[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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                       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

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                               __________

    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.
    [The material submitted by Mr. Marino follows:]

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    [The material submitted by Mr. Watt follows:]

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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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