's time of 40 percent, 40 percent, 40 
percent, and 32 percent, equalling 262 percent total.
    Once again, it's the same sort of thing that we've 
discussed--that this is a product that was on the market, got 
bought out by another company, and then suddenly the product 
price spiked.
    I did want to briefly mention the Orphan Drug Act. As you 
mentioned in your testimony, this was an Act designed to help 
create products in a market that wasn't necessarily attractive.
    And as part of that, manufacturers do get a lot of really 
great incentives. In addition to the 7-year market exclusivity, 
they also get a waiver from the $500,000 a year user fee from 
the FDA, they get grant money to do their clinical studies, and 
they also get tax breaks on their clinical investigations.
    It's important to note that in addition to the market 
exclusivity, that there are other incentives that kind of 
offset the costs for the development. I think this furthers 
your point that having orphan drug status might not necessarily 
be a motivation in terms of price increases.
    Senator Klobuchar. Right. Dr. Goldbloom, a July 2008 Wall 
Street Journal article discussed the recent implications of 
rising pharmaceutical costs in the field of oncology, where 
drug prices can cost more than $100,000 per year.
    Many health policy experts have started to suggest that 
it's time for American doctors to begin reconsidering costs 
when assessing treatment options.
    Do you think that this is a good practice? Should cost be a 
consideration?
    Dr. Goldbloom. Senator, I believe that all of us in 
healthcare have a responsibility to use our resources as wisely 
as we can. That means that decisions are never based on costs 
alone.
    The first and most fundamental is to use evidence-based 
research about which treatments are best and most effective, 
most reliable, and cause the least risk. That's always the 
number one decision.
    When we have two treatments that are equivalent and one is 
at a lower cost, then yes, I believe we have a societal 
responsibility in those situations to use resources wisely.
    And I believe that it's a direct benefit to society, 
because the more we can spread those resources, it improves our 
ability to provide coverage to others; it improves our ability 
to provide treatment to others.
    There is not an unlimited pool of resources, so the answer 
is, it is a factor, and it's part of our overall 
responsibility. It should never be the only factor, and when 
there is a single lifesaving, disease-curing treatment that is 
available that happens to be expensive, just as we heard in the 
testimony of Ms. Foltz, then we have to do what is right for 
the patient.
    Senator Klobuchar. OK. You, in the case of indomethacin or 
Indocin that we've been talking about, you first heard about 
this from your pharmacy manager; is that correct?
    Dr. Goldbloom. That is correct.
    Senator Klobuchar. And why was this so surprising to you 
when you heard about this increase?
    Dr. Goldbloom. This was a surprise to me because I 
reflected back, frankly, to my own days back when I was 
training as a pediatrician, and that was in the early 1970s, 
and we were using this drug then.
    So this is, to me, a very old drug; it's been around a long 
time, standard treatment for a long time. I could not imagine 
any justification for a sudden change in the price, 
particularly a change of the magnitude that we've described 
here today.
    There's been no new research that I'm aware of, and the 
only thing that seems to have changed was the right to 
manufacture and sell the drug.
    Senator Klobuchar. Did you hear anything that there might 
have been a shortage of the drug? That's something we're 
hearing from Ovation, that suddenly there was a shortage when 
they were producing it.
    Dr. Goldbloom. I had not heard that, Madam Chair.
    Senator Klobuchar. Did you have a shortage at your hospital 
of the drug, like you couldn't obtain it?
    Dr. Goldbloom. Not that I'm aware of.
    Senator Klobuchar. How does your hospital offset the 
increased cost of drugs such as indomethacin and Acthar?
    Dr. Goldbloom. In the first year or two, we absorbed most 
of that cost because we function under existing contracts with 
our payers, with the insurers. So when things change in the 
midst of a contract, we simply absorb the cost, which means 
that we have to reduce our spending in other services that we 
provide.
    So, in an indirect way, it does have an impact on other 
services to other patients. Eventually, however, if that looks 
like a sustained price increase, we build it into the costs 
that we use as the basis for our negotiations with payers, 
whether insurers or whether Medicaid, which means that the 
costs are being passed on, either to the taxpayers or to 
individuals and companies.
    It's costing society more when we're all trying to reduce 
healthcare costs.
    Senator Klobuchar. Have the insurance companies or 
Medicaid--you wouldn't have Medicare at Children's Hospital--
but Medicaid, the insurance companies talk to you or others 
about their concern about these price increases?
    Dr. Goldbloom. They have not specifically talked about this 
drug, but they certainly are under tremendous pressure to 
minimize the annual increases in the contracts. This becomes a 
struggle between hospitals and insurers every time a contract 
is up for negotiation.
    We do face significant increases year after year, some of 
them understandable, like when there's a brand-new drug that 
has been the result of great and very expensive research and 
development and is used, say, in the treatment of childhood 
cancer. We do understand some of those price increases.
    But it is part of a continuing battle, if you will, in the 
negotiations that occur with our payers.
    Senator Klobuchar. In your testimony, Dr. Goldbloom, you 
mention the Child Health Corporation of America, CHCA, which 
serves as a group purchasing organization for many of the 
country's freestanding children's hospitals. Does CHCA have any 
power in controlling the price of these drugs?
    Dr. Goldbloom. Well, they do have the power of numbers, in 
the sense of trying to use the group purchasing volume as a 
means of negotiating. The problem is, when there is a single 
manufacturer, you lose most of your leverage.
    Senator Klobuchar. So in other words, it might be a major 
drug manufacturer who cares about the fact that you're a 
leveraged group, a large group, and you can negotiate with them 
because they don't want to lose your business on other drugs?
    Dr. Goldbloom. Correct.
    Senator Klobuchar. And so when you have a case where 
someone just takes one or two drugs and jacks up the prices, 
they don't really care, especially if they own both of the 
patents for the drug?
    Dr. Goldbloom. The negotiation becomes a take-it-or-leave-
it kind of negotiation.
    Senator Klobuchar. And then obviously, there's other 
hospitals that aren't in your purchasing group.
    Dr. Goldbloom. Right.
    Senator Klobuchar. That must be like smaller hospitals and 
things like that.
    Dr. Goldbloom. Yes, that's right.
    Senator Klobuchar. OK, all right, well, I want to thank 
you, Dr. Goldbloom. I wondered, did any of the three of you 
have anything that you wanted to add? I see Trevor is up and 
eating now.
    [Laughter.]
    Senator Klobuchar. And he smiled.
    [Laughter.]
    Senator Klobuchar. Do you have anything that you'd like to 
add, at all?
    Dr. Goldbloom. I'd just like to thank you, Senator 
Klobuchar, for shedding light on the issue and bringing it to 
public attention, because I think that's the first step in 
trying to find solutions to the problem.
    Senator Klobuchar. Thank you.
    Ms. Foltz.
    Ms. Foltz. I definitely want to say thank you, thank you 
from a family that lived through this, and it's really nice to 
see that you guys are paying attention and seeking to help 
families like mine.
    Senator Klobuchar. Well, thank you. I do want to say that 
this is just the beginning. This is one hearing. I know there's 
a House Hearing right now, as well, on pharmaceutical pricing, 
and what we're trying to get here is to get whatever 
information we have, because we know that this has a ripple 
effect on not just the hospitals, as Dr. Goldbloom has pointed 
out, but on taxpayers, with Medicare and Medicaid, and then on 
individual families' finances.
    And this is not to say that people shouldn't be able to 
make money and it's not to say that we don't want the market to 
work. We'd like the market to work because if the market was 
working, we probably wouldn't be in this situation with one 
company owning both patents on a drug that competes with each 
other.
    What I think we need to do when we have cases like this of 
just outrageous pricing, where the people that are getting 
ripped off are families and the citizens of this country, that 
we have to give the agencies that regulate this the tools they 
need, and if that's not working, then we're going to have to 
change the law, because this just can't keep happening like 
this.
    It's just one example of many of cost overruns and problems 
in our healthcare system in this country. When you have a 
company like Ovation that can somehow make the cost decision 
and think it's OK to sell this drug that saves babies' hearts, 
for 44 times the amount an American company in America, than it 
sells it in Canada, we have a problem.
    And when they can jack up the price 18 times, just because 
someone sold it to them, there's a problem. And so I just want 
to assure you, Mrs. Foltz and Dr. Goldbloom, from a hospital 
perspective, and Ms. Carpinelli, from the academic research 
perspective, that we're not just going to let this go.
    That's why we've asked the FTC to look at this, and why 
we're holding, in Congress, major hearings as we go forward and 
gathering ideas about how to stop this from happening and help 
the people of this country.
    So thank you very much, and our hearing is adjourned.
    [Whereupon, at 11:18 a.m., the hearing was adjourned.]
                       Submissions for the Record

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

[GRAPHIC] [TIFF OMITTED] 42773.001

            Prepared Statement of Senator Charles E. Schumer
    I'd like to thank Senator Klobuchar for holding this important 
hearing, and thank our witnesses for being here today.
    Yesterday we talked about the Middle Class Squeeze and how American 
families gather around their kitchen tables and talk about how they're 
going to pay these skyrocketing bills for food, gasoline, college, day 
care, and yes--prescription drugs and health care. Today's hearing 
focuses on the lack of affordability of potentially life-saving drugs 
that treat rare diseases.
    And we're not talking about an everyday kind of un-affordability. 
We are talking about drugs that have gone up 100, 500, or 3,000 percent 
in a matter of months, weeks, or overnight. That's way more than 
inflation, and it far outpaces the increases families are paying for so 
many of their other household expenses.
    Our health care system can, and usually does provide high quality 
care, but more and more we hear about significant problems with access 
and affordability hurting American patients.
    While we are talking about smaller segments of our population when 
we discuss rare diseases, the total number of American families touched 
by them is quite high. NIH estimates that between 9 and 10 percent of 
the American population, or nearly 30 million men, women, and children, 
are affected by a rare disease. Approximately half of these people are 
children, and many of these rare diseases are present at birth.
    Patients with rare diseases and their families suffer from more 
than their disease alone. They also have the frustrations of not being 
able to find information about their disease and the heartbreak of 
finding out that there is no treatment, or in the case of a witness we 
will hear from today, that the life-saving treatment she needs for her 
child is priced exorbitantly high.
    When our panelist, Danielle Foltz, needed the drug Acthar (ACT- 
Thar) to treat her infant son for life-threatening epileptic spasms, 
she faced paying over $29,000 per vial. That's 13 times higher than the 
price had been just 8 months before he was diagnosed. One might. say 
that a brand new drug that just hit the market might be pricey because 
it had to recoup research and development expenditures, but Acthar has 
been on the market for three decades.
    And the same is true for the drug Matulane (matt-you-lane), which 
treats Hodgkins Lymphoma, and cost less than $70 per dose in late 2004. 
Just 6 months later, the price had increased to $5,568! That's an eight 
thousand percent increase. And not for a groundbreaking new drug--for a 
drug that was put on the market in the 1960s.
    Our witnesses today are going to shine a light on practices that 
look uncomfortably like an abuse of the pricing power we give to drug 
companies. In case after case, it appears that PHARMA companies have 
been taking critical drugs that have been on the market for years --
with the costs of their development long since paid for --and 
increasing prices to the very highest levels the market will bear.
    Our witness from the PRIME Institute at the University of Minnesota 
has found over one hundred cases since 2002 where the price of single-
source drugs more than doubled due to a single price increase.
    Healthcare reform is on the horizon, and the appropriate pricing of 
drugs and all medical services should be a top priority.
    We all benefit from incredible innovation of pharmaceutical 
companies. Their success is in treating or sometimes curing diseases 
both severe and mundane is an important part of American 
competitiveness and greatness.
    But the testimonies today are disturbing and show that much greater 
oversight and perhaps even significant action by the Congress is 
needed.
    Along those lines, together with Senator Klobuchar I've asked the 
General Accounting Office (GAO) to look into the issue of these price 
increases and see if they are truly justified.
    I also introduced a bill and worked to develop the Senate 
compromise with Chairman Kennedy and Senators Clinton, Enzi and Hatch 
on creation of a pathway for generic versions of biologic drugs. I am 
pleased that the National Organization for Rare Diseases touted the 
passage of a pathway for follow-on biologics in their submission for 
the record of this hearing. That is one clear way we can help patients 
with rare diseases.
    Creating this pathway is an important development for American 
consumers, and I bet that the next Administration will work with 
Congress to make sure that the FDA implements this priority.
    Generics and market competition works. We need to build on these 
successes and improve our system of approval and licensing for 
generics. The research shows that it usually takes at least two or 
three generic entrants to seriously lower drug prices. It also shows 
that generic companies are reluctant to enter markets for rare 
diseases, since many of these ``niche'' markets aren't large enough to 
sustain more than one or two competitor drugs.
    Of course we realize that there are legitimate reasons why drug 
companies may need to raise prices. Price increases can be a normal 
cost of doing business. But we can't let the cost of doing business 
serve as an all-purpose excuse for excessive pricing that put important 
drugs out the reach of many families.
    We owe it to all of America's patients to keep a vigilant watch on 
this situation.
                               __________
         Prepared Statement of Senator Amy Klobuchar, Presiding
    Thank you for attending this important hearing on rising prices of 
prescription drugs.
    I will be introducing each panelist after opening remarks, but I'd 
like to thank each of them for taking the time out of their busy 
schedule to join us today and share their experiences and expertise.
    First, I'd like to thank Danielle Foltz for her courageous effort 
to share her family's experience with us today. Her passionate advocacy 
has brought to light how decisions made in boardrooms affect families 
across the country.
    I would also like to thank Madeline Carpenelli of the PRIME 
Institute, based in my home state of Minnesota, for her effort to 
provide context and insight into the impact of drug pricing. She has 
been working with Dr. Steve Schondelmeyer, who began collecting data on 
cases of enormous, overnight drug increases since the 1980s.
    It is his work, along with Ms. Carpenelli's expertise from spending 
almost a decade at the Health and Human Services' Office of the 
Inspector General that has allowed us to examine the big picture of 
what these increases have done to patients with rare diseases.
    And I'd like to extend special thanks to Dr. Alan Goldbloom, the 
CEO of Children's Hospitals and Clinics of Minnesota.
    Since last July, I've worked with Children's several times in 
connection with the case of Abbey Taylor, the little girl who died 
after being seriously injured in a wading pool last summer.
    This hospital is dedicated to the care of their young patients. 
They know how important it is for children to have access to 
affordable, quality health care.
    That's why we're here this afternoon.
    We are here because we are outraged by what some pharmaceutical 
companies have been doing with pricing for important medications that 
affect all generations. These are drugs that, because of aggressive 
pricing practices, have seen dramatic increases in cost. Often times, 
because of a limited market or other factors, the drug's price is more 
likely to remain at that astronomical level.
    I first became aware of this issue when I received word from 
Children's Hospital in Minneapolis that the price for a drug called 
Indocin I.V. had increased substantially. It's a medication used to 
treat patent ductus arteriosis also called PDA, a disorder that 
prevents holes from healing in the hearts of premature infants.
    Since its approval in the 1970s, the drug has become the most 
commonly used method for treating this condition.
    Two years ago, Ovation Pharmaceuticals acquired the rights to this 
drug from Merck. The company quickly increased the price by more than 
18 times--from $100 to $1,875--for three one-milligram units of the 
drug.
    Even though it's an American company, the price they charge in the 
United States is now 44 times higher than what they sell it for in 
Canada, nothing can justify that kind of huge price disparity.
    As it happens, there is only one other drug approved by the FDA for 
this heart problem--a formulation of intravenous Ibuprofen. Ovation is 
also the sole source of that drug in the United States and, not 
surprisingly, the price it charges for this medicine is nearly 
identical to what it charges for Indocin I.V.
    A number of other Ovation products have seen similar drastic price 
increases. Drugs that--like Indocin--have been around for a long time 
and are the premier treatments for a number of diseases.
    In a recent article in the medical journal Pediatrics, Dr. Alan H. 
Jobe of Cincinnati Children's Hospital described Ovation's pricing of 
its two drugs for the premature babies' heart condition as ``quite 
extraordinary.''
    He wrote: ``Words such as `unconscionable,' `unethical,' and 
`socially irresponsible' come to mind.''
    So the issue we have is that an upstart company purchases a number 
of drugs from another company, and even though these drugs had been on 
the market for years, the upstart company increases the price 
drastically.
    But Ovation isn't the only company engaging in this disturbing 
trend.
    Questcor Pharmaceuticals was once losing money at a rate of $1 
million a month. The company's fortunes turned around after they 
purchased HP Acthar from Aventis. This drug was approved in the 1970s 
to treat multiple sclerosis, but it is now primarily the ``gold-
standard'' for treating infantile spasms, a disorder that affects about 
2000 families in the U.S.
    Prior to Questcor's purchase of the drug, the wholesale price of HP 
Acthar was about $1600 per vial. Once in Questcor's hands the price of 
the drug skyrocketed to $23,000 per vial--that's a 14-fold increase!
    And according to the PRIME Institute, we're hitting just the tip of 
the iceberg, because the problem isn't isolated to drugs that benefit 
small numbers of patients.
    Abbott Pharmaceuticals increased the price of Norvir, a drug used 
to treat AIDS. The drug was often used by other companies as an 
ingredient in their drug therapies. In 2003, Abbott jacked up the price 
of Norvir [''NORE-veer''] by 400 percent.
    This was done at the same time that Abbott began marketing their 
new product, Kaletra, another AIDS pharmaceutical drug that included 
Norvir and served as a replacement for the competition's drug therapy. 
The result forced patients and providers to turn to Abbott's Kaletra 
instead of the formerly cost-effective alternative that used Norvir and 
competitor's drugs.
    Previously undisclosed documents and emails reviewed by The Wall 
Street Journal 2007 show that Abbott's leadership actively considered 
ways to promote Kaletra over Norvir.
    This bar graph illustrates the drastic jump in price, an egregious 
increase from $257 to $1285.
    This chart shows just a few examples of enormous drug price 
increases. Mustargen to treat rare cancers, 1000 percent increase! 
Cosmegen to treat kidney disease, 3500 percent increase!
    And the price increase for Matulane is nearly off the chart with an 
8000 percent increase!
    This seems to be simple price gouging to me. And it not only hurts 
hospitals that have to purchase these expensive drugs, but also the 
patients who rely on them.
    An elderly woman from Park Rapids, Minnesota who suffers from 
cutaneous T-cell lymphoma was forced to pay over $8000 in out-of-pocket 
expenses for Mustargen, a drug sold by Ovation Pharmaceuticals whose 
single dose price increased from around $50 to nearly $550 after the 
company acquired the rights to the drug.
    In March, I had the opportunity to meet the Benson family and their 
twin girls Anna and Sophia. Sophia suffered from PDA and needed Indocin 
I.V. for treatment. They were able to receive the drug through 
Children's Hospital, but with such obscene price increases, it is 
getting more and more difficult for providers to meet such runaway 
costs.
    What is the solution?
    In America, we have a serious problem with health care inflation 
and runaway costs. It's no wonder: When we have pharmaceutical 
companies like Ovation or Questcor increasing prices to astronomical 
levels because of the lack of competition in the market, their actions 
are able to exploit an extremely vulnerable and captive market.
    And it's not like the pharmaceutical industry is withering on the 
vine. This chart shows that even when compared to other Fortune 500 
companies, pharmaceutical company profits are much higher.
    The Orphan Drug Act was passed in 1983 to provide incentives to 
drug companies to develop innovative drugs for rare diseases because 
without incentives, drug companies may never be able to recoup research 
and development costs in niche markets.
    What we've seen, however, is that at least a handful of drug 
companies have used this ``status'' of orphan drugs to keep increasing 
costs--well beyond the costs of research, development, and 
manufacturing. These staggeringly high prices, in turn, threaten the 
financial stability of middle class families relying on the drugs.
    Where generic drugs have helped lower the cost of many prescription 
drugs on the market, generic competition is also less likely to occur 
for orphan drugs. According to a study published in the RAND Journal of 
Economics, the market size for a drug has to be $32 million (in 2007 
dollars adjusted for inflation) to ensure entry of a generic into the 
market.
    When we're talking about drugs that have been around for decades 
and treat patient populations of only a few thousand, there is often 
just not enough of an incentive for a generic drug to enter the market.
    Beyond hospitals and patients, a dramatic, unforeseeable increase 
in price for one of these drugs has a significant impact on the Federal 
Government. If the wholesale cost of a drug goes up, Medicaid or 
Medicare has to pay for the increase.
    We are holding this hearing to uncover this practice, but also to 
look forward at what we can do to curb the dramatic increase of drug 
prices we've seen in the last few years.
    I've asked the Federal Trade Commission to initiate an 
investigation into any potential anti-competitive conduct or 
consequence arising out of Ovation's market actions and dominance in 
the area of non-surgical treatments for PDA.
    We need to ensure that the FTC continues to conduct these crucial 
investigations to guarantee competition--keeping costs low for 
consumers and encouraging innovation.
    It's disturbing that our providers, hospitals and patients are 
being blindsided by these exorbitant price increases. Our Federal 
Government should be able to track these trends in pharmaceutical 
pricing. If we start to monitor this data, there is more of a paper 
trail, giving us enhanced ability to do something about these 
companies' practices.
    When provided with the right information on drug prices, especially 
in smaller markets, doctors can be alerted of big price increases, 
potentially spurring generic alternatives to expensive drugs and giving 
the Centers for Medicare and Medicaid Services (CMS) the tools and 
information to better track pricing activity in the market.
    Finally, I intend to investigate whether the FDA can fast-track 
approval for generic drugs that would be just as safe and effective, 
but much less expensive, creating competition in markets with dramatic 
price increases.
    I understand that we have a market-based economy. It's fine for 
companies to make money on the products they sell. But when you're 
dealing with the well-being of sick patients--babies and the elderly 
and everyone in between--there has to be special consideration.
    I look forward to hearing our witnesses' thoughts on this important 
issue, and I hope today marks a starting point for addressing the 
problems that accompany such enormous price increases. Problems that 
have been plaguing doctors, insurance companies, Medicare and Medicaid 
programs, and most importantly, the patient, for far too long.
    After openings, I will introduce our panelists, and we will hear 
their testimony.
[GRAPHIC] [TIFF OMITTED] T2773.001

    Prepared Statement of Representative Carolyn Maloney, Vice Chair
    Good morning. I would like to thank Chairman Schumer for allowing 
Senator Klobuchar to hold this hearing to examine the skyrocketing 
prices of certain prescription drugs. I want to welcome our panel and 
thank them for testifying here today.
    Evidence has been coming to light recently of potential abuses of 
the pricing power we give to drug companies in the United States. In 
case after case, it appears that some pharmaceutical companies have 
been taking critical drugs that have been on the market for years--with 
the costs of their development long since paid for--and increasing 
prices to the very highest levels the market will bear.
    Since some of these drugs are the only available cures for life-
threatening diseases, those prices can be extremely high. One of the 
more egregious examples is the drug company Sigma Tau, which increased 
the price for Matulane, a key drug for treating Hodgkins Lymphoma, by 
an amazing 8,000 percent over 6 months. The research and development 
costs for this drug are far in the past--Matulane has been on the 
market for some forty years.
    These sudden and questionable price hikes are having a devastating 
impact on families. In 2007, Questcor Pharmaceuticals increased the 
price of Acthar, the best available drug for treating infantile 
epileptic spasms, by 1,300 percent. Acthar is a well-known drug that 
has been in widespread use since the 1970s. Yet because of this recent 
price increase, Danielle Foltz, one of our witnesses today, almost 
could not get life-saving treatment for her infant son.
    It appears that some companies are making massive price increases 
for niche market drugs a critical part of their business strategy. In 
2006, Ovation Pharmaceuticals increased the price of four different 
drugs it had recently purchased by an average of 1,640 percent.
    Nor are these isolated incidents. Recent research by the PRIME 
Institute at the University of Minnesota has found numerous recent 
cases where the price of single-source drug products more than doubled 
due to a single price increase. What's more, they've found that the 
incidence of these sudden price jumps increased substantially in this 
decade compared to the 1980s and 1990s.
    The only protection our system provides against these exorbitant 
price increases is competition from generic alternatives. In recent 
years we've seen real progress in using generic competition to lower 
prices in drug markets for common diseases. We need to build on that 
success and improve our system of approval and licensing for generics. 
But research shows that generic companies are reluctant to enter 
markets for rare diseases, since many of these ``niche'' markets aren't 
large enough to sustain significant competition.
    Most of the drugs discussed in this hearing are in these ``niche'' 
markets for rare diseases--markets that can allow drug companies to 
raise prices without much competition. These drugs may be obscure, but 
they are critical to the patients who need them. And it's our 
responsibility to make sure that access to these drugs is maintained. 
Going forward, Congress needs to examine ways to do this--and to 
address the kind of massive and unnecessary price increases that 
endanger access to life-enhancing drugs.
    Mr. Chairman, thank you for holding this important hearing.
                               __________
   Prepared Statement of Madeline M. Carpinelli, Research Fellow and 
   Stephen W. Schondelmeyer Professor and Director PRIME Institute, 
     College of Pharmacy, University of Minnesota, Minneapolis, MN
    Thank you, Chairman Schumer and other members of the Joint Economic 
Committee for this opportunity to provide information and insights 
regarding pricing trends in the pharmaceutical market.
    I am Madeline Carpinelli and I serve as a Research Fellow with the 
PRIME Institute at the University of Minnesota. This Institute focuses 
its research on policy issues related to pharmaceutical economics and 
the distribution and management of drug expenditures at all levels in 
the marketplace. Prior to joining the PRIME Institute, I was a senior 
policy analyst at the Office of Inspector General (OIG) for HHS, where 
I managed a team of analysts in conducting evaluations of government 
drug price reporting and compliance issues. During my tenure at the 
OIG, I played a significant role in the development of the OIG's annual 
Work Plan related to identification of key issues in the pharmaceutical 
industry such as the role of AWP, AMP and the Public Health Services' 
340B Drug Program. I also interfaced with the Department of Justice and 
the OIG Office of Prosecutions and Investigations.
    These remarks present my own findings and views based upon my 
experience in studying the pharmaceutical marketplace for the past 9 
years and upon my observations and ongoing work in collaboration with 
Dr. Stephen W. Schondelmeyer, the Director of the PRIME Institute.
    Today, I will provide an overview and preliminary findings from 
research we have been conducting on extraordinary price increases in 
the pharmaceutical market. Through our tracking of drug prices over 
time, we have become aware that certain drug products have experienced 
extraordinary price increases that are well beyond what would normally 
be expected in a competitive market. We found hundreds of cases of 
extraordinary price increases for branded drug products. We also found 
that the incidence of such extraordinary price increases has been 
rising sharply in recent years, and today is much higher than it was in 
the 1980s and 1990s.
                tracking drug prices and related trends
    Tracking changes in the benchmark prices of prescription drugs is 
important since it provides an explanation of the role of price changes 
in drug expenditures over time. AARP and the PRIME Institute have 
routinely tracked the price changes experienced by the brand name and 
generic prescription drugs most commonly used by Medicare recipients. 
These price change reports are updated quarterly and the reports can be 
found on the AARP website (www.AARP.orq). These price trend reports 
have shown that a representative market basket of the most commonly 
used brand name drugs has experienced price increases from 2006 to 2007 
that averaged 7.4 percent. For the same time period, the rate of 
general inflation, as measured by the Consumer Price Index for All 
Items, was 2.9 percent. In other words, brand name drug prices grew at 
more than two and one-half times the rate of general inflation.
    Certain commonly used brand name drugs experience price increases 
that are substantially greater than other brand name drugs on average. 
For example, in 2007, Ambien (5 mg and 10 mg tablets) had an annualized 
price increase of 27.7 percent compared to the overall brand name 
inflation rate of 7.4 percent. Brand name prices that increase at a 
rate of two to three times the rate of general inflation have persisted 
for more than a decade. Each time the price trends are examined there 
are a handful of brand name prescription drugs that have price 
increases substantially greater than the overall brand name inflation 
rate. The impact of these prices growing faster than general inflation 
has been that prescription drugs have been growing as a share of 
national health expenditures and as a share of the gross domestic 
product.
    While tracking the price changes of the most commonly used brand 
name and generic drugs, the prices of other drug products beyond the 
top 200 to 300 drugs have also been examined. In recent years, some of 
these less commonly used prescription drug products have had 
extraordinary price increases.
                   extraordinary drug price increases
    What do we mean by an extraordinary price increase? Extraordinary 
is a term that can be understood in contrast to the ordinary. 
Ordinarily brand name price increases have been two to three times the 
rate of general inflation and this rate of price increase has become 
routine. This rate of inflation is not necessarily acceptable, or even 
reflective of an economically efficient pharmaceutical market, but it 
has come to be expected in recent years. Even the fact that certain 
brand name drugs have price increases that are two to three times the 
average rate of inflation for most brand name drugs has come to be 
expected. Price increases of these certain brand name drugs may be 10 
percent to 30 percent on an annual basis.
    We should not minimize the impact that these brand name price 
increases have on public and private drug expenditures each year, or 
the concern that these price increases raise for patients, payers, and 
policymakers. Recently, however, there have been other prescription 
drug products that have had extraordinary price increases which are far 
beyond these already substantial price increases observed for major 
brand name drug products.
    In order to examine, and understand, the magnitude of these 
extraordinary price increases, the PRIME Institute has been conducting 
a study of such price increases. For purposes of this study:
    Extraordinary price increases are: `any price increase that is 
equal to, or greater than, 100 percent at a single point in time.'
    A 100 percent increase in price means that the price of a drug has 
doubled overnight. In other words, a prescription that costs $100 today 
would cost $200 tomorrow. Other levels of price increases may well 
deserve the label as extraordinary price increases, but a price that 
more than doubles all at once is certainly extraordinary. A price 
increase of this magnitude could also be labeled as a supra competitive 
price indicating that the price is achieved through some real, or 
perceived, monopoly position in the market.
    The benchmark prices known as AWP and WAC are set, or influenced, 
by the drug firm. These are publicly available prices and changes in 
these prices will lead to changes in expenditures of public and private 
drug programs. Our work on this study is ongoing, but we have 
preliminary descriptive data on the extent of extraordinary price 
increases.
    The price history of each drug product, at the NDC (national drug 
code) level, was examined to determine the direction and amount of 
price change in both of the usual benchmark prices (i.e., AWP and WAC). 
There was a total of 35,143 NDCs that have been introduced to the 
market since 1987 and this set of NDCs was used as the data set for the 
study. More than one-half of these drug products (18,124 NDCs) were 
manufactured, or at least marketed, by the firm whose name is on the 
label. The remaining 17,019 NDCs are drug products that are sold by 
firms known as repackagers. An examination of the role, practices, and 
pricing of these repackagers will be the subject of a later analysis.
    The drug products were grouped by their patent and exclusivity 
status into three broad groups: (1) brand single source drugs, (2) 
brand off-patent drugs, and (3) generic off-patent drugs. Price changes 
for brand name drug products have been the initial focus of our 
research. Across all drug product groups, 13.5 percent of all NDCs have 
had one or more extraordinary price increases in the period 1988 to 
2008. One in twenty (5.3 percent) of the brand single source NDCs and 
one in forty-five (2.2 percent) of the brand off-patent NDCs had seen 
an extraordinary price increase.
    The timing of when these extraordinary price increases occurred was 
examined over the twenty year period from 1988 to 2008. While there 
were a few extraordinary price increases in the decade of the 1990s, 
the vast majority have been seen since the year 2000. The number of 
extraordinary price increases has been growing, and especially for 
brand name single source and brand name off-patent NDCs, in the past 4 
years (See Figure 1).
[GRAPHIC] [TIFF OMITTED] 44974.006

    A price increase of 100 percent or more at one point in time is 
remarkable in its own right, but the size of some of these 
extraordinary price increases is staggering. For the brand single 
source drug products there were 6 price increases of more than 1,000 
percent with the largest being 3,436 percent. Another 6 brand single 
source NDCs had an increase between 500 percent and 999 percent. One of 
the brand off-patent NDCs had a price increase of 10,631 percent and 
another 10 NDCs had extraordinary price increases of greater than 500 
percent.
              impact of extraordinary drug price increases
    Obviously there have been some extremely high price increases for a 
large and growing number of drug products. Because of the magnitude of 
these extraordinary price increases, it is hard to imagine that there 
has not been a significant impact on the market. These observations 
raise questions and concerns.
    The questions involve asking:
    Why have these extraordinary price increases occurred?
    What market forces have led to, or allowed, these extraordinary 
price increases?
    What patterns are there with respect to types of drug products 
involved?
    What patterns are there with respect to types of drug firms 
involved?
    What policy issues are raised by this pricing behavior?
    What policy approaches may be appropriate to mitigate or regulate 
this behavior?
    The concerns raised by these extraordinary price increases include:
    What is the impact Medicare Part D and Part B drug expenditures?
    What is the impact on Medicaid drug expenditures?
    What is the impact on drug expenditures in other government 
programs such as the Veterans Administration, the 340 B program, Indian 
Health Service, the active military health system, and other programs?
    What is the impact on employer and private drug benefit programs?
    What is the impact on orphan drug products?
    What is the impact on access to medications?
    What is the impact on access and affordability to vulnerable 
patient populations?
           factors driving extraordinary drug price increases
    The pharmaceutical market is extremely complex and vexing to most 
observers. There are many unique institutional and structural features 
to the pharmaceutical market that influence the economic behavior of 
drugs and drug prices. The extent and magnitude of price increases seen 
in our preliminary study of this issue appear to indicate that the 
extraordinary price increases are not driven by the ordinary 
explanations for price increases such as the general inflation rate of 
the economy, the cost of materials, labor and distribution, or the 
costs of FDA required research for approval.
    The magnitude of these extraordinary price increases is so great 
that these prices do not appear to be the product of an economically 
efficient competitive market. In fact, these prices may well be supra 
competitive prices, that is, prices above what can be sustained in a 
competitive market. Supra competitive prices are present when a firm 
has a unique position in a market with respect to intellectual 
property, legal status, barriers to entry, product features that offer 
a competitive advantage, or other factors. The number and magnitude of 
these extraordinary price increases also raises the possibility that 
antitrust issues may be present. Determination of the antitrust 
implications would require an assessment of the specific and unique 
market for each drug product to determine the circumstances and market 
forces that enabled these extraordinary price increases to be taken and 
sustained.
    Most of the drug products with extraordinary price increases are 
not among the top 100 to 500 drug products on the market. In part, 
these drug products may have been able to implement these extraordinary 
price increases because these are low volume drugs that are not often 
tracked or noticed in the marketplace. In a sense, these drug products 
and their price increases have ``flown below the radar'' with respect 
to attention being given to their pricing behavior.
    Many of these drug products are for conditions that have a 
relatively small volume of demand. Indeed, some of these drug products 
are even designated as orphan drugs--meaning that they are for 
conditions that have a small target population. Among the drug products 
with extraordinary price increases are a number of products that are 
unusual dosage forms such as injections, gels, transdermal patches, 
sustained release tablets and capsules, and others. Some of these drug 
products may have such a small market that it would not be profitable 
for two competitors to survive. Other drug products with extraordinary 
price increases may have been in short supply either before or after 
the price increase was taken. The fact that some of these drug products 
are sold only through limited distribution channels (e.g., specialty 
pharmacies, mail order pharmacies, physician dispensers, dialysis care 
centers, and others) may also have played a factor in enabling 
extraordinary price increases.
    The intellectual property and exclusivity status of these drug 
products may also have facilitated the extraordinary price increases. 
Among the drugs found to have these large price increases were old 
drugs that have a patent for a new use of the drug, thus providing a 
period of market exclusivity for the drug product. Other old drug 
products have been prepared in a new dosage form that may be the 
subject of a patent, thus preventing the expected generic competition 
that is usually seen. In other situations, certain drug firms have a 
large number of drug products with extraordinary price increases. This 
observation raises the issue of whether or not the extreme price 
increases are a matter of a particular corporate strategy. Firms may 
acquire drug products that have limited market competition, or that 
have high potential for monopoly power with or without intellectual 
property rights.
    The PRIME Institute plans to continue research in this area to 
better understand and characterize the market conditions that have led 
to the growth of extraordinary price increases for prescription drug 
products. Our research will look for patterns across drug firms, 
therapeutic categories, market conditions, intellectual property and 
exclusivity status, dosage forms, distribution channels and other 
factors. The continued research will also examine how these 
extraordinary price increases have affected private and government drug 
programs, market entry and the market for drug products, and specific 
patient populations.
                                summary
    Extraordinary price increases for drug products have been observed 
in recent years. These extraordinary price increases are price changes 
of more than 100 percent at a single point in time with some ranging to 
more than a 10,000 percent increase in price. About one in every twenty 
brand single source drug products (5.3 percent) has had one or more 
extraordinary price increases. These enormous price increases certainly 
affect the individual patients who are using the medication and in 
aggregate these large price increases expand the ever-growing 
expenditures of private and public drug programs. The PRIME Institute 
will continue to study this issue to improve our understanding of the 
issues involved and to identify policy alternatives to address any 
societal concerns that may be present.
                               __________
   Prepared Statement of Alan L. Goldbloom, M.D., President and CEO 
             Children's Hospitals and Clinics of Minnesota
    Madame Chairman, members of the committee, thank you for the 
opportunity to testify here today on this critically important. issue.
    My name is Dr. Alan Goldbloorn; I am president and CEO of 
Children's Hospitals and Clinics of Minnesota. We are the 7th largest 
pediatric health care system in the Nation and we are the largest 
provider of care to children with severe prematurity, cancer, heart 
disease, and complex surgical conditions in the Upper Midwest.
    Children's of Minnesota is recognized--both nationally and 
internationally--for our outstanding outcomes in treating premature 
infants.
    My testimony here today will focus on my personal experiences at 
Children's of Minnesota and two drugs we use in treating premature 
babies and a rare seizure disorder in very young infants. My testimony 
is not a rant against the industry as a whole, for this industry has 
produced extraordinary advances in health care, from which we all 
benefit. Rather, my concern is focused on the practices of some 
specialty pharmaceutical companies and the questionable pricing of some 
older drugs. And though my personal experiences involve two specific 
companies, they are in no way alone in this practice nor is it confined 
to only pediatric pharmaceuticals.
    One condition we treat in infants is patent ductus arteriosus--or 
PDA. PDA affects about 3,000 infants annually and is most common in 
premature babies. I will explain this in very simple terms. Blood 
circulation changes within minutes of a baby's birth. Normally, our 
blood picks up oxygen in the lungs and then is pumped by the heart to 
bring that oxygen to the rest of our body. However, a baby, doesn't 
breath while still in the womb. Instead, a blood vessel called the 
ductus arteriosus diverts blood away from the lungs, and the fetus 
actually gets oxygen directly from the mother via the umbilical cord. 
Once the baby begins to breath alter birth, the ductus arteriosus 
normally spontaneously closes, allowing blood to flow to the newborn's 
lungs. However, in some babies, especially those who are premature, the 
ductus does not close. Often, this is a minor problem that resolves 
without treatment. However, in some infants it becomes serious enough 
to cause congestive heart failure, and to interfere significantly with 
breathing. When that happens, treatment is required. Last year, 
Children's of Minnesota treated around 110 babies for this condition.
    For many years, the only way to definitively treat this condition 
was with surgery, a procedure in which the persistently open artery was 
simply tied off. However, over 30 years ago it was learned that the 
drug indornethacin (Indocin), when given intravenously, could often 
produce the same result without subjecting the baby to surgery. Indocin 
is now the standard initial treatment for this condition.
    Until recently, Indocin has been a low cost, safe, non-surgical way 
to treat these infants. In fact, the cost for Indocin up until January 
of 2006 was just over $108 per unit. About 42 of the nation's largest 
free-standing children's hospitals are members of an organization 
called Child Health Corporation of America (CHCA), which serves as the 
group purchasing organization for three-quarters of those hospitals. 
For the members of the group purchasing organization, the collective 
annual cost prior to 2006 was just $136,426 nationally.
    However, when the specialty pharmaceutical company Ovation bought 
exclusive rights to Indocin and several other drugs from pharmaceutical 
giant Merck in August of 2005, the price for one unit of Indocin jumped 
from $108 to $1,500--a 1,278 percent increase. Yet Indocin is an old 
drug. It has been on the market for more than three decades, so this 
dramatic price increase cannot be attributed to the high cost of 
research and development. As purchasers, the children's hospitals have 
had no other options. There have been no other manufacturers of 
Indocin. Effectively, one company has a monopoly and can use it to 
price-gouge.
    Madame Chairman, at this time I would like to insert into the 
record the article titled ``Drug Pricing in Pediatrics: The Egregious 
Example of Indomethacin'' authored by Dr. Alan Jobe of Cincinnati 
Children's Hospital in Cincinnati, Ohio which appeared in the journal 
of The American Academy of Pediatrics in June of 2007.
    On the price increase of Indocin after Ovation acquired the drug 
from Merck, Dr. Jobe writes ``This is a rather astounding increase in 
price for a drug that has a stable niche market and requires no 
advertising, no educational expenses (all neonatologists know how to 
use indomethacin), and no further drug development. It is quite hard to 
imagine how such an increase in price could be justified.'' 
(Pediatrics, Volume 119, Number 6, June 2007, pg. 1197). Dr. Jobe also 
points out that the cost per milligram of Indocin is 30 to 60 times 
higher in the United States than other countries that have similar 
health care systems with little explanation as to why this occurs 
except for profit motivation. The cost per milligram in the L.S. is 
$1,875 compared with $14 iii Canada, $16 in Britain, $22 in Germany and 
Holland, and $11 in Australia.
    The effect of this dramatic price increase in our hospital has 
totaled nearly 150,000 dollars in the first year of the price increase. 
And, according to CHCA it cost its member hospitals close to $2 million 
that same year--that's up from just over $136,000 just 1 year earlier. 
Like all health care providers, we struggle with the issue of 
increasing costs. Often we are not able to immediately recover these 
costs from insurers, especially when children's hospitals rely heavily 
on Medicaid as the single largest insurer of children in the country. 
Eventually, however, increased costs do get passed on, and are 
reflected in the premiums that individuals and businesses pay, and in 
the tax-supported programs like Medicaid. From our perspective, that 
extra $150,000 that we paid to one drug manufacturer is money we would 
much rather have spent on improved services for patients.
    The children's hospitals who are part of the CHCA group purchasing 
organization represent only the tip of the iceberg when it comes to the 
numbers of patients and costs of Indocin in the nearly 600 neonatal 
intensive care units nationwide. Most of these units are not in 
children's hospitals, but instead are often in general and maternity 
hospitals where the babies are born. So the overall impact is 
ultimately much higher than I have quoted here.
    Indocin is not the only drug Ovation has marked up in such a 
dramatic fashion. Three other drugs that were purchased from Merck--
Cosmegen, Diuril Sodium, and Mustargen have seen price increases of' 
3,437 percent, 864 percent, and 979 percent respectively. Cosmegen is 
an agent used to treat a variety of pediatric cancers, Diuril Sodium is 
a diuretic used to reduce fluid overload in infants and neonates, and 
mustargen is used to treat brain tumors and certain lymphomas (another 
form of cancer).
    Madame Chairman, I would like to insert into the record the 
following chart that shows the cost of the four drugs purchased by 
Ovation. As you will see, after Ovation purchased these four drugs from 
Merck, there was a significant price increase--by as much as 3,437 
percent in the case of Cosmegen.

----------------------------------------------------------------------------------------------------------------
                                                                  Price per unit
                           Brand Name                             prior to 01/24/ Price per unit    Percent of
                                                                        06        as of 06/08/06     increase
----------------------------------------------------------------------------------------------------------------
Cosmegen........................................................          $13.43         $475.05           3437%
Diuril Sodium...................................................          $12.36         $119.21            864%
Indocin I.V.....................................................         $108.88        $1500.00           1278%
Mustargen.......................................................          $50.55         $545.28            979%
----------------------------------------------------------------------------------------------------------------
* Information provided by the Child Health Corporation of America.

    I would also like to insert the following chart that shows how CHCA 
member hospitals have been affected by the price increases in these fur 
drugs by Ovation:

----------------------------------------------------------------------------------------------------------------
                                            2005 Total   Price per                    Price per
                Brand Name                  purchased    unit prior    2005 Total     unit as of   2006 Extended
                                              units       01/24/06        Spend        06/08/06       Volume
----------------------------------------------------------------------------------------------------------------
Cosmegen.................................        5,282       $13.43      $70,937.26      $475.05   $2,509,214.10
Diuril Sodium............................       12,991       $12.36     $160,568.76      $119.21   $1,548,657.11
Indocin I.V..............................        1,253      $108.88     $136,426.64       $1,500   $1,879,500.00
Mustargen................................           42       $50.55       $2,123.10      $545.28      $22,901.76
                                          ----------------------------------------------------------------------
  Grand total............................       27,195  ...........      370,055.76  ...........   22,960,272.97
----------------------------------------------------------------------------------------------------------------
* Information provided by the Child Health Corporation of America.

    Madame Chairman, the total cost increase for CHCA hospitals in 1 
year for these four drugs alone was more than $5.5 million.
    One of the best known examples of similar practice in the industry 
occurred when the specialty pharmaceutical company Questcor bought 
Acthar Gel from Aventis. Acthar Gel is used to treat infantile spasms, 
a rare, severe, and treatment-resistant form of seizures affecting very 
young infants. Acthar Gel is considered the gold standard in the 
treatment of IS. At Children's of Minnesota, we have one of the 
nation's largest, most advanced epilepsy treatment units and have used 
Acthar Gel nearly 50 times so far this year.
    Originally approved in 1978 for multiple sclerosis, the cost of the 
drug has always been high. However, after Questcor bought the rights to 
sell Acthar Gel, the price went from a list price of $1,650 per vial to 
a list price of $23,269 per vial. That's twenty three thousand, not 
twenty three hundred dollars. In fact, this more than 1,000 percent 
price increase costs CHCA hospitals more than $21 million per year.
    Madame Chairman and Members of the Committee, there are many other 
drugs--hundreds in fact--that are priced this way--both pediatric and 
non-pediatric. And, even with good insurance, a twenty percent copay on 
Acthar Gel is more than many people's mortgage payment. What is 
frightening is that in this time of skyrocketing health care costs, the 
burden of expensive health care now affects the insured as well as the 
uninsured or under insured. The market for many of these drugs is quite 
limited, so it is unlikely that other companies will begin to produce 
or sell a low-volume specialty product at a reasonable cost. The 
resulting monopoly is resulting in windfall profit opportunities for 
companies like Ovation and Questcor, and they are taking full 
advantage.
    At this time Madame Chairman I would like to place into the record 
an article dated April 14, 2008 by Gina Kolata that appeared in the New 
Fork Times titled ``Co-Payments for Expensive Drugs Soar.''
    Today, the Nation is in an uproar over $4 dollar a gallon gasoline. 
We accuse the nation's oil companies of price gouging and Members of 
Congress and the Presidential candidates are working to find solutions 
to the problem. But, if you compare the most recent financials for 
Exxon Mobil and Questcor--you'll find that one company's profit margin 
is much higher--and it's not who you might think. Pharmaceuticals and 
specialty pharmaceuticals are the nation's most profitable industries. 
I want to reiterate that my testimony today is not a rant against the 
industry as a whole which has produced many extraordinary benefits in 
health care. Instead, my concern is focused on the practices I just 
described, in which unjustified pricing decisions are taking advantage 
of some of the most vulnerable members of our population, and driving 
health costs up unnecessarily.
    Thank you for the opportunity to speak with you today.
    [GRAPHIC] [TIFF OMITTED] 44974.003
    
    [GRAPHIC] [TIFF OMITTED] 44974.004
    
    [GRAPHIC] [TIFF OMITTED] 44974.005
    
               [From the New York Times, April 14, 2008]

              Co-Payments Soar for Drugs With High Prices

                            (By Gina Kolata)

Correction Appended

    Health insurance companies are rapidly adopting a new pricing 
system for very expensive drugs, asking patients to pay hundreds and 
even thousands of dollars for prescriptions for medications that may 
save their lives or slow the progress of serious diseases.
    With the new pricing system, insurers abandoned the traditional 
arrangement that has patients pay a fixed amount, like $10, $20 or $30 
for a prescription, no matter what the drug's actual cost. Instead, 
they are charging patients a percentage of the cost of certain high-
priced drugs, usually 20 to 33 percent, which can amount to thousands 
of dollars a month.
    The system means that the burden of expensive health care can now 
affect insured people, too.
    No one knows how many patients are affected, but hundreds of drugs 
are priced this new way. They are used to treat diseases that may be 
fairly common, including multiple sclerosis, rheumatoid arthritis, 
hemophilia, hepatitis C and some cancers. There are no cheaper 
equivalents for these drugs, so patients are forced to pay the price or 
do without.
    Insurers say the new system keeps everyone's premiums down at a 
time when some of the most innovative and promising new treatments for 
conditions like cancer and rheumatoid arthritis and multiple sclerosis 
can cost $1oo,000 and more a year.
    But the result is that patients may have to spend more for a drug 
than they pay for their mortgages, more, in some cases, than their 
monthly incomes.
    The system, often called Tier 4, began in earnest with Medicare 
drug plans and spread rapidly. It is now incorporated into 86 percent 
of those plans. Some have even higher co-payments for certain drugs, a 
Tier 5.
    Now Tier 4 is also showing up in insurance that people buy on their 
own or acquire through employers, said Dan Mendelson of Avalere Health, 
a research organization in Washington. It is the fastest-growing 
segment in private insurance, Mr. Mendelson said. Five years ago it was 
virtually nonexistent in private plans, he said. Now 10 percent of them 
have Tier 4 drug categories.
    Private insurers began offering Tier 4 plans in response to 
employers who were looking for ways to keep costs down, said Karen 
Ignagni, president of America's Health Insurance Plans, which 
represents most of the nation's health insurers. When people who need 
Tier 4 drugs pay more for them, other subscribers in the plan pay less 
for their coverage.
    But the new system sticks seriously ill people with huge bills, 
said James Robinson, a health economist at the University of 
California, Berkeley. ``It is very unfortunate social policy,'' Dr. 
Robinson said. ``The more the sick person pays, the less the healthy 
person pays.''
    Traditionally, the idea of insurance was to spread the costs of 
paying for the sick.
    ``This is an erosion of the traditional concept of insurance,'' Mr. 
Mendelson said. ``Those beneficiaries who bear the burden of illness 
are also bearing the burden of cost.''
    And often, patients say, they had no idea that they would be faced 
with such a situation.
    It happened to Robin Steinwand, 53, who has multiple sclerosis.
    In January, shortly after Ms. Steinwand renewed her insurance 
policy with Kaiser Permanente, she went to refill her prescription for 
Copaxone. She had been insured with Kaiser for 17 years through her 
husband, a Federal employee, and had had no complaints about the 
coverage.
    She had been taking Copaxone since multiple sclerosis was diagnosed 
in 2000, buying a 30 days' supply at a time. And even though the drug 
costs $1,900 a month, Kaiser required only a $20 co-payment.
    Not this time. When Ms. Steinwand went to pick up her prescription 
at a pharmacy near her home in Silver Spring, Md., the pharmacist 
handed her a bill for $325.
    There must be a mistake, Ms. Steinwand said. So the pharmacist 
checked with her supervisor. The new price was correct. Kaiser's policy 
had changed. Now Kaiser was charging 25 percent of the cost of the drug 
up to a maximum of $325 per prescription. Her annual cost would be 
$3,900 and unless her insurance changed or the drug dropped in price, 
it would go on for the rest of her life.
    ``I charged it, then got into my car and burst into tears,'' Ms. 
Steinwand said.
    She needed the drug, she said, because it can slow the course of 
her disease. And she knew she would just have to pay for it, but it 
would not be easy.
    ``It's a tough economic time for everyone,'' she said. ``My son 
will start college in a year and a half. We are asking ourselves, can 
we afford a vacation? Can we continue to save for retirement and 
college?''
    Although Kaiser advised patients of the new plan in its brochure 
that it sent out in the open enrollment period late last year, Ms. 
Steinwand did not notice it. And private insurers, Mr. Mendelson said, 
can legally change their coverage to one in which some drugs are Tier 4 
with no advance notice.
    Medicare drug plans have to notify patients but, Mr. Mendelson 
said, ``that doesn't mean the person will hear about it.'' He added, 
``You don't read all your mail.''
    Some patients said they had no idea whether their plan changed or 
whether it always had a Tier 4. The new system came as a surprise when 
they found out that they needed an expensive drug.
    That's what happened to Robert W. Banning of Arlington, Va., when 
his doctor prescribed Sprycel for his chronic myelogenous leukemia. The 
drug can block the growth of cancer cells, extending lives. It is a 
tablet to be taken twice a day--no need for chemotherapy infusions.
    Mr. Banning, 81, a retired owner of car dealerships, thought he had 
good insurance through AARP. But Sprycel, which he will have to take 
for the rest of his life, costs more than $13,500 for a 90-day supply, 
and Mr. Banning soon discovered that the AARP plan required him to pay 
more than $4,000.
    Mr. Banning and his son, Robert Banning Jr., have accepted the 
situation. ``We're not trying to make anybody the heavy,'' the father 
said.
    So far, they have not purchased the drug. But if they do, they know 
that the expense would go on and on, his son said. ``Somehow or other, 
myself and my family will do whatever it takes. You don't put your 
parent on a scale.''
    But Ms. Steinwand was not so sanguine. She immediately asked Kaiser 
why it had changed its plan.
    The answer came in a letter from the Federal Office of Personnel 
Management, which negotiates with health insurers in the plan her 
husband has as a Federal employee. Kaiser classifies drugs like 
Copaxone as specialty drugs. They, the letter said, ``are high-cost 
drugs used to treat relatively few people suffering from complex 
conditions like anemia, cancer, hemophilia, multiple sclerosis, 
rheumatoid arthritis and human growth hormone deficiency.''
    And Kaiser, the agency added, had made a convincing argument that 
charging a percentage of the cost of these drugs ``helped lower the 
rates for Federal employees.''
    Ms. Steinwand can change plans at the end of the year, choosing one 
that allows her to pay $20 for the Copaxone, but she worries about 
whether that will help. ``I am a little nervous,'' she said. ``Will the 
next company follow suit next year?''
    But it turns out that she won't have to worry, at least for the 
rest of this year.
    A Kaiser spokeswoman, Sandra R. Gregg, said on Friday that Kaiser 
had decided to suspend the change for the program involving Federal 
employees in the mid-Atlantic region while it reviewed the new policy. 
The suspension will last for the rest of the year, she said. Ms. 
Steinwand and others who paid the new price for their drugs will be 
repaid the difference between the new price and the old co-payment.
    Ms. Gregg explained that Kaiser had been discussing the new pricing 
plan with the Office of Personnel Management over the previous few days 
because patients had been raising questions about it. That led to the 
decision to suspend the changed pricing system.
    ``Letters will go out next week,'' Ms. Gregg said.
    But some with the new plans say they have no way out.
    Julie Bass, who lives near Orlando, Fla., has metastatic breast 
cancer, lives on Social Security disability payments, and because she 
is disabled, is covered by insurance through a Medicare H.M.O. Ms. 
Bass, 52, said she had no alternatives to her H.M.O. She said she could 
not afford a regular Medicare plan, which has co-payments of 20 percent 
for such things as emergency care, outpatient surgery and scans. That 
left her with a choice of two Medicare H.M.O's that operate in her 
region. But of the two H.M.O's, her doctors accept only Wellcare.
    Now, she said, one drug her doctor may prescribe to control her 
cancer is Tykerb. But her insurer, Wellcare, classifies it as Tier 4, 
and she knows she cannot afford it.
    Wellcare declined to say what Tykerb might cost, but its list price 
according to a standard source, Red Book, is $3,480 for 150 tablets, 
which may last a patient 21 days. Wellcare requires patients to pay a 
third of the cost of its Tier 4 drugs.
    ``For everybody in my position with metastatic breast cancer, there 
are times when you are stable and can go off treatment,'' Ms. Bass 
said. ``But if we are progressing, we have to be on treatment, or we 
will die.''
    ``People's eyes need to be opened,'' she said. ``They need to 
understand that these drugs are very costly, and there are a lot of 
people out there who are struggling with these costs.''
    This article has been revised to reflect the following correction:
Correction: April 15, 2008
    An article on Monday about a large increase in insurance co-
payments for high-priced drugs misstated the way the multiple sclerosis 
drug Copaxone is administered. It is injected, not taken in pill form.
                               __________
  Prepared Statement of Danielle Foltz, Parent of Young Patient from 
                              Rhode Island
    Chairman Schumer, Vice Chair Maloney, Senator Klobuchar and members 
of the distinguished panel. I am Danielle Foltz of Rhode Island and the 
mother of Trevor Foltz. I want to thank you for this opportunity to 
speak today about our family's experience with Infantile Spasms and our 
journey to receive critically needed treatment for our son.
    While I am speaking only on behalf of my own family, I would also 
like to acknowledge the support of the Epilepsy Foundation. The 
Epilepsy Foundation represents the 3 million Americans who have 
epilepsy and their goal is to help those individuals get access to the 
care they need. I know they will continue to follow this hearing and 
the path from here forward. Thank you.
    I understand that today's hearing is highly political. But for us--
and the two thousand families devastated by the diagnosis of Infantile 
Spasms each year--it's personal.
    How do you find the words to describe the most horrific event of 
your life; your personal valley of the shadow of death? Because that is 
exactly the feeling that clamps your heart when you are at a place 
where the medication needed to rescue your child is unattainable.
    For 7\1/2\ months we celebrated our beautiful third born, Trevor. 
In fact, we were packing luggage in anticipation of returning to our 
non-profit ministry & home in Tanzania, East Africa when we noticed the 
jerky, odd movements Trevor suddenly started making. It resembled a 
newborn startle reflex.
    Devastated does not touch how we felt when we learned that those 
jerky movements were actually seizures! Trevor was having as many as 20 
seizures in a 60 second span; up to 5 times a day. We knew it was 
serious when the neurologist told us to meet with him immediately 
following Trevor's first EEG.
    In that meeting we were given the devastating news. Our beautiful 
7\1/2\ month old son had the rare & catastrophic disorder called 
Infantile Spasms.
    All three neurologists we consulted told us the same thing. If we 
did not get his seizures under control immediately Trevor's developing 
brain would be irreparably damaged. We were told the only thing between 
our son and a shot at a normal life was a drug called ACTH, marketed as 
Acthar gel by Questcor Pharmaceuticals.
    Our neurologist prepared us that Trevor's treatment would be 
pricey. He estimated around $10,000 per vial. We went numb.
    We immediately notified our insurance company. The urgency of 
providing Trevor's treatment was heavy and we needed to move forward as 
quickly as possible. As Trevor's seizures intensified we read the 
information about IS online and the sorrow of what we were up against 
was emotionally overwhelming.
    What we didn't know was that 4 months prior to Trevor's diagnosis, 
Questcor Pharmaceuticals had implemented a new business model. This 
business model included raising the price per vial of Acthar Gel from 
approximately $1000 each to over $30,000 a vial. And because Trevor was 
the first child to require ACTH treatment after the price increase, not 
even our neurologist was aware of just how dramatically the price had 
risen. What he thought would cost no more than $50,000 total would now 
be an astounding $150,000 for the medication alone!
    In hindsight, we have no doubt the excessive price of this drug 
influenced the insurance company against originally approving it for 
Trevor.
    My husband spent days on the phone fighting for Trevor to have 
coverage. We knew there was no way we could afford to pay for his 
treatment ourselves. One vial of Acthar was being quoted at a minimum 
of $30,000. And Trevor needed 5 vials. We could buy a nice 3 bedroom 
colonial is some areas of the country with that kind of money! But 
because we had given our lives to serve a non-profit ministry in 
Tanzania, we don't own that 3 bedroom colonial. We didn't have a house 
to mortgage as collateral for his treatment--which I've heard some 
families have been forced to do. All of our earthly possessions were in 
Africa. We had nothing to liquidate to come up with the money. But to 
wait was not OK. We needed to save our son NOW.
    And so I was frantically looking for other options. Any options.
    I called the Acthar support & assistance line because I read that 
Questcor offers the assurance that no child who truly needs this 
treatment will go without. I spoke with a call center representative 
and was informed that the approval process included paper-work for 
ourselves & Trevor's doctors to submit. When I asked how long the 
approval process would take I was informed it would be a minimum of 3 
business days. When I asked if approval was a sure thing in a case like 
ours--I was told ``no''. At that point, my emotions got the best of me, 
and I informed her that I thought it was a sham! That if Questcor was 
really about providing a vital medication in a time of desperate need 
it wouldn't take three business days just to get a maybe!
    When your infant's body is being wracked by forty plus seizures 
daily--you do not have THREE business days to play Russian Roulette 
waiting for a medication that could stop his seizures and right the 
world again!
    Those days following Trevor's diagnosis were the most emotionally 
dark in our family's life. My husband & I were pretty much a puddle on 
the floor. Just getting that kind of a diagnosis shatters you, but then 
to add the guilt of knowing that you may not be able to rescue your son 
because you can't afford to? It's unimaginable and unacceptable.
    We literally thought it was possible that our son would go without 
treatment. Or that he would be forced to use a less effective 
medication that could leave him developmentally challenged forever. I 
wonder how many families are living that same nightmare right now? How 
many are being exploited in their hour of desperation?
    Finally, on Wednesday November 21st 2007, the day before 
Thanksgiving, after numerous emotional phone calls between my husband & 
our employer we were told to move forward with the treatment. It had 
already been 1 day shy of a week since Trevor's diagnosis. And each day 
without treatment was stealing our son. We witnessed his physical 
regression and distress as the seizures became more violent.
    We were admitted the following day. Trevor's first Thanksgiving was 
spent at Hasbro Children's Hospital.
    Because ACTH must be injected into the thigh, a nurse had to teach 
us how to administer it once we went home. When she asked my husband if 
he was nervous about giving Trevor his shot for the first time, he 
answered that he was more nervous about holding $5000 in a single 
syringe. Or worse, dropping the vial!
    I know that we were lucky. Our insurance ended up covering Trevor's 
6 week course of ACTH; which has proven to be his miracle drug. Trevor 
has been seizure free since his fourth injection. Trevor is the poster 
child for why this drug needs to be available & affordable! Today we 
are celebrating our amazing miracle boy! We pray that Trevor will 
continue to be seizure free. But what if his spasms return? Will we 
again have to fight for ACTH?
    I will leave this hearing today and go home. I'll return to my life 
of loving & advocating for my son. But my story is in-ex-tricably 
connected to the 2000 families this year- and the next- and the next--
who will live this horrific diagnosis. What about them? My heart cannot 
help but be consumed for the other families that will be devastated by 
Infantile Spasms this year. Will they have access to this drug? Or will 
ACTH not even be an option for their child because they are priced out 
of the drug they desperately need?
    In fact, in preparation for this testimony today my husband 
researched the current price of a vial of ACTH. Unbelievably, the 
escalation has not plateau-ed! The very same vial we ended up paying 
$26,000 to obtain 6 months ago, today can cost as much as $40,000. 
Where does it end? I'm not going to pretend that I understand the many 
layers of this issue. But what I can wrap my heart around is the terror 
a mom faces when she cannot rescue her baby. Not because his sickness 
is untreatable but because financially she cannot access the medication 
he needs!
    I implore you today to please consider my thoughts and to find a 
way to help families like mine get access to the medications they need. 
Please help families dealing with Infantile Spasms get affordable 
access to the drug that can give them a miracle too.
                               __________
  Prepared Statement of the National Organization for Rare Disorders 
                                 (NORD)
    The National Organization for Rare Disorders (NORD) appreciates the 
opportunity to provide input on a topic that is extremely important to 
our primary constituents--the nearly 30 million Americans affected by 
rare diseases.
    NORD is widely recognized as the primary public policy advocate for 
individuals and families affected by rare diseases in the United 
States. It was formed in 1983 by leaders of patient organizations for 
specific rare diseases who, at that time, were providing advocacy for 
enactment of the Orphan Drug Act.
    Today, NORD is a unique federation of voluntary health 
organizations and individuals committed to the identification, 
treatment, and cure of rare disorders through programs of education, 
advocacy, research, and patient services. It provides grants and 
fellowships for clinical research on rare diseases. Each year, millions 
of Americans visit its Web site or call its information center to 
obtain information about rare diseases and referrals to patient 
organizations. Through its Patient Assistance Programs, NORD provides 
millions of dollars worth of free medication to uninsured or 
underinsured patients each year, along with co-pay and premium 
assistance for patients who qualify on the basis of financial need.
    Through its Washington, DC, office, NORD also provides a voice for 
all Americans affected by rare diseases on important public policy 
issues of interest to the rare disease community. It is in that role 
that we come to you today.
                      the orphan drug act of 1983
    Two months ago, more than 500 people gathered in Union Station here 
in Washington, DC, to celebrate the 25th anniversary of the Orphan Drug 
Act of 1983 (ODA), legislation that has improved the lives of millions 
of Americans and far exceeded original expectations for its impact. 
Those present at the anniversary celebration in May included leaders of 
patient organizations, academic researchers from universities and 
teaching hospitals, staff of the National Institutes of Health (NIH) 
and Food and Drug Administration (FDA), physicians and other medical 
professionals, and representatives of health-related industries, 
including pharmaceutical and biotechnology companies.
    The extraordinary piece of legislation that brought this diverse 
community together--the Orphan Drug Act--provides financial incentives 
that make it possible for pharmaceutical and biotechnology companies to 
invest in the development of treatments for small patient populations. 
In the decade leading up to 1983, only 10 drugs were developed by 
industry for diseases that today would be classified as ``orphan'' or 
rare diseases.
    In the years since the law was passed in 1983, nearly 330 therapies 
for rare diseases have been approved for marketing by the FDA, and the 
FDA has estimated that 11 to 12 million Americans now have treatments 
for their rare diseases as a result of the ODA.
                        what is a rare disease?
    The definition used today by NIH, FDA, and our organization is that 
any disease affecting fewer than 200,000 Americans is considered rare. 
NIH estimates there are between 6,000 and 7,000 diseases that fit this 
description, including hemophilia, Tay Sachs disease, ALS or Lou 
Gehrig's disease, and cystic fibrosis. In addition to these diseases, 
which have become fairly well known in the U.S. today, there are 
thousands whose names would not be recognized by the average American 
but which are equally devastating to the individuals and families 
affected by them. Many rare diseases, such as Menkes disease, Castleman 
disease, and Lowe syndrome, are named for the physicians who first 
identified them. Some are named for their signs and symptoms, or for 
the hospital where they were first identified.
    NIH estimates that between 9 and 10 percent of the American 
population, or nearly 30 million men, women, and children, are affected 
by a rare disease. Approximately half of these people are children, and 
many rare diseases are present at birth.
    Research in recent years, including in the National Human Genome 
Research Project, has confirmed that many rare diseases have a genetic 
component. It is estimated that this is the case for 80 to 90 percent 
of rare diseases. For that reason, early diagnosis and identification 
of any possible risks for other offspring can be extremely important 
for families.
    Unfortunately, getting an accurate diagnosis of a rare disease 
often requires several years. A study commissioned by the Federal 
Government in 1989, the report of the National Commission on Orphan 
Diseases, identified length of time required to get a diagnosis as a 
serious problem affecting millions of Americans with rare diseases. At 
that time, it took from five to 7 years on average for many people with 
rare diseases to obtain a diagnosis. A small study done by our 
organization in 2003 in partnership with Sarah Lawrence College found 
that these numbers had, unfortunately, not changed greatly over the 
years.
    Furthermore, most rare diseases have no treatment today. If we 
accept FDA's estimate that 11 to 12 million Americans have a treatment 
developed since 1983, that leaves nearly 20 million Americans who have 
no drug or biologic to treat their rare disease. For those people, it 
is extremely important to know that there is at least some hope that a 
treatment will be developed in the future.
    One of the most heart-wrenching tasks our staff members have to do 
. . . and they have to do it frequently . . . is to tell someone newly 
diagnosed with a rare disease that there is no treatment for his or her 
disease and that, at this time, no one in the U.S. is doing research to 
develop a possible future treatment.
What are the incentives provided by the Orphan Drug Act?
      Seven years of marketing exclusivity
      Exclusivity that can be broken only if another product 
for the same indication is proven to be clinically/scientifically 
superior to the existing ``orphan'' product
      50 percent tax credit for clinical trial expenses
      Exemption from application user fees
      Opportunities to apply for grant funding for certain 
clinical testing expenses
      Assistance in clinical research study design
      Under certain circumstances, exemption from annual 
facility and product user fees
    Recognizing that it costs millions of dollars to bring a new 
therapy to market today, we are left with the stark reality that 
without these incentives, industry would not be able to justify 
involvement in development of products for small populations. This was 
the case before 1983, and it would be a simple fact of economics today 
if the Orphan Drug Act did not exist.
    NORD understands the concerns of this committee regarding the high 
cost of some orphan drugs and biologics. We share those concerns. 
However, we also witness firsthand every single day the positive impact 
on the lives of Americans of progress made since 1983 in the 
development of drugs, biologics, and medical devices for rare diseases. 
Any action that would have a chilling effect on that process, now or in 
the future, would be inherently wrong and would result in a very vocal 
reaction from the patient community. We would strongly oppose any 
action that would reverse the effects of the Orphan Drug Act and 
negatively impact the willingness and, in truth, the ability of 
industry to continue to invest in research and development related to 
products for small patient populations.
    In cooperation with all stakeholders, and this includes government 
regulatory experts from FDA, NIH officials, academic researchers, 
medical economists, industry and--especially--patient organizations and 
the patient/family community, we have pledged to work tirelessly to 
craft a balanced solution to the pricing of orphan products. We agree 
wholeheartedly that it is an issue that must be addressed. However, 
this is a complex issue that requires serious discussion in which all 
stakeholders are included.
    Intellectually, the rare disease community understands why many 
orphan drugs are so expensive. The reasons include:
      Small patient populations
      Geographically dispersed patient populations (Clinical 
trials must be international in many cases.)
      Limited funding (The small seed-money grants provided by 
NORD and other patient organizations attract proposals from highly 
qualified researchers and excellent universities and teaching hospitals 
because there are so few other sources of funding for rare diseases.)
      Few researchers. (Understandably, most scientists are 
attracted to fields where it will not be so difficult to obtain 
research funding.)
    It is estimated that between 80 and 90 percent of rare disease 
patients are treated ``off-label'' today because there are not FDA-
approved drugs or biologics specifically for their disease. As the cost 
of healthcare continues to rise, insurers, both public and private, are 
increasingly refusing to reimburse for off-label therapies. Every day, 
we receive phone calls and emails at NORD from patients or family 
members struggling to obtain needed drugs or biologics for which a 
private insurance company, Medicare or Medicaid is refusing coverage. 
For this reason, and to ensure that treatments continue to meet 
accepted standards of safety and efficacy in the U.S., companies must 
continue to be incentivized to conduct clinical trials.
    Some of the other related issues that must be included in a full 
and complete discussion of orphan drug pricing include:
      The development of follow-on (generic) biologics and 
establishment of an unambiguous and transparent regulatory pathway at 
FDA that will encourage competition, stimulate innovation, and provide 
patients with access to biologics that cost less
      Allowing the FDA the flexibility and authority to 
determine on a case-by-case basis what data it needs to approve follow-
on biologics
      Providing a clear and timely resolution to patent 
disputes while prohibiting frivolous lawsuits that restrict access to 
follow-on biologics and delay competition in the marketplace
      Decoupling litigation between the innovator and generic 
manufacturer, and the review and approval of the follow-on biologic 
application at the FDA
      Guaranteeing predictability to allow scientifically 
proven, safe, and effective follow-on biologics to enter the 
marketplace
      Ensuring that the 7 years of marketing exclusivity 
provided by the Orphan Drug Act continues to encourage the development 
of new, life-saving drugs and biologics for the treatment of rare 
diseases
    In addition, the Orphan Products Research Grants Program 
administered by the FDA needs to be adequately funded. Legislation 
adopted in 2002 provided for increased funding for that program, but to 
date significant funding increases have not been authorized.
    Also, the Office of Rare Diseases (ORD) at the National Institutes 
of Health must be adequately funded. This office, while small in 
numbers of staff and dollars, has brought new hope to millions of 
Americans through its efforts on behalf of rare disease patients and 
patient organizations. In recent years, of specific note, is the 
success the ORD has had in encouraging cooperative efforts among the 
NIH institutes in research on rare diseases, which frequently are 
multi-organ or multi-system diseases.
                               conclusion
    Again, we must reiterate that any action that would have a chilling 
effect on the clinical research and development of orphan drugs, 
biologics and humanitarian use devices, now or in the future, would be 
inherently wrong and would result in a very vocal reaction from the 
patient community. We would strongly oppose any action that would 
reverse the effects of the Orphan Drug Act and negatively impact the 
willingness and, in truth, the ability of industry to continue to 
invest in research and development related to products for small 
patient populations.
    This coming fall, NORD plans to begin working with all 
stakeholders, and this includes government regulatory experts from FDA, 
NIH officials, academic researchers, medical economists, industry and--
especially--patient organizations and the patient/family community, to 
address the cost of drugs and biologics marketed to treat very small 
patient populations. We are committed to work tirelessly to craft a 
balanced solution to the pricing of orphan products. We agree 
wholeheartedly that it is an issue that must be addressed. However, 
this is a complex issue that requires serious discussion in which all 
stakeholders are included.
    The National Organization for Rare Disorders advocates for people 
affected by rare diseases because they have the same right that other 
Americans have to believe in a better future. . . to believe that their 
lives are important. . . and to have faith that in due time medical 
researchers will seek safe, effective treatments for their diseases 
rather than putting their efforts into duplicating blockbuster drugs 
for large patient populations.
    We represent patients and their families. The entire history of our 
organization has been dedicated to providing a voice for, and 
representation of, the patient/family community in all matters related 
to rare diseases. And, ultimately, patients and families are the ones 
who stand to be most affected by any action taken as a result of this 
hearing. We feel strongly that their needs must be kept foremost in 
mind and that this complex issue deserves serious discussion and a 
serious search for solutions rather than a rush to judgment and speedy 
resolution.
            Respectfully Submitted,
                                       Diane Edquist Dorman
                                      Vice President, Public Policy
                              Washington, DC office of the National
                             Organization for Rare Disorders (NORD)
                                             Office: (202) 496-1296
                                               Cell: (202) 258-6457
                                   E-mail: [email protected]
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