    [House Hearing, 112 Congress]
    [From the U.S. Government Publishing Office]

           PRESERVING OUR HOMETOWN INDEPENDENT PHARMACIES ACT OF 2011

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

                                    HEARING

                                   BEFORE THE

                                SUBCOMMITTEE ON
                             INTELLECTUAL PROPERTY,
                         COMPETITION, AND THE INTERNET

                                     OF THE

                           COMMITTEE ON THE JUDICIARY
                            HOUSE OF REPRESENTATIVES

                          ONE HUNDRED TWELFTH CONGRESS

                                 SECOND SESSION

                                       ON

                                   H.R. 1946

                                   __________

                                 MARCH 29, 2012

                                   __________

                               Serial No. 112-130

                                   __________

             Printed for the use of the Committee on the Judiciary

          Available via the World Wide Web: http://judiciary.house.gov

                                   ----------
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    73-544 PDF                       WASHINGTON : 2012

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                           COMMITTEE ON THE JUDICIARY

                          LAMAR SMITH, Texas, Chairman
    F. JAMES SENSENBRENNER, Jr.,         JOHN CONYERS, Jr., Michigan
        Wisconsin                        HOWARD L. BERMAN, California
    HOWARD COBLE, North Carolina         JERROLD NADLER, New York
    ELTON GALLEGLY, California           ROBERT C. ``BOBBY'' SCOTT,
    BOB GOODLATTE, Virginia                  Virginia
    DANIEL E. LUNGREN, California        MELVIN L. WATT, North Carolina
    STEVE CHABOT, Ohio                   ZOE LOFGREN, California
    DARRELL E. ISSA, California          SHEILA JACKSON LEE, Texas
    MIKE PENCE, Indiana                  MAXINE WATERS, California
    J. RANDY FORBES, Virginia            STEVE COHEN, Tennessee
    STEVE KING, Iowa                     HENRY C. ``HANK'' JOHNSON, Jr.,
    TRENT FRANKS, Arizona                  Georgia
    LOUIE GOHMERT, Texas                 PEDRO R. PIERLUISI, Puerto Rico
    JIM JORDAN, Ohio                     MIKE QUIGLEY, Illinois
    TED POE, Texas                       JUDY CHU, California
    JASON CHAFFETZ, Utah                 TED DEUTCH, Florida
    TIM GRIFFIN, Arkansas                LINDA T. SANCHEZ, California
    TOM MARINO, Pennsylvania             JARED POLIS, Colorado
    TREY GOWDY, South Carolina
    DENNIS ROSS, Florida
    SANDY ADAMS, Florida
    BEN QUAYLE, Arizona
    MARK AMODEI, Nevada

               Richard Hertling, Staff Director and Chief Counsel
           Perry Apelbaum, Minority Staff Director and Chief Counsel
                                     ------

      Subcommittee on Intellectual Property, Competition, and the Internet

                       BOB GOODLATTE, Virginia, Chairman

                       BEN QUAYLE, Arizona, Vice-Chairman

    F. JAMES SENSENBRENNER, Jr.,         MELVIN L. WATT, North Carolina
    Wisconsin                            JOHN CONYERS, Jr., Michigan
    HOWARD COBLE, North Carolina         HOWARD L. BERMAN, California
    STEVE CHABOT, Ohio                   JUDY CHU, California
    DARRELL E. ISSA, California          TED DEUTCH, Florida
    MIKE PENCE, Indiana                  LINDA T. SANCHEZ, California
    JIM JORDAN, Ohio                     JERROLD NADLER, New York
    TED POE, Texas                       ZOE LOFGREN, California
    JASON CHAFFETZ, Utah                 SHEILA JACKSON LEE, Texas
    TIM GRIFFIN, Arkansas                MAXINE WATERS, California
    TOM MARINO, Pennsylvania             HENRY C. ``HANK'' JOHNSON, Jr.,
    SANDY ADAMS, Florida                   Georgia
    MARK AMODEI, Nevada

                         Blaine Merritt, Chief Counsel

                       Stephanie Moore, Minority Counsel

                                C O N T E N T S

                                  ----------

                                 MARCH 29, 2012

                                                                       Page

                                    THE BILL

    H.R. 1946, the ``Preserving Our Hometown Independent Pharmacies
      Act of 2011''..................................................     4

                               OPENING STATEMENTS

    The Honorable Bob Goodlatte, a Representative in Congress from
      the State of Virginia, and Chairman, Subcommittee on
      Intellectual Property, Competition, and the Internet...........     1
    The Honorable John Conyers, Jr., a Representative in Congress
      from the State of Michigan, Ranking Member, Committee on the
      Judiciary, and Member, Subcommittee on Intellectual Property,
      Competition, and the Internet..................................    12

                                   WITNESSES

    Mike James, Pharmacist and Owner, Person Street Pharmacy, and
      Vice President, Association of Community Pharmacists
      Congressional Network (ACPCN)
      Oral Testimony.................................................    14
      Prepared Statement.............................................    16
      Response to Questions for the Record...........................   114
    Joshua D. Wright, Professor, George Mason University School of
      Law
      Oral Testimony.................................................    20
      Prepared Statement.............................................    22
    Renardo Gray, Owner and Pharmacist, Westside Pharmacy of Detroit,
      Inc.
      Oral Testimony.................................................    33
      Prepared Statement.............................................    34
      Response to Questions for the Record...........................   117
    Richard Feinstein, Director of the Bureau of Competition, Federal
      Trade Commission
      Oral Testimony.................................................    36
      Prepared Statement.............................................    38

              LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

    Prepared Statement of the Honorable John Conyers, Jr., a
      Representative in Congress from the State of Michigan, Ranking
      Member, Committee on the Judiciary, and Member, Subcommittee on
      Intellectual Property, Competition, and the Internet...........    12
    Material submitted by the Honorable Tim Griffin, a Representative
      in Congress from the State of Arkansas, and Member,
      Subcommittee on Intellectual Property, Competition, and the
      Internet.......................................................    57
    Material submitted by the Honorable Tom Marino, a Representative
      in Congress from the State of Pennsylvania, and Member,
      Subcommittee on Intellectual Property, Competition, and the
      Internet.......................................................    86
    Material submitted by the Honorable Melvin L. Watt, a
      Representative in Congress from the State of North Carolina,
      and Ranking Member, Subcommittee on Intellectual Property,
      Competition, and the Internet..................................   106

                                    APPENDIX
                   Material Submitted for the Hearing Record

    Prepared Statement of Adam J. Fein, President, Pembroke
      Consulting, Inc................................................   119
    Cost of Independent Pharmacy Antitrust Exemptions, 2013-2017.....   130
    Letter from the Academy of Managed Care Pharmacy'
      (AMCP).........................................................   154
    Letter from the American Benefits Council........................   156

           PRESERVING OUR HOMETOWN INDEPENDENT PHARMACIES ACT OF 2011

                                  ----------

                            THURSDAY, MARCH 29, 2012

                  House of Representatives,
             Subcommittee on Intellectual Property,
                         Competition, and the Internet,
                                    Committee on the Judiciary,
                                                        Washington, DC.

        The Subcommittee met, pursuant to call, at 9:44 a.m., in
    room 2141, Rayburn Office Building, the Honorable Tom Marino
    (acting Chairman of the Subcommittee) presiding.
        Present: Representatives Goodlatte, Coble, Chabot, Issa,
    Griffin, Marino, Watt, Conyers, Chu, Jackson Lee, and Johnson.
        Staff present: (Majority) Holt Lackey, Counsel; Olivia Lee,
    Clerk; and (Minority) Stephanie Moore, Subcommittee Chief
    Counsel.
        Mr. Marino. Good morning. I would like to call this hearing
    to order. The Subcommittee will come to order. Without
    objections, the Chairman is authorized to declare the
    Subcommittee in recess at any time for votes on the House
    floor, which will be coming very shortly.
        Chairman Goodlatte is stuck in traffic, I understand,
    behind a traffic accident. So, I would just ask that his
    statement be entered. Here he is. I have to relinquish this
    now. [Laughter.]
        Mr. Goodlatte [presiding]. Good morning. Everything that
    the gentleman from Pennsylvania stated is entirely accurate.
    And we will begin with an opening statement.
        I want to welcome everyone to this hearing of the
    Intellectual Property, Competition and the Internet
    Subcommittee. This legislative hearing will consider H.R. 1946,
    the ``Preserving Our Hometown Independent Pharmacies Act of
    2011,'' which was introduced by Representative Marino, and is
    cosponsored by Representatives Coble and Gohmert of this
    Committee, as well as 28 other Members of the House.
        The bill would create a limited antitrust exemption for
    small and independent pharmacies to allow them to collectively
    bargain with health plans and Pharmacy Benefits Managers, or
    PBMs, to negotiate the contracts under which health insurers
    reimburse pharmacies for their services. Many pharmacists,
    particularly small and independent pharmacists, claim that
    health plans, and particularly PBMs, have significant market
    power over them, and that collective bargaining rights are
    necessary to allow them to level the playing field, reduce
    costs, and stay in business.
        Like many Members of this Committee, I am sympathetic to
    the challenges faced by small pharmacists who want to
    profitably practice their profession in a healthcare market
    that is increasingly dominated by a handful of large powerful
    companies and Washington bureaucracies. The past few decades
    have seen rapid consolidation and concentration of power in the
    healthcare market. This trend has accelerated since the passage
    of Obamacare and can be expected to accelerate even more
    rapidly if that law becomes fully effective 2 years from now.
        I have spoken to pharmacists in my district who tell me
    that their negotiations with PBMs are too often take-it-or-
    leave-it affairs in which the PBMs offer them barely enough to
    stay afloat. When a pharmacist fills a prescription, they are
    paid for that service by the patient's health plan, which is
    generally administered by a PBM. In practice, this means that
    the only way pharmacists can get paid is through an agreement
    with the PBM that administers the patient's health plan. So,
    pharmacists are dependent on PBMs for their livelihood and need
    to enter agreements with them.
        But, independent pharmacists are small, disperse, and at
    the PBM's mercy, while PBMs are large, concentrated, and able
    to play pharmacies against one another. As a result, these
    negotiations are often one-sided. Pharmacists tell me that they
    feel compelled to accept contracts that barely compensate them
    enough to stay in business.
        Independent pharmacies provide an important service and
    give customers a worthwhile alternative to large chain
    drugstores or mail-order pharmacies. There is much to be said
    for the personal pharmacist-patient relationship offered by
    these small businesses. Like many of my colleagues, I believe
    that independent community pharmacies should be preserved.
        The question presented by this hearing is whether an
    antitrust exemption is the right solution to the problems faced
    by independent community pharmacists. In general, antitrust
    exemptions should be disfavored. The antitrust laws are a
    cornerstone of our competition-based free-market economy. The
    antitrust laws guarantee that businesses compete with one
    another to offer better services, quality, and prices to
    consumers, rather than conspiring with one another to increase
    their own profits at consumers' expense.
        With few exceptions, every business in America must abide
    by these laws. As the Antitrust Modernization Commission
    reported in 2007, vigorous competition protected by the
    antitrust laws does the best job of promoting consumer welfare
    and a vibrant growing economy, and exemption from the antitrust
    laws means firms can avoid tough discipline of competition, at
    least to some extent.
        That commission helpfully recommended procedural steps that
    Congress should take in considering antitrust exemptions and
    the standards that Congress should consider in weighing the
    propriety of a proposed antitrust exemption.
        Procedurally, the Commission recommended that Congress
    should create a full public record on any proposed exemption,
    should consult with the Federal Trade Commission and Department
    of Justice about the proposal, and should require proponents of
    the exemption to submit evidence showing that the immunity is
    justified. This public hearing, at which both community
    pharmacist proponents of H.R. 1946 and the Federal Trade
    Commission will testify, is intended to fulfill these
    procedural recommendations. The Commission also helpfully
    framed the issues that Congress should consider with respect to
    a proposed antitrust exemption. The Commission recommended that
    the burden of proving the need for an exemption should rest
    with the proponents of the exemption.
        At a minimum, the Commission suggested that the proponents
    should have to show that the antitrust laws would prohibit the
    conduct they want to engage in, that the exemption supports a
    particular societal need that outweighs consumers' interest in
    the competitive market protected by the antitrust laws, and
    that there is no less restrictive way to achieve that societal
    goal.
        I look forward to hearing the testimony of the witnesses
    today on this important matter.
        [The bill, H.R. 1946, follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
                                       __________

        Mr. Goodlatte. And it is now my pleasure to recognize the
    Ranking Member of the full Committee, the gentleman from
    Michigan, Mr. Conyers.
        Mr. Conyers. Thank you, Chairman Goodlatte. I am happy to
    be here again today. This is the subject of a bill that I
    introduced and had reported out of the Judiciary Committee in
    2007. And I am so glad that Tom Marino has picked it up and is
    moving it forward. And like you, Mr. Chairman, I am reluctant
    to create exemptions in antitrust law, as a rule.
        But unlike you, I am going to present evidence that
    Obamacare, which I happen to like, the buttons that we passed
    out say, ``I Love Obamacare,'' but I like Obamacare, and I want
    to prove that it does not further complicate the issue with
    PBMs that you suggested that it might.
        Now, my major concern here today is whether or not the
    savings created by the exemptions--and by the way, Mr. James
    was here before. I think you were a witness before in this
    matter. Maybe you weren't. But, at any rate, I was hoping that
    there would be some way we could ensure that the savings from
    the measure that is before us could be passed on to the
    customer-patient, but I understand that that may not be
    possible.
        But, what I would like to get in today, and I hope we can
    during the course of the hearing, is the incredible power that
    the Pharmacy Benefit Manager exerts on the independent
    pharmacist. It is unfair. As a matter of fact, the pharmacist
    really isn't even setting the price of the prescription,
    because that is all being sent back to him as to what the cost
    should ultimately be. And so, I still support the idea of
    carving out an antitrust exception for pharmacists, and I am
    hoping that we can get this measure through the Judiciary
    Committee and send it on its way.
        I will put the rest of my statement in the record. I thank
    the Chairman.
        [The prepared statement of Mr. Conyers follows:]
    Prepared Statement of the Honorable John Conyers, Jr., a Representative
     in Congress from the State of Michigan, Ranking Member, Committee on
       the Judiciary, and Member, Subcommittee on Intellectual Property,
                         Competition, and the Internet
        Pharmaceutical care is one of the most important parts of our
    healthcare system. Pharmacies serve as a direct interface between
    consumers and their medications, and pharmacists play a critical role
    in advising and caring for patients all over the country. Pharmacists
    provide particularly critical and easy-access to health care
    information in under-served communities, including residents in inner-
    city and rural areas.
        During the past several decades, the cost of medical care in the
    United States has skyrocketed. And while President Obama and healthcare
    reform have made progress in reining in these costs to individuals,
    more clearly needs to be done.
        The prescription drug and drug benefits market is one of the least
    transparent and least competitive in healthcare industry. Some studies
    estimate that the profits of Pharmaceutical Benefit Managers, or PBMs,
    increased between 2003 and 2010 by over 600%, and more than 30 states
    have brought cases against PBMs for fraudulent and deceptive practices
    since 2007.
        And yet, the business model of PBMs pivot around reducing drug
    costs and negotiating cheaper rates. Large employers and large health
    plans, the federal government's health plans included, intensely
    scrutinize which PBMs will keep their premiums low and move between
    Benefit Managers at will.
        Today we discuss a bill authored by Mr. Marino that would grant
    independent community pharmacies an antitrust exemption that would
    allow them to band together to negotiate collectively to obtain more
    favorable terms from health care plans and Pharmacy Benefit Managers,
    or PBMs.
        In 2000, the House passed the Quality Healthcare Act which
    contained an amendment I sponsored with similar aims, and in 2007, this
    Committee reported out a measure similar to Mr. Marino's bill favorably
    to the House Floor.
        I am generally skeptical of antitrust exemptions. The antitrust
    laws protect our economic freedom against private restraints of trade,
    and Congress should not take any effort to curtail their reach lightly.
        Exemptions may be appropriate, however, when markets have become so
    dysfunctional that an exemption becomes the only means of restoring
    effective competition. The independent pharmacists make a compelling
    case in this regard.
        On the other hand, there is no guarantee that if independent
    pharmacies are granted an antitrust exemption that they will pass these
    savings on to consumers. Many, and by some accounts most, independent
    pharmacies already contract with Pharmacy Services Administration
    Organizations, or PSAOs, to bargain collectively on their behalf for
    some transactions. There is no guarantee that independent pharmacies,
    like any business, wouldn't use the savings they gleaned in this area
    to defray losses in other areas. While they may save money with an
    exemption, the cost of drugs to consumers may go unchanged.
        During the course of today's hearing, I hope that our witnesses
    will make a clear case on how the proposed antitrust exemption would
    affect consumers and drug prices for individuals. While the profit
    margins and business practices of PBMs are certainly relevant, we are
    here today to discuss those of independent pharmacies, and the burden
    should be on them to prove how they would use a carve-out from
    antitrust law to guarantee consumers lower drug prices.
                                   __________

        Mr. Goodlatte. I thank the gentleman. The Chair would note
    that the Ranking Member of the Subcommittee, Mr. Watt, of North
    Carolina, is unable to be with us, and his statement will be
    submitted for the record.*
    ---------------------------------------------------------------------------
        *The Subcommittee had not received this material as of September
    18, 2012.
    ---------------------------------------------------------------------------
        And the Chair would now recognize the gentleman from
    Pennsylvania to inquire if he has an opening statement he would
    like to make.
        Mr. Marino. I do not have an opening statement, Chairman,
    but thank you.
        Mr. Goodlatte. You do not? Okay. Well then, we will proceed
    expeditiously. He has made up for almost half of the time that
    we lost, because of my delay in getting here. We will proceed
    to introduce our very distinguished panel of witnesses.
        Each of the witnesses' written statements will be entered
    into the record in its entirety. I ask each witness to
    summarize his testimony in 5 minutes or less. To help you stay
    within that time, there is a timing light on your table to
    help. When the light switches from green to yellow, you have 1
    minute to conclude your testimony. When the light turns red, it
    signals that the witness's 5 minutes have expired.
        Before I introduce our witnesses, I would like them to
    stand and be sworn, as is the custom of this Committee.
        [Witnesses sworn.]
        Mr. Goodlatte. Thank you very much. And please be seated.
        I understand that one of the witnesses today, Renardo Gray,
    is a constituent of the distinguished Ranking Member of the
    full Committee, Mr. Conyers. Mr. Conyers has asked for the
    opportunity to introduce Mr. Gray, and I will now yield to him
    for that purpose.
        Mr. Conyers. Thank you. We have just met, unfortunately,
    though, he is a native of Detroit, and so am I, and we live in
    the same and work in the same part of the city in northwest
    Detroit. But Renardo Gray is a pharmacist, the owner of his own
    business, the Westside Pharmacy, a graduate of the University
    of Michigan College of Pharmacy, and has been in practice on
    his own since 1985, where he is still working and serving
    patients today.
        He has a thriving small business, and is doing great
    service to those citizens and patients that have a cause to use
    his services. And I am glad that this is a great occasion for
    us to meet today, and I look forward to your testimony. And I
    thank you, Chairman Goodlatte.
        Mr. Goodlatte. I thank you, Mr. Conyers.
        Our first witness today is Mr. Mike James, a community
    pharmacist and owner of Person Street Pharmacy, in Raleigh,
    North Carolina. Mr. James served as Vice President and Director
    of Governmental Affairs for the Association of Community
    Pharmacies Congressional Network.
        Mr. James attended Samford University College of Pharmacy
    in Birmingham, Alabama, and has worked closely with the State
    of North Carolina on pharmacy and pharmacy governmental issues
    for many years. Mr. James was named National Pharmacist of the
    Year in 2004 and North Carolina Pharmacist of the Year in 2003.
    I look forward to hearing his perspective on this issue as a
    hometown independent pharmacist.
        Our second witness, Professor Joshua Wright, of George
    Mason School of Law, focuses his academic work on antitrust
    law, and holds a J.D. and a Ph.D. in Economics from UCLA.
    Professor Wright was appointed as the inaugural Scholar in
    Residence at the Federal Trade Commission Bureau of
    Competition, where he served until fall of 2008.
        Our third witness is Mr. Gray, who was ably introduced by
    the former Chairman, Mr. Conyers.
        And our fourth and final witness is Mr. Richard Feinstein,
    Director of the Federal Trade Commission's Bureau of
    Competition. Previous to his appointment--is it Feinstein or
    steen?
        Mr. Feinstein. Fein-steen.
        Mr. Goodlatte. Fein-steen. Mr. Feinstein was partner at
    Boies, Schiller & Flexner, where he focused on antitrust
    litigation. Mr. Feinstein is a graduate of Yale University and
    Boston College Law School.
        I welcome all the witnesses, and we will begin with you,
    Mr. James.

     TESTIMONY OF MIKE JAMES, PHARMACIST AND OWNER, PERSON STREET
        PHARMACY, AND VICE PRESIDENT, ASSOCIATION OF COMMUNITY
               PHARMACISTS CONGRESSIONAL NETWORK (ACPCN)

        Mr. James. Thank you, Mr. Chairman. Chairman Goodlatte,
    Ranking Member Watt, Members of the Subcommittee, good morning,
    and thank you for inviting me to testify for the need of the
    passage of H.R. 1946. My name is Mike James. I am speaking on
    behalf of the Association of Community Pharmacy Congressional
    Network, and I am also a pharmacy owner of a practicing
    pharmacy and a practicing pharmacist in Raleigh, North
    Carolina. I have one purpose here today, to help 22,000
    independent pharmacies across the country get your attention
    before they are wiped out. Here is what you need to know.
        There are about 50 independent pharmacies in every
    congressional district. That is 50 small businesses in your
    districts that are owned, managed, and staffed by the most
    trusted professionals in your communities. Every one of these
    small businesses are facing anticompetitive abuses by PBM
    corporations that are forcing them out of business. They are
    being forced to lay off employees, close their pharmacy, and
    turn patients away. Imagine the impact in your congressional
    district of just one more pharmacy closing. It will mean
    several lost high-paying jobs, many thousands of dollars in
    revenues and taxes lost to the community, and redirection of
    patient care out of your towns into mail-order pharmacies in
    another State.
        The abuses your hometown pharmacies are facing are the
    result of Congress and the FTC losing sight of what having a
    competitive market really means. Virtually every single
    prescription a pharmacist in your district handles is
    controlled by one of three PBMs. I encourage every Member of
    Congress to reach out to at least one independent pharmacy at
    home. You will be told many interesting things.
        For example, every pharmacy will tell you that the PBMs use
    the patient data that they are required to provide to steal
    their customers by either forcing the patients to drop their
    local pharmacy or coercing them with discounts. The PBM will
    not allow the local pharmacies to use these same discounts.
        Now, let's look at a real-world fact. Park West Pharmacy,
    in Little Rock, Arkansas, so far this year has lost money on
    218 prescriptions, because PBMs simply refuse to pay them back
    in full the actual cost of the drugs. In total, they have lost,
    to this point, about $3,000.
        Here is something else you should know. Park West Pharmacy
    and every other independent pharmacy in the country are
    prohibited by contract from telling anyone how much they pay
    for prescriptions or how much the PBMs pays them back. Why does
    this matter? Because it prevents planned providers, and
    Congress, and the FTC from knowing how much these same PBMs
    charge their customer for the drugs. I don't care what you hear
    from the PBM industry today, you will not hear them give you
    this information.
        Do you think this is fair? Do Members of Congress think
    this is anything other than a systematic anti-competitive
    manipulation of the market? And what about the FTC? Do our
    Federal regulators, who are supposed to consider the impact of
    competition and abusive behavior on Main Street think that
    their so-called analysis of this issue engenders anything but
    mistrust?
        The pharmacists in your district know that the goal of the
    PBM contract is to undermine the solvency of the independent
    pharmacies. I challenge the FTC to convince the Committee here
    today what this will do in showing their outdated studies how
    it will show any evidence of what they contend. The FTC will
    tell us that empowering pharmacists to negotiate together will
    increase drug prices. Based on what facts?
        Look closely at the FTC testimony. Do they reference
    anywhere in their testimony actual drug pricing data? Not that
    I can find. The agency has opinions, but not facts. Why should
    Congress bother with these opinions when the agency cannot even
    comment on how PBMs are manipulating prices right now to
    destroy competition? How does the FTC explain why PBMs handle
    10 percent of prescriptions just a few years ago, and now they
    handle over 85 percent of all prescriptions?
        Is it superior pricing? Certainly not. A survey conducted
    by ``Consumer Reports'' in 2011 on popular brand name drugs
    found that independent pharmacies offered lower prices than
    traditional and national pharmacies, including those owned by
    PBMs. And when it comes to lower-cost generic drugs,
    independent pharmacies are generics to fill over 70 percent of
    prescriptions compared to less than 60 percent by the PBMs. The
    FTC offers opinions with that data. The pharmacies in your
    district can provide you with real data.
        Finally, on behalf of the pharmacy owners in your districts
    who want to compete head to head with the PBMs, we will hope
    you will ask Mr. Wright to do more in this hearing than simply
    throw around data that cannot be evaluated. Instead, how about
    asking him to obtain why they are systematically under paying
    Park West Pharmacy in Representative Griffin's district.
        Then let's ask this question: If the FTC and PBM
    representatives here today see nothing wrong with allowing the
    largest PBMs to consolidate into a national conglomerate that
    put a stranglehold on their retail competition, how can they
    argue that efforts by the independent pharmacies to fight back
    together will have a worst effect on the marketplace? As long
    as the FTC fails to grasp the micro-effects of the PBM
    industry's clearly anti-competitive practices, there is only
    one way Congress can address this problem. That is to empower
    pharmacies to fight back on their own. The PBMs may tell you
    that a few pharmacies negotiating against them in your
    districts can manipulate drug prices against your constituents.
    Do you really believe this?
        Mr. Goodlatte. You need to summarize.
        Mr. James. I will. Thank you very much.
        Mr. Goodlatte. Your time has expired.
        Mr. James. The reason I am here today is to encourage you
    to task the independent pharmacists in your district who is
    manipulating whom.
        Mr. Chairman, H.R. 1946 is a key to restoring pharmacy
    competition. I encourage the Subcommittee to pass it right
    away.
        Mr. Goodlatte. Thank you, Mr. James.
        Mr. James. Thank you. And thank you for your time.
        [The prepared statement of Mr. James follows:]
      Prepared Statement of Mike James, Vice President, ACP Congressional
       Network and Pharmacist/Owner, Person Street Pharmacy, Raleigh, NC
        Chairman Goodlatte, Ranking Member Watt, and members of the
    subcommittee, good morning and thank you for inviting me to testify on
    the need for passage of HR 1946, a bill to let independent pharmacies
    negotiate together against large, multi-state pharmacy benefit
    management (PBM) corporations.
        My name is Mike James. I am Vice President and Director of
    Government Affairs for the Association of Community Pharmacies
    Congressional Network. I am also a practicing pharmacist and the owner
    of an independent, community pharmacy in Raleigh, North Carolina.
        I have one purpose here today: To help 22,000 independent
    pharmacies across the country get your attention before they are wiped
    out. Here is what you need to know:

            1.  There are on average 50 independent pharmacies in every
            congressional district--that's 50 small businesses in your
            districts that are owned, managed, and staffed by (according to
            annual surveys for the past decade) the most trusted
            professionals in your communities.

            2.  Every one of these small business owners is facing anti-
            competitive abuses by PBM corporations that are forcing them
            out of business, and every one of them that fails to beat these
            abuses will be forced to lay off employees, close up shops, and
            turn patients away. Imagine the impact in your congressional
            district of just one more pharmacy closure this month: It will
            mean several lost high-paying jobs, thousands upon thousands of
            dollars in revenues and taxes lost to the community, and
            redirection of patient care out of your towns and into mail-
            order programs that are managed by automated systems in another
            state.

            3.  The abuses your home town pharmacies are facing are a
            result of the erosion of a competitive market that has been
            enabled by Congress and ignored by the Federal Trade
            Commission.

        Let me explain exactly what I mean.
               the prescription drug market is now owned by pbms
        First, let me point out that I testified before the Judiciary
    Committee on similar legislation that passed the committee in 2007.
    Since then, the problems the bill was drafted to address have grown
    worse because PBMs have consolidated their market power.
        Specifically, Express Scripts acquired Wellpoint, CVS acquired
    Caremark, and now Express Scripts is about to acquire Medco. This last
    deal alone will empower a single PBM to dictate to 150 million
    consumers what medications they can take, how much they will pay for
    each prescription, and where they can get their prescriptions filled.
    In fact, that single PBM will control 40% of the entire prescription
    drug market in the U.S. The three largest PBMs will control more than
    85% of every prescription in America.
        Here is what that means: Virtually every single prescription a
    pharmacist in your district handles is controlled by one of three PBMs.
    The PBMs tell your pharmacists whether they can fill a prescription at
    their pharmacies, whether they can use a lower-cost generic or must use
    a more profitable brand preferred by the PBM, and what profit margin
    the pharmacy is allowed to keep. Keep in mind that these PBMs are in
    direct competition with every pharmacy in every one of your districts.
                   want proof? ask your pharmacy constituents
        Let's look closely at the ridiculous system that has been created--
    I encourage every member of Congress to reach out to at least one
    independent pharmacy at home. Here is what you will find:
          Every pharmacy will have a contract with one or more PBM.
    The contract will prohibit any disclosure by the pharmacy--including to
    patients--of how much the pharmacy paid for the prescriptions they
    fill, how much the PBM pays the pharmacy for the prescriptions, and how
    much profit the PBM keeps.

              The contracts will tell every pharmacy they may not
            under any circumstances fill prescriptions for any patient
            beyond 30 days.

              The contracts will require every pharmacy to turn
            over all of its data about every patient in a plan, including
            his or her mailing information.

        Here is what else you will find:

              Every pharmacy in your district will be able to
            provide you with specific examples of how the PBMs reimburse
            them for prescriptions at less than their actual cost to
            acquire the drugs.

              Every pharmacy will tell you that the PBMs routinely
            offer more convenient 60- and 90-day prescriptions to any
            patient who will agree to leave the pharmacy and register for
            the PBM's proprietary mail service.

              Every pharmacy will tell you that the PBMs use the
            patient data they are required to provide to steal their
            customers by either forcing the patient to drop their local
            pharmacy or coercing them with discounts the pharmacy is barred
            by contract from offering.

        Now, let's look at real-world data--facts--to see exactly how this
    works. I have in my hand a copy of a report from Park West Pharmacy in
    Little Rock, Arkansas, which is located in Representative Griffin's
    district. They sent me a copy of their letter to you this week,
    Congressman, in which they requested that this information be entered
    into the hearing record. It provides a detailed list of every
    prescription the pharmacy filled from January of this year to Monday of
    this week in which they lost money because PBMs under-reimbursed them.
    Here is exactly what the report shows:

              Park West Pharmacy so far this year has lost money on
            218 prescriptions because PBMs simply refused to pay them back
            in full for the actual cost of the drugs.

              Park West Pharmacy spent $20,716 for the drugs, but
            received only $15,489 from the PBMs. When patient co-payments
            were added, the pharmacy recovered just $18,886.

        That means Park West Pharmacy lost $1,830, or 9% of their total
    expenditures. It also means that the PBMs made a profit on these drugs
    by literally using Park West Pharmacy as a form of lending agent--and
    then stiffing the lender. Every other independent pharmacy in America
    faces the same situation on dozens and even hundreds of transactions
    every day. Here is something else you should know: Park West Pharmacy
    and every other independent pharmacy in the country are prohibited by
    contract from telling anyone how much they pay for prescriptions, or
    how much the PBMs pay them back. Why does this matter? Because it
    prevents plan providers--and Congress and the FTC--from knowing how
    much those same PBMs charged their customers for the drugs. I don't
    care what you hear from the PBM industry today--you will not hear them
    give you this information.
              who is looking out for pharmacies in your districts?
        You think this is fair? Do members of Congress think this is
    anything other than a systematic, anti-competitive manipulation of the
    market? And what about the FTC? Do our federal regulators--who are
    supposed to consider the impact of competition and abusive monopolistic
    behavior on main street Americans--think their so-called ``analysis''
    of this issue engenders anything but mistrust and disgust from 22,000
    pharmacy owners and the millions of patients they serve?
        Since we have the FTC with us today, let's get real. The pharmacies
    in your districts know that the goal of PBM contracts is to
    systematically undermine the solvency of the independent pharmacies
    that compete with them, and to force patients covered under PBM
    agreements into their highly profitable proprietary mail-order
    programs. I challenge the FTC to convince the committee members--and
    the thousands of small business owners in their districts who are being
    driven under while you tell us about your outdated studies--otherwise.
                       the ftc relies on theory, not data
        The FTC will tell us that empowering pharmacies to negotiate
    together will increase drug prices. Based on what facts? Look closely
    at the FTC testimony. Do they anywhere reference actual pharmacy
    pricing data? No. The agency cites 2007 opinions by the Antitrust
    Modernization Commission, refers to its 2009 study of competition for
    biologic drugs, two general studies from 2004 and 2005, and staff
    comments presented to a few state legislatures. The agency has
    opinions, but not facts.
        Why should Congress bother with these opinions when the agency
    cannot even comment on how PBMs are manipulating prices right now to
    destroy competition? How does the FTC explain why PBMs handled 10% of
    prescriptions just a few years ago, and now handle 85% of
    prescriptions? A significant part of this market expansion is
    attributed to passage by Congress of provisions in the new Medicare
    Part D law that handed whole markets over to the PBMs. What attributes
    for the rest of their aggressive growth?
        Is it superior pricing? Certainly not. A survey conducted by
    Consumer Reports in 2011 of popular brand-name drug prices found
    independent pharmacies offered lower prices than traditional, national
    pharmacies, including those owned by the PBMs. And when it comes to
    lower-cost generic drugs, independent pharmacies use generics to fill
    over 70% of prescriptions compared to less than 60% by PBMs (since they
    make more in rebates and secret ``spread pricing'' from brands). What
    if we factor in PBM claims that their mail-order programs can't be
    beat? Consider this statement from American Health & Drug Benefits, a
    peer-reviewed forum for pharmacy benefit program designs:

            More controversial, however, is the validity of claims by PBMs
            that mail-order programs offer significant cost savings to plan
            sponsors. Very limited research has been conducted to
            definitively establish a significant economic value of mail
            order pharmacy service. The limited study data published show
            mixed results, raising questions about the cost impact to the
            plan sponsor.

        The FTC offers opinions without data. The pharmacies in your
    districts can provide you with data, and it will change your views
    about the real threat to lower drug prices.
                       key questions we hope you will ask
        Here are questions the FTC and PBM representatives who are with us
    today should be asked to answer:

            1.  What other industries are allowed to use confidential
            patient data that is compelled by contract or federal law to
            steer consumers into proprietary programs?

            2.  Why should PBM corporations be allowed to maintain
            confidentiality provisions in their contracts--even on a
            supposedly ``volunteer'' basis--to prevent public disclosure of
            costs that are borne by state and federal governments?

            3.  Under what reasonable standard should pharmacies be locked
            out of the markets for services customers want, like 90-day
            prescriptions when appropriate?

                   misinformation we know pbms will give you
        Finally, on behalf of the pharmacy owners in your districts who
    want to compete head-to-head with PBMs, we hope you will make the PBM
    industry's representative do more at this hearing than simply throw
    around aggregate data that cannot be validated, claim that lack of
    transparency in prescription drug transactions is somehow ``good'' for
    keeping prices low, and ask you to look the other way when they steer
    as many people as possible out of your local pharmacies and into their
    extremely profitable proprietary programs. Instead, how about asking
    him to explain why they are systematically under-paying Park West
    Pharmacy in Representative Griffin's district? Perhaps the PBM
    representative here today can go through this list of transactions with
    us to explain what policy guides this behavior. At minimum, let's ask
    him to tell us how much of the money they took from Park West Pharmacy
    went to the PBMs' insurance customers, and how much the PBMs simply put
    in their pockets without telling anyone.
        Then let's ask this question: If the FTC and PBM representatives
    here today see nothing wrong with allowing the largest PBMs to
    consolidate into national conglomerates that put a stranglehold on
    their retail competitors, how can they argue that efforts by
    independent pharmacies to fight back together will have a worse affect
    on the market?
        Finally, as long as the FTC fails to grasp the micro-effects of the
    PBM industry's clearly anti-competitive practices--micro-effects I
    might add that sum up to an obvious macro-strategy of restraining trade
    and manipulating competition--there is only one way Congress can
    address this problem. That is to empower pharmacies to fight back on
    their own.
        Now let's all sit back and listen to the PBM representative, who
    will argue that HR 1946 provides a ``license to engage in price fixing
    and boycotts'' that will lead to higher drug prices. The FTC may think
    my small pharmacy in North Carolina has the power to undermine the
    multi-billion dollar PBM corporations that fight me every day, and the
    PBMs may tell you that a few pharmacies negotiating against them in
    your districts can manipulate drug prices against your constituents.
    But the reason I am here today is to encourage you to go ask the
    independent pharmacies in your district: ``Who is manipulating whom?''
        Mr. Chairman, HR 1946 is the key to restoring pharmacy competition.
    I encourage the subcommittee to pass it right away.
        Thank you.
                                   __________

        Mr. Goodlatte. Professor Wright, welcome.

               TESTIMONY OF JOSHUA D. WRIGHT, PROFESSOR,
                 GEORGE MASON UNIVERSITY SCHOOL OF LAW

        Mr. Wright. Chairman Goodlatte, Members of the
    Subcommittee, thank you for the opportunity to testify today.
    My name is Joshua Wright. I am a professor at the George Mason
    University School of Law, where I teach antitrust law and
    economics. I also hold a courtesy appointment in the Department
    of Economics. I was the inaugural Scholar in Residence at the
    FTC from 2007 to 2008.
        I am here today to discuss H.R. 1946, a proposed exemption
    from the antitrust laws that would allow independent pharmacies
    to collectively negotiate with health plans on pricing
    provisions and other contract terms.
        It is my view that the proposed legislation is ultimately
    likely to harm consumers and should be opposed on those
    grounds. Local pharmacists striving to provide quality care for
    patients undoubtedly face significant economic pressures from
    both changes in the healthcare market and from vigorous
    competition. While identifying ways to reduce costs in complex
    and dynamic healthcare markets is a critical policy objective,
    an antitrust exemption for independent pharmacies is likely to
    undermine that goal.
        The purpose of H.R. 1946 is to ensure safety, quality of
    care, and a competitive marketplace. The overarching goal of
    the antitrust laws is to foster competition, and thereby
    maximize consumer welfare. This goal of maximizing consumer
    welfare is rarely, if ever, served by antitrust exemptions.
    Indeed, the consensus view is that such exemptions are much
    more likely to reduce consumer welfare than to enhance it.
        The bipartisan Antitrust Modernization Commission has
    explained that, ``A proposed exemption should be recognized as
    a decision to sacrifice competition and consumer welfare.'' It
    is widely recognized that antitrust exemptions benefit small
    concentrated interest groups while imposing costs broadly upon
    consumers at large. These costs generally take the form of, to
    quote the Antitrust Modernization Commission again, ``Higher
    prices, reduced output, lower quality, and reduced
    innovation.''
        The Antitrust Modernization Commission concluded that
    exemptions should rarely be granted and only when proponents
    have successfully demonstrated that permitting unlawful and
    anti-competitive conduct is necessary to satisfy a specific
    societal goal that trumps the benefit of a free market to
    consumers and the U.S. economy, in general. This burden should
    not be taken lightly. The Sherman Act has been described as the
    Magna Carta of free enterprise, precisely because it was
    designed to enhance economic liberties promoted by competition.
        Antitrust exemptions not only pose a risk to consumers,
    they are also generally unnecessary to achieve legitimate pro-
    competitive ends. The antitrust laws permit cooperation
    achieving pro-competitive objectives, rendering an exemption
    for such activities unnecessary.
        The increased incorporation of economic thinking into
    antitrust analysis over the past several decades has endowed
    the antitrust laws with sufficient flexibility to permit such
    pro-competitive collaboration while condemning horizontal
    arrangements likely to reduce competition. Exemptions, in light
    of existing antitrust law, are simply unnecessary to protect
    parties from pro-competitive coordination.
        Exemptions are equally unnecessary in the healthcare
    context. There, the antitrust agencies have actively provided
    guidance to pharmacies and other healthcare providers and folks
    outside of the healthcare industry, distinguishing lawful from
    unlawful conduct under the antitrust laws. The FTC issues
    advisory opinions to market participants seeking to compete
    more aggressively by means of limited coordination.
        Healthcare providers can and do engage in such lawful
    coordination through the use of pharmacy service administrative
    organizations and other collaborations. The agencies advise
    many of those market participants that it will not challenge
    their coordinated efforts. The antitrust division at the DoJ
    also actively and in concert with the FTC provides similar
    guidance to healthcare providers. Most recently, the FTC and
    DoJ issued a joint policy statement explaining how those
    agencies would apply existing antitrust laws to accountable
    care organizations.
        The proposed exemption will likely increase healthcare
    costs. The exemption is designed to allow coordinated
    activities among pharmacies that both basic economic theory and
    experience indicate will result in higher prices faced by
    health plans. Economic theory unequivocally predicts that at
    least in some of the collective negotiations exempted will
    raise costs that will in turn be passed on in the form of
    higher prices paid by consumers.
        One obvious implication of the antitrust exemption will be
    higher reimbursements. One recent study, for example, estimates
    the increased healthcare costs ranging from $9 to $29 billion
    over a 5-year period. Would such an exemption provide any
    offsetting benefits for consumers? The answer provided by
    existing law and economic analysis, I believe, is no. The most
    critical point is that the current Federal law permits
    collective activity by pharmacies and other healthcare
    providers to the extent that it is pro-competitive and benefits
    consumers.
        Thank you.
        [The prepared statement of Mr. Wright follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                   __________

        Mr. Goodlatte. Thank you, Professor Wright. We have enough
    time, I think, for one more witness to get their testimony in
    before we have to recess to vote. And so we will now recognize
    Mr. Gray.

       TESTIMONY OF RENARDO GRAY, OWNER AND PHARMACIST, WESTSIDE
                       PHARMACY OF DETROIT, INC.

        Mr. Gray. Thank you.
        Chairman Goodlatte, Ranking Member Watt, Mr. John Conyers,
    we thank you for the opportunity to come represent my views and
    the views of pharmacists across the United States, we who serve
    the patients among the most vulnerable in the country. I have
    been serving my patients for 27 years. I have had to compete
    with the chains, deal with the healthcare plans. You have CVS
    as a chain, and you have CVS Caremark, which is a PBM and they
    have a mail-order outlet. Then you have CVS Caremark Medicare
    Part D Plan, which is a plan that gets money from the
    government that then pays everybody else. In a fair market, you
    would think that CVS Caremark Drug Plan would pay CVS, their
    stores, you would see them pay their mail-order, and you would
    see them pay me all the fair price.
        I don't get a fee for filling certain prescriptions. If it
    is a brand-name drug, I get no fee. Just the cost of the
    medication. Since it is a take-it-or-leave-it contract, I can't
    even complain. I have to take it or leave it. This bill would
    allow us to be able to go back and say, ``Wait a minute. We
    need to be treated fairly. We need to have an opportunity, if
    you pay yourself a fee, you pay the other part of your company
    a fee, why can't we get a fee?'' They will come to us and say
    they overpaid us and take money back from us, but they don't do
    anything to address the fact they never paid us a fee in the
    first place.
        We come to the Committee, because we need assistance in
    getting this bill passed so we can at least compete. We can't
    even go and complain. It is either you take it or you leave it.
    There is nothing there.
        When the customers, who should be represented here,
    Medicare Part D is to provide drug care for Medicare D members.
    The members come to us when the chains or the mail-orders don't
    get them their prescriptions. They come back to us. We are not
    paid to handle the service, but we have to make sure that they
    get the care that they need. If you eliminate us, who is going
    to be there to buffer or to represent them? It is about their
    needs. We need this bill to be able to compete. There is not
    going to be any increase in money. The money is already set.
    All they have to do is pay us the part that we are supposed to
    get. If we are allowed to at least compete fairly, there is no
    problem. But, we at least need a fair chance.
        Take the example of a henhouse. If you take a fox, you try
    to keep the fox out of the henhouse. In this case, we have
    given the fox charge of the henhouse. He can suck the eggs. He
    can eat some of the chickens. But, now you tell him you have to
    share with somebody else. Is he going to do it fairly? He is a
    fox. But, it has been that way for far too long. It is time now
    to come back and address the issues. It is about getting the
    right medicine, at the right time, to the right patient.
        Just the other day, a gentleman came to me. He is 83 years
    old. I have to advocate for him. He is on a medication for
    Alzheimer's. While he is remembering to take his medication, he
    comes to me and says, ``I have no medicine.'' So, I go on the
    computer and find out his prescription was filled by his mail-
    order plan and mailed out on the 6th of March. It is the 26th
    of March. He has no medicine. I called the plan. They say,
    ``Well, we have to call the mail-order side to find out what
    happened.'' This man needs medicine while he can remember to
    take it. He needs his medication.
        If you move us from the thing, he would not have any
    medication. I made sure he had his medication. And I do this on
    a daily basis. I am not paid to do this, but I cannot let these
    people, who are ``Customers,'' these are friends and family.
        I have had the unique opportunity to perform a wedding in
    my pharmacy. And when patients die, they sometimes call on me
    to come and preach the funeral. These are the things we have to
    do that we are not paid to do. But, the other companies receive
    the money, and we ask them to give us a fair share that we can
    compete. How do we compete with somebody when they hold the
    whole purse, and they can tell us what they will give us? They
    set a price. We have to take it or leave it. There are no
    options here. If they underpay us, what do we do? What are we
    supposed to do?
        We come here, looking for redress. We need a methodology to
    compete, a methodology to go to them and say, ``Make if fair.''
    We are there to take care of the patients, and we do this on a
    daily basis. Without us, there is going to be problems. Because
    if a patient doesn't get medication, they are going to end up,
    number one, either in the hospital, in a rehab facility, if
    they have a stroke, in a nursing home, if they can't go beyond
    that, or a funeral home. If you take us out of the equation, it
    is a big problem.
        We need this bill passed for this exemption so that we can
    compete. All we ask for is a fair chance, an opportunity. We
    are not here asking for more money. We are asking for an
    opportunity to do what we are supposed to do. We go to them,
    and they have to pay us fairly.
        Right now, they ignore us, because they have the thing.
    They don't have to talk to us. No PBM has to come and say,
    ``Well, you asked for more money, we can give it to you. We
    don't have to.'' They have no desire to talk to us, not even to
    come to us.
        When the patients need service, and mail-order doesn't
    arrive, what do they do? They have to go the local pharmacist.
    And we have been there. We have been bearing the brunt of this
    for now almost 10 years. This program started 2003. It fell on
    us. All we can do is keep doing it. We have come before and
    tried to get it addressed, and the ball got dropped. We are
    here again. We have to get this done.
        As healthcare reform goes forth, they need us in the middle
    to take care of this. We haven't got paid for it so far, but we
    deserve to be paid for it. A workman is worthy of his hire. If
    nothing else, we should be allowed to have this bill passed.
    So, we ask you to consider it and pass it for us.
        [The prepared statement of Mr. Gray follows:]
           Prepared Statement of Renardo Gray, Owner and Pharmacist,
                Westside Pharmacy of Detroit, Inc., Detroit, MI
        Chairman Goodlatte, ranking member Watt and members of the
    Subcommittee, thank you for the opportunity to present my views and the
    views of pharmacists across this country, who serve patients who are
    among the most vulnerable in this country. I am Renardo Gray,
    pharmacist and owner of Westside Pharmacy in Detroit, Michigan. In
    1979, I graduated from the University Of Michigan College Of Pharmacy
    and became a registered pharmacist. In 1985, I realized the American
    Dream by opening my own independent pharmacy which I still own and from
    which I have the privilege of serving my patients today.
        Unfortunately, successful and well-run local community pharmacies
    are being forced out of business by the unfair business practices of
    major Pharmacy Benefits Managers (PBMs) and Medicare Part D Plans. The
    congressionally-sanctioned PBM-rigged market for prescription drugs
    must be made more competitive if my small business and thousands of
    others like it across the nation are to survive.
        I would like to commend you for convening this important hearing.
    As someone who strongly supports parity and justice in medicine and the
    elimination of disparities in healthcare, I support HR 1946, the
    Preserving Our Hometown Independent Pharmacies Act of 2011 which was
    introduced by Congressman Tom Marino (R-PA) and has the support of many
    members of this Committee including my Congressman, The Honorable John
    Conyers (D-MI).
        Independent pharmacies are often in under-served inner city and
    rural markets. The local pharmacist is typically the most accessible
    health care professional in the community. No patient prefers dealing
    with a pharmacist at a faraway telecenter rather than dealing with the
    trusted local pharmacist in their community.
        Without the backing of a large corporation, my small business and
    all small independent community pharmacies in today's marketplace have
    become easy prey for large-corporate Pharmacy Benefit Managers (PBMs)
    whose primary motivation is to turn a profit in order to impress their
    board of directors every quarter. That, and the fact that Congress has
    expanded the market for PBMs through the creation of Medicare Part D,
    is why their profits have skyrocketed over the past five years. PBMs
    have been found guilty of switching patients to more expensive and
    sometimes less safe drugs in order to secure higher rebates. PBMs often
    manipulate reimbursement policies in order to deny patients access to
    the drugs they deserve. Independent pharmacies such as Westside
    Pharmacy spend hours helping patients deal with all of these PBM
    schemes, making sure they are taking the appropriate drug, helping
    patients deal with complicated reimbursement issues and assuring the
    patient is able to get the right drug. Independent pharmacists spend
    countless hours helping our patients who have become our friends and
    extended family when problems arise with their mail-order
    prescriptions. We are not reimbursed for these services. We will not
    allow our patients (friends and extended family members) to go without
    the medications.
        If we are forced out who will be there the help the patients in
    their time of need? PBMs coerce patients to use their mail order or
    limit their access to pharmacies that they own or control. PBMs often
    force patients to pay full price if they try to use their local
    independent pharmacy. Patients should and must have the right to choose
    their pharmacy provider.
        The last time the House Judiciary Committee held a hearing on this
    issue, the PBM market was more competitive with three or four
    significant competitors. Since 2007, there have been several PBM
    acquisitions including Express Scripts' acquisition of Wellpoint, CVS'
    acquisition of Caremark and the proposed Express Scripts' acquisition
    of Medco. Both the ESI/Wellpoint and CVS/Caremark deals were cleared by
    the FTC without an extensive investigation. It appears that the FTC is
    poised to approve the Express Scripts acquisition of Medco which will
    create a PBM monopoly with over 150 million covered lives that will
    process over 40% of all prescriptions. Approving this merger would be a
    big mistake and enable Express Scripts to harm patients by denying
    access, reducing service and reducing reimbursement rates. But
    Congress, praise God, has the power to fix this problem and make sure
    high-quality pharmacy care will continue well into the future by
    passing HR 1946.
        I as an independent pharmacist feel like David going up against
    Goliath and his brothers at one time. Thank God for this hearing. We
    need your help. This legislation will allow a limited number of non-
    publicly traded independent (family owned) pharmacies to work together
    to negotiate fair, reasonable fees and many other non-payment terms in
    their contracts with the PBMs. Since local, independent, hometown
    pharmacies are the only pharmacy entities that are prevented under the
    antitrust laws from full participation in the pharmacy market, passage
    would restore an equal playing field for every drug store in your
    communities. Our survival is critical to maximizing patient access to
    affordable healthcare and to the ability of patients to buy their
    medicines and receive sometimes critical one-on-one advice from the
    professionally trained and locally-licensed pharmacists.
        Independent pharmacists are one of the most trusted professionals
    in this country and are the only healthcare providers who provide free
    and trusted care. Pharmacists pride themselves on being able to serve
    their patients and communities with the highest service. You simply
    cannot receive that kind of treatment and patient care from a mail-
    order, automated telephone service.
        Without the ability to truly negotiate with the PBMs from a
    position of parity, independent pharmacies that are otherwise able to
    compete on price and service will be driven to extinction. This would
    be acceptable if our demise was a matter of the free market coming to
    the determination that independent pharmacies add too little value, or
    that independent pharmacies simply cannot operate as efficiently or
    effectively as PBMs or other pharmacy innovators. In fact, these
    factors have nothing to do with why my pharmacy and every pharmacy in
    your congressional districts require your immediate action.
        In this down economy, we hear a lot of talk from Washington, DC
    about how important it is to create the right environment for small
    businesses to thrive, and how important it is that we create more small
    business employment opportunities. There is nothing harder for a small
    business owner than to terminate an employee. Small independent
    pharmacy jobs are local jobs, jobs that, in my case, are either lost or
    created in Detroit. Thanks to ``take-it-or-leave-it'' PBM contracts,
    below-cost PBM reimbursement, PBM patient steering and the constant
    drum-beat of PBMs moving my patients out of my store and into their own
    PBM mail-order warehouse, I know that it will be extremely difficult to
    continue to provide local jobs and provide the finest care available to
    my patients.
        I have spent years competing successfully against the PBMs. What
    has changed is that PBMs are using their massive market power to impose
    distorted market conditions on my small business: and no one in
    Washington--not the FTC, not the Justice Department, not Congress--is
    paying attention!
        This country will never be able to replace the value of face-to-
    face patient counseling that community pharmacists provide on a daily
    basis to all of their patients. And there will never be the same level
    of high-quality personal care provided by mail-order companies run by
    PBMs.
        Mr. Chairman, this legislation is the cornerstone for the future of
    healthcare reform because without the independent pharmacy network,
    high quality healthcare will be compromised. I ask you and this
    committee to pass HR 1946 as soon as possible.
        Thank you for this opportunity.
                                   __________

        Mr. Goodlatte. Thank you, Mr. Gray. There is approximately
    4 minutes remaining in the vote on the Floor.
        When we return from the vote--and I ask Members to return
    promptly, so we can resume and give Mr. Feinstein the floor.
        [Recess.]
        Mr. Goodlatte. The Subcommittee will reconvene, and at this
    time it is my pleasure to recognize Mr. Feinstein.

       TESTIMONY OF RICHARD FEINSTEIN, DIRECTOR OF THE BUREAU OF
                 COMPETITION, FEDERAL TRADE COMMISSION

        Mr. Feinstein. Thank you, Chairman Goodlatte, and Members
    of the Subcommittee. I am Richard Feinstein, Director of the
    Bureau of Competition at the FTC.
        Mr. Goodlatte. Yes. Just pull it closer to you.
        Mr. Feinstein. Okay. Sorry. Is that better? All I had
    gotten through was my name, so I will just continue.
        I appreciate the opportunity to testify today regarding
    H.R. 1946, a bill to grant antitrust immunity to independent
    pharmacies.
        The written statement submitted for this hearing
    constitutes the view of the Federal Trade Commission. My
    statement and my answers to any questions represent my own
    views.
        As you know well, healthcare markets continue to change and
    rapidly. Many small providers, such as independent pharmacists
    and solo practitioners are struggling to adapt to these
    changes. As we have seen in other industries, the transition to
    new business models is not easy. While I am quite sympathetic
    to the economic challenges faced by independent pharmacies as a
    result of these changes, the escalating costs of healthcare
    products and services demand attention as well.
        Competition among healthcare providers is a vital tool to
    keep costs in check and provide incentives to improve the
    quality of care, both of which benefit consumers. That is why
    the FTC devotes significant resources to protect competition
    and healthcare markets.
        Under current law, pharmacies do not need an antitrust
    exemption in order to provide patients with lower-cost drugs or
    better service. The antitrust laws already permit pharmacies to
    work together in ways that benefit patients. For instance,
    pharmacies can and do take advantage of joint buying programs
    to obtain volume discounts. They can and do collaborate with
    one another to provide new products or services to consumers,
    such as monitoring or education for patients with chronic
    illnesses.
        In short, the antitrust exemption contained in H.R. 1946
    would result in higher prices for prescription drugs. The FTC's
    experience with boycotts among pharmacies demonstrates that
    collective fee demands can raise fees substantially. The impact
    of those higher drug costs will be felt by many, by employers
    and employees in higher healthcare premiums and co-pays, by
    State and local governments, both in drug benefits for their
    employees, and in public assistance programs, and by consumers
    who pay out-of-pocket for some or all of their drug costs. And
    even with carve-outs for Federal programs, the conduct
    permitted by this bill will raise direct costs to the Federal
    Government.
        Moreover, once a group of competitors is allowed to band
    together to collectively demand higher fees, it will be hard to
    prevent those negotiations from having a much broader impact
    than intended. After independent pharmacies share competitively
    sensitive information and come to agreements while negotiating
    with private drug benefit plans, they will have information
    they could use to more easily coordinate their prices and
    competitive behavior outside the scope of the authorized
    collective action. This spillover effect could further reduce
    competition among the pharmacies.
        Some say that a law to permit price fixing and boycotts is
    needed so that independent pharmacies can stay in business,
    that an antitrust exemption will help them cover their costs
    and continue to provide needed high-quality services to
    patients, particularly in areas with few options for obtaining
    prescription drugs. But, an antitrust exemption will not solve
    these problems. It does not directly address underserved
    markets or ensure that independent pharmacies will cover their
    costs. It also does not ensure the survival of independent
    pharmacies or adequate services in remote or underserved areas
    of the country. It merely promises that some pharmacies can
    bargain together to demand higher fees and refuse to deal with
    health plans that do not accept the group's demands.
        In sum, the conduct authorized by this bill will raise
    healthcare costs and those higher costs will be imposed on
    others, some of whom are also struggling to make ends meet. For
    these reasons, I very respectfully submit that H.R. 1946 would
    not further its intended purposes of promoting quality of care
    in a more competitive marketplace.
        Thank you for the opportunity to share my views on these
    important issues.
        [The prepared statement of Mr. Feinstein follows:]
         Prepared Statement of Richard Feinstein, Director, Bureau of
                     Competition, Federal Trade Commission

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                   __________

        Mr. Goodlatte. Thank you, Mr. Feinstein. I will start the
    questions, and start with you.
        Professor Wright testifies that the antitrust agencies are
    willing to offer guidance to pharmacies that want to enter into
    pre-competitive collaborative arrangements, without running
    afoul of the antitrust law. Is there any realistic chance that
    the FTC applying current law would consider requests by a group
    of independent pharmacies to collectively bargain reimbursement
    rates with a health plan or a PBM?
        Mr. Feinstein. I think it would depend entirely upon the
    reason that the collective bargaining was necessary. There
    certainly have been many instances where otherwise competing
    healthcare providers have been permitted to form networks where
    they collaborate to improve the quality of the service or
    deliver their products and services more efficiently, and where
    joint selling of their service is necessary or reasonably
    necessary for them to achieve the benefit to consumers, then
    those kinds of arrangements can be approved.
        Mr. Goodlatte. Have any been submitted for approval?
        Mr. Feinstein. None have been submitted for approval by
    pharmacies on that specific question. We have produced, or we
    have in the last decade issued letters authorizing
    collaborations among pharmacies. They have not requested
    authorization for joint pricing. They have involved other
    things.
        Mr. Goodlatte. Do you agree that the PBM market is
    significantly more concentrated now than it was 5 years ago
    when this Committee last held a hearing on this issue?
        Mr. Feinstein. I would agree that there has been additional
    consolidation in the PBM market. The term ``significantly'' is
    one that is ambiguous, and it would be difficult to, you know,
    necessarily agree with that, but certainly there has been more
    concentration in the PBM market over the last 5 years.
        Mr. Goodlatte. Let me direct a similar question to Mr. Gray
    and Mr. James.
        Independent pharmacies can currently collect collective
    bargaining through Pharmacy Service Administration
    Organizations, or PSAOs. What does H.R. 1946 give to
    independent pharmacies that they did not already have the
    ability to do through PSAOs?
        Mr. James. Mr. Chairman, I think there is a misconception
    about PSAOs. I think that PBMs will try to convince you that
    these PSAOs sit down with my pharmacies and sit down with
    pharmacies across this country and negotiate contracts and
    prices with PBMs. That is not true.
        The PSAO's prime purpose is to review a contract and make a
    recommendation to a pharmacy that is a member of that PSAO
    whether or not that should be taken or not. Economically, from
    a business standpoint should it be taken. I don't think you are
    going to find anybody that would say to you from a PSAO's side
    that they sit down and negotiate contractual dollars and cents
    for reimbursement purposes. As a matter of fact, I know some of
    the bigger PBMs who will refuse to talk to some of the PSAOs
    where they attempt to work out those details.
        So, I think that is probably what needs to be understood,
    is what the real purpose of a PSAO is, as opposed to being a
    negotiating entity from the standpoint of pricing.
        Mr. Goodlatte. Professor Wright, do you have a view on
    that?
        Mr. Wright. The only thing I would like to add with respect
    to the advisory letter process that Mr. Feinstein raised is
    that there is something that should be understood about
    existing antitrust law with respect to distinguishing pro-
    competitive from anti-competitive collaboration. That is,
    indeed, the existing law that runs through the agency
    guidelines. And the FTC faces a challenge, as do courts and the
    DoJ, in distinguishing pro-competitive forms of collaboration
    that help competition from those that harm consumers. This is
    the job of those agencies. It is the job of those courts. They
    have developed significant expertise in making that distinction
    over time, and I would imagine well-suited if such a request
    comes in to be able to distinguish between the two.
        Mr. Goodlatte. You testified that basic economic theory and
    experience indicate that coordinated activity among pharmacies
    will likely result in higher prices faced by health plans. But,
    to the extent that health plans currently contract out the
    administration of their prescription drug benefits to PBMs and
    PBMs compete with each other for each health plan's contract,
    is it possible that any additional prescription reimbursement
    costs will come only out of PBM's margins without the health
    plans incurring additional costs?
        Mr. Wright. As a matter of economic principles, no.
        Mr. Goodlatte. That would depend, wouldn't it, on how
    competitive the PBM market is for dealing with those----
        Mr. Wright. How much pass-through you get will depend on
    the demand, the elasticity of demand in the market. It will
    depend on the intensity of competition. But, you will not get
    zero pass-through, essentially, under any economic assumptions
    you would like to make about any of those pertinent variables.
    But, certainly, the amount of pass-through to consumers will
    depend upon a variety of factors. That number is going to be
    positive.
        Mr. Goodlatte. I think Mr. James wanted to respond as well.
        Mr. James. I would just like to comment on the fact that
    what we see in the marketplace today is just as you stated, it
    is competition between PBMs for the plan's sponsor's business.
    What we see in the pharmacy, when that patient comes in, we
    adjudicate that claim, and that PBM does, in fact, tell us
    directly what to charge the consumer. We do not set the price,
    nor does anyone in that pharmacy have anything to do with the
    price. It is charged to the consumer. That is dictated to us by
    the PBM.
        Now, if, in fact, there are negotiations allowable, and the
    PBM feels like they are going to have to wind up paying more
    money to the pharmacy, the question is: What do they do? It is
    their decision, and it is their plan's sponsor's decision.
    Instead of making $6 billion this year, do they make $5.8
    billion and pay the pharmacy a little bit more money, or do
    they charge the plan's sponsor more, which entail causes them
    to charge more. That is not in our habitat. We don't have
    anything to do with that.
        As you see today, when that patient is charged, it is a
    charge that is dictated to by the PBM.
        Mr. Goodlatte. Thank you. My time is expired. The gentleman
    from North Carolina, Mr. Watt, is recognized.
        Mr. Watt. Thank you, Mr. Chairman. And let me start by
    apologizing to the Chairman, and the Committee Members, and our
    witnesses for being late. My community pharmacist will be happy
    to know that I was out doing something that was to their
    benefit, which was going to my allergist to get another
    prescription, so that I could go to my community pharmacy to
    get it filled. So, you are the beneficiaries of my not being
    here.
        I am not sure as you are as much the beneficiaries of my
    being here, because I have some reservations about the bill
    that has been introduced. It is obviously a very difficult
    question. So difficult, in fact, that I am told that I was a
    sponsor of a similar bill in a prior term of Congress, and so,
    obviously, it continues to be a difficult issue. So, let me ask
    a few questions that might help me clarify or refine my own
    position, if we consider this bill.
        There has obviously been an attrition of independent
    community pharmacies. I am looking for evidence that that is as
    a result of what this bill addresses. I am not sure I have seen
    that evidence. Perhaps somebody can provide it to me after this
    hearing. Or whether it is a function of larger conglomerates
    like the CVSs of the world, I presume they don't call
    themselves independent pharmacies, providing more and more
    competition to community pharmacies.
        Just this morning, or this afternoon, or tomorrow, when I
    go home, I will have to make a choice between whether I go to a
    community pharmacy or to the CVS that happens to be right down
    the street from my house. I am not sure that that choice will
    be made based on whether it was a community pharmacy or, you
    know, a chain, or whether it was a PBM involved in it, or not
    involved in it. There are some other things that are driving
    this.
        So, at some point, if somebody has evidence that this
    attrition that is taking place is as a result of what this bill
    deals with, I would dearly like to have that in writing.
        Second, there seems to be an ongoing consolidation of PBMs,
    obviously. One is under consideration right now. One potential
    consolidation about to be ruled on. And if there are antitrust
    implications, one would think that those implications would be
    thoroughly evaluated and considered, and that application would
    be denied. From everything I am hearing the application is
    likely to be granted. I am not involved in that process, and
    have tried to keep the Committee out of it, to some extent.
    But, we had a hearing on the question, and it is not our
    decision to make, but the criteria involve whether there are
    antitrust implications of that merger. And while independent
    pharmacies may not be at the table making that decision, there
    is a set of rules by which that decision gets made. So, that is
    troubling me.
        I guess the basic thing that is troubling me, and I guess I
    haven't asked a question yet, but I am putting some issues on
    the table, I guess the basic thing that is troubling me is the
    thing that I have said in some other context about providing
    antitrust exemptions to anybody. My mama, who always gave me
    good advice when I was growing up, one of the pieces of advice
    she gave me was that two wrongs don't make a right. And if
    somebody is violating the antitrust laws over here, and
    antitrust laws are good, I think there are remedies to deal
    with that. I am not sure that I think the appropriate remedy to
    deal with that is to give somebody else the right to violate
    the antitrust laws.
        So, I put all these things on the table, my concerns.
    Professor Wright, maybe you could, if you would just give me 1
    minute to ask one question.
        Mr. Goodlatte. Without objection.
        Mr. Watt. Is there some evidence to demonstrate that anti-
    competitive practices of PBMs is the cause of the attrition of
    independent pharmacies nationwide? Or what is your take on
    that?
        Mr. Wright. If there is, not that I am aware of. There is
    significant evidence, on the other hand, that as, I think your
    intuition suggested, and also with respect to your skepticism
    about antitrust exemptions, there is ample evidence that one
    might expect, if one gives an antitrust exemption, to violate
    the antitrust laws, folks take advantage of that exemption in
    order to engage in anti-competitive activity. In other words,
    there is ample evidence that where exemptions lie, losses to
    consumers follow.
        Mr. Watt. Well, I won't get you into speculating about
    that.
        Mr. Wright. That is not speculating. That is a body of
    evidence.
        Mr. Watt. A body of evidence. Okay. All right. Well, you
    are not speculating then. Okay. All right.
        Well, I guess I am beyond my time, so in fairness to the
    other Members of the Committee, if we have a second round, I
    will go into some of these issues more thoroughly. I have kind
    of put my cards on the table. They say I have been on all sides
    of this issue at some point or another, but, you know, that is
    the way politicians are. We try to be on all sides of an issue.
    But, at some point we have to vote on these things, and that is
    why we have these hearings, so that we can inform ourselves and
    make an educated good vote, not just a political decision about
    it. So, I will yield back for the time being.
        Mr. Goodlatte. Thank you, gentlemen. And the Chair
    recognizes the gentleman from Pennsylvania, Mr. Marino, for 5
    minutes.
        Mr. Marino. Thank you, Chairman.
        Gentlemen, thank you for being here. And I first want to
    thank Chairman Conyers, because a great portion of why I am
    doing what I am doing was when I read his legislation. So
    Chairman, thank you for the guidance.
        Mr. Feinstein, I think it is publically time that we state
    that the emperor has no clothes on, and I think the emperor
    right now is the PBMs and the large chains. And you stated that
    pharmacies are requesting special treatment, at least in your
    testimony and your written testimony, by being allowed to
    negotiate with much larger PBMs.
        I find it deeply concerning that this is called special
    treatment for the independent pharmacists, but there seems to
    be no limits for PBMs to continue to combine and merge together
    with no action by the FTC. Why is the FTC so aggressively
    opposed to small independent pharmacies getting on a level
    playing field, decentralized groups of independent pharmacies
    joining together, while permitting massive consolidation in the
    PBM market, particularly when it comes to mail-order and no
    negotiation of the prices?
        Mr. Feinstein. Microphone on?
        Mr. Marino. Yes.
        Mr. Feinstein. First, let me make very clear that the FTC
    is not aggressively opposed to independent pharmacies. That was
    how you began your question. We are not aggressively opposed to
    independent pharmacies.
        Mr. Marino. Well, that is my take.
        Mr. Feinstein. I understand, but I want to make it clear,
    speaking for myself, at least, that is not my view, that is not
    the FTC's view.
        What we are concerned about, and I also, as I indicated in
    my opening statement, we recognize that times are tough for
    some independent pharmacies. We recognize that. I think the
    question that was raised about whether this is the primary
    cause of that is an important question.
        Also, it is not my understanding that there has, in fact,
    been substantial attrition among independent pharmacies. It is
    my understanding that the number of independent pharmacies has
    remained relatively flat over the last decade. And I am sure
    others will correct me if that is incorrect. But, leaving that
    aside, I take it, as a given, that times are tough for some
    independent pharmacies.
        The problem that we have is that this solution is a very
    blunt instrument that will have a lot of problematic effects
    throughout our healthcare system in the form of increased
    costs. And that is true often with antitrust exemptions,
    regardless of the industry, and it is true in this setting as
    well.
        It is also our perception that, you know, while it is
    certainly the case that there are some circumstances, maybe
    many circumstances, when a PBM or a health plan that is
    negotiating with a single pharmacy has much more leverage in
    that negotiation. No one disputes that.
        There is also great variation. This is not sort of a one-
    size-fits-all problem. For example, when PBMs are putting
    together networks of pharmacies, which they do to make sure
    that they are serving the needs of the employees of the
    sponsors of the health plans, in other words, the corporations
    that provide the healthcare benefits for their employees, and
    they contract with the PBM to administer the pharmacy.
        Mr. Marino. Sir, I only have a couple of minutes.
        Mr. Feinstein. Sure. I just want to make the point that
    there are places in those networks where they have to deal with
    independent pharmacies, because there are rural locations, for
    example, where the independent pharmacies may be the only one
    in a town.
        Mr. Marino. I understand that, sir, but if you look behind
    you there are pharmacy students from the prestigious Howard
    University. I don't know if they have any plans on going
    independently or where they may be going to work. But, they are
    sitting here listening to a very unlevel playing field,
    particularly when you are dealing with PBMs, when the PBMs
    aren't even telling people who need their prescription drugs
    that there are various ways of getting that. So, they are
    cornering the market on there. And I think it is the
    responsibility of the FTC to look into those matters, not wait
    till we bring it to your attention. That is my basic problem
    with the bureaucracy. But, we will leave that for another day.
        Professor Wright, you made a statement that there will be
    no benefits to consumers. And I am hearing from my colleagues,
    my constituents in my district, pharmacists, and around the
    country that the PBMs are just basically killing them, as far
    as no negotiation on the prices. Yet, independent pharmacists
    across my district today are repeatedly struggling, and I think
    we can produce some numbers as to how many pharmacists, Mr.
    Feinstein, have gone out of business, because they can't
    compete any more with the PBMs, and that some pharmacies have
    closed their doors as a result.
        How could you say that giving pharmacies the limited
    ability to better compete and keep their doors open would not
    benefit consumers? Doesn't competition breed good pricing,
    especially given that nothing in the world beats a face-to-face
    interaction with pharmacists and patients? And I know, because
    I have a daughter who has cystic fibrosis, and I am dealing
    with my independent pharmacist on a weekly basis, three or four
    times a week.
        Mr. Wright. There are in the antitrust laws an economics.
    Collaborative efforts that enhance the competition make it more
    intense and have benefits for consumers. And there are types of
    collaboration that do not. The bill would, by exempting
    independent pharmacies from the antitrust laws, allow all forms
    of collaboration, but in particular would allow independent
    pharmacies to avail themselves of anti-competitive forms of
    coordination.
        The basis for my statement that I suspect the likely
    effects will be to reduce consumer welfare is a body of
    evidence that suggests that when competitors are allowed to
    collude on price, consumer welfare goes down.
        Mr. Marino. Thank you. But, you know, we are talking about,
    and your credentials----
        Mr. Goodlatte. Without objection, the gentleman is
    recognized for one additional minute.
        Mr. Marino. Thank you. Thank you. But, we are talking in
    theory here. You say ``likely.'' You say ``theory.'' Mr.
    Feinstein says ``probably,'' ``could have.'' I talked to the
    pharmacists. I know what they are going through. So, I would
    like to ask quickly, gentlemen, Mr. James and Mr. Gray, can you
    briefly describe your interaction with PBMs and how they treat
    your pharmacy during negotiations, if there are negotiations.
        Mr. James. Well, I think the problem is that the word
    ``negotiation'' is used incorrectly. There are no negotiations.
    There is a contract that comes to your pharmacy. It states the
    terms. It states the conditions. And it gives you one or two
    choices. You sign that contract, or all your patients are moved
    to another pharmacy, because they will not allow them to come
    to your pharmacy to get their prescriptions filled.
        Mr. Marino. Mr. Gray, quickly, please.
        Mr. Gray. There is no negotiation. You either take it or
    leave it. We don't go to the table and say, ``Well, this is
    what we want, and this is what we need. This is what we have
    got to have.'' It is either you take this or leave it. There is
    no negotiation.
        Mr. Marino. But, there is with the large chains.
        Mr. Gray. With the large chains, they do well.
        Mr. Marino. Thank you, Chairman. Thank you so much.
        Mr. Goodlatte. Thank you, gentlemen.
        The gentleman from Michigan is recognized.
        Mr. Conyers. Thank you, Chairman Goodlatte. Well, I think
    we are beginning to reveal several things here that are
    important. One, the need for the legislation is based on the
    expectation that the pharmacist will be able to bargain
    collectively, which they can't do now, and that is why the
    antitrust exemption is being sought. And so, I feel that that
    is one of the rare reasons to exempt any company from antitrust
    control. As a matter of fact, this is the only instance that I
    think that there is some possibility for this being salutary.
        Now, what is being asserted here is that there is no choice
    when you are dealing with a PBM, and now it turns out that CVS
    owns one of the largest PBMs itself. Caremark. So, the
    concentration, and the power, and the less negotiating ability
    on the part of the independent pharmacies, let's face it, this
    is a classic capitalist case of the little guys versus the big
    guys. And it seems to me that fairness dictates that this
    exemption be given very good consideration.
        Mr. James, do you think that I am putting this in a fair
    description?
        Mr. James. I think that is a very good interpretation of
    what is going on, and I would say in addition to that, that
    what we have to look at here is, if you look at the world of
    pharmacy, I submit to you that independent pharmacies are the
    only people that are being hammered by this antitrust law. If
    you think about the bigger pharmacies, you think about the CVSs
    you mentioned, the Rite-Aids, all the major pharmacies, for
    example, CVS has about 7,000 pharmacies across the country. You
    have to understand that that pharmacy, CVS, is, in fact,
    negotiating with a PBM. But, they are able to negotiate,
    because all of their stores are in one corporation. So, they
    can sit down with them and say, ``You want us in or you want us
    out. Take your choice. If so, here is the deal.''
        What the PBMs realize, which has been stated here earlier,
    is that independent pharmacies are separate corporations unto
    themselves, which are now falling under this antitrust law, so
    there is no way to negotiate. That is why you get take-it-or-
    leave-it contracts.
        So, as I said earlier, I submit to you that independent
    pharmacies are the only pharmacies being affected by this
    antitrust law.
        Mr. Conyers. Thank you.
        Could I ask that the second-year pharmacy students from
    Howard University just stand for one moment, please? There is
    only one man in this seven-person group. Is there some
    explanation for this imbalance? I won't ask Professor Stolp to
    explain that, but look ladies, we want to bring more fellows
    into this. Normally, we are arguing just the reverse, so we
    have to get more women into a situation.
        Mr. Watt. Mr. Ranking Member, we might ask the Chair to
    have a hearing about that. [Laughter.]
        Mr. Conyers. That is right. Look, we have a long list of
    possible hearings, and this will go on the list, but at the
    bottom.
        Anyway, welcome, and don't be discouraged by the power
    plays that are going on in your future profession. I
    congratulate you all.
        Mr. Marino. Mr. Conyers, would you yield for 1 second? I am
    going to argue on behalf of the gentleman. He is in an ideal
    situation. All right? [Laughter.]
        I am with you.
        Mr. Watt. All he needs to do is move to the middle there,
    it would be great. [Laughter.]
        Mr. Watt. He is not quite ideal yet, but he is getting
    there.
        Mr. Johnson. Well, I am going to tell you, if any of the
    young ladies has a dad like Tom Marino, then you are in
    trouble, young man. [Laughter.]
        Mr. Conyers. All right. You may sit down, please. And we
    are very proud of all of you in your work. And we hope that we
    can continue to get the issue of fairness in this matter. But,
    it seems a little bit one-sided. Not only does PBM control, but
    some of the biggest pharmacies create their own PBM. So, look,
    the more we dig into this, the deeper the problem becomes.
        I thank the Chairman for his generosity with the time, and
    yield back.
        Mr. Goodlatte. I thank the gentleman. The Chair recognizes
    the gentlewoman from California, Ms. Chu, for 5 minutes.
        Oh. I'm sorry. He slipped in on me. I am glad to be joined
    by another one on my side of the aisle.
        Mr. Griffin. I am glad I am making it.
        Mr. Goodlatte. And we will recognize Mr. Griffin for 5
    minutes.
        Mr. Griffin. Mr. Chair, I am glad I am making such an
    impact on you. [Laughter.]
        Mr. Chairman, I am concerned about Park West Pharmacy in my
    district, in Little Rock, and you referred to in your
    testimony. And at the request of Park West Pharmacy, which is a
    community pharmacy in Little Rock, I ask unanimous consent to
    submit for the record some documents that they gave to me,
    indicating marginal losses on prescriptions associated with
    transactions between the pharmacies and the PBMs. And I have
    those documents here.
        Mr. Goodlatte. Without objection, so ordered.
        [The information referred to follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                   __________

        Mr. Griffin. Thank you, Mr. Chairman, I appreciate that.
        I have not decided what I am going to do on H.R. 1946 at
    this point, but I am concerned about our community pharmacies,
    and I have expressed those concerns about the merger that is
    being considered right now. I know we are expecting a decision
    on that soon, but I registered my concerns about that, and the
    implications of that on community pharmacies.
        I wanted to ask you, Mr. James, a couple of questions.
    First of all, can you talk a little bit about the limitations
    of PSAOs and their ability to negotiate and bargain with the
    PBMs? What hinders that organization that independent
    pharmacies are members of from doing that sort of negotiating?
        Mr. James. I think it boils down to the fundamental fact
    that each pharmacy is its own corporation, its own entity. It
    is a private entity. They can represent them in advice, when we
    all come together, because I belong to one. It is 500 or 600
    stores. And they can come together, look at contracts, which
    that normal pharmacist usually is not an attorney. He doesn't
    have all the expertise he needs to have to address that
    contract and what it says. He knows what they are saying they
    are going pay him. He knows what they are going to do about
    audits, things of that nature, but he doesn't know all the
    other legalities of the contract.
        So PSAOs formed several years ago to bring stores together
    and say, ``We could advise you on this program.'' They can talk
    to the PBM about things they don't like in that contract,
    things that are onerous type things, things that have to do
    with audit processing, and things of that nature. They can turn
    to me, as a member of that PSAO and say, ``We don't think this
    is a good contract for you. We would advise you not to take
    this, or we would advise you to take this.''
        The difference here is that once they give me that advice,
    I am still my own entity, and I have the right to join that
    contract, if I choose, no matter what they say. So, they can be
    as strong as possible, recommended you to turn it around, and
    then anybody that chooses to can go ahead and join the program.
    But, they don't have any legal standing to negotiate for my
    pharmacy.
        Mr. Griffin. Do you have anything to add to that, Mr. Gray?
        Mr. Gray. No. He told it just like it is. They are there,
    but they don't negotiate. They just give us advice.
        Mr. Griffin. I want to ask you, Mr. James, since you
    referenced the Park West Pharmacy in my district, can you give
    me a little background on these documents that you discussed in
    your testimony? Well, at least your prepared testimony. You
    might have changed it for today after talking with my staff and
    learning that I was going to introduce these into the record.
    But, can you tell us a little bit about what these documents
    that I have put into the record, what they represent, what they
    tell us, and why the folks at Park West Pharmacy in Little Rock
    were so keen on having these entered into the record?
        Mr. James. What you have is a listing from Park West
    Pharmacy that shows the actual prescription medication they
    used in filling a prescription, the actual amount that was
    billed, and the actual amount the PBM paid them for that
    product.
        So, for example, if you had a prescription you were
    filling, your actual acquisition cost for the product was $100.
    You transmit that to the PBM. They trans back to you what they
    are paying you for that product, what your fee is on that
    product, and how much you should charge the patient as a co-
    pay.
        What this document shows are 218 prescriptions, if I
    remember correctly, that they were paid just for the product,
    less than the product actually cost.
        Mr. Griffin. Just to clarify. I see the yellow light is on.
    I am running out of time. What Park West receives for that
    prescription is not a surprise to them. They are not saying
    that they are owed money that they can't get. They are just
    saying that the price they have to agree to is less than they
    would prefer. It is not a surprise to them. I am just trying
    to----
        Mr. James. The interesting part of this is that they do not
    know what that PBM is going to pay them today or tomorrow for
    the same drug. It may change.
        Mr. Griffin. Gotcha.
        Mr. James. So what we are looking at in your examples there
    is maybe that $100 came back to them at $95.
        Mr. Griffin. Gotcha.
        Mr. James. So they were down $5 as soon as they fill the
    prescription from the acquisition costs.
        Mr. Griffin. Gotcha. I see I am out of time. Thank you, Mr.
    Chairman.
        Mr. Goodlatte. I thank the gentleman. And the Chair
    recognizes the gentlewoman from California, Ms. Chu, for 5
    minutes.
        Ms. Chu. Thank you, Mr. Chair. I am concerned about the
    proposed merger of Express Scripts and Medco, which would then
    cover more than 135 million lives. Should this merger be
    approved, there would be even more of a limit in the ability of
    community pharmacists to be able to negotiate in a manner that
    enables them to continue to serve their patients. And one of
    those examples of the growing power of the PBMs is the mail-
    order business, and I would like to ask Mr. Gray and Mr. James
    about this.
        I have heard from constituents and from pharmacies about
    how PBMs use data from the community pharmacists' patients to
    try to push these patients to use the PBM's own mail-order
    business. And the PBMs are in a position to force the plan
    beneficiaries to use the PBM-owned mail-order pharmacy, and
    that they even are allowed to use the pharmacy's patient data.
        Is this your experience, and how do the PBMs pressure the
    customers to use their mail-order services?
        Mr. James. Yes, it is my experience, and it happens
    everyday. I mean we have had instances in which a patient would
    fill a prescription under a new plan they have just gone on and
    literally had a call from the PBM mail-order house that
    afternoon saying, ``I see that you received such-and-such drug.
    We can save you a lot of money if you will buy this through the
    mail-order program. We will give you a discount on your co-
    pay.''
        So, what we are seeing happen is, we are seeing the data
    that we transmit, which consists of all their information,
    including the medication, going to the PBM, and immediately be
    transferred to their marketing department, so that they can
    call and write letters.
        We see people on a regular basis get two or three letters a
    month from a PBM trying to coerce them. And these letters are
    written in such a way that it almost convinces that patient
    that if you don't do this, you are going to lose your benefit.
    And so then they come to the pharmacy saying, ``I have got to
    go mail-order, because here is what they are saying.'' Bring me
    your letter and when you read the letter, that is not exactly
    what they said. They insinuated that, but obviously, the
    patient thinks that is the case.
        The major fear among patients in cases like this is losing
    their benefit. They are afraid they are going to lose their
    healthcare coverage, and because of that, they are going to do
    anything that they think they have to do to retain that.
        Mr. Chu. Mr. Gray.
        Mr. Gray. Many times, the letter comes and says that they
    don't have a choice now. They are forced to go mandatory mail-
    order. And that is the ones we see the most, where they
    actually have no choice. They have to get it mail-order or pay
    cash. And there should be a choice in this. The patient should
    be able to choose their own doctor, their own pharmacy, where
    they get their car fixed. They should be able to have choices,
    but now they are not given a choice. And the PBM doesn't allow
    us to do anything about it. They even tell us that we have to
    advertise for them. ``Oh. I am sorry. I can no longer fill your
    prescription, Ms. Chu. You have to get yours through mail-
    order.'' So I am actually forced to tell them where they have
    to go, who they have to call. And that is really not fair.
        Ms. Chu. Mr. Wright, if pharmacies are not allowed an
    antitrust exemption, even as limited as the one as in H.R.
    1946, why should PBMs be allowed to engage in these kind of
    practices?
        Mr. Wright. To begin with, I am not sure that the exemption
    in the existing bill is limited. It depends what you mean by
    ``limited.'' From my perspective, part of what would clearly be
    allowed as conduct that would be prescribed under Section 1 of
    the Sherman Act, and always has been on the grounds that it
    will result in higher prices and reduced welfare for consumers.
    And in that sense, I would not describe the exemption as
    particularly limited from an antitrust perspective.
        With respect to antitrust analysis of what the PBMs have
    done with respect to mail-order, that is not a question that I
    have studied or have any particular view, based on analysis.
        Ms. Chu. Okay. I would like to ask a question to Mr.
    Feinstein about special treatment. You stated that pharmacies
    are requesting special treatment by allowing them to negotiate
    with the much larger PBMs, especially given the limits that
    would be placed under H.R. 1946. I find it of great concern
    that this is called ``special treatment'' for pharmacies, but
    there seems to be little concern given to the special treatment
    that is given to the PBMs and their ability to conceal
    information regarding pricing and audit standards.
        If we were to oppose special treatment for any party, why
    are PBMs allowed to withhold this information from pharmacies
    during contract negotiations? Because, in effect, that sounds
    like special treatment for the PBMs.
        Mr. Feinstein. Just to make sure that my position is clear,
    the ``special treatment'' that I was referring to was special
    treatment under the antitrust laws. And antitrust exemptions,
    whoever may be seeking them, it is an exception from the
    antitrust laws that otherwise apply generally.
        With respect to the provisions that you are speaking of,
    which are not provisions that really are sound in antitrust
    law, my understanding is that that arises primarily from the
    relationship between the PBM and the sponsor of the health
    plan, which very often is an employer, as I mentioned earlier.
    And the employers want the PBMs to deliver the services that
    they are delivering under competitive conditions, in terms of
    both price and quality.
        I mentioned in my earlier statement that there are a lot of
    new business models that are emerging in healthcare generally.
    Certainly, this is no exception. And certainly, the phenomenon
    of mail-order is an example of that. And I am not pro or con
    mail-order, but it has emerged, and it is one of the features
    that is offered as a way of helping to contain costs in some
    circumstances. It doesn't do that in every circumstance,
    necessarily. But, what is happening is that the provisions that
    I think are being described here are part of the financial
    arrangement and the contractual arrangement between the PBM and
    the provider of the health benefit, and it is intended to help
    control healthcare costs.
        So, I think we have to be careful in how we approach them.
    But, again, these are not fundamentally contractual provisions
    that tee-up antitrust issues, unlike the antitrust exemption.
        Ms. Chu. I yield back.
        Mr. Goodlatte. I thank the gentlewoman. The gentleman from
    California, Mr. Issa, is recognized for 5 minutes.
        Mr. Issa. Thank you. I guess I will start with Professor
    Wright.
        As far as I know, the PBMs are not on trial here. We only
    have one narrow question, which is: Do we grant additional
    antitrust to a retail entity so they can work with other retail
    entities to do more than just have a buyers group? Is that
    really what we are talking about here today? I just want to
    make sure it is in simple language for the American people.
        Mr. Wright. That is how I understand the issue.
        Mr. Issa. I used to be a manufacturer. They already have an
    ability to form buyers groups, and buy in greater numbers, so
    they can compete with Wal-Mart or anybody else that has larger
    buying power. That is not a question here today, right?
        Mr. Wright. My understanding is that under current
    antitrust laws, the independent pharmacies have the ability to
    engage in pro-competitive coordination.
        Mr. Issa. Okay. So, I am kind of going through and saying,
    okay, it is not about price, because, essentially, all the
    independents could form a group that all by itself would
    essentially be as large as the top five or six, you know, non-
    small. So, the further cooperation antitrust is not
    necessitated based on something to do with the other side of
    the coin.
        Mr. Feinstein, I guess I will go to you, because you are
    sort of the regulator in the room. Where is the compelling need
    to do this that favors action toward these private businesses?
    And the reason I ask, before I go further, because you have a
    portfolio far greater than pharmacy. If we are looking at all
    of the buying, and I was in consumer electronics, the same
    could be said of trying to deal with my old company, or Sony,
    or Panasonic, any of these things, everybody would like to have
    the ability to get together and to compare not just prices for,
    you know, group buying, but they would like to be able to
    compare who got how much co-op, what the salesmen did for them
    for lunch, everything else. If we were to expand it here,
    wouldn't we essentially open the floodgates for all small
    businesses to say they have a similar situation in which they
    would get a competitive advantage, if they were allowed to
    operate, if you will, as a cartel of storefronts?
        Mr. Feinstein. I think that is a legitimate concern,
    Congressman, and I think that is one of the reasons that the
    Antitrust Modernization Commision issued its views that these
    sorts of exemptions should occur very rarely and be thoroughly
    considered by Congress before they are authorized.
        Mr. Issa. Now, it is not within this Committee's
    jurisdiction, but if we looked at the other side of the coin
    probably over at Ways and Means or Energy and Commerce, the
    fact is you can reform the actions of the middle parties, you
    know, in other words, you can reform insurance law, you can
    reform any part of it, certainly, what now is probably called
    by the Administration, ``Obamacare.'' For a while, I was told
    not to say it. Now, they are using it. So, the healthcare
    reform law. The fact is it reforms a lot of that, doesn't it?
    Aren't there a lot of changes in the air in the case of, if you
    will, healthcare delivery and insurance?
        Mr. Feinstein. Yes, there are. And I think that is an
    example of the point that shouldn't be lost, which is that
    because this is such a blunt instrument, that is, authorization
    of price fixing, to put it bluntly, antitrust exemptions have
    widespread unintended consequences, although, they are
    foreseeable.
        If this concern needs to be addressed, I believe it should
    be addressed more directly and more surgically in a way that
    does not have all of those ripples throughout the economy.
        Mr. Issa. Now, Professor Wright, I am going to--and I would
    like to open it up to the others quickly. We have a lack of
    transparency, generally, in this relationship. The pricing, and
    distribution, and sales of pharmaceuticals, it is pretty much
    voodoo magic. You can't figure out what somebody's really
    paying till you look at a series of discounts, and so on. Is
    that your understanding? And then I would like to go to the
    pharmacists.
        Mr. Wright. Like many industries, I think they analyze
    price.
        Mr. Issa. Okay. So, now I would like to go to, if you will,
    to the other side of the coin. Mr. Gray, Mr. James, if we
    cannot grant you antitrust, isn't one of the alternatives a
    dramatic increase in the transparency of the actual pricing,
    purchase price, sales price, profit margins, which we could do?
    We could demand that there be effectively a fair price for a
    fair volume, and that that be transparent.
        And in the case of government-funded programs, Medicare,
    and the like, where we work off of a series of discounts,
    because everything is based on some hypothetical retail price,
    isn't that reform the alternative that you might seek from
    Congress in order to get a fairer, easier to understand
    relationship?
        Mr. James. I think that where we are at this moment in
    time, there are a couple of answers to that. Number one, we
    have to remember in this bill the Federal Government is not
    involved in this bill. This is strictly about a private
    situation.
        Number two, we have to remember in your example of
    electronics that when cost of electronics goes up from the
    manufacturer, that individual dealer has a right to raise his
    price, if he chooses to, to try to compensate for that. In our
    industry, that doesn't exist. With PBMs, they set both ends of
    the equation. So, if the drug goes up, they don't give us any
    additional----
        Mr. Issa. Right. And for both of your answers, and my time
    is expired, I just wanted you to sort of say, if we fix that
    part of the equation, if you will, the bizarre pricing
    situations in which there really is not an honest, and fair,
    and open, and transparent delivery. I mean pharmaceuticals are
    the only things worse to try to figure out what they really
    cost, they're the only things worst than a hotel room on
    Priceline.
        Mr. James. I think what you have is a situation in which
    once you have transparency, you may know more about what is
    going on. I don't think that is going to force the PBMs to do
    anything with us.
        Mr. Goodlatte. The time for the gentleman has expired.
        We have 11 minutes remaining in a vote. I think that is
    sufficient time to be able to recognize the gentleman from
    Georgia, Mr. Johnson, for 5 minutes.
        Mr. Johnson. Thank you, Mr. Chairman. I remember Andy, of
    Mayberry, the Andy Griffin Show, and there was Floyd, the
    barber. I don't know if you-all remember Floyd or not. But
    then, right next door to Floyd may have been John, the
    pharmacist. But, the landscape has changed since then, and we
    don't have many John the pharmacists in business market- share.
        And I know you, Mr. Gray, and you, Mr. James, you are a
    little bigger than John, the pharmacist back then. You are a
    little bigger, but still the same community-minded pharmacists.
    But, you are kind of a vanishing breed. And I suppose a lot of
    folks are going to work for the PBMs and the drugstores, the
    major drugstore chains, and that kind of thing, and then the
    PBMs are even purchasing the drugstore chains now, to where
    they can be the retailer. They can be the retailer on the
    street, brick-and-mortar retailer, and control the mail-order
    market. And it is three, basically, PBMs that control about 60
    percent, I am told, of the drug dispensation market in America.
    Anybody disagree so far?
        Mr. Feinstein. I don't necessarily disagree. I just need to
    know a little more about it specifically.
        Mr. Johnson. Okay. I am kind of spoon feeding now.
        Mr. Feinstein. Understood.
        Mr. Johnson. The first bite was good. First spoonful was
    good.
        Now, it is the PBMs that negotiate the drug prices with the
    pharmaceutical manufacturers. And the pharmaceutical
    manufacturers don't hear from John, the pharmacy type guys,
    because of the antitrust law, which is a relic from the past.
    Even though the business model has changed, we are still
    depending on those old traditions in the law insofar as
    antitrust exemptions are concerned. But, John, the pharmacist,
    has been losing market-share probably since Andy Griffin, since
    that time, and the trend continues to go down. And I think that
    you, Mr. Gray, and you, Mr. James, have made a good case for
    why we should have the option of either going to the small
    pharmacist, or going to the major drugstore chains, you know,
    to get our mail. Oh, we do it the modern way, through the mail,
    you know, that kind of thing.
        Choice is real important. Choice, by the way, is not a part
    of this bill, is it, in terms of PBMs having to tell folks that
    you have the right to go through your drugstore or through
    mail. They don't have to do that, and you are not asking for
    that with this legislation. But, you just want a seat at the
    table when it comes to negotiating the price or the
    reimbursement for the drug. Is that correct?
        Mr. Gray. That is correct.
        Mr. Johnson. Okay. Now, given the fact that the market has
    changed, and John, the Barber, is threatened now with
    extinction, due to the larger entities that have control over
    the drug dispensation market, what would be so wrong with
    allowing them for the limited purpose of coming together to
    negotiate price? How could they drive up prices being only 40
    percent of the dispensation market and still declining? That is
    what I would like to know, Mr. Feinstein.
        Mr. Feinstein. I think the simple answer, at least----
        Mr. Goodlatte. Given the shortness of time, without
    objection, the gentleman is recognized for an additional 30
    seconds, and then you will have to recess.
        Mr. Feinstein. I think that the price increases of some
    magnitude are inevitable, because that is whole purpose of the
    legislation. And I don't mean to be pejorative about that. I am
    just trying to give you a direct answer. The idea is to
    immunize conduct which is intended to increase the
    reimbursement to the community pharmacist, and that will
    increase the costs to the system.
        Mr. Johnson. Well, now if the community pharmacist doesn't
    know how much the PBMs are getting for reimbursement and the
    PBMs can just dictate to the independent pharmacist how much
    they will be able to receive.
        Mr. Goodlatte. The time of the gentleman has expired.
        We have less then 5 minutes remaining in this vote. We are
    going to return, and when we return the gentleman from
    Pennsylvania will be in the Chair, and he will first recognize
    the gentlewoman from Texas, Ms. Jackson Lee. I, unfortunately,
    will not be able to return, but the gentleman from North
    Carolina and the gentleman from Pennsylvania may have some
    additional questions that they may wish to ask of the panel,
    too.
        So, we appreciate your forbearance, and the Committee will
    stand in recess.
        [Recess.]
        Mr. Marino [presiding]. The Judiciary hearing will come to
    order again. I want to thank the witnesses for giving us their
    valuable time and waiting, and the people out there as well.
        Now, I am going to ask the distinguished Congresswoman from
    Texas. She has 5 minutes.
        Ms. Jackson Lee. Mr. Chairman, thank you for your
    courtesies, and thank the witnesses for their patience for our
    schedule.
        Mr. Marino, I am delighted that you have revived this
    legislation. We had a vote on it in Committee in the last
    session under the gentleman from New York, Mr. Weiner, and I
    think that Members, I would like to see some further life in
    the bill. I think this was at the end of the term, and I think
    as you have listened to the questions in a Committee that is
    the protector of competition, it raises a concern on the issue
    of harm, when we give an exemption, who are we harming. So, I
    believe this is an important hearing that allows us to deal
    with this issue and be thoughtful, and see how we can come to a
    reasoned response.
        And I think there is an enormous amount of right on the
    side of community and small pharmacies. It is a mountain of
    rightness on that. But as the protectors of the antitrust law,
    that it works so that the Federal Trade Commission and the
    Department of Justice Antitrust Division have the tools that
    they need to protect the consumer, we have to have a respectful
    balance.
        So, I am not asking you, Mr. Feinstein--should I say stine?
    I didn't hear the pronunciation before.
        Mr. Feinstein. Fein-steen. Yes.
        Ms. Jackson Lee. Fein-steen. Thank you--to go overboard
    because you are a government regulator. You adhere to the law.
        So, my question to you, I am putting this word in front of
    it, what is the devastating harm of the potential of a bill
    like the one that we are addressing here today, 1946--and I
    heard Mr. Issa's comments about if one gets it, the other gets
    it. But, let's move past that. I have already heard that. Just
    give me what else. And I need to talk to other witnesses. So,
    if you could be precise, what would be the expanse of the harm?
    And, frankly, I would like you to just focus on this industry
    and this concept, which is an exemption for our smaller guys,
    giving some sort of equal playing field. But, go ahead, sir.
        Mr. Feinstein. Thank you. In short, the harm that we are
    most concerned about is increases in costs to the healthcare
    system. Unambiguously, the purpose of this proposal, and they
    have been very direct about it, is a perceived need on the part
    of the community pharmacist to be paid more for the services
    they provide. And I understand that perception on their part. I
    totally understand how that would help them. Antitrust
    exemptions always help the people that are seeking them, and I
    don't mean to be pejorative in saying that. It is just a fact.
        Ms. Jackson Lee. That is all right.
        Mr. Feinstein. But, our constituents, our consumers, as a
    whole, when I say ``our,'' I mean the FTC, the enforcement
    agencies, and our concern is that this will introduce
    additional costs, and Professor Wright has explained how, you
    know, it is an economic certainty that at least some of them
    will be pass-through.
        Ms. Jackson Lee. And the costs will be on the ultimate
    product that the consumer is coming to the pharmacy for.
        Mr. Feinstein. Yes. I mean one way to think about it is,
    you know, the PBMs contract with employers, employers are
    paying the PBMs to provide these services. Those costs, if they
    get passed through to the sponsors of the health plans, that is
    going to show up in some fashion. It is going to show up in
    reduced benefits in the health plans. It is going to show up in
    higher co-pays. There are lots of different ways. And it is
    just fact.
        And I guess I would also point out, you know, if it were
    clear that that wasn't the case, and there weren't going to be
    cost increases, why would the bill exempt the Federal
    Government from its provisions. I mean for other reasons, we
    think some of those costs will nonetheless be imposed on the
    government. I think that is a genuine question that hasn't been
    answered.
        Ms. Jackson Lee. Yes. Mr. Marino, I am already going to ask
    for additional time just to finish my line of reasoning.
    Because, Mr. James, I wanted to ask, the regulator, he has to
    follow the law. How do you answer the question of higher costs?
    My concept of it is, allowing you-all to negotiate with the
    PBMs for lower costs, or to give you the ability to go out and
    get lower-cost prescription, now you are saying that your costs
    are higher, and, therefore, you need to be paid higher?
        Mr. James. No. What we are saying is that what we are
    doing, as we talked about earlier, is that in some cases in
    these programs that we are contracting with PBMs, we are
    actually being paid lower than the cost of the drug not to
    address fees to fill the prescriptions. Things of that nature.
    But what we are trying to do is, everybody has focused here
    today on cost. They talked about getting more dollars.
        If you look at one of these contracts, what you realize
    very quickly is there is a tremendous amount of onerous things
    in these contracts that affect pharmacy beyond the figure of
    cost. For example, their ability to go into a pharmacy 2 years
    after the fact and do an audit, and retrieve those dollars that
    were used to fill those prescriptions, even though the
    prescription was filled properly, the patient got the
    medication, and has taken the medication, but yet, they come
    in, because in their contract it gives them the right to handle
    that anyway they choose.
        So, this debate about negotiation is not just about
    dollars. It is about other things, also.
        Ms. Jackson Lee. That burden you from surviving. Is that
    what you are saying?
        Mr. James. I am sorry? Say it again.
        Ms. Jackson Lee. That burden the small pharmacies from
    surviving.
        Mr. James. Yes.
        Ms. Jackson Lee. And you are giving quality care. Do you
    think you are giving quality care to individuals who, you may
    be in places where they don't have access to the big guys or
    you may have a special relationship that is necessary,
    particularly the senior population? Do you believe that you
    have sort of a unique service as well?
        Mr. James. Absolutely. Patient care is about face to face.
    It is not about the mailman. Once you leave, and what I believe
    as a pharmacist is, there should not be anyone between you and
    your physician. You go to the physician, they diagnose your
    problem, they select a drug of choice, and you should be able
    to get that drug. What we are finding with PBMs is, we fill a
    prescription, and they refuse to fill it. They refuse to pay
    for it.
        Ms. Jackson Lee. Let me ask the Chairman, can I have an
    additional minute to inquire of Mr. Gray.
        Mr. Marino. Without objection.
        Ms. Jackson Lee. I appreciate it. I thank the Ranking
    Member for coming back, and the Chairman for coming back.
        There are a lot of people praying on the steps of the
    Supreme Court. I guess they were praying in the last 3 days.
    Today is Thursday. I am praying, too, for victory, because I
    believe that what we tried to do in the Affordable Care Act,
    close the doughnut hole, keep people alive who have preexisting
    diseases is a good thing. So, I am really interested in giving
    access to healthcare.
        So, let me just try to probe. I understand the issue now,
    and I am called toward the fairness question, which I guess
    balances the competition. So, I think all of us are sort of
    grappling with that. I hope there is some life that we can deal
    with this issue.
        But, Mr. Gray, tell us a little bit about your business,
    because I understand you had an 83-year-old that had a problem.
    And so, talk about the service. And I want to acknowledge as
    well the Howard University pharmaceutical students, thank them
    for their presence here. But, tell us a little bit about that
    service, and when you deal with the PBMs, that you are the
    underdog. So, go ahead and tell us a little bit about that.
        Mr. Gray. Well, a gentleman came in. Like I say, he was an
    83-year-old gentleman, and he is suffering with Alzheimer's. He
    remembers he needs his medicine. The mail-order plan said they
    mailed his prescription to him on March 6. On March 26, he came
    to me for medication. After making several phone calls, I was
    able to generate a 30-day supply of medication for him, so he
    can get his medication. We do these things every day, because
    they can't call the PBMs. The PBMs have already ignored them.
    The mail-order plant said, ``We mailed it out.'' But, our
    objective is to get the medication into the people's hands.
        Medicare Part D is to provide medications for Medicare Part
    D recipients, provide their medications. It has certain
    limitations. But, we talk about increasing costs. We are not
    asking for you to increase the costs. We just want the PBM to
    pay us as they are paying themselves. They pay themselves a fee
    when they fill the prescription for CVS, CVS Caremark, CVS
    Caremark Medicare Part D plan. They pay CVS a fee when they
    fill a brand-name drug.
        Ms. Jackson Lee. So, the PBMs include these large
    companies.
        Mr. Gray. Right. They own each other.
        Ms. Jackson Lee. And you get no fee?
        Mr. Gray. We get no fee for a brand-name drug. You get the
    cost only. But, they get a fee. They get one. In their mail-
    order option and in their stores, they get a fee. We don't get
    a fee. Why can't we have a fee if they get one?
        Ms. Jackson Lee. All right.
        Mr. Gray. We are looking for fairness.
        Ms. Jackson Lee. Mr. Chairman, I thank you for your
    indulgence. I think I have sort of pierced the veil here, and I
    hear a cry for help. I am hoping the Judiciary Committee can
    help Mr. Feinstein on his regulator responsibilities, but I
    hope that we can find a way to help these small pharmacies,
    because I don't want them to die. I think they have a valuable
    role, even as a small business, but as a familiar face to the
    community.
        This gentleman may not have known where the mail was coming
    from, but he could make his way over to this gentleman's
    pharmacy. So, I really believe we should try and find some
    common ground.
        I thank the gentleman for yielding and extending the time.
        And I yield back my time.
        Mr. Marino. Thank you. Ranking Member Watt has some
    additional questions.
        Mr. Watt. I just have one additional question. I think we
    have heard a lot of talk about the abusive relationship between
    PBMs and pharmacies. And I am wondering why an antitrust case
    against the PBMs wouldn't be a viable solution. I mean the
    pharmacies could band together without an antitrust exemption
    to bring such an action. Why would that not be viable? Maybe
    there is some reason that I am missing here. And if each one of
    you can just give me your spin on that, that would be my only
    question.
        Mr. James. If I understood your question correctly, it is
    my understanding from the antitrust law that individual
    corporations are prevented from banding together to negotiate.
        Mr. Watt. To negotiate, but not to file a lawsuit.
        Mr. James. Yes. We can do that. We can band together to not
    negotiate. If we file a lawsuit, the question is, how do
    independent pharmacies, with the source of revenue that we
    have, actually fight a lawsuit with companies that are making
    $60 billion a year?
        Mr. Watt. That is why I was suggesting you band together,
    because I assume that one response would be we are too small as
    individuals to fight the PBMs. But, if you banded together, and
    filed a lawsuit, if there were abusive practices taking place,
    why would that not be a viable option? I guess that is the
    question I am asking.
        Maybe there are some reasons. Maybe the professor can tell
    us whether there are some reasons why that would not be a
    viable option.
        Mr. Wright. I certainly can't speak to viability in terms
    of what the pharmacies would like to spend to fund such a
    lawsuit or not, but with respect to the antitrust law question,
    of course, there are exemptions, petitioning exemptions under
    the First Amendment that would allow groups to band together
    for the purpose of petitioning activity, including lawsuits.
    There would be no bar from the antitrust laws to such a suit.
        Mr. Watt. And there is nothing in the antitrust laws
    themselves that prevent such a suit.
        Mr. Wright. No. The question of such a suit would be proof
    that the----
        Mr. Watt. Mr. Gray?
        Mr. Gray. My question is: Why haven't the antitrust laws
    been applied to stop this in the first place? We have to go
    file a lawsuit?
        Mr. Watt. Well, that is a good question. I mean I have
    raised that question, too. If mergers are taking place, for
    example, that are abusive, then those get reviewed by the
    relevant government agencies, but it is kind of like this, I
    mean we pass laws that prevent things from happening, that
    prohibit things from happening. That does not prevent them from
    happening.
        When I was practicing law, clients, and now as a
    politician, constituents, who come to me all the time saying,
    ``I have been discriminated against.'' And I said, ``There is a
    law on the books that prohibits discrimination based on race,
    or gender, or sex.'' But, you have to go and file a personal
    action to enforce that law.
        And I guess the question I am asking here is: Why has
    somebody not filed a lawsuit to enforce the law that says you
    can't collude and take abusive positions in the marketplace
    against us? Is there some reason that that is not a viable
    option, as opposed to amending the antitrust laws and saying
    that that is the solution here?
        Maybe Mr. Feinstein can tell me.
        Mr. Feinstein. I would----
        Mr. Watt. Even got triple damages if you win, I think.
        Mr. Feinstein. The only thing I would say, Congressman, is
    that I agree with Professor Wright that the antitrust laws
    absolutely would permit community pharmacists to come together
    to file an antitrust case. I don't have a view on what the
    antitrust theory would be.
        Mr. Watt. Okay.
        Mr. Feinstein. But, they certainly wouldn't be precluded
    from doing that.
        Mr. Watt. And I mean this is not unlike, I made the analogy
    to employment discrimination. We have an EEOC, an Equal
    Employment Opportunity Commission, whose responsibility it is
    to investigate, but the ultimate remedy, we have the FTC and
    the Department of Justice in the antitrust arena that is there,
    but the ultimate remedy still is for individuals to enforce the
    law.
        And unless there is some reason that, and maybe there is, I
    don't know. Okay. I have asked my question, and you-all have
    done the best you can. If you come up with any additional
    answers, please submit them. I will be happy to look at them.
        I yield back, Mr. Chairman.
        Mr. Marino. Thank you. I believe the Congresswoman from
    Texas may have an additional question.
        Ms. Jackson Lee. Mr. Chairman, thank you so very much.
        It may have been that I didn't hear Mr. Watt clearly, so I
    am going to just quickly ask Mr. Feinstein, you are at FTC, and
    there are many levels of consumers. The pharmacies, these small
    ones, are consumers as well, as consumers of a product. They
    happen to be a business. And many times, you look at whether,
    you know, big bell, Ma Bell infringed upon little bells, and
    obviously, little bells now become gigantic bells, in the
    telephone industry.
        But, in terms of your actual evaluation of Express Scripts-
    Medco merger, but other actions by these companies, many of
    them we know their names, who are PBMs, can't you initiate a
    review or an evaluation as to whether there is any antitrust
    ramifications in terms of the impact on smaller pharmacies?
        Mr. Feinstein. Let me begin my answer by just making it
    clear that I can't speak to the Express Scripts-Medco.
        Ms. Jackson Lee. Go right ahead. Pass right on by that, and
    just generally speaking, can you make evaluation on the impact
    that the actions, what the PBMs, Mr. Watt said a lawsuit, and
    then I am saying can you initiate an evaluation, administrative
    review of this impact?
        Mr. Feinstein. That is certainly something that the FTC has
    the authority to do. Yes.
        Ms. Jackson Lee. What would move you to do it?
        Mr. Feinstein. Pardon me?
        Ms. Jackson Lee. Then what would we need to move you to do
    it?
        Mr. Feinstein. Well, I think we would need, I think, to
    reach the preliminary view that the problem that is being
    described is the result of antitrust violations by someone else
    in the system. And that may or may not be the case. But that
    would be the threshold question. If there is reason to believe
    that this is a problem that reflects the absence of
    competition, as opposed to the presence of competition.
        Ms. Jackson Lee. Well, let me just say that I would like to
    see an initiation of some review. I think as a Judiciary
    Committee, Mr. Marino, we need to see what role that we would
    be playing in that issue.
        And to Mr. Wright, just a quick question here. I am trying
    to see Mr. Wright. Where are you? Right here. Okay. Sorry.
        How does the proposed Express Scripts-Medco merger advance
    the notion of free enterprise, et cetera?
        Mr. Wright. I don't have any particular view of the Express
    Scripts-Medco merger. I don't have access to the data and
    documents that the Federal Trade Commission has.
        Ms. Jackson Lee. Just another element in the whole
    structure of antitrust review. That is okay if you don't have
    one.
        I will just close, Mr. Marino, by just saying to Mr. James,
    if, for example, there was an evaluation of your situation,
    could your small pharmacies provide data to the Federal Trade
    Commission to indicate a bias or unfair practice, unfair
    competition practice? If we tried to glean all of the
    information, would you be able to provide data?
        Mr. James. We could do that.
        Ms. Jackson Lee. All right. Mr. Chairman, with that, I
    yield back my questions. I yield back my time. I am sorry.
        Mr. Marino. Thank you. In closing, this is a rhetorical
    statement, but if anyone has any information pursuant to this,
    please let me know. The FTC has not moved in any way,
    whatsoever, on reviewing whether there is evidence to pursue an
    investigation in this, has it? So, with that little
    housekeeping, I need to enter into the record some testimony
    that was written and sent, and the individuals were not able to
    testify.
        I have testimony for the record from National Community
    Pharmacists Association, in support of the legislation, the
    National Association of Chain Drug Stores. A letter in support
    from antitrust Attorney David Balto, a former FTC official. And
    the Ranking Member Watt is giving me a document that he would
    like to put into the record from the Pharmaceutical Care
    Management Association, and the testimony of that association.
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        Mr. Marino. Is there any other documentation?
        Ms. Jackson Lee. Mr. Chairman, just an inquiry to the Chair
    and the proponent of the legislation, Mr. Marino. In the
    legislation, forgive me for not knowing the precise, do we
    define small pharmacies in that legislation? I mean the
    criteria.
        Mr. Marino. Yes. It is very well defined in there. If
    anyone has any suggestions on how to further define it or even
    have suggestions on, if I may use the simple word, tweaking
    this, I am certainly open to hear that.
        Ms. Jackson Lee. That will be welcome. The only reason, I
    am continuing to speaking to the Chair, and there is some
    undercurrent that this will open it up to the world, and I
    think the more precise, if anyone is interested, those of us
    who are looking at this, are interested in being fair to the
    PBMs, being fair to these gentlemen, who are out in the
    community, to be able to look at and to make sure that it is
    not underlying open to the world.
        Mr. Marino. All right. Thank you.
        I want to thank our witnesses for their testimony today and
    for your indulgence. Without objection, all Members will have 5
    legislative days to submit to the Chair additional written
    questions for the witnesses, which we will forward and ask the
    witnesses to respond to as promptly as they can so do, that
    their answers may be part of the record.
        Without objection, all Members have 5 legislative days to
    submit any additional materials for inclusion in the record.
        Thank you again. The meeting is adjourned.
        [Whereupon, at 12:29 p.m., the Subcommittee was adjourned.]

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                   Material Submitted for the Hearing Record

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