[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



          SECURING OUR NATION'S PRESCRIPTION DRUG SUPPLY CHAIN

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

                                HEARING

                               BEFORE THE

                         SUBCOMMITTEE ON HEALTH

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 25, 2013

                               __________

                           Serial No. 113-35





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                    COMMITTEE ON ENERGY AND COMMERCE

                          FRED UPTON, Michigan
                                 Chairman
RALPH M. HALL, Texas                 HENRY A. WAXMAN, California
JOE BARTON, Texas                      Ranking Member
  Chairman Emeritus                  JOHN D. DINGELL, Michigan
ED WHITFIELD, Kentucky                 Chairman Emeritus
JOHN SHIMKUS, Illinois               EDWARD J. MARKEY, Massachusetts
JOSEPH R. PITTS, Pennsylvania        FRANK PALLONE, Jr., New Jersey
GREG WALDEN, Oregon                  BOBBY L. RUSH, Illinois
LEE TERRY, Nebraska                  ANNA G. ESHOO, California
MIKE ROGERS, Michigan                ELIOT L. ENGEL, New York
TIM MURPHY, Pennsylvania             GENE GREEN, Texas
MICHAEL C. BURGESS, Texas            DIANA DeGETTE, Colorado
MARSHA BLACKBURN, Tennessee          LOIS CAPPS, California
  Vice Chairman                      MICHAEL F. DOYLE, Pennsylvania
PHIL GINGREY, Georgia                JANICE D. SCHAKOWSKY, Illinois
STEVE SCALISE, Louisiana             JIM MATHESON, Utah
ROBERT E. LATTA, Ohio                G.K. BUTTERFIELD, North Carolina
CATHY McMORRIS RODGERS, Washington   JOHN BARROW, Georgia
GREGG HARPER, Mississippi            DORIS O. MATSUI, California
LEONARD LANCE, New Jersey            DONNA M. CHRISTENSEN, Virgin 
BILL CASSIDY, Louisiana                  Islands
BRETT GUTHRIE, Kentucky              KATHY CASTOR, Florida
PETE OLSON, Texas                    JOHN P. SARBANES, Maryland
DAVID B. McKINLEY, West Virginia     JERRY McNERNEY, California
CORY GARDNER, Colorado               BRUCE L. BRALEY, Iowa
MIKE POMPEO, Kansas                  PETER WELCH, Vermont
ADAM KINZINGER, Illinois             BEN RAY LUJAN, New Mexico
H. MORGAN GRIFFITH, Virginia         PAUL TONKO, New York
GUS M. BILIRAKIS, Florida
BILL JOHNSON, Missouri
BILLY LONG, Missouri
RENEE L. ELLMERS, North Carolina
                         Subcommittee on Health

                     JOSEPH R. PITTS, Pennsylvania
                                 Chairman
MICHAEL C. BURGESS, Texas            FRANK PALLONE, Jr., New Jersey
  Vice Chairman                        Ranking Member
ED WHITFIELD, Kentucky               JOHN D. DINGELL, Michigan
JOHN SHIMKUS, Illinois               ELIOT L. ENGEL, New York
MIKE ROGERS, Michigan                LOIS CAPPS, California
TIM MURPHY, Pennsylvania             JANICE D. SCHAKOWSKY, Illinois
MARSHA BLACKBURN, Tennessee          JIM MATHESON, Utah
PHIL GINGREY, Georgia                GENE GREEN, Texas
CATHY McMORRIS RODGERS, Washington   G.K. BUTTERFIELD, North Carolina
LEONARD LANCE, New Jersey            JOHN BARROW, Georgia
BILL CASSIDY, Louisiana              DONNA M. CHRISTENSEN, Virgin 
BRETT GUTHRIE, Kentucky                  Islands
H. MORGAN GRIFFITH, Virginia         KATHY CASTOR, Florida
GUS M. BILIRAKIS, Florida            JOHN P. SARBANES, Maryland
RENEE L. ELLMERS, North Carolina     HENRY A. WAXMAN, California (ex 
JOE BARTON, Texas                        officio)
FRED UPTON, Michigan (ex officio)




















                             C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Joseph R. Pitts, a Representative in Congress from the 
  Commonwealth of Pennsylvania, opening statement................     1
    Prepared statement...........................................     2
Hon. Robert E. Latta, a Representative in Congress from the State 
  of Ohio, opening statement.....................................     2
Hon. Frank Pallone, Jr., a Representative in Congress from the 
  State of New Jersey, opening statement.........................     3
Hon. Fred Upton, a Representative in Congress from the State of 
  Michigan, opening statement....................................     5
    Prepared statement...........................................     6
Hon. Henry A. Waxman, a Representative in Congress from the State 
  of California, prepared statement..............................     7

                               Witnesses

Janet Woodcock, Director, Center for Drug Evaluation and 
  Research, U.S. Food and Drug Administration....................     8
    Prepared statement...........................................    11
    Answers to submitted questions...............................   129
Elizabeth Gallenagh, J.D., Vice President of Government Affairs 
  and General Counsel, Healthcare Distribution Management 
  Association....................................................    38
    Prepared statement...........................................    41
    Answers to submitted questions...............................   131
Christine M. Simmon, Senior Vice President, Policy and Strategic 
  Alliances, Generic Pharmaceutical Association..................    48
    Prepared statement...........................................    50
    Answers to submitted questions...............................   135
Michael Rose, Vice President, Supply Chain Visibility, Johnson 
  and Johnson Health Care Systems, Inc...........................    60
    Prepared statement...........................................    62
    Answers to submitted questions...............................   138
Tim Davis, R.Ph., Beaver Health Mart Pharmacy, on Behalf of 
  National Community Pharmacists.................................    66
    Prepared statement...........................................    68
    Answers to submitted questions...............................   142
Allan Coukell, Deputy Director, Medical Programs, The Pew 
  Charitable Trusts..............................................    75
    Prepared statement...........................................    77
Carmen A. Catizone, R.Ph., D.Ph..................................    82
    Prepared statement...........................................    84
Walter Berghahn, Executive Director, Health Care Compliance 
  Packaging Council..............................................    89
    Prepared statement...........................................    91

                           Submitted Material

Statement of LaserLock Technologies, submitted by Mr. Whitfield..   107
Statement of the National Association of Chain Drug Stores, 
  submitted by Mr. Pitts.........................................   117
Letter of November 7, 2012, from EMD Serono, Inc, submitted by 
  Mr. Pallone....................................................   121

 
          SECURING OUR NATION'S PRESCRIPTION DRUG SUPPLY CHAIN

                              ----------                              


                        THURSDAY, APRIL 25, 2013

                  House of Representatives,
                            Subcommittee on Health,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:01 a.m., in 
room 2322 of the Rayburn House Office Building, Hon. Joe Pitts 
(chairman of the subcommittee) presiding.
    Members present: Representatives Pitts, Whitfield, Shimkus, 
Murphy, Blackburn, Gingrey, Lance, Cassidy, Guthrie, Griffith, 
Ellmers, Upton (ex officio), Pallone, Dingell, Capps, 
Schakowsky, Matheson, Green, Butterfield, Barrow, Christensen, 
Castor, Sarbanes and Waxman (ex officio).
    Staff present: Clay Alspach, Chief Counsel, Health; Paul 
Edattel, Professional Staff Member, Health; Sydne Harwick, 
Legislative Clerk; Robert Horne, Professional Staff Member, 
Health; Carly McWilliams, Professional Staff Member, Health; 
Andrew Powaleny, Deputy Press Secretary; Chris Sarley, Policy 
Coordinator, Environment and Economy; Heidi Stirrup, Health 
Policy Coordinator; Tom Wilbur, Digital Media Advisor; Jean 
Woodrow, Director, Information Technology; Alli Corr, 
Democratic Policy Analyst; Eric Flamm, Democratic FDA Detailee; 
Elizabeth Letter, Democratic Assistant Press Secretary; Karen 
Nelson, Democratic Deputy Committee Staff Director for Health; 
and Rachel Sher, Democrat Senior Counsel.

OPENING STATEMENT OF HON. JOSEPH R. PITTS, A REPRESENTATIVE IN 
         CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA

    Mr. Pitts. Ten o'clock having arrived, the Subcommittee 
will come to order.
    The Chair will recognize himself for an opening statement. 
There is an echo.
    Members of this Subcommittee have been interested in 
securing our Nation's pharmaceutical supply chain for many 
years. While some supply chain provisions were included in 
Title VII of last year's FDA user fee bill, the Food and Drug 
Administration Safety and Innovation Act, FDASIA, a 
comprehensive track-and-trace package has yet to be finished.
    Today's hearing will focus on the importance of securing 
the downstream pharmaceutical supply chain, which includes 
manufacturers, wholesale distributors, pharmacies, repackagers 
and third-party logistics providers.
    In order to ensure that counterfeit or stolen drugs do not 
enter the supply chain and harm patients, States have passed 
laws that require, or will require, those involved in the 
downstream supply chain to keep pedigrees or transaction 
histories of drugs.
    Some believe that these differing State requirements should 
be replaced with a reasonable, practical and feasible federal 
policy.
    On Monday, Representative Latta and Representative Matheson 
released a discussion draft to enhance the security of the 
pharmaceutical distribution supply chain and prevent 
duplicative or conflicting federal and State requirements.
    I would like to thank all of our witnesses for being here 
today. I look forward to hearing their thoughts on the draft.
    [The prepared statement of Mr. Pitts follows:]

               Prepared statement of Hon. Joseph R. Pitts

    The Subcommittee will come to order.
    The Chair will recognize himself for an opening statement.
    Members of this Subcommittee have been interested in 
securing our nation's pharmaceutical supply chain for many 
years.
    While some supply chain provisions were included in Title 
VII of last year's FDA user fee bill, the Food and Drug 
Administration Safety and Innovation Act (FDASIA), a 
comprehensive ``track and trace'' package has yet to be 
finished.
    Today's hearing will focus on the importance of securing 
the downstream pharmaceutical supply chain, which includes 
manufacturers, wholesale distributors, pharmacies, repackagers 
and third-party logistics providers.
    In order to ensure that counterfeit or stolen drugs do not 
enter the supply chain and harm patients, States have passed 
laws that require, or will require, those involved in the 
downstream supply chain to keep pedigrees or transaction 
histories of drugs.
    Some believe that these differing State requirements should 
be replaced with a reasonable, practical and feasible Federal 
policy.
    On Monday, Rep. Latta and Rep. Matheson released a 
discussion draft to enhance the security of the pharmaceutical 
distribution supply chain and prevent duplicative or 
conflicting Federal and State requirements.
    I would like to thank our witnesses for being here today. I 
look forward to hearing their thoughts on the draft.Thank you. 
At this time, I would like to request unanimous consent for 
Congressman Latta to participate in the subcommittee hearing. 
Without objection so ordered. I now yield the remainder of my 
time to Rep. Latta.

    Mr. Pitts. At this time I would like to request unanimous 
consent for Congressman Latta to participate in this 
subcommittee hearing. Without objection, so ordered.
    I now yield the remainder of my time to Representative 
Latta.

OPENING STATEMENT OF HON. ROBERT E. LATTA, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF OHIO

    Mr. Latta. Well, thank you very much, Mr. Chairman. I 
appreciate you having this legislative hearing today on this 
important issue of securing our Nation's pharmaceutical supply 
chain. I also appreciate the subcommittee for allowing me to 
participate in the hearing today.
    This is an important issue that was brought to my attention 
when I was first elected to Congress over 5 \1/2\ years ago by 
concerned stakeholders in Ohio, and I have been working on it 
ever since. I am pleased the subcommittee is holding a hearing 
on the issue, and I am honored to be leading the effort in a 
bipartisan effort in this Congress.
    The pharmaceutical supply chain touches every part of our 
health care system. It is imperative that we get the structure 
and the segments of it connected in a safe, secure and 
effective manner that provides the best protection for 
patients. This draft legislation Mr. Matheson and I have 
released on Monday is a commonsense, practical approach to 
making improvements to the current supply chain while 
facilitating continued collaboration among all parties before 
taking the next steps toward the additional requirements.
    To protect patient safety, this bill would replace the 
patchwork of multiple State laws and create a uniform national 
standard for securing the pharmaceutical distribution supply 
chain, therefore, preventing duplicative State and federal 
requirements. It would increase security of the supply chain by 
establishing tracing requirements for manufacturers, wholesale 
distributors, pharmacies and repackagers based on--Mr. 
Chairman, should I just continue on without the mike?
    Mr. Pitts. Go ahead.
    Mr. Latta. Thank you. It would increase security of the 
supply chain by establishing tracing requirements for 
manufacturers, wholesale distributors, pharmacies and 
repackagers based on changes in ownership. The bill also 
establishes a collaborative, transparent process between the 
Food and Drug Administration and stakeholders to study ways to 
further secure the pharmaceutical supply chain.
    The timeline put forth in this bill is reasonable and would 
allow enough time for stakeholders to comply with these new 
national standards and ensure that through feedback from these 
stakeholders that the next phase of the process is done 
efficiently and effectively.
    There has been significant work done on this issue over the 
years, and I appreciate all the feedback and suggestions I have 
received on this bill draft. While this bill is still in draft 
form, Mr. Matheson and I intend to introduce it in bill form in 
the coming weeks, and we fully understand that California law 
relating to implementation of an e-pedigree system is quickly 
approaching. It is imperative that we move this bill swiftly 
through the committee and then to the House Floor.
    I look forward to working with our Senate colleagues on 
this legislation along with the FDA and all the other 
interested stakeholders, and I urge the support of this draft 
legislation soon to be in bill form.
    Thank you, Mr. Chairman, and I yield back.
    Mr. Pitts. The Chair thanks the gentleman and now 
recognizes the ranking member, Mr. Pallone, 5 minutes for an 
opening statement.

OPENING STATEMENT OF HON. FRANK PALLONE JR, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF NEW JERSEY

    Mr. Pallone. Thank you, Chairman Pitts. I am pleased that 
we are having this hearing today because drug distribution 
security is critical to public health and safety. The public 
deserves the piece of mind that the prescriptions they pick up 
contain quality ingredients and were handled throughout the 
supply chain by licensed companies adhering to strong safety 
standards so that the final products they receive are safe and 
effective drugs.
    U.S. companies providing drugs to other international 
markets have already begun to serialize their products to 
comply with these countries' track-and-trace requirements, and 
the American people should be afforded the same protections.
    Last summer, we had meaningful bipartisan bicameral 
conversations about this topic. While we were ultimately unable 
to reach an agreement, the discussions with our Senate 
counterparts and a number of stakeholders certainly 
demonstrated our commitment to the issue. As we revisit drug 
distribution security, there is a lot at stake, and that is why 
I am disappointed that we were not given the opportunity to 
work with our Republican colleagues on the draft bill that was 
released earlier this week. I am also concerned that this draft 
seems to me to not reflect where our discussions left off last 
year. Mr. Chairman, as we move forward, I urge the subcommittee 
to make sure we get this proposal right and that we work 
together to get there.
    Now, some States such as California have already begun to 
address drug distribution security to ensure the safety of 
their patients. It is crucial that if we are going to preempt 
these State efforts, that we must have a strong federal 
standard. This standard should serve as a true building block 
to track drugs at the unit level so that each and every product 
is authenticated at the lowest unit of sale before they reach 
patients and counterfeit or contaminated products are 
eliminated. We cannot rely on Congress to revisit this issue in 
10 years. The time to establish this path forward and set up 
phase-in requirements is now.
    It is also important that everyone who is part of the 
system including the manufacturers, the repackers, the 
wholesale distributors, third-party logistics providers and 
dispensers play a role in tracing the safety of the Nation's 
drug supply.
    In addition, I believe that in order to establish the most 
effective drug security system, it is critical that we include 
strong national license standards for distributors and third-
party logistics providers so that only reliable companies are 
handling the Nation's drug supply, and FDA has immediate access 
to needed company information in the event of a drug recall or 
other public health threat.
    I want to thank our witnesses here today including the FDA 
for all your hard work throughout this process. Many of you 
contributed to the discussions last year in a productive way to 
educate us on the supply chain process, and I look forward to 
better understanding what you believe is critically important 
to any bill that moves forward, and I want to extend a special 
welcome to Mr. Michael Rose, who is here testifying from 
Johnson and Johnson, which is headquartered in my district. I 
look forward to J&J and all the stakeholders as well as my 
committee colleagues to achieve a reasonable solution that will 
safeguard the public health.
    I would like to yield the remaining 2 minutes of my time, 
Mr. Chairman, to our chairman emeritus, the gentleman from 
Michigan, Mr. Dingell.
    Mr. Dingell. Mr. Chairman, I thank you for these hearings. 
I commend you and also my dear friend, Mr. Pallone. I want to 
commend Mr. Latta and Mr. Matheson for their leadership on 
this, which has been a long thorn in the side of this 
committee, being very, very difficult to achieve our purposes.
    I would observe that we have before us an opportunity where 
the two parties are working together, where the House and 
Senate are working together, and I am delighted to see that 
that is happening because there is no real Democratic or 
Republican way of protecting the American public.
    We have to work with all the stakeholders, and I have to 
observe that the pharmaceutical industry and the stakeholders 
have been most helpful in the matters as they have gone 
forward, and I want to thank again Mr. Latta and Mr. Matheson 
for their work on these matters. I am hopeful that we will be 
able to move forward toward legislation that will be accepted 
and acceptable to all parties, and I note that the industry has 
been working closely with us as has the Senate. It is my hope 
that we will understand that 10 years on some things within 
this matter might be a bit long, and I think that while we do 
need to see to it that Food and Drug has clear instructions 
from the Congress, we don't want to get to the point where we 
are micromanaging things and having meetings set up by Food and 
Drug which may or may not be of value to the country and to the 
industry and the consumers.
    Having said those things, I would return 22 seconds to my 
dear friend from New Jersey, who has been so gracious as to 
yield to me.
    Mr. Pitts. The Chair thanks the gentleman and now recognize 
the chairman of the full committee, Mr. Upton, for 5 minutes 
for opening statement.

   OPENING STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Upton. Well, thank you, Mr. Chairman, and hopefully the 
mic will work long enough before our helium bill gets to the 
floor.
    I appreciate today's hearing, and that is for sure, on 
securing the prescription drug supply chain. Keeping our 
prescription drugs safe is certainly a bipartisan issue, and we 
have the world's safest drug supply, but that doesn't mean we 
can't make it even better.
    I would like to thank the discussion draft's authors for 
their bipartisan leadership on this very important issue. 
Earlier this week, as has been noted, a comprehensive 
discussion draft was released that would increase the security 
of the supply chain for America's patients while at the same 
time preventing duplicative Federal and State requirements. The 
draft also sets forth a collaborative process so the Food and 
Drug Administration and supply chain stakeholders could work 
together in an effort to better understand how and when to move 
to unit-level traceability.
    We spent a significant amount of time working on this issue 
as we successfully moved the Food and Drug Administration 
Safety and Innovation Act through the legislative process in 
2012 and our efforts continued beyond enactment. During that 
process, we also sought input from stakeholders like Pfizer and 
Perrigo, two important companies in my district in Michigan, as 
well as our small pharmacies. This hard work allowed us to 
better understand the issue, and the bipartisan discussion 
draft reflects that understanding. Now it is time to move this 
legislation down the field and across the goal line. We have a 
lot of good friends in the Senate that agree with us on that 
sentiment, and it is certainly a priority for this committee to 
get this done, and I look forward to embarking on that, and I 
yield to Dr. Gingrey and then to Ed Whitfield.
    [The prepared statement of Mr. Upton follows:]

                 Prepared statement of Hon. Fred Upton

    Thank you for holding today's hearing on securing the 
prescription drug supply chain. Keeping our prescription drugs 
safe is a bipartisan issue. We have the world's safest drug 
supply, but that does not mean we cannot make it even safer.
    I would like to thank the discussion draft's authors for 
their bipartisan leadership on this very important issue. 
Earlier this week, a comprehensive discussion draft was 
released that would increase the security of the supply chain 
for America's patients while at the same time preventing 
duplicative federal and state requirements. Their draft also 
would set forth a collaborative process so the Food and Drug 
Administration and supply chain stakeholders could work 
together in an effort to better understand how and when to move 
to unit-level traceability.
    We spent a significant amount of time working on this issue 
as we successfully moved the Food and Drug Administration 
Safety and Innovation Act through the legislative process in 
2012 and our efforts continued beyond enactment. During the 
process, we also sought input from stakeholders like Pfizer and 
Perrigo in Michigan, as well as our small pharmacies. This hard 
work allowed us to better understand the issue, and the 
bipartisan discussion draft reflects that understanding. Now it 
is time to move this legislation down the field and across the 
goal line. I believe my good friends on the Senate side agree 
with that sentiment.
    Because of the hard work that already has been put in on 
this issue, I am confident we can get a product to the 
president's desk by the August recess. I commit today that I 
will do all that I can to make it happen, including marking up 
the legislation in the Committee in May.Thank you. I yield to 
Mr. Latta.

    Mr. Gingrey. I thank the gentleman for yielding.
    Mr. Chairman, I am pleased that there has been generally 
bipartisan acknowledgement that a secure pharmaceutical supply 
chain is not only necessary for patient safety but becoming 
obtainable and tracking technology continues to improve, and I 
would hope that the legislation that is ultimately the result 
of this hearing today will balance both the reality of today's 
emerging technologies with the flexibility to change as the 
result of innovation. It is also necessary that we provide a 
clear and a concise list of expectations and directives to all 
companies up and down the supply chain. Steady industry 
progress toward increased drug security should not be impeded 
by a lack of clarity from Congress as to the ultimate goal of 
this legislation for both the sake of innovation and security 
and for the patients who may be adversely impacted from 
counterfeit or stolen drugs.
    Thank you, and I yield the balance of my time to the 
gentleman from Kentucky, Mr. Whitfield.
    Mr. Whitfield. Well, Dr. Gingrey, thanks so much, and thank 
you all for having this hearing today, and we certainly 
appreciate the witnesses being here.
    Last week, I attended a forum over at Georgetown University 
with the title of ``Combating the Threat of Counterfeit 
Pharmaceuticals'', and I really was taken aback by the amount 
of money being made by organized crime and other groups and 
entering into the supply chain counterfeit prescription drugs.
    Another point that came out, and I am delighted that Mr. 
Latta and Mr. Matheson have introduced legislation at the 
federal level because we know individual States are moving 
forth, California, I guess out in the front right now, and I 
think we need to set a federal standard in this issue because I 
heard a lot of concerns about individual States moving in this 
area, which can create real problems for the manufacturers, but 
we want to do it safely, and I really look forward to the 
testimony of the witnesses today.
    I would also ask unanimous consent to simply submit into 
the record a statement from a company called Laser Lock 
Technologies, if that is acceptable. They are an anti-
counterfeiting company.
    Mr. Pitts. Without objection, so ordered.
    [The information appears at the conclusion of the hearing.]
    Mr. Whitfield. And with that, I would yield back.
    Mr. Upton. I just want to end by saying that this is a 
priority. We intend to start the markup process next month, 
May, and our goal will be to try and get a bipartisan bill to 
the President before the August recess. So we are going to work 
very hard and we appreciate all those that are here to help us 
achieve that goal.
    Thank you. I yield back.
    Mr. Pitts. The Chair thanks the gentleman and now 
recognizes the Ranking Member of the Full Committee, Mr. 
Waxman, 5 minutes for an opening statement.

OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Mr. Waxman. Thank you, Mr. Chairman.
    Today's hearing will examine ways to improve the integrity 
of our drug supply chain. The entry of falsified and 
substandard drugs into our drug supply chain poses a grave 
public health threat. Time and again, we have read stories 
about patients getting drugs that were unsafe or ineffective 
counterfeits or that were stolen and not stored properly, so no 
longer worked. Without action, this is a problem that is likely 
to grow.
    Today, there is a regulatory void at the federal level 
because the United States does not have laws requiring the 
tracking and tracing of pharmaceuticals. So some States have 
stepped in and enacted their own laws. My State, California, 
has a law that would mandate one of the most robust pedigree 
systems in the country. Many have suggested there is a need for 
a single federal system that would preempt these State laws. I 
believe having a system at the federal level makes sense, if 
done correctly. But I have grave concerns about preempting a 
strong State law like California's and replacing it with one 
that is not as effective at the federal level.
    Our fundamental goal in establishing a federal system 
should be to prevent Americans from being harmed by counterfeit 
and substandard medicines. If we cannot assure the public that 
legislation would accomplish that goal, then it is not worth 
doing.
    Throughout last year, members on a bipartisan, bicameral 
basis engaged in extensive discussions about how best to 
protect our supply chain. I was part of this group, as was 
Chairman Upton and Representatives Pallone, Dingell, Matheson 
and Bilbray. We heard loud and clear from FDA, Pew and others 
that if we want a secure drug supply chain, we need an 
electronic, interoperable unit-level tracking system that can 
identify illegitimate product in real time so that it does not 
end up in the patients' hands. We also heard that creating this 
kind of system is doable. In fact, it is already being done in 
China, as we will hear today from one of our witnesses.
    Last fall, the bipartisan, bicameral group issued a 
proposal that although far from being complete, reflected 
agreement about the need for assuring that we ultimately get to 
a unit-level electronic system. And just last week, the Senate 
distributed a draft bill built upon that proposal and made a 
concerted effort to address issues that were raised on both 
sides of the aisle throughout last year's discussions.
    Unfortunately, the House discussion draft under 
consideration here today doesn't take that approach. The bill 
does not require an electronic, interoperable unit-level 
system. Instead, it provides that in ten years, FDA and GAO 
would make recommendations to Congress about what legislation 
should be enacted to better secure the supply chain. And even 
though we never get to a unit-level electronic system, the 
House bill would preempt State law on day one. That is 
unacceptable to me as a California member, but it should be 
unacceptable to all members. We know how long it has taken 
Congress to act thus far. The discussion draft preempts strong 
State laws and puts a weak federal program in its place. That 
is a step backwards for public health. There simply is no 
reason to wait to put enforceable standards in place. We have 
been told repeatedly, and I am confident we will hear today, 
that in order to secure our drug supply chain, we need to track 
products at the unit level using an interoperable, electronic 
system. We fail to protect the Nation's public health if we do 
not take this step. I yield back the balance of my time.
    Mr. Pitts. The Chair thanks the gentleman. That concludes 
the opening statements of the members.
    We have two panels before us today. On our first panel, we 
have Dr. Janet Woodcock, Director of the Center for Drug 
Evaluation and Research at the U.S. Food and Drug 
Administration. Welcome. Thank you for coming today. You will 
have 5 minutes to summarize your testimony. Your written 
testimony will be placed in the record. You are recognized now 
for 5 minutes.

  STATEMENT OF DR. JANET WOODCOCK, DIRECTOR, CENTER FOR DRUG 
   EVALUATION AND RESEARCH, U.S. FOOD AND DRUG ADMINISTRATION

    Dr. Woodcock. Thank you, and good morning Mr. Chairman, 
Ranking Member, members of the subcommittee and authors of the 
discussion draft.
    We are all seeking the best way to protect patients from 
medicines that aren't what they pretend to be. That is why we 
are here. Or that may cause harm to them without providing the 
help that they expect from their medicine, and that is the goal 
we want to achieve mutually. So I thank you for continuing to 
work on this program. We hope to do this by strengthening the 
safety net that we currently have in place for medicines so 
that counterfeit drugs can't get in the drug supply because 
right now there are some loopholes where they can enter the 
drug supply, and they are. Diverted or stolen drugs can't 
reenter the drug supply after being perhaps taken by criminals 
and stored in unsafe conditions, and suspect products that 
happen to get in can be rapidly identified and removed from the 
drug supply before they get to patients. And additionally, we 
need to be able to find drugs wherever they are in the supply 
chain. If dangerous products have been dispensed to patients, 
we want to be able to find them and get them out of the hands 
before the patients are harmed.
    And why do we need this? Well, as people have already said, 
the problems with counterfeits are well documented and actually 
growing. Around the world, criminal networks are counterfeiting 
drugs at a growing rate and many countries, their patients in 
their countries are exposed to very dangerous drugs and even 
some of the organisms, the resistance problems that we are 
seeing with drug resistance, are partly driven by these 
counterfeits because people are taking drugs that actually are 
subpotent that are counterfeit drugs. And we are seeing this in 
the United States where often expensive, lifesaving medicines 
are targeted. I can't imagine what it is like for a person 
battling cancer to hear that they have been receiving a fake 
therapy or their cancer or for a diabetic to lose blood sugar 
control because their insulin came from a stolen batch that was 
improperly stored, and these things actually have happened in 
our country.
    And there are other equally compelling reasons to 
strengthen drug track and trace that we haven't really 
discussed as much, and that is to enable recalls of FDA-
approved drugs. This is really a non-trivial problem. Over the 
last 5 years, there have been over 6,500 drug recalls in this 
country. Over 400 of these have been class I recalls, and a 
class I recall is where our doctors at FDA have determined that 
there is an immediate risk to health if people would take these 
drugs, serious risk. And we need to be able to find these 
recall drugs, as I said, and get them out of the hands of 
patients rapidly. For example, this has happened, there could 
be a label mix-up and what is labeled as an innocuous drug, 
perhaps a pain reliever or something, could actually have a 
dangerous drug such as a blood thinner or cancer chemotherapy 
drug in that vial, and so if that type of thing happens, we 
need to be able to rapidly identify the patient who may have 
these drugs and get them right down to the patient level.
    So right now, we have a great deal of difficulty finding 
which patients got these drugs, particularly at the lot level. 
What we may end up doing is recalling the entire drug, and 
sometimes these drugs are lifesaving drugs that we don't want 
to remove completely from the patients; we only want to get the 
tainted lots. So this is a large and growing problem, and good 
track and trace would help the entire health care system, 
people taking care of these patients to secure these products 
as soon as possible and avoid further harm.
    And finally, I think and most importantly, I want to say, 
whatever is put in place by Congress should not fray or weaken 
the existing safety net. A recent investigation conducted by 
your colleagues' Ranking Member Cummings of the House Oversight 
and Government Reform Committee and Chairman Rockefeller and 
Chairman Harkin in the Senate identified a gray market of 
business that was capitalizing on the way drugs can move 
through the system to buy up drugs and resell them, perhaps at 
1,000 times markup that were in shortage, and desperate 
hospitals, saying caring for children with cancer had no choice 
to buy these drugs at this markup because they had to treat 
their patients. So the existence of that paper pedigree, as 
noted in the report, enabled them to track back each 
transaction and figure out the markup and document what 
actually happened with these shortage drugs. So this paper 
pedigree right now is a mainstay of us figuring out where those 
drugs have been, not always followed but that is the law that 
they should have that pedigree and we mustn't weaken that, so I 
really ask you that any system that you put in place not 
diminish our ability to figure out where these drugs have been. 
It was astonishing if you read the Cummings report the Murphy 
trail these drugs followed and their successive markup as they 
went through multiple hands, none of whom, arguably, had a real 
interest in getting these drugs to patients. They were simply 
marked up at each step.
    So we really ask that we not lose the ability to figure out 
where drugs have been. That is critical, and we recognized that 
changes will not happen overnight and a stepwise process is 
needed, but it should be expeditious. There are technologies 
available in various industries that can track things. I order 
a lot of things online so many of you do too and they are 
tracked throughout the system.
    So we have to make sure we strike the appropriate balance 
between the need to establish a secure system that protects the 
public health and the costs and feasibility of such a system 
and we need to make sure we put something in place, I think, 
that evolves over time to a common goal that we all have is a 
system that prevents criminals from taking advantage of our 
patients, prevents people from diverting drugs and marking them 
up, prevents us not being able to identify recall drugs and 
actually people being harmed while we are doing investigations 
and trying to figure out where these drugs ended up.
    Mr. Pitts. Could you please conclude?
    Dr. Woodcock. I am sorry. So our ultimate goal, as yours, 
is to protect the public from counterfeit, stolen, diverted or 
unfit medications and make sure that we establish a meaningful 
and enforceable track-and-trace system. Thank you.
    [The prepared statement of Dr. Woodcock follows:]


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Mr. Pitts. The Chair thanks the gentlelady and we will now 
have questioning, and I will recognize myself for 5 minutes for 
that purpose.
    Dr. Woodcock, if the FDA has a particular concern that a 
drug could cause an immediate threat to individuals and the 
sponsor refuses to take action, what would the agency do? Do 
you believe that the agency's persuasive authority is strong 
enough that sponsors will take corrective action? Does today's 
regulatory regime seem adequate given the increase in quantity 
and sophistication of counterfeiting?
    Dr. Woodcock. Well, we have authorities to--seizure 
authorities and other authorities that require judicial actions 
to do. We also, though, usually will go public with our 
concerns rapidly and start notifying the health care system. It 
is uncommon but does happen that firms argue with us over 
recalling drugs or removing them. It is uncommon but can occur.
    Mr. Pitts. Will national uniformity increase the security 
of the supply chain and improve patient safety? Please explain.
    Dr. Woodcock. An effective system will help secure the 
supply chain from the incursions that we have seen that 
probably are a growing threat over the years by criminals, so 
that will protect patients and probably prevent harm that we 
have seen.
    Mr. Pitts. Is it important to preserve the States' ability 
to license and enforce national standards?
    Dr. Woodcock. Obviously, national standards are useful 
because of the uniformity because most drugs move across State 
lines. So I think it is important that both the federal 
government and the States have the ability to enforce 
appropriate laws.
    Mr. Pitts. Will product serialization increase the security 
of the supply chain and improve patient safety? Please explain 
with your answer.
    Dr. Woodcock. All right. So companies make batches or lots 
of drugs, OK, and those are large amounts of a same drug. It 
might be a thousand, it might be a million units would be made. 
Those are packaged into crates or whatever and sent to 
distributors, who then send them around the country. At some 
point those are broken up and then sent to pharmacies and, you 
know, all around to hospitals and so forth. At that point 
that's when incursions by counterfeiters can come in if they 
simply use the same lot number. The criminals are becoming very 
sophisticated so they can get a few vials of that lot, they can 
copy the label and put something that is totally fake into the 
system. So a serialization procedure coupled with some 
verification at the various levels of distribution would enable 
us to rapidly identify incursions like that of fake parts of 
the lot and remove them quickly, and I believe that's why the 
manufacturers, the pharmaceutical manufacturers, as I think you 
will hear later today, are moving towards serialization.
    Mr. Pitts. Will data exchange and systems between 
participants in the supply chain increase the security of our 
drug supply and improve patient safety? Please explain.
    Dr. Woodcock. Well, I think it is necessary. It gets to 
what we were talking about earlier about the pedigree. If we 
don't know the chain of custody of the product, and if we have 
to reconstruct that later when--say some defective product, 
dangerous product is found out there in the hands of a 
consumer, or worse, they have a side effect which happens, we 
have to deal with that, and we get a report of serious side 
effects, then we want to know where did it come from, how many 
are out there, is it real drug and so forth. And so unless we 
have that pedigree and we know what hands it moved through, and 
if we have to reconstruct that later by querying people, that 
will cause great delays. So if you intend to replace the paper 
pedigree system, it needs to be replaced by something that has 
capacity to do that tracking back. So we can rapidly identify 
other people at risk if we get, say, adverse events or report 
of a substandard drug, we can rapidly identify where that came 
from and how it happened.
    Right now, we have instances where we get adverse-events 
report, people die, and we get a large number of reports like 
this every year for various reasons but some of them might be 
related to substandard drugs, and we have a very difficult time 
tracking that back from the patient to the pharmacy and 
figuring out what the patient actually got. So we would really 
ask that that pedigree, that whatever is established is at 
least equivalent in performance to the pedigree we have now.
    Mr. Pitts. So finally, would a national track-and-trace 
standard increase the efficiency of product recalls?
    Dr. Woodcock. Absolutely. That would be a tremendous tool 
for us.
    Mr. Pitts. Thank you. The Chair now recognizes the ranking 
member of the subcommittee, Mr. Pallone, 5 minutes for 
questions.
    Mr. Pallone. Dr. Woodcock, your written testimony lays out 
a disturbing series of cases illustrating the risk to our drug 
supply chain posed by counterfeit and stolen or diverted 
products, and it is not a new problem. We tried to address all 
the way back in 1987 with the Prescription Drug Marketing Act 
but for a variety of reasons that didn't work. You described 
the fact that we need a robust track-and-trace system. I know 
there are a variety of ways this could potentially, be done and 
the summary of the House discussion draft indicates that it 
would require lot-level tracing. Other proposals set up a 
system that would track at a more granular level at the 
packaging or unit level. You talked about this with questions 
from the chairman. Can you describe the differences? I mean, I 
know you basically have described the differences between the 
two types of systems but tell me the benefits to a unit-level 
tracking system that cannot be achieved by the lot level.
    Dr. Woodcock. Right. Well, to reiterate because I think 
this is sometimes unclear, all right, having a unit-level 
tracking means that fake units couldn't be put in, and often 
there are thousands of them that would be made by a 
counterfeiter right down to the lot number and inserted into 
the supply chain somewhere and then distributed to patients. By 
having that verification down at the unit level, we would know 
that those were extra, those were illegitimate and they could 
be rapidly identified and removed. And also it would help us, I 
think, in determining what patients got, what lot they got.
    Mr. Pallone. I mean, it sounds like the lot level would 
certainly be better nothing but that the gold standard is the 
unit level, but it seems to me in order to have an effective 
unit-level system, it simply has to be an electronic one in 
which information is exchanged quickly and is available in real 
time. And I don't think it makes sense over the long term. We 
would not move beyond a relatively primitive system in which 
this information is maintained and passed with pieces of paper 
going back and forth.
    So I recognize that creating an electronic system is no 
small feat, a lot of technology, time, I am sure, investment. 
But I think we need to ensure that we allow time for an 
electronic interoperable system be set up. So let me ask you 
this: do you agree that an electronic interoperable system is 
ultimately the goal so as long as we allow for enough time to 
get that kind of a system set up?
    Dr. Woodcock. I agree, because that would provide the 
greatest protection for our patients.
    Mr. Pallone. Now, my concern is that the House discussion 
draft does not even set up the goal of an electronic 
interoperable unit-level system. It merely requires that the 
FDA and GAO report back to Congress in 10 years on ways to 
enhance the safety and security of the pharmaceutical 
distribution supply chain. If we all agree that our goal should 
be an electronic interoperable unit-level system, we need to 
spell that out. We need to require that it be the end game and 
set a date certain when it must be implemented. Congress can 
play an important role in driving the technology, and as I 
said, we need to allow for sufficient time for it to develop 
and we don't want to set it up with unrealistic expectations, 
but I think we do need to set requirements or it will never 
happen. So again, Dr. Woodcock, do you agree that it would be 
important for Congress to require that this system ultimately 
be set up?
    Dr. Woodcock. The goal is ultimately to protect patients 
and make sure the drug distribution system as drugs are 
distributed through the system is not porous at different 
points and has holes or gaps where counterfeits or other things 
can be inserted. So to reach that goal, ultimately you want to 
have an electronic system that can identify down to the unit 
level. However, there obviously are logistic and timing issues, 
but I think we all mutually share that goal of patient 
protection.
    Mr. Pallone. But I am just trying to get you to say--I 
mean, don't you think we should require this at some point, 
that Congress should require it at some point?
    Dr. Woodcock. Articulating that goal would certainly 
probably speed achievement of the desired end, which is to have 
a system that is capable of preventing these incursions.
    Mr. Pallone. I appreciate that. I mean, look, you know me. 
I have been around here for a while, and I just can't say there 
is a phase I and hope for the best. If Congress wants a phase 
II, I think they should say. Otherwise we are not going to get 
phase II because inertia unfortunately often characterizes this 
place unless you spell something out. So I really hope we can 
work together with our colleagues to improve upon the bill. I 
think we all share the same goal. We need to better safeguard 
our Nation's drug supply but we need to make sure whatever 
legislation we enact actually achieves that goal, it doesn't 
just give people the hope that someday we will achieve it. That 
is my concern, Mr. Chairman.
    Mr. Pitts. The gentleman's time is expired. The Chair 
thanks the gentleman and now recognizes the gentleman from 
Louisiana, Dr. Cassidy, 5 minutes for questions.
    Mr. Cassidy. Listen, you explained as well as anybody as I 
have heard it the need for serialization today so I am going to 
ask some things to explore, not to challenge. As I gather, 
California has pushed for a more rapid implementation, but as I 
gather, they have had to delay this, correct? They have had to 
delay the implementation of their law. Is that true?
    Dr. Woodcock. I am not familiar with what California has 
done. I am sorry.
    Mr. Cassidy. I have learned to say what I have been told, 
not what I know, but that is what I have been told, which 
suggests to me that even in a market as large as that that 
there could be problems with rapid implementation of this 
serialization.
    Dr. Woodcock. Well, I think some of your other witnesses 
may be more familiar with the pragmatic aspects of this.
    Mr. Cassidy. Yes, I think really what is a key here is not 
the goal which we should go to serialization, it sounds, but 
the question is, how do you track supply chain, how do you have 
in one sense an in-the-cloud inventory where someone is not 
gaming it to figure out that they need to suddenly purchase 
because it is about to go in shortage. Fair statement?
    Dr. Woodcock. There is one issue. That is right.
    Mr. Cassidy. And as I gather, those issues have not been 
entirely worked out?
    Dr. Woodcock. No.
    Mr. Cassidy. And so putting a date certain that has to be 
done in a year presumes that they will be worked out within a 
year but that is clearly not--that is imagining, that is not 
necessarily knowing that that will occur.
    Dr. Woodcock. Right. Well, clearly there should be a 
stepwise approach, but whatever is built now should enable the 
attainment of the ultimate goal, and there should probably be, 
as Mr. Pallone was saying, some kind of time frames put so that 
everyone's mind is focused on the ultimate goal.
    Mr. Cassidy. I accept that. There is nothing like a 
deadline to sharpen a man's mind. I totally get that. On the 
other hand, I think we have seen with some things like the 
exchanges in the Affordable Care Act just putting a date 
certain doesn't mean that it is going to smoothly happen, and 
so knowing everyone is impatient to protect patients from 
criminals, we still have to recognize there are issues to 
resolve.
    Dr. Woodcock. Yes.
    Mr. Cassidy. Let me change gears a little bit and talk 
about drug shortages. You have written a paper. I have had to 
look over it, the state of the art about the economic factors 
involved with that, and it seems--no offense--you give a little 
bit of a short shrift to the role of price competition. Knowing 
that you know this paper like the back of your hand, in figure 
two you have a little bubble saying price competition as a 
factor. But it makes sense to me that if you have declining 
margins and a 6-month lag so ASP plus six, the provider can 
only be reimbursed which was the price 6 months ago if it has 
hit this low point, you can try and raise the price, but if the 
provider is only getting paid the lower price from 6 months, 
she cannot afford to pay for the higher price. Fair statement?
    Dr. Woodcock. Yes, but I am sure you appreciate, I can't 
really comment on federal----
    Mr. Cassidy. I understand that, but you can observe that, 
as your paper does, that lower margins may decrease the ability 
of a company to invest in manufacturing redundancy, quality, 
etc. Is that a fair statement?
    Dr. Woodcock. That is a fair statement, and we feel that 
there is only competition on price because quality is non-
transparent to the buyers.
    Mr. Cassidy. Now, theoretically, though, FDA is going to 
ensure that there is adequate quality to ensure safety, 
correct?
    Dr. Woodcock. That is our job.
    Mr. Cassidy. Yes, it is your job, and so if I am the 
purchaser, really, as long as I know that it at least meets my 
minimum standard, why not.
    Dr. Woodcock. Yes, except--and this is what we try to raise 
in the paper--there is another aspect to quality, which is 
reliability, which any of you purchase a car or electronic or 
anything realize is true, and some of that is reliability of 
supply.
    Mr. Cassidy. But if you have concentration of 
manufacturers, you are down to five, six or seven, really, it 
is not as if you can go someplace else.
    Now, let me ask you just in the interest of making this--I 
understand the numbers of shortages are now down.
    Dr. Woodcock. Yes, a 50 percent decrease.
    Mr. Cassidy. Are these shortages down because we have 
actually addressed these issues of lack of redundancy or 
because we are allowing more foreign product to be introduced?
    Dr. Woodcock. Primarily because of actions we have taken. 
We thank the Congress for your leadership in dealing with 
shortages in the Safety and Innovation Act that was passed last 
year. We have intervened. We have earlier notification.
    Mr. Cassidy. I got 26 seconds. And so is it from more 
product coming overseas or is it the ability to work out things 
domestically?
    Dr. Woodcock. I don't think the domestic supply has 
improved.
    Mr. Cassidy. So it is actually more product coming from 
overseas?
    Dr. Woodcock. Yes.
    Mr. Cassidy. Let me toss out one thought. I just spoke to a 
man who has got extensive contacts with foreign pharmacies. He 
suggests that you put an RSS feed on your Web site. He says 
that my guys elsewhere have to constantly monitor what is in 
shortage. They really can't do that. If there is an RSS feed, 
look, boom, propathol is going on shortage, and it would feed 
out to them, then they would be able to come to you and 
solicit. So can our office follow up with you regarding that?
    Dr. Woodcock. I would be happy to do so.
    Mr. Cassidy. It just seems like a great idea.
    Dr. Woodcock. Yes, good suggestion.
    Mr. Cassidy. OK. I yield back. Thank you.
    Dr. Woodcock. Thank you.
    Mr. Pitts. The Chair thanks the gentleman and now 
recognizes the Ranking Member Emeritus, Mr. Dingell, 5 minutes 
for questions.
    Mr. Dingell. Mr. Chairman, I thank you for your courtesy.
    Dr. Woodcock, you know that there is a lot to be done here 
so I will ask that you respond with a yes or no to my 
questions. Do you agree that a traceability system would help 
to better secure our drug supply chain from counterfeits, theft 
and intentional adulteration? Yes or no.
    Dr. Woodcock. Yes.
    Mr. Dingell. Do you agree that a traceability system would 
help identify and detect illegitimate pharmaceuticals? Yes or 
no.
    Dr. Woodcock. Yes.
    Mr. Dingell. Do agree that a traceability system would help 
to ensure the safety of pharmaceuticals for patients and 
consumers?
    Dr. Woodcock. Yes.
    Mr. Dingell. Do you agree that a traceability system would 
improve the efficiency and effectiveness of recalls or returns?
    Dr. Woodcock. Absolutely.
    Mr. Dingell. It also must be fair, must it not? Yes or no.
    Dr. Woodcock. Yes.
    Mr. Dingell. And we have to see to it that it is of course 
workable?
    Dr. Woodcock. Right.
    Mr. Dingell. And not impose undue burdens on anybody if we 
could possibly avoid it? Yes or no.
    Dr. Woodcock. Yes.
    Mr. Dingell. Do you agree that a federal traceability 
system should include participation from everyone in the supply 
chain?
    Dr. Woodcock. Yes.
    Mr. Dingell. Do you agree that a federal traceability 
system should take a phased-in approach, meaning the first 
phase would implement lot-level tracing and the second phase 
would implement unit-level tracing? Yes or no.
    Dr. Woodcock. Yes.
    Mr. Dingell. And there are reasons for differences in the 
different parts of the system for manufacturing and delivering 
the commodities to the ultimate consumer. Is that right?
    Dr. Woodcock. That is correct.
    Mr. Dingell. And those make it necessary that we should 
consider not only the differences but to phase in because of 
the different levels of difficulty that Food and Drug will 
confront, right?
    Dr. Woodcock. Yes.
    Mr. Dingell. Now, do you agree that a federal traceability 
system with a phased-in approach should include clear 
requirements and a clear time frame for a second phase? Yes or 
no.
    Dr. Woodcock. Yes.
    Mr. Dingell. Do you agree that the goal of any federal 
traceability system should be unit-level tracking? Yes or no.
    Dr. Woodcock. Yes, an ultimate goal.
    Mr. Dingell. Ultimate goal but very, very difficult to 
achieve?
    Dr. Woodcock. It should be the goal.
    Mr. Dingell. Well, and it will also cause a lot of 
difficulty to get everybody together on this.
    Dr. Woodcock. Absolutely, because there are tradeoffs here.
    Mr. Dingell. Do you agree that traceability legislation 
should avoid placing undue burdens on FDA so that the FDA can 
focus on proper and efficient implementation of this particular 
program and all of the others which we have been loading Food 
and Drug down with lately?
    Dr. Woodcock. Yes.
    Mr. Dingell. And with which we have not been giving you 
enough money? You may not want to comment on that, but that is 
my feeling.
    Dr. Woodcock. It is difficult. We try our best.
    Mr. Dingell. I know you do, and it is an enormously 
difficult task. Do you believe that the traceability 
legislation should ensure adequate systems are in place to 
trace prescription drugs before current pedigree requirements 
are eliminated? Yes or no.
    Dr. Woodcock. Absolutely.
    Mr. Dingell. Now, this traceability system and the phase 
related to it must also focus very carefully upon imports. Is 
that right?
    Dr. Woodcock. Yes.
    Mr. Dingell. Particularly imports that are components of 
pharmaceuticals ala the situation which we had with heparin but 
other examples of this, and of course, as a matter of fact, 
also with regard to food and other things that you have to 
contend with. Is that right?
    Dr. Woodcock. Yes. Well, I think the components of drugs is 
different, and the supply chain issue is different than the 
distribution chain but equally important to keep substandard 
ingredients out.
    Mr. Dingell. And I am not here to sell foods at this 
particular time but we have to look at that and other things 
too.
    Now, Doctor, do you agree that traceability legislation 
should provide FDA with adequate enforcement authority to 
ensure stakeholders comply with the intent of Congress? Yes or 
no.
    Dr. Woodcock. Yes. Can I say, we don't want to be a paper 
tiger on this?
    Mr. Dingell. I sure don't want that. It is also fair to 
observe that Food and Drug has been working very carefully with 
Members of Congress, House and Senate, Democrats and 
Republicans, but also that you have been working with the 
industry to try and see that we get something with which 
everyone can work and to do so comfortably. Is that right?
    Dr. Woodcock. That is correct.
    Mr. Dingell. And of course, that would be the goal of Food 
and Drug, as it would be of everybody, I think, in this room.
    Mr. Chairman, I return 19 minutes. Thank you.
    Mr. Pitts. Seconds. Thank you.
    Mr. Dingell. Nineteen seconds.
    Mr. Pitts. The Chair now recognizes the gentleman from 
Illinois, Mr. Shimkus, 5 minutes for questions.
    Mr. Shimkus. Thank you, Mr. Chairman.
    Dr. Woodcock, welcome. Glad to have you back.
    Dr. Woodcock. Thank you.
    Mr. Shimkus. I am going to do a kind of intro and then go 
to my specific question on a specific item.
    We have seen many instances in recent years of how 
technology can help us modernize and create efficiencies in 
communications, and I am referring to stuff that we moved, 
actually signed by the President in my other subcommittee, 
which is a hazardous-waste issue, and we were able to through 
legislation kind of relieve the burden of paper copies 
throughout the supply chain all the way to the fact when the 
President signed the law, and we know in the old days carbon 
copies, triplicate papers, they are stored throughout the 
entire chain, that can be costly. We also have recently seen 
where the EPA has on their own with some prodding from us now 
is able to notify water users--the water plants can notify the 
users of the water on changes based upon email notifications 
versus mailing paper copies of changes and the like.
    So that leads me to this whole debate that Ranking Member 
Pallone is also very interested in, the e-labeling requirements 
reflected. There are some reflected in this discussion draft 
with more standardized electronic approach that will increase, 
we believe, patient safety and provide significant quality 
improvements and cost reductions to patients and industry. This 
is something that, as I mentioned, that we have been following, 
and Ranking Member Pallone has also been leading on this. Do 
you support this e-labeling policy?
    Dr. Woodcock. I have long supported this. We have worked 
with the National Library of Medicine. We have something called 
Daily Med, and Daily Med has, I think, 24-hour update so at the 
National Library of Medicine you can get any drug label, the 
actual on-time, real-time label with any safety updates within 
a day of FDA changing that label. So that should enable easy 
electronic access from almost anywhere.
    Mr. Shimkus. So with respect to this proposed legislation 
and what the bipartisan members are trying to work out, there 
is obviously some language that deals with this. I guess we 
would be concerned as to where are you at as an agency in 
issuing guidance and moving forward on your own?
    Dr. Woodcock. My understanding is, this requires 
rulemaking. The fact is that we are planning to issue a rule is 
on our agenda, and we plan to issue a rule this year, we would 
hope, a proposed rule.
    Mr. Shimkus. So I guess from the cosponsor of the 
legislation and the committee and ranking member would have to 
look and see the time, your time frame as rulemaking sometimes 
takes a long time and a decision made of whether we want to add 
that in legislative language, but you are really supportive of 
the overall process and principles, it seems like.
    Dr. Woodcock. For drugs, all the pieces of this are in 
place so there is a labeling repository. We do all our reviews 
electronic at the agency at CDER and so everything is in place 
to enable electronic access from anywhere to the real-time drug 
label.
    Mr. Shimkus. And the real-time drug labeling is the key 
because things can change pretty rapidly, and you can get it 
electronically versus something stuffed in a box that gets 
transmitted forward. So I appreciate your response and I 
appreciate you being here, and Mr. Chairman, I yield back my 
time.
    Mr. Pitts. The Chair thanks the gentleman and now 
recognizes the gentleman from Texas, Mr. Green, 5 minutes for 
questions.
    Mr. Green. Thank you, Mr. Chairman. Track-and-trace is an 
important issue, and I want to thank my colleague and neighbor, 
Representative Matheson, for his leadership on our side on this 
issue. Finding bipartisan agreement on any issue is difficult, 
and on more complex issues, such as supply chain for 
pharmaceuticals, remains even more elusive. However, I do have 
some concerns about the Latta-Matheson. Most importantly, the 
bill never really gets us to an interoperable electronic unit-
level system. In fact, it prohibits FDA from moving ahead with 
interoperable electronic system in absence of new legislation, 
which we won't on until 10 years after the enactment. I 
understand the concerns that market participants have problems 
moving too fast toward such a system. We should be sensitive to 
this and make sure the law we pass is workable. But we have an 
opportunity to move the ball further down the field, and it my 
understanding that quite a bit of necessary technology already 
exists. Pharmaceutical companies, large and small, have stated 
they can work on a shorter timetable. We can do more to ensure 
the safety and security of our drug supply, and I think we 
should. But instead of moving toward requiring an enhanced 
system, the bill only requires the FDA to conduct one or more 
pilot projects and conduct public hearings and report back to 
Congress on the result within 10 years. I am concerned that 
these pilot projects do not seem to be designed to test the 
electronic interoperable unit-level system that everyone seems 
to agree we need.
    My question is, if the goal is to get to an electronic 
interoperable unit-level system, which I thought was based on 
last fall's draft with indeed a shared goal, wouldn't it make 
sense for the legislation to explicitly direct the FDA to 
conduct the pilot program, testing out whether such a system 
could be established, and instead of just mentioning in vague 
language about better securing the supply chain. Would you like 
more definitive black-letter law and guidance instead of come 
back to us every 6 months and in 10 months from now we might 
get to this?
    Dr. Woodcock. As I said earlier, I think within the 
standards world where people are being asked to conform to a 
standard over time and they have to change processes, they have 
to make investments to do that, clarity is critical and 
predictability so that people know what is going to happen and 
they can plan for it and plan their investments, plan their 
programs. So I think to the extent that there is a shared goal 
that Congress can provide clarity on where we are going as a 
country and where we plan to end up, that would be beneficial 
to all the stakeholders, even those who feel right now that 
this is a tremendous burden to provide clarity of a path would 
be extremely helpful.
    Mr. Green. And we authorize legislation and sometimes 
Congress doesn't reauthorize, we just kick the can down the 
road, and telecom is a great issue. The 1996 Telecom Act, I 
think it was outdated when we passed it but it is well outdated 
now. So my worry is that we won't continue to oversee it.
    My next question is my concern about, it requires the FDA 
to conduct a public hearing every 6 months until FDA submits a 
report to Congress, which could be up to 10 years from 
enactment. Transparency is important. I agree that open and 
public hearings of these issues with interested stakeholders 
makes sense, but twice a year for 10 years seems like it is a 
little much. Can you talk about all that is involved in setting 
up a public meeting? Do you have any sense how much these 
meetings may cost over the 10 years twice a year for 10 years?
    Dr. Woodcock. These meetings often cost, maybe up to 
$20,000, depending on how they are structured, but I think the 
opportunity cost is the cost we are really talking about here. 
Don't forget, we are trying to work with patient groups, and 
they are extremely excited about having meetings about their 
disease and how we can better study it, and under PDUFA that 
you all passed, we agreed to have 20 of these meetings over the 
next 5 years. Now, we would like to have more. We have heard 
from so many patient groups that they aren't maybe on the list 
and they are really concerned about their disease. So it is 
really important. We also have pediatrics and how we develop 
drugs in children. We have many other pressing issues that have 
immediate impact on patients that we need to have various 
public meetings on. So there is a tremendous opportunity cost 
there if we are having--if we meet on a certain subject 
excessively.
    Mr. Green. I only have about 30 seconds left, and I would 
like to match our chairman emeritus in giving time back. I 
think the bill is a good step, but I don't think it goes far 
enough and it fails to give us an interoperable electronic 
unit-level system before 10 years, and frankly, I think 
industry may be ready much earlier than that, and we don't want 
to tie our hands where we can't do it.
    So Mr. Chairman, I appreciate the hearing today and 
hopefully we will provide some more flexibility. Thank you, and 
I yield back my time.
    Mr. Pitts. The Chair thanks the gentleman and now 
recognizes the gentleman from Virginia, Mr. Griffith, 5 minutes 
for questions.
    Mr. Griffith. Thank you, Mr. Chairman.
    Dr. Woodcock, I appreciate you being here today, and I have 
heard a number of folks say this is not an issue where there is 
one side or the other, and that is true. I do have some 
concerns.
    I represent a very rural district, and we have a lot of 
community pharmacists tucked in various nooks and crannies of 
my community. That being said, people are used to going to 
those pharmacies. They like those pharmacies. And I am just 
wondering as we go forward, you know, these folks have a lot of 
competing issues that they are facing already from other 
issues. As we go forward in looking at this, while we all want 
to make sure our supply chain is safe, can you describe what 
efforts the FDA has taken into account to accommodate and 
incorporate the small community pharmacies and make sure that 
they are not overly burdened by any system that we put into 
place?
    Dr. Woodcock. Well, we talked to all stakeholders about 
this. As I said earlier, developing standards and implementing 
that in a stepwise way is probably the best approach to not 
impacting small entities excessively so they know what is 
coming and they can plan for it over time, and if Congress were 
to establish that plan, then vendors will come in and develop 
solutions over time and they can be adopted somewhat earlier by 
a larger chain, say, and would be affordable for smaller 
groups.
    So I think we need to--if Congress decides to put forth a 
plan, I think that would be very helpful in having everyone 
understand where we are going and then getting the power of 
commerce and entrepreneurialism and invention to develop the 
technologies that will make this or actually craft these 
technologies to this situation in a way that will make it 
affordable.
    Mr. Griffith. Well, I have to say that makes sense to me. 
If you give people time to respond and to figure things out and 
there is enough time to come up with new ways of doing things, 
I do believe that vendors will come forward. Of course, the key 
is, as I have heard from some folks, they want to do things 
faster, and we have to find that sweet spot, which is why we 
have draft language to talk about as opposed to an actual bill 
at this point. But I do appreciate the sponsors who brought it 
forward for us to at least have something to work on, and I 
appreciate you being here today.
    You also mentioned in your testimony a track-and-trace 
public workshop held in February of 2011. Can you just speak 
generally about feedback you received, and keeping in mind my 
community pharmacies that are a big concern? It is not that I 
don't care about the big chains but they are in a much better 
position to adapt quickly to the changes that may be coming.
    Dr. Woodcock. We understand the concerns of the community 
pharmacists, and there testimony today that I read that was 
submitted and last year also, so we understand and certainly we 
have talked to that community and heard at our public meeting 
about these concerns--logistical concerns, time concerns, the 
fact that they feel stressed already between various demands on 
them. There is other competition. But it is really important in 
these rural communities to have a pharmacy there. So we 
understand all that, and I guess what I am saying is that 
putting in the goal and predictability over a time frame I 
think would be very helpful for everyone because they get their 
mind around what is going to happen in the future.
    Mr. Griffith. Yes, ma'am. I appreciate that. It makes sense 
to me as well.
    Mr. Chairman, with that, unless somebody wants my time, I 
will yield back.
    Mr. Pitts. The Chair thanks the gentleman and now 
recognizes the gentlelady from Virgin Islands, Dr. Christensen, 
for 5 minutes for questions.
    Mrs. Christensen. Thank you, Mr. Chairman, and I look 
forward to this discussion because I have a specific issue that 
I wanted to discuss, and of course, the issue of altered, 
counterfeit, substandard or tampered-with medicines entering 
the drug supply is a real concern and it is a very important 
issue for FDA and this subcommittee to address, but I want to 
raise a consequence that may or may not be intended but it is 
not warranted, and I hope that the proposed legislation can 
help or that there is something that FDA can do about it.
    In the efforts to keep substandard drugs out of the U.S. 
marketplace, re-importation from a foreign jurisdiction is 
prohibited. The U.S. Virgin Islands, as the name indicates, is 
a part of the United States. Our pharmacists are U.S. trained. 
They have U.S. licenses. Our pharmacies are regulated by U.S. 
law, and our pharmacies including our hospitals only order 
medication from U.S. distributors. As a provision of the treaty 
that was signed when the United States bought the Virgin 
Islands, we are outside of the U.S. custom zone so for shipping 
only we are international. Again, we are totally domestic 
except for shipping, and because of that, our pharmacies have 
been unable to ship back their medication that might have been 
oversupplied, spoiled, expired. They are unable to ship it back 
to their supplier, and it incurs costs and those costs are 
passed on to the patients. So we have met on this in the past 
in the past Administration. I have legislation to try to 
address it. But we are willing to work on anything that can be 
worked on and maybe, you know, we want to work with our 
colleagues on the committee but maybe there is something that 
FDA would be able to do.
    So if this national track-and-trace system in place, would 
that be a way to help us fix that, do you think?
    Dr. Woodcock. Probably, but I can't opine on the legal 
aspects because it would require analysis. You raised this 
issue with me last year, and we agreed that your staff would 
talk to our folks, and I had thought this had been resolved or 
improved. So I would also urge you to talk to FDA staff again 
and raise this issue. We can follow up with you. But I do 
believe obviously things can be put into legislation that would 
remedy a situation like this as well.
    Mrs. Christensen. But you would not oppose it, would it, if 
we were----
    Dr. Woodcock. No, I think----
    Mrs. Christensen [continuing]. Only shipping back to the 
distributor?
    Dr. Woodcock. Well, a track-and-trace system would actually 
enable this because we would know what the drugs were.
    Mrs. Christensen. And I thought it was resolved also. They 
were shipping by FedEx and it wasn't being checked but now it 
is back to square one. So thank you very much, and I don't have 
any further questions, Mr. Chairman.
    Mr. Pitts. The Chair thanks the gentlelady and now 
recognizes the gentlelady from North Carolina, Ms. Ellmers, 5 
minutes for questions.
    Mrs. Ellmers. Thank you, Mr. Chairman, and thank you, Dr. 
Woodcock, for being here today.
    I have a couple of questions on the basically moving 
towards the electronic access for, you know, data for patients, 
which now of course are the package inserts that accompany 
medication. I do believe that the real-time access is very, 
very important but I am concerned about our seniors and their 
ability to have that information right there for them. I have 
heard from many seniors who--as a nurse, I know how important 
it is for them to have that information. So what exactly is the 
push there? I mean, I understand the technology, the ability to 
access it online is very important, but there again, many of 
our seniors are not Internet savvy, and I am concerned that 
maybe we are moving a little quickly with this. So what are 
your thoughts on that?
    Dr. Woodcock. Well, what we are talking about is package 
inserts, and many physicians have trouble with the package 
insert.
    Mrs. Ellmers. Well, it is a lot of information.
    Dr. Woodcock. Yes, so we are also working an initiative we 
call Patient Medication Information, all right, and we have 
been working on that for some time, and we are about the only 
country in the world that doesn't give patients a leaflet about 
their drug in patient language. So we are moving to do that, 
and it would be a combination of electronic and paper, 
depending on what the individual desired.
    Mrs. Ellmers. OK.
    Dr. Woodcock. Yes. And it would be one page probably with 
access to more if people wanted more information or 
instructions on how to get more information.
    Mrs. Ellmers. So that wouldn't automatically come with the 
medication is what you are saying?
    Dr. Woodcock. It would.
    Mrs. Ellmers. It would automatically come?
    Dr. Woodcock. Yes.
    Mrs. Ellmers. Because I am thinking a combination approach 
is definitely the way----
    Dr. Woodcock. For consumers.
    Mrs. Ellmers [continuing]. That we should go, and, you 
know, certainly, again, the package inserts do come with more 
than enough information obviously for different reasons. So you 
do favor more of a combination approach?
    Dr. Woodcock. For the patient.
    Mrs. Ellmers. For the patient?
    Dr. Woodcock. That is right. We feel that people who 
prescribe drugs or dispense them, all of them are going to have 
electronic access.
    Mrs. Ellmers. Right, and availability. So the electronic 
access is more for the physicians?
    Dr. Woodcock. Technical.
    Mrs. Ellmers. OK. Thank you for clarifying that for me 
because that was definitely an area I was very concerned about.
    Now, I do want to talk a little bit about--oh, I only have 
a few moments. But the track-and-trace as far as, how do you 
basically figure out which things would be tracked and traced 
based on drugs and based on other things like saline or 
additives, things that mix drugs? I mean, will that also be 
included in track-and-trace?
    Dr. Woodcock. They are drugs, so obviously whatever is 
included is up to Congress, but we would feel that anything 
that goes into a drug should be. So we regulate saline bags and 
so forth as pharmaceuticals now. They have their own code, they 
have lot numbers and so forth, and often we have to recall 
those.
    Mrs. Ellmers. OK. So you are looking at anything that is 
considered a drug?
    Dr. Woodcock. Yes.
    Mrs. Ellmers. Thank you very much.
    Mr. Pitts. The Chair thanks the gentlelady and now 
recognizes the Ranking Member of the Full Committee, Mr. 
Waxman, for 5 minutes for questions.
    Mr. Waxman. Thank you, Mr. Chairman.
    Dr. Woodcock, as you know, California has a law that once 
completely implemented will require that all transfers of 
ownership of prescription drugs from the manufacturer through 
to the final pharmacy dispenser be accompanied by a so-called 
pedigree that maintains a record of each successive transfer 
and tracks information about the drug product at the unit or 
package level. Under the law, these pedigrees must be 
transferred electronically and the entire system will have to 
be interoperable so that all the information on any 
prescription drug will be readable and updatable by all members 
of the drug distribution chain. This law is quite comprehensive 
and ambitious and has been the subject of criticism by some 
industry members as being too ambitious, either in its scope or 
its time frame for implementation.
    But I was glad to hear on your answers to Mr. Pallone's 
questions that you agree that an electronic interoperable unit-
level system should be the goal here. I agree that we need to 
allow enough time for the technology to evolve and for the 
system to be put in place. We don't want to set unrealistic 
expectations. But I think California had it right when they 
insisted upon this kind of system, and I think this system is 
ultimately the right one for the country.
    As Mr. Pallone mentioned, the Latta-Matheson draft doesn't 
even set this up as a goal even at some distant point in the 
future, to create an electronic interoperable unit system. In 
fact, they prohibit FDA from moving forward with this kind of 
system ever. I think that is the wrong policy. The Latta-
Matheson bill also doesn't require any kind of tracing of drugs 
until 5 years after enactment at the earliest. But perhaps even 
more concerning to me is that on day one, as soon as this bill 
would be passed, it would preempt State law even though they 
never created an effective alternative at the federal level. On 
day one, all State laws on the subject are wiped out, and to be 
clear, this is not just California's law. According to the 
Health Care Distribution Management Association, at least 11 
States have laws requiring distributor licensing and pedigree 
requirements. Some States like Florida have a requirement that 
a pedigree be passed with most drug transactions, and you 
mentioned this in your testimony, but last year Representative 
Cummings and Senator Rockefeller issued a report detailing 
their investigations of the gray market in drug trade in the 
United States and some of the dangers it poses, and they 
discussed the importance of pedigrees for law enforcement in 
these cases. But the very law requiring these pedigrees would 
be erased under the House's bill on day one.
    Again, you mentioned this in your testimony but I would 
like to hear more. Can you tell us whether you think preempting 
these State laws on day one makes sense when we never get to 
the system you say we need? Please explain in more detail what 
would be the consequence of wiping out currently existing 
pedigree requirements? I am deeply concerned about preempting 
not only California's law but the other States' laws that 
clearly provide a benefit today, I agree that if we can't get 
to a strong federal system, it might make sense to preempt 
State laws. But the Latta-Matheson draft certainly does not 
create a system worthy of broad preemption on day one. Would 
you elaborate on this?
    Dr. Woodcock. I think it is really important that whatever 
is enacted does not lower the safety of the drug supply, 
doesn't decrease or put bigger holes in the safety net. That is 
really important. So the pedigree requirements now, as I said--
--
    Mr. Waxman. Just for clarification, safety net----
    Dr. Woodcock. Of tracking.
    Mr. Waxman. We are not talking about poor people. That is 
usually what----
    Dr. Woodcock. Oh, I see. OK. Maybe I used the wrong term. 
But the safety around drugs, of the drug supply, OK? 
Eliminating the paper pedigree until we have something else in 
place would be creating greater loopholes for insertion of 
counterfeit drugs and substandard drugs into the distribution 
chain because we wouldn't be able to track them backwards, all 
right? And putting a law in place that eliminated States' 
ability to require that tracking without providing something 
comparable in its place would be lowering the safety of the 
drug supply for whatever time it took.
    Mr. Waxman. I agree. Let me ask you one other question in 
the few seconds I have. California law also ensures that all 
entities in the supply chain participate in the e-pedigree 
system. One of the major issues we have confronted in the 
context of this debate is whether pharmacies should be required 
to be part of the system. Do you think it makes sense to exempt 
pharmacies from a nationwide track-and-trace system?
    Dr. Woodcock. I think ultimately if we want to know what 
drug the patient got, OK, and several times in the last several 
years that has been imperative for us to figure out what drug 
each patient got because sometimes we hear about the problem 
from the patient dying----
    Mr. Waxman. So you think the pharmacies should be included 
so we know what the patient got?
    Dr. Woodcock. Eventually, that is the only way to know what 
the patient got, and so we end up doing these elaborate 
investigations to figure out which drug the patient got, and 
yet often, as I said, we can't pull the drugs out of the 
patient's hands because they may be lifesaving medicines. So we 
may in the next several years get into a tragic situation 
because of that. So I think the ultimate goal really ought to 
be our ability to track down to that level.
    Mr. Waxman. Thank you. Thank you, Mr. Chairman.
    Mr. Pitts. The Chair thanks the gentleman and now 
recognizes the gentleman from Pennsylvania, Dr. Murphy, 5 
minutes for questions.
    Mr. Murphy. Dr. Woodcock, great to have you back here. I 
always appreciate your candid testimony.
    This may have been asked before, and I apologize if I am 
asking it again, but I would like to know. So how are things 
done now? How are you made aware that if there is a problem 
with something that may be counterfeit, toxic, contaminated, 
what is the process now by which we find out?
    Dr. Woodcock. Well, there are a whole variety. We may be 
alerted from the health care system. They may find it and they 
look at it and they see something is wrong. We may be alerted 
by whistleblowers who see, you know, this drug's label is in 
Turkish, this can't be right, OK? We may--and the ones that we 
are very concerned about is where we get harm, patient harm, 
and so we get adverse-event reports, people are dying and we 
don't know why, and then we have to go out and do a huge 
investigation of what did they get and so forth.
    Mr. Murphy. So right now it is towards the end of the 
supply chain that you may find something by an adverse event or 
someone----
    Dr. Woodcock. Yes, and we feel with the law that was passed 
last year, now manufacturers have to tell us if they get a 
component that is falsified or substandard, they need to tell 
us that now, but out in the world, usually it is sort of 
voluntary. Pharmacists will call us, a nurse or whatever, and 
we will find out about it that way.
    Mr. Murphy. And this may be at the end of things. What 
about in terms of the ingredients that go into these? Do you 
pick up anything on that too, or is that the manufacturers on 
their site testing the quality of their ingredients?
    Dr. Woodcock. We ask them to test, and as I said, the 
Innovation and Safety Act included additional provisions on the 
supply side, the incoming side to make a drug, to strengthen 
that, making them strengthen their controls on the supply chain 
and the testing and so forth when they receive the components.
    Mr. Murphy. So now if the FDA has a particular concern 
about a drug that would cause an immediate threat to 
individuals, what would the agency do?
    Dr. Woodcock. We talk to the company and ask them to do a 
recall or they may have instituted a recall themselves. We do a 
risk assessment, which we call Health Hazard Evaluation, and we 
determine the level of possible harm, and if it is a class I 
recall, then we have to decide should it go down to the patient 
level and be pulled out of the hands of the patients and then 
we do-- the company is supposed to be in charge of that but we 
audit that, the effectiveness, to make sure it is happening, 
and if it is a really bad problem, we may collaborate with the 
CDC or the public health departments in the States, you know, 
to make sure this all happens.
    Mr. Murphy. OK. Let me ask something. A witness on our 
second panel, Walter Berghahn, notes in his testimony there has 
been ``a tremendous amount of effort expended in the last 10 
years to tighten up and secure the supply chain. Those efforts 
certainly have closed many of the cracks and yet counterfeits 
still appear, and the FDA has opened more investigations in the 
last few years than ever before, more than 70 instances in 2010 
alone.'' What do you attribute to these increased 
investigations? Is it that the FDA is getting better at it or 
the problem is getting worse?
    Dr. Woodcock. Always hard to know, right? I think the 
problem is getting worse. We know from our colleagues around 
the world that in some parts of the world, 50 percent of the 
drug supply is counterfeit, but those folks in that part of the 
world don't pay a lot for their drugs, so our market is ideal 
because the drugs are expensive and you get a lot of money for 
them. And so we see more professional criminals getting 
involved, racketeering, very high-level criminal elements, 
conspiring to do this and penetrate the U.S. drug supply 
because there is a lot of money to be made.
    Mr. Murphy. We hear a lot about people who offer drugs 
online. Your recommendations on whether or not people should 
purchase anything when they go to a Web site and they say, oh, 
here is my prescription, I will just get it from there, your 
recommendation is should they or should they not purchase from 
those?
    Dr. Woodcock. There is a program called VIPPS, which offers 
certified online pharmacies. Certainly some of the pharmacies 
are fine. Many of them, we have looked, we have ordered, we 
have done this. You can get counterfeit drugs very easily or 
substandard drugs ordering from an online pharmacy that you 
don't know anything about.
    Mr. Murphy. So make sure you know who that online pharmacy 
is. Finally, let me ask you this, and this relates to what I 
was just asking about too. Could this legislation eventually 
lead to less drug shortages or more because you are watching 
more closely? What do you think the outcome will be?
    Dr. Woodcock. I don't think it will have a huge impact on 
drug shortages, frankly. I think that problem, as we discussed 
earlier, has other root causes other than--obviously the 
existence of shortages is another temptation for people to 
introduce counterfeit because people are desperate to get these 
medicines and they will pay a lot for them. But I don't that is 
the root cause of shortages.
    Mr. Murphy. Thank you very much. Yield back, Mr. Chairman.
    Mr. Pitts. The Chair thanks the gentleman and now 
recognizes the gentlelady from Florida, Ms. Castor, for 5 
minutes for questions.
    Ms. Castor. Thank you, Mr. Chairman, and I want to thank my 
colleague, Congressman Matheson, for bringing the discussion 
draft to us, and welcome.
    Dr. Woodcock. Thank you.
    Ms. Castor. Dr. Woodcock, a critical part of an effective 
drug supply chain is the ability to secure a stable supply of 
medically necessary drugs, and I know this isn't a hearing on 
drug shortages but there is a very serious issue and I feel 
compelled to ask you about it, and that is the critical 
shortages involved with babies in the NICUs right now, the 
neonatal intensive care units in children's hospitals in NICUs 
all across the country. We are talking about the calcium, zinc 
trace elements, magnesium. I have been advised by some 
children's hospitals that they have less than 2 weeks of 
nutrients left, and this is already impacting their ability to 
provide the top standard of care for the most vulnerable of 
patients. I do understand that you have been very aggressive in 
tackling this problem along with your drug shortage 
professional staff, the children's hospitals and the 
manufacturers, but it is so serious now that a medical director 
at one children's hospital is calling is the worst crisis he 
has ever seen in 30 years. What is happening on this now and 
what is the outlook here over the coming months?
    Dr. Woodcock. Well, we have worked with one manufacturer to 
allow them to ship product along with filters to filter out the 
product that is precipitating, because you can't give particles 
in IV fluids. It can embolize into the lungs. So that should 
provide some of the products. We are also working with 
manufacturers outside the United States to make sure their 
product is OK and bring it into the country. We recognize this 
is a critical issue and it is reaching a critical stage, and we 
need to get product out there for these babies. We understand 
that.
    Ms. Castor. So what is your time frame? Because they are 
saying they only have the product for the remaining 2 weeks, 
and what is happening is there are professionals are calling 
all over the country trying to find the elements that they 
need. Are they going to be able to see some relief here over 
the next week or two?
    Dr. Woodcock. We hope so. As I said, some of these products 
are being shipped now with filters, all right, then others we 
negotiating on importing some of those other elements into the 
country, and once we can give the green light that we are 
assured of the safety, then they can be made available pretty 
rapidly.
    Ms. Castor. OK. That is the short-term solution. What is 
the longer-term answer?
    Dr. Woodcock. The long-term solution appears to be some 
structural problems, as we talked about earlier, in how these 
drugs are manufactured and delivered to patients and the lack 
of a robust supply. So if one manufacturer goes down in the 
United States, they may be the sole source of some of these 
life-maintaining products, and that is a really bad situation. 
It is sort of outside of the scope of FDA, though, to figure 
out how to have more manufacturers.
    Ms. Castor. And drug shortages in general, have you noticed 
a ramp-up in counterfeits that try to fill that void in the 
market over the past few years?
    Dr. Woodcock. In some cases people, unscrupulous people, 
exploit the existence of a shortage to try to introduce 
substandard products.
    Ms. Castor. Which particular areas have you seen that?
    Dr. Woodcock. We would have to get back to you on that as 
far as all the details.
    Ms. Castor. OK. Thank you very much. I yield back.
    Mr. Pitts. The Chair thanks the gentlelady and now 
recognizes the gentleman from Utah, Mr. Matheson, 5 minutes for 
questions.
    Mr. Matheson. Well, thank you, Mr. Chairman. You know, this 
is an issue that a lot of us have been working on for a number 
of years, and I want to acknowledge some of the colleagues, 
Congressman Boulier and Congressman Bilbray, who both worked on 
this issue, and then I am pleased to be working with Mr. Latta. 
And I think this year we have an opportunity to really get 
something done, and I think we should all embrace that 
opportunity to try to work together. We put out a discussion 
draft. This is not a bill. It is an opportunity for us to 
really start to dig into this issue and have a substantive 
discussion, and I hope that is what we do, and this hearing is 
the first good step in that process.
    And I really want to thank Dr. Woodcock, who has spent a 
lot of time on this issue, has been very open, has talked to me 
on the phone about this issue before and been engaged for a 
long time on it, and I know you have a strong desire to come up 
with a national standard that sets the rules for everybody. I 
think there is a need for preemption. I heard some questions 
earlier concerned about timing of preemption but I think we all 
know we need one set of rules in this country and not 50 
different State rules, and I think you would acknowledge that, 
but I do appreciate all you have done. You put your own time in 
and your staff in offering resources on this.
    In your testimony, you describe several situations or 
instances of counterfeit drugs finding their way into the 
supply chain. Many have been reported in the press reports. Can 
you describe for us how the product was able to really get in 
the supply chain, and you can talk about the emerging level of 
sophistication that the bad actors are deploying right now to 
do this?
    Mr. Woodcock. Yes. We see a range of sophistication, and of 
course, the ones we are most worried about are those who are 
actually able to copy, really make a counterfeit. It looks like 
the authentic product. It has the label of the authentic 
product and yet it isn't. It may often have nothing in there, 
or we have had that had regular water, which is very dangerous 
to just give to people, say, intravenously. So they are 
introduced at some point in the distribution chain. It may be a 
secondary distributor level. It may be the pharmacy level. It 
may be somewhere in between there. It may be where something is 
shipped to a clinic and they buy from a distributor who 
actually probably due to perhaps the amount of oversight that 
we should have of some these licensed distributors, they are 
sort of the launderers. They launder these products and then 
put them into a legitimate chain, send them out to, say, cancer 
clinics and then people use those drugs that are not effective.
    Mr. Matheson. And it is safe to say with over a $300 
billion annual prescription drug market in the United States, 
this is pretty attractive.
    Dr. Woodcock. That is right.
    Mr. Matheson. The reason I ask this, I know this sounds 
obvious to everybody but this is why we are doing this. I mean, 
our current system is not necessarily structured where it can 
best mitigate this challenge of counterfeiters, and I think 
there are a lot of important issues, a lot of important details 
in this discussion draft, but I think it is important we all 
acknowledge why we need a national standard, why we have to do 
something better than we have now because the bad guys are 
getting smarter, more aggressive and there is just too much 
money on the table for them not to want to do some bad things.
    One other question, and then I will let you go. You touched 
on this a little perhaps in other questions but can you walk us 
through how moving forward with a robust track-and-trace system 
would complement the work that this committee undertook last 
year in the latest version of PDUFA, how that is going to 
complement what that bill already gave you some authority to 
do?
    Dr. Woodcock. Absolutely. There are two sides to the whole 
chain of medicines. One is the supply chain where you get all 
the components, maybe the IV bags, the active pharmaceutical 
ingredient and all other components. They go into the 
manufacturer. That is one area where the Innovation and Safety 
Act really addressed that supply chain and tightened up some 
big loopholes that existed. Now this is a distribution chain, 
OK, the manufacturer makes the product, but then as I 
described, they send it out all over through a chain of 
distributors and so forth down to the pharmacy or clinic or 
hospital level, and that is the chain where there are big 
loopholes still where these fake products can be inserted or we 
just don't know where the products are going, and so once we 
have an approach and a goal laid out for this distribution 
chain side, then we will have a very intact system that we can 
have much more confidence in.
    Mr. Matheson. Thanks. Mr. Chairman, I yield back.
    Mr. Pitts. The chair thanks the gentleman. That concludes 
the questions from the members. I am sure they will have some 
follow-up questions, some other questions. We will send those 
and ask that you please promptly.
    Dr. Woodcock. We will be delighted to work with you.
    Mr. Pitts. Thank you very much, Dr. Woodcock, for your 
testimony.
    That concludes the first panel. We will ask the staff to 
set up for the second panel. We have seven witnesses. We will 
take a 2-minute break while they set up.
    [Recess.]
    Mr. Pitts. The Subcommittee will reconvene. On our second 
panel today, we have seven witnesses, and I will introduce them 
in order of their presentations. First, Ms. Elizabeth 
Gallenagh, Vice President of Government Affairs and General 
Counsel, Healthcare Distribution Management Association. Then 
Ms. Christine Simmon, Senior Vice President of Policy and 
strategic Alliances, Generic Pharmaceutical Association. Mr. 
Michael Rose, Vice President of Supply Chain Management, 
Johnson and Johnson Health Care Systems. Dr. Tim Davis, owner, 
Beaver Healthmart Pharmacy on behalf of the National Community 
Pharmacists Association. Mr. Allan Coukell, Director of the 
Medical Programs of the Pew Charitable Trust. Dr. Carmen 
Catizone, Executive Director, National Association of Boards of 
Pharmacy. And finally, Mr. Walter Berghahn, President of 
Smarter Meds for Life and Executive Director of the Healthcare 
Compliance Packaging Council.
    Thank you all for coming. You will each be given 5 minutes 
to summarize your testimony. Your written testimony will be 
placed in the record.
    Ms. Gallenagh, we will start with you. You are recognized 
for 5 minutes.

  STATEMENTS OF ELIZABETH GALLENAGH, J.D., VICE PRESIDENT OF 
GOVERNMENT AFFAIRS AND GENERAL COUNSEL, HEALTHCARE DISTRIBUTION 
   MANAGEMENT ASSOCIATION; CHRISTINE M. SIMMON, SENIOR VICE 
      PRESIDENT, POLICY AND STRATEGIC ALLIANCES, GENERIC 
   PHARMACEUTICAL ASSOCIATION; MICHAEL ROSE, VICE PRESIDENT, 
   SUPPLY CHAIN VISIBILITY, JOHNSON AND JOHNSON HEALTH CARE 
 SYSTEMS, INC.; TIM DAVIS, R.PH., BEAVER HEALTH MART PHARMACY, 
  ON BEHALF OF NATIONAL COMMUNITY PHARMACISTS; ALLAN COUKELL, 
 DEPUTY DIRECTOR, MEDICAL PROGRAMS, THE PEW CHARITABLE TRUSTS; 
CARMEN A. CATIZONE, R.PH., D.PH; AND WALTER BERGHAHN, EXECUTIVE 
       DIRECTOR, HEALTH CARE COMPLIANCE PACKAGING COUNCIL

                STATEMENT OF ELIZABETH GALLENAGH

    Ms. Gallenagh. Good morning, Chairman Pitts, Ranking Member 
Pallone and members of the subcommittee. I am Liz Gallenagh, 
Vice President, Government Affairs, and General Counsel at 
HDMA. Thank you for this opportunity to inform you about the 
critically important issue of prescription drug pedigree, 
traceability and supply chain safety. I would also like to 
thank Chairman Upton, Congressman Latta and Congressman 
Matheson for their leadership in this area as well as the hard 
work and dedication of their staff.
    The pharmaceutical distribution industry's primary mission 
is to operate the safest, most secure and efficient supply 
chain in the world. As part of this mission, HDMA's members 
work to eliminate counterfeit and diverted medicines by 
capitalizing on the technological innovation and constant 
improvements in efficiency that are the foundation of our 
industry.
    Today, on behalf of our 33 members, I am here to express 
HDMA's strong support for a national, uniform approach to 
pedigree and the traceability of medicines throughout the 
supply chain. I will speak with more detail later in my 
testimony, but I want to state that we support the core 
elements of the Latta-Matheson proposal and look forward to 
working with you and your Senate colleagues on the final bill.
    HDMA believes that any reform and modernization of the 
supply chain should raise national wholesaler standards and 
include a new federal ceiling for pedigree and traceability 
requirements to improve safety and uniform and establish the 
foundation for longer-term electronic solutions such as unit-
level serialization and product tracing. In addition to 
fundamentally addressing counterfeit and diverted medicines, a 
national approach may be a useful tool in discouraging gray 
market activities associated with drug products in short 
supply. More importantly, it will put the United States on par 
with other countries around the world that are currently 
beginning to engage in serialization and traceability efforts.
    After many years of debate, it appears that we finally may 
have an opportunity to enact federal legislation in this area. 
This is in large part due to a broad consensus among supply 
chain partners as well as growing support from Members of 
Congress. While Congress, FDA, and industry have been working 
at this diligently for several years, it is critical that 
Congress act now due to the uncertainties faced by the 
industry, the need for uniformity across the supply chain, and 
to ensure patient safety.
    Basic guidelines for pedigree were set forth 25 years ago 
with the enactment of the federal PDMA. Since that time, 
activity at the State level has varied with some enacting very 
complex laws and others never going further than the original 
guidelines. Based on our experience, the complexities of 
dealing with multiple approaches in the States will only get 
worse if we fail to solve this problem now at the national 
level.
    Since Florida's first foray into raising pedigree and 
licensure standards in 2003, we have seen dramatic variations 
across the country. This variation has occurred despite HDMA's 
attempts to work in every State along with fellow stakeholders 
to achieve more uniformity. Today, for example, 29 States have 
acted beyond the federal PDMA standards. The States of Florida 
and California are viewed as leaders in this area. However, 
they take completely different approaches, California being the 
most complex and forward-looking with track-and-trace and 
electronic pedigree implementation beginning in 2015, and 
Florida being the most stringent today in terms of what is 
happening in the supply chain with pedigree requirements.
    This patchwork not only creates operational challenges but 
also leaves openings for bad actors shopping for more lenient 
State rules, openings that could mean the difference between a 
fake or diverted medicine being dispensed to an innocent 
patient in need of important treatment. Because of this State-
by-State variation, we believe pedigree and traceability should 
be under the purview of Congress and the FDA.
    We have been a leader in this field and we are dedicated to 
working with supply chain partners and stakeholders on a 
consensus approach to pharmaceutical traceability. We are an 
active member also of PDSA, the Pharmaceutical Distribution 
Security Alliance.
    The bipartisan discussion draft released by the committee 
this week achieves these goals and captures the core consensus 
elements that will significantly improve the integrity and 
safety of the supply chain. Specifically, the proposal does 
include national requirements for wholesaler licensing while 
preserving a critically important role for the States; uniform 
direct purchase and standard pedigree options; eliminating the 
current 50-State patchwork, manufacturer serialization at the 
unit level and case level, enabling unique identification of 
prescription drug products for the first time in the United 
States; the development of electronic systems and processes to 
facilitate traceability and transaction data exchange to 
provide additional efficiency and safety benefits within the 
supply chain, and appropriate transition times and development 
phases for the migration to traceability for each segment.
    There is no single element that will protect the supply 
chain from every threat but rather a comprehensive solution 
should incorporate each of these elements. We applaud your work 
and urge the committee to advance this important issue this 
year. Now is the time for Congress to act to bring cohesion and 
consistency to our national drug supply chain.
    [The prepared statement of Ms. Gallenagh follows:]


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    Mr. Pitts. The Chair thanks the gentlelady and now 
recognizes Ms. Simmon for 5 minutes for an opening statement.

                STATEMENT OF CHRISTINE M. SIMMON

    Ms. Simmon. Thank you. Good morning, Chairman Pitts, 
Ranking Member Pallone and members of the Subcommittee. Thank 
you for inviting me to testify here today on the important 
topic of securing our Nation's pharmaceutical supply chain. I 
am Christine Simmon, Senior Vice President of Policy at the 
Generic Pharmaceutical Association. We represent the finished-
dose generic drug manufacturers and bulk pharmaceuticals and 
suppliers to the industry.
    For the past year, the effort to develop a national 
solution to securing the supply chain received strong support 
from key members in both the House and Senate but unfortunately 
was not enacted into law. We applaud this Committee for taking 
up this issue today, and we recognize and appreciate the 
dedicated attention to this issue and leadership by Congressmen 
Latta and Matheson.
    GPhA believes that every patient in America deserves a safe 
and secure prescription drug supply. For many years, GPhA has 
worked closely with multiple stakeholders across the supply 
chain to ensure just that. As the makers of 80 percent of 
scripts dispensed in the United States, our industry is deeply 
committed to preventing and detecting the distribution and sale 
of counterfeit and adulterated medicines. We strongly supported 
last Congress's historic Generic Drug User Fee Act, which 
recognizes that while providing earlier access to medicines is 
critical, FDA's central mission is ensuring drug safety. We 
applaud the efforts of this Committee in enacting the user fee 
program into law.
    GPhA is a member of the Pharmaceutical Distribution 
Security Alliance along with many others in the supply chain 
and including others at this table. The group's primary goal is 
to ensure patients have uninterrupted access to safe, authentic 
FDA-approved medicine. So today I am going to share with you 
our support for a system build on three core principles: a 
uniform federal standard, technical requirements that support 
achievability, and a building block approach to ensuring 
orderly implementation and avoid unintended consequences.
    It is vital to ensure that any supply chain security system 
put in place is practical, focused, and uniform across the 
country. California's drug pedigree model that will be 
effective in 2015 would require implementation of full 
electronic track-and-trace capabilities where the entire 
distribution history and location of every unit in the supply 
chain can be determined at any time. At present, the technology 
to support such a system is unproven and the costs associated 
would be billions. Any attempt to hastily implement such a 
system could lead to confusion in the supply chain, aggravate 
product shortages and dramatically increase costs for all 
prescriptions including generic medicines.
    In contrast, GPhA believes that a building block enables 
the industry to attain interoperability in achievable steps all 
the while applying the knowledge and experience gained over 
time to refine the model. While the generic industry is still 
reviewing recently released drafts, many elements are 
consistent with our proposed approach.
    Specifically, as outlined in Phase I of the Latta-Matheson 
Discussion Draft, generic manufacturers have committed to 
identifying individual saleable units of medicine with labels 
and maintaining and managing data in their systems that would 
associate the identifiers on individual bottles of medicine 
with the lot numbers of the products. Verification that a 
specific unit was serialized by a manufacturer within a given 
production lot can provide information and security that is a 
major step forward from current practices. The system would 
help identify and prevent the introduction of suspect product 
through full lot traceability and allow regulatory authorities 
to validate the unique identifier of a product at the unit 
level.
    The stepped approach in the House draft would provide 
immediate measures to increase supply chain security. The 
system established under the proposals will improve the 
efficiency and effectiveness of drug recalls and returns. In 
planning for the future, it would provide critical building 
blocks that can be expanded as public health threat standards 
and technologies evolve.
    Because American consumers today expect the convenience and 
simplicity inherent in the digital transfer of information, 
GPhA strongly supports the e-labeling requirement in the 
discussion draft to provide more standardized electronic 
prescription drug information that would increase patient 
safety and provide significant quality improvements and cost 
reductions through a more accurate, cost-effective, and 
sustainable alternative to paper inserts.
    In conclusion, Mr. Chairman, GPhA and the industry share 
the concerns of the committee with regard to maintaining the 
security of our country's drug supply. The development of a 
uniform National system is needed to give regulatory 
authorities another tool for enforcement, make it more 
difficult for criminals to breach the supply chain, and enhance 
the ability of the supply chain to respond quickly when a 
breach has occurred. We believe the model proposed by the House 
includes many elements to achieve these goals. We look forward 
to working together with Congress to develop a consensus 
measure on this important issue that can be enacted into law.
    Thank you, and I would be happy to answer any questions you 
may have.
    [The prepared statement of Ms. Simmon follows:]


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    Mr. Pitts. The Chair thanks the gentlelady and now the 
Chair recognizes Mr. Rose for 5 minutes for an opening 
statement.

                   STATEMENT OF MICHAEL ROSE

    Mr. Rose. Thank you for your introduction, Mr. Chairman, 
and thank you, Mr. Pallone. I work for and am representing 
Johnson and Johnson Health Care Systems Inc. Johnson and 
Johnson Health Care Systems Inc. is the principle supply chain 
commercial entity within the Johnson and Johnson family of 
companies in the United States.
    Securing our Nation's supply chain is an important concern 
for our company. We believe it is vital for the patients who 
use our products receive our genuine products. We have already 
taken steps to secure our supply chain and protect our 
products. As a member of PhRMA and BIO and a participant in 
PDSA, I will share with you our perspectives on serialization 
and track-and-trace, our serialization experience and views on 
the draft legislation.
    Serialization regulations have become increasingly common 
across many countries including the European Union, Turkey, 
Argentina, China, India, and Brazil. In the United States, the 
California law requires manufacturers to serialize and pedigree 
all pharmaceutical products sold in the State of California 50 
percent of our products by January 1, 2015, and the remaining 
50 percent by January 1, 2016. Additionally, more than 50 
percent of the States have pedigree laws with varying 
approaches, that is, some require electronic pedigrees, others 
use paper. Some start the pedigree at the primary distributors, 
others will start it with the secondary wholesaler, et cetera. 
This patchwork quilt of regulations leaves us with a 
complicated, inefficient regulatory landscape creating 
unforeseen gaps where bad actors can introduce illicit drugs 
into the legitimate supply chain, thereby placing our citizens 
at risk of counterfeit medicines.
    While the risk of encountering counterfeit medicines may be 
small within the legitimate domestic supply chain, when a 
patient receives a counterfeit medicine, the effects can be 
extremely dangerous, have long-lasting impact and can even be 
life-threatening. Our company believes that Federal 
Serialization and Track-and-Trace legislation is necessary to 
properly secure our pharmaceutical supply chain by eliminating 
varying and conflicting State regulations. Federal legislation 
should help close the gaps where illicit drugs enter the U.S. 
supply chain as well as provide additional mechanisms to help 
authenticate the legitimacy of medicines distributed and 
dispensed within the United States to help protect the patients 
who use our medicines.
    Next I would like to share our company's domestic 
serialization experience. We are preparing our packaging sites, 
distribution centers, business and information technology 
systems to serialize and track and trace our products so that 
we can comply with the California e-pedigree law. Here is an 
example of the first product that we have serialized for the 
U.S. market. This product is Prezista 600-milligram tablets. 
For your reference, I have attached a label of serialized 
Prezista 600 milligrams to my testimony.
    Let me draw your attention to the product license plate on 
the side of the label. This space is similar to the 
prescription drug product identifier prescribed in the House 
bill. We provide both machine and human readable forms for easy 
and accurate identification. Similarly, we apply a standard 
serialized barcode to every homogenous case to facilitate 
handling during distribution. This identification space 
complies with both the FDA's serial number identifier guidance 
and the widely adopted international standards developed by GS-
1.
    Additionally, we are establishing processes to exchange 
serialized data with the distributors who distribute our 
products and with the pharmacies that dispense our medicines to 
patients who need them. We are required to provide this 
information to the distributors and pharmacies so that they can 
use it to help verify both the authenticity of the package as 
well as the transactions related to the product.
    Bottom line: While it is complicated work and a lot still 
remains, we are doing our part to comply with the California 
law. However, if any States were to adopt slightly different 
regulations, the inconsistencies could compromise the integrity 
of the supply chain, hence supporting the need for Federal 
action now to secure our National security chain.
    Lastly, I would like to comment on the proposed 
legislation. In 2011, our company along with several other 
PhRMA and BIO members, and other supply chain participants 
helped form PDSA. PDSA's mission is to help enact a Federal 
policy proposal for one unified national system enhancing the 
security of the domestic supply chain for patients and to 
define a migratory implementation pathway.
    Johnson and Johnson Health Care Systems supports 
Representatives Latta and Matheson for tackling this important 
issue and making progress on a legislative solution. This 
legislation incorporates many of PDSA's proposed provisions 
including a uniform national standard with a phased 
implementation. It is vitally important that both government 
and the private sector work together to protect our national 
drug supply in a manner that makes sense. We believe this 
legislation will help us secure the domestic pharmaceutical 
supply chain by providing additional protection to our 
citizens, patients who depend on the integrity of our medicines 
to treat their diseases and life-threatening conditions from 
counterfeit medicines. Johnson and Johnson Health Care Systems' 
commitment to patient safety is unwavering. We look forward to 
Congress's enactment of this legislation and we are committed 
to work with Congress, the FDA and our supply chain 
stakeholders to implement it successfully. Again, thank you for 
the opportunity to provide this testimony to the Committee.
    Before concluding my remarks, I would like to recognize 
Steve Drucker, an industry colleague from Merck, who passed 
away last week. We will miss Steve's immense contributions, 
commitment to patient safety and especially his humorous 
insights. Our thoughts and prayers go out to Steve's family, 
especially his wife Ann and the entire Merck team.
    [The prepared statement of Mr. Rose follows:]


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    Mr. Pitts. The Chair thanks the gentleman. Dr. Davis, you 
are recognized for 5 minutes for an opening statement.

                     STATEMENT OF TIM DAVIS

    Mr. Davis. Chairman Pitts, Ranking Member Pallone and 
members of the Committee, thank you for conducting this hearing 
and for providing me the opportunity to share my perspective as 
an independent pharmacist and small business owner on the issue 
of securing the pharmaceutical supply chain. My name is Tim 
Davis of Beaver County, Pennsylvania, and I am the owner of 
Beaver Health Mart Pharmacy and have been a practicing 
pharmacist for over a dozen years. I am here today representing 
the National Community Pharmacists Association, which 
represents the pharmacist owners and employees of more than 
23,000 independent community pharmacies in America. Our 
pharmacies provide over 40 percent of all community-based 
prescriptions.
    It is my belief that the United States pharmaceutical 
supply chain is largely safe and secure. Most pharmacists today 
have a heightened awareness of counterfeit or diverted drugs 
and therefore recognize the critical importance of purchasing 
medications only from trusted trading partners. In addition, 
pharmacists, as part of our training and daily practice, 
carefully examine both drug packaging and the drug itself to be 
sure there are no suspicious anomalies.
    It has been my observation, though, that certain types of 
prescription medications tend to be the target of 
counterfeiters. Relatively expensive drugs that can be easily 
produced and readily sold entice these bad actors. Some drugs 
that I have personally seen are lifestyle drugs, such as 
Viagra, and very costly injectable medications such as Procrit 
or more recently Avastin.
    In response to concerns about the safety of prescription 
medications in the United States, over half of the States have 
passed drug pedigree laws that require drug products that move 
outside of normal distribution to be accompanied by a record of 
prior transactions. However, the differences in each State's 
laws has created a patchwork of activities across the United 
States. As a result, there have been past discussions about the 
practicality of a system that would track prescription drugs at 
the individual unit level. Pharmacists have had significant 
concerns about any system that would require each individual 
unit of medication to be electronically scanned upon arrival in 
a pharmacy due to the capital, time and labor costs associated 
with such a system. Presently, the technologies required to 
implement such a system are not fully developed, designed or 
scaled to be feasible or affordable for use in individual 
community pharmacies.
    Of great concern is the California e-pedigree law that will 
begin to be implemented in 2015 that will require the 
electronic tracking and tracing of all drug packages in real 
time. This well-intentioned system will require each individual 
participant in the supply chain to scan each individual item to 
capture the transaction information. With each successive 
distribution, the e-pedigree must be updated with the newest 
transaction data as it makes its way to our pharmacies. In 
short, our pharmacies will have the unenviable task of 
maintaining all drug pedigree data for all distributions and 
must be able to access it on demand. The cost of compliance 
with this law will be extremely high when factoring in both 
initial implementation and ongoing expenses necessary to 
maintain and access the data. Imposing these challenges, 
particularly on community pharmacies, is not logical at a time 
when the Nation is focused on trying to reduce health care 
costs.
    All of these factors bring us to a place in which we need a 
uniform federal framework to provide further assurances of 
supply chain security and that could be used to assist federal 
regulators in instances of drug recalls or inquiries. We need a 
reasonable, commonsense federal approach that will strike the 
appropriate balance between enhanced patient safety and 
minimizing unreasonable burdens on supply chain stakeholders, 
particularly small business pharmacies like myself.
    NCPA is a member of the Pharmaceutical Distribution 
Security Alliance, a working group comprised of representatives 
of all sectors of the pharmaceutical supply chain, which has 
been collaborating over the past year and a half to address 
supply chain security issues. This group has reached a 
consensus around a number of topics. One is that of 
establishing National requirements for wholesaler licensure 
standards. Raising the standards for wholesaler licensure in a 
uniform fashion would provide the community pharmacist with an 
additional layer of confidence in the integrity of the 
medications purchased. The second concept is that of attaching 
a unique identifier to prescription drugs at the unit and case 
levels. Products would be identified with a two-dimensional 
matrix barcode including the serial number, lot number and 
expiration date. The PDSA coalition has also built consensus 
around being able to use the serialized identifier information 
to track products at the lot level. NCPA is pleased to note the 
inclusion of national wholesaler licensure standards, product 
serialization and lot-level tracking in both the recently 
released House discussion draft and the Senate draft. NCPA 
believes that the proposed lot-level system is one that could 
be built upon at some point in the future.
    Community pharmacists take very seriously our role in 
ensuring the safety of medications that we personally dispense 
to our patients and we remain committed to working with our 
colleagues in the supply chain as well as with State and 
Federal authorities to make any needed improvements. Moving 
forward, it is essential that all stakeholders make a concerted 
effort to keep the lines of communication open so consumers can 
continue to trust the integrity of the medications that we all 
so depend on.
    Thank you.
    [The prepared statement of Mr. Davis follows:]


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    Mr. Pitts. The Chair thanks the gentleman. Mr. Coukell, you 
are recognized for 5 minutes for an opening statement.

                   STATEMENT OF ALLAN COUKELL

    Mr. Coukell. Chairman Pitts, Ranking Member Pallone and 
members of the Committee, thank you for the opportunity to 
testify. My name is Allan Coukell. I direct drug and medicine 
device work at The Pew Charitable Trusts, an independent 
research and public policy organization.
    Pew supports the creation of a strong national system to 
protect American patients from the risks of counterfeit, stolen 
and diverted drugs. We do so based on our analysis of the risks 
to the supply chain and the feasibility of solutions. The 
principles that I will outline today are supported by other 
consumer, patient, public health and industry stakeholders, and 
I ask that a number of statements be included in the record 
with my written testimony.
    There is general agreement on the need for a national 
system and how it would work. Manufacturers would put a unique 
serial number on each package of drugs. The drugs would be 
tracked as they pass from hand to hand through the complex 
distribution system and they could be checked to be sure they 
are authentic. This approach would bring the United States into 
line with other countries and individual States. Providing it 
creates a meaningful advance in safety, a single national 
system would be preferable to the current patchwork of State 
laws.
    A recent example demonstrates how verifying a serial number 
on a drug package could have prevented a significant crime and 
risk to patients. Last year, the U.S. Attorney in New York 
charged 48 people in a large-scale diversion scheme to buy half 
a billion dollars worth of medicines from patients on the 
street, repackage them, sometimes with fake labels, and sell 
them back into distribution through licensed wholesalers who in 
turn sold the drug to pharmacies. This massive criminal 
recycling of government-subsidized drugs--similar schemes are 
well documented in other States--could be prevented if the drug 
package had a serial number and the serial number was retired 
after the drugs reached the pharmacy. This requires that 
pharmacies and wholesalers purchasing the drugs check that 
serial number. Without checking, the same serial, real or fake, 
could be sold again and again without detection.
    Manufacturers are already making investments in drug 
serialization. To justify the expense and the preemption of 
strong State laws, it is essential that any Federal law achieve 
the following within a reasonable time frame: Participation of 
all members of the supply chain. We need traceability of drugs 
at the package level, not merely by lot, which can include 
thousands or tens of thousands of bottles, and routine checking 
of serial numbers. In a soon-to-be-released Pew Booz Allen 
Hamilton report, supply chain stakeholders overwhelmingly said 
that all sectors, manufacturers, distributors and pharmacies, 
need to participate in a national system without exception.
    The technology is feasible, and package-level serialization 
and verification already exist or soon will in China, Brazil, 
Turkey, Italy and across the EU. A system that does not track 
drugs by the unit level would fail to catch unsafe drugs in 
many scenarios. Take the example of a narcotic or any drug in 
shortage that is sold illegally or in the gray market. Without 
unit-level traceability, neither the purchaser nor an 
investigator would have any way to know who had sold that 
product or where it had come from.
    Today, some companies are required to track a drug's 
transaction history through paper pedigree. An electronic 
system would be a welcome replacement, but Congress should 
certainly not replace pedigrees, which are used by regulators 
and law enforcement, with a structure that does less to capture 
the chain of custody than today's systems. Regular checking of 
drug serial numbers by supply chain partners is a powerful way 
to ensure that illegitimate products do not enter distribution. 
Take, for example, a truckload of insulin, 129,000 refrigerated 
vials, that was stolen from a highway rest stop a few years 
ago. After several months, some of that drug showed up on the 
shelves of chain drugstores in Texas, Georgia and Kentucky, 
having been handled by licensed wholesalers in at least two 
other States. Nobody knows how much of that product was resold 
but only 2 percent of it was recovered. We need a system that 
can flag suspect of illegitimate and flag it automatically.
    Recognizing the danger, some companies have already taken 
steps. For example, the pharmaceutical company EMD Serono, 
after its human growth hormone was counterfeited, put in place 
a secure distribution program with unique serial numbers on 
each vial that are checked by the dispensing pharmacy. The core 
of that program shows how a national system can work.
    Mr. Chairman, I thank you for this hearing and for your 
commitment to this issue. The discussion draft released by this 
committee a few days ago acknowledges the risks I have been 
describing. We urge you now to refine it to achieve the 
meaningful protections called for by patient, consumer and 
public health groups and the others I have mentioned. Indeed, 
we urge you to return to the bipartisan, bicameral, two-phrase 
framework that you and your office and others on this committee 
have spent much of the past year developing, an approach that 
every organization represented on this panel has supported. It 
has been 25 years since PDMA. The California law will begin to 
be implemented in 2 years. The opportunity for a federal system 
now is great. We would like to work with this committee to 
improve this proposal to achieve a strong national system that 
achieves what it must: meaningful protections for patients.
    Thank you, and I would welcome your questions.
    [The prepared statement of Mr. Coukell follows:]


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    Mr. Pitts. The Chair thanks the gentleman. Dr. Catizone, 
you are recognized for 5 minutes for an opening statement.

                STATEMENT OF CARMEN A. CATIZONE

    Mr. Catizone. Chairman Pitts, Ranking Member Pallone and 
members of the subcommittee, I thank you for the opportunity to 
be here today. The National Association Boards of Pharmacy 
founded in 1904 and based in Illinois appreciates the chance to 
share with you comments and input from the States who are 
currently responsible for regulating this particular situation.
    The issues before the committee are not new. In fact, the 
timeline in trying to secure our Nation's prescription drug 
supply extends far back than we care to admit. The activities 
that have ensued since the enactment of the PDMA some 25 years 
ago can best be characterized by two words: proposed and 
delayed. The language found throughout multiple Federal 
Register notices since the implementation of the PDMA read 
similarly over and over. The proposals presented by the FDA and 
supported by the States were continuously delayed and defeated 
by pressure from the industry.
    As some of you may be aware, NABP is intimately involved in 
the oversight of wholesale distributors; as a result, our 
verified, accredited wholesale distributors program. To date, 
we have surveyed and accredited 552 wholesale distributors 
across the United States. We have observed firsthand and 
reported to the applicable State and federal authorities 
breaches in and compromises to the prescription drug supply 
chain. These breaches and compromises include the lack of a 
pedigree, the lack of complete information, the absence of any 
documentation, pedigrees or other transaction documents that 
indicate a product passed through multiple entities, some 
licensed and others not, multiple wholesaler companies located 
in a one-room business office in a strip mall claiming some 
form of common ownership, wholesalers receiving and storing 
products under conditions that render the medications 
adulterated or contaminated, and wholesalers and pharmacies 
establishing as their sole business model the purchase and sale 
of shortage drugs and inflating the price of these products by 
a thousandfold, an unconscionable action when it comes to drugs 
that are needed by patients suffering from life-threatening 
diseases such as cancer.
    The States are both the frontline and last defense in the 
prescription supply chain. Together with NABP, they have forged 
an effective public-private partnership. That partnership was 
recognized by the Institute of Medicine in its report 
``Countering the Problem of Falsified and Substandard Drugs.'' 
The report notes that crime and corruption drive the business 
of falsified medicines and that medicines can change hands many 
times in myriad countries before they reach patients.
    One of the primary recommendations of the IOM that is 
critical to the considerations before this committee and bears 
noting this afternoon was a recommendation they made in regard 
to NABP, and I quote: ``The IOM committee calls for 
strengthening the drug distribution system in order to improve 
the quality of medicine and protect consumers. Top among its 
priorities is restricting the U.S. wholesale market to firms 
vetted by the National Association of Boards of Pharmacy. This 
action would tighten the American drug distribution chain and 
build momentum for better controls on drug wholesalers in 
developing countries.''
    NABP supports the implementation of a national system for 
the oversight and regulation of prescription drug supply chain 
provided such system is comprehensive and does not discard the 
protections already in place and ready for implementation by 
the States, particularly California. It should take into 
account the existing and successful public-private partnership 
established between the States and NABP endorsed by the 
Institute of Medicine and operating effectively at no cost to 
the American taxpayers. NABP calls for no further delays. The 
time has long passed for the continued delay in addressing and 
resolving the challenges confronting our Nation's prescription 
drug chain. NABP requests that all participants in the supply 
chain be accountable. Exemptions should not be granted to 
pharmacies. NABP supports the tracking and traceability of 
products to the package level and made operational in 2015 and 
2016 in order not to retreat on advances made by California and 
the timeline already committed to by a growing number of the 
industry. NABP supports pharmacies and wholesale distributors 
being required to append and pass pedigrees or other equivalent 
transaction documents within the next 2 to 4 years, and NABP 
supports providing the Food and Drug Administration with the 
full scope of authority and resources needed to implement and 
enforce a national system.
    We thank you for the opportunity.
    [The prepared statement of Mr. Catizone follows:]


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    Mr. Pitts. The Chair thanks the gentleman. Mr. Berghahn, 
you are recognized for 5 minutes for an opening statement.

                  STATEMENT OF WALTER BERGHAHN

    Mr. Berghahn. Thank you, and good afternoon. Chairman 
Pitts, Ranking Member Pallone, and members of the committee, I 
appreciate the opportunity to be here and share my perspective 
on this matter. My name is Walter Berghahn. I am the Executive 
Director of the Healthcare Compliance Packaging Council, a 
trade association dedicated to improving medication adherence 
and patient safety through broad adoption of innovative 
packaging. The HCPC represents packaging material and machinery 
suppliers as well as contract packagers. The members serve as 
pharmaceutical manufacturers and pharmacy both institutional 
and retail. The HCPC supports California's SB 1307 and the work 
of this committee, recognizing that we share the common goal of 
a secure supply chain.
    The U.S. pharmaceutical supply chain is primarily safe. 
Drugs are produced, packaged and shipped according to FDA 
guidelines. They travel through a complex supply chain and 
arrive at the appropriate pharmacy, hospital and nursing home 
mostly without incident. That sounds wonderful, but that is not 
why we are here today. We are here because there are many 
groups intent on selling counterfeit or gray market drugs into 
the U.S. supply chain despite a tremendous effort over the last 
10 years to secure the supply chain. Counterfeits are still 
appearing. The FDA has opened more investigations in recent 
years than ever before, more than 70 incidents in 2010 alone.
    Some suggest that the cost to fix it is too high and the 
supply chain is safe enough. I am betting that those people 
have never had a family member ingest or inject a counterfeit 
medication and suffer the health consequences.
    It has been suggested that serialization and barcoding 
technology is not mature or scalable enough for this task, and 
yet barcoding has been used since the 1970s. It is found in 
every store and pharmacy in America. Two-dimensional barcoding 
required for serialization is newer but well established. The 
Department of Defense issued a paper in 2005 outlining their 
use and implementation of 2D barcoding for tracking valuable 
items in both forward and reverse logistics. Every day, tens of 
millions of packages are tracked by FedEx and UPS utilizing 
serialized barcodes. Every day, 1\1/2\ million U.S. air 
travelers board planes using 2D serialized barcodes. I am not 
suggesting the process will be easy for pharmaceuticals but the 
technologies employed are proven and they are widespread.
    California led the way on serialization with SB 1307 with 
initial targets in 2007 and subsequent delays allowing industry 
time to comply. I am sure you are familiar with the timeline. 
Pharmacy would be the last to comply in July of 2017, a full 4 
years from today. The HCPC hopes that the federal legislation 
will support SB 1307 and not undermine its progress.
    The packaging machinery industry is prepared to help meet 
these deadlines. Systems ranging from manual to fully automated 
exist which apply, verify and aggregate 2D barcoded containers 
to cases. Companies such as Systech, Optel, Seidenader, Omega 
and numerous others are delivering these systems to branded and 
generic pharmaceutical manufacturers today. Dozens of systems 
have been installed in the United States in anticipation of 
California's deadlines. Hundreds more are being planned, 
ordered and constructed now. A larger number of systems have 
already been deployed globally to meet international 
requirements for serialization in countries like China, Brazil, 
Turkey, India and a large portion of the EU.
    All this work does wonders for securing the normal supply 
chain but we would be remiss if we didn't consider the many 
documented problems occurring outside normal channels. So how 
do we detect those instances? In my opinion, the best way would 
be to provide prescriptions the way most of the world does: in 
the manufacturer's original container. This would accomplish 
two things. It thwarts the introduction of counterfeit products 
in pharmacy as well as dispensing of outdated and returned 
product, all unfortunately well documented. Secondly, it would 
allow the insurance industry to mandate the use of a serial ID 
for reimbursement, not simply the NDC number. This practice 
would greatly reduce prescription fraud. The government via CMS 
and the Veterans Administration is the largest payer in the 
United States and would see the largest benefit from this 
practice.
    This is relevant because even the physicians cited in the 
recent Avastin counterfeit case in California need to submit 
for reimbursement. Today, all they need is a valid NDC number. 
In the future, requiring a serial number for reimbursement 
could block illegally purchased items from being distributed. 
California has documented cases where pharmacists have 
illegally purchased product over the Internet and dispensed 
them in pharmacies, submitting for reimbursement with a 
legitimate NDC. Could lot-level tracking have stopped this?
    In conclusion, I would like to address one of the major 
differences between the proposed methodologies being 
considered. The debate is item-level tracking versus lot-level 
tracking. To be sure, lot-level tracking is less cumbersome on 
industry players but one must question its effectiveness. Lot-
level tracking will provide tools for evaluating what happened, 
why a counterfeit drug got in the supply chain. Item-level 
track-and-trace will prevent it. The difference is staggering: 
prevention versus detection after the fact. I would hope that 
in considering which path to pursue, members will look at past 
instances of counterfeiting and ask a simple question: would 
lot-level tracking have prevented this product from entering 
the supply chain?
    Thank you for the chance to contribute to this.
    [The prepared statement of Mr. Berghahn follows:]


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    Mr. Pitts. The Chair thanks the gentleman. That concludes 
the opening statements of our second panel. At this time I 
would like to request unanimous consent to place a statement 
from the National Association of Chain Drugstores into the 
record. Without objection, so ordered.
    [The information appears at the conclusion of the hearing.]
    Mr. Pitts. You have a UC request?
    Mr. Pallone. Mr. Chairman, I would ask unanimous consent to 
enter into the record a letter from EMD Serono.
    Mr. Pitts. Without objection, so ordered.
    [The information appears at the conclusion of the hearing.]
    Mr. Pitts. All right. I will begin the questioning and 
recognize myself 5 minutes for that purpose.
    I will start with Ms. Gallenagh. Talk a little bit about 
the California model. Would the California model work on a 
national level? Would you describe some of the consequences for 
patients and industry and others? We will go down the line and 
start with you, Ms. Gallenagh.
    Ms. Gallenagh. Sure. Based on what we know right now, a lot 
depends on the time frames that would be set forth on a 
national level. The California dates currently, in my opinion, 
would not be practical for a National model. Additionally, 
there is a piece of the California law that is providing to be 
particularly difficult in piloting, and that is the electronic 
pedigree portion of the law that also goes along with full 
track and trace of product electronically throughout the supply 
chain. And these are right now, based on what we are learning 
through experimenting with the processes and the technology 
very difficult for industry.
    Mr. Pitts. Ms. Simmon?
    Ms. Simmon. Thank you. Yes, we would echo that. You know, 
some of the necessary technology, speaking from a 
manufacturer's point of view, just isn't really there yet. 
Aggregation of units to cases and pallets is not ready to be 
deployed with a high level of accuracy for the data that would 
be required, and some of the interoperability standards for the 
data are not yet solved. With the compliance dates only 2 years 
ago, you know, we feel that is moving too quickly to avoid some 
unintended consequences.
    Mr. Pitts. Mr. Rose, would you comment on the consequences 
for industry and patients?
    Mr. Rose. Consequences on patients?
    Mr. Pitts. Both industry and patients.
    Mr. Rose. OK. For industry, we brought a sample of our 
product where we have applied the 2D data matrix code with a 
serial number on it.
    Mr. Pitts. And would you point out what you said in the 
testimony?
    Mr. Rose. Right here we have the 2D data matrix code, and 
then here we have human readable format where we have put the 
serial number in there as well as the product code and 
expiration date and lot, and you can read it human readable or 
via machinery. This took a lot of work to get going. The next 
phase we are working on right now is exchanging data with our 
trading partners. Those standards don't exist. We don't have 
guidance from California on those data standards, and we are 
missing those. That is very important to have for us to be 
fully compliant with the California law. So to achieve this 
date, we need those standards to be put in place but then also 
we have to put those systems in place to be able to exchange 
that data with our trading partners.
    Mr. Pitts. Dr. Davis, would you care to comment?
    Mr. Davis. I think that from a community pharmacist's 
perspective that it would be relatively difficult for us to 
comply nationwide because of a couple of reasons. One would be 
the ability to absorb and to maintain the costs associated with 
the system, and two, to access and be able to implement the 
technologies surrounding it. This is something external to all 
of our current processes in the field of pharmacy, and we don't 
want to necessarily lose the relationships and patient care 
experiences that we have currently in place in lieu of trying 
to comply by another national standard.
    Mr. Pitts. Now, I posed several of these questions to FDA 
earlier today, and I would like to get the opinion of actors on 
the ground working to manufacture and distribute and dispense 
our Nation's drug supply, so if you will please respond. Will 
national uniformity increase the security of the supply chain 
and improve patient safety, Ms. Gallenagh?
    Ms. Gallenagh. Yes.
    Mr. Pitts. Ms. Simmon?
    Ms. Simmon. Yes, it would.
    Mr. Pitts. Mr. Rose?
    Mr. Rose. Yes, it would.
    Mr. Pitts. Dr. Davis?
    Mr. Davis. Yes.
    Mr. Pitts. What about--is it important to preserve the 
States' ability to license and enforce National standards?
    Ms. Gallenagh. I would say yes, it is important so that 
they have a role to partner with FDA.
    Mr. Pitts. Ms. Simmon?
    Ms. Simmon. Yes, we would agree as well.
    Mr. Rose. Yes, we would agree as well.
    Mr. Davis. Yes.
    Mr. Pitts. Will product serialization increase the security 
of the supply chain and improve patient safety?
    Ms. Gallenagh. Yes, absolutely.
    Ms. Simmon. Yes, we definitely favor product serialization.
    Mr. Rose. We agree with product standardization.
    Mr. Davis. And we agree with it as well in a phased-in 
approach so that we can build our systems and our capabilities 
without compromising patient care as it stands today.
    Mr. Pitts. All right. Will data exchange and systems 
between actors in the supply chain increase the security of our 
drug supply and improve patient safety?
    Ms. Gallenagh. Yes.
    Ms. Simmon. Yes, it would.
    Mr. Rose. Yes, it would.
    Mr. Davis. Yes, it would.
    Mr. Pitts. And finally, would a National track-and-trace 
standard increase the efficacy of product recalls?
    Ms. Gallenagh. Yes, it would.
    Ms. Simmon. Yes, we believe it would.
    Mr. Rose. Yes.
    Mr. Davis. Yes, it would, sir.
    Mr. Pitts. Thank you. I have gone over time. The chair 
recognizes the ranking member, Mr. Pallone, 5 minutes for 
questions.
    Mr. Pallone. I just wanted to follow up on Mr. Pitts' 
question going down the line, a yes or no because I have other 
questions. So OK, 2 years you are saying isn't workable but 
what about 10 years? Can the issues that we referenced here, 
track and trace, unit level, can they be worked out by then 
over 10 years? Yes or no, Ms. Gallenagh?
    Ms. Gallenagh. I think that it is possible to get to a next 
step. I think that----
    Mr. Pallone. I am trying to get a yes or no, though, 
because otherwise I am going to run out of time. Or if you 
don't want to say yes or no, you can say maybe.
    Ms. Gallenagh. I would say maybe.
    Mr. Pallone. All right. Ms. Simmon?
    Ms. Simmon. I would say maybe if it is a stepwise approach.
    Mr. Pallone. All right. Mr. Rose?
    Mr. Rose. Yes, it would.
    Mr. Pallone. Dr. Davis?
    Mr. Davis. And I agree with the phased-in approach as well.
    Mr. Pallone. Mr. Coukell?
    Mr. Coukell. Can I make a very brief response, Mr. Pallone?
    Mr. Pallone. Please.
    Mr. Coukell. The question was asked earlier, would 
serialization----
    Mr. Pallone. Yes, no or maybe. I am sorry.
    Mr. Coukell. Yes.
    Mr. Pallone. OK. Dr. Catizone?
    Mr. Catizone. Two answers. Based upon existing technology, 
yes. Based upon the history of the industry in this regard, 25 
years has not been enough time so they will probably say 10 
won't work either.
    Mr. Pallone. All right. Mr. Berghahn?
    Mr. Berghahn. Yes, I think it is possible.
    Mr. Pallone. OK. I mentioned in my statement, I have a lot 
of concerns with the Republican bill. We spent many months 
engaged with members on a bipartisan, bicameral basis 
discussing and learning about the problems associated with the 
security of our drug distribution system, but to put it simply, 
the draft just doesn't reflect where we landed at the end of 
those discussions or anything close, in my opinion, and the 
House Republicans, as I said, didn't consult with us before 
putting the draft out so I am disappointed, to say the least. 
But I would like to hear from some of you--I can't do 
everybody--on what you think is lacking in the bill. So let me 
start with you, Mr. Rose. What important aspects of a track-
and-trace system is lacking or need improvement in the House 
draft?
    Mr. Rose. What we really need at this point in time is 
where are making our investments is a clear end game. We need 
to know where the goalpost is fixed. If we are making 
investments to put serialized numbers on our product and then 
also to exchange data, we want to make sure that the other 
parties in the supply chain are also using those numbers and 
using that information to verify the product and the accuracy 
and the veracity of that product and then also the transactions 
associated with the product.
    Mr. Pallone. All right. Same for you, Ms. Gallenagh.
    Ms. Gallenagh. Yes, I think that is correct. In our 
opinion, once we have serialization, there are many things that 
are possible with this but the one thing that differs between 
the past drafts is to not get to a clearly defined place or 
year date certain for traceability. We do think, though, that 
the bill draft does lay out the foundation to get there. The 
core elements again, as we have mentioned, and beginning with 
serialization and lot traceability, we do think that those are 
important steps that have to be taken before you get to that 
end phase.
    Mr. Pallone. OK. Mr. Coukell?
    Mr. Coukell. The current House draft immediately bans all 
State pedigree laws and doesn't replace them with anything for 
a period of many years, and it never gets to the second phase 
that we need to get to. It is like building a set of steps to 
your front door, building the first step now and having a plan 
to come back and put the second step on some time later.
    Mr. Pallone. Dr. Catizone?
    Mr. Catizone. All the points that were previously made 
except it should not preempt State laws at this point because 
if it does so, there is no protection for the consumer. Two, I 
am confused by the argument about clear standards. They are 
needed. In 1998, NABP offered to develop national standards. 
Some people sitting at the table said the industry would do 
that. It is 25 years later. We still don't have those standards 
so I am not sure the standards are the barrier. The standards 
can be built and done so I believe clear direction, no delays, 
an implementation timeline and standards should be developed as 
quickly as possible.
    Mr. Pallone. Thank you. And finally, Mr. Berghahn?
    Mr. Berghahn. Yes, I think one of the main concerns is the 
lack of the unit-level trace and the lack of requirements for 
people in the supply chain to use it. Without that, you really 
lose visibility on the product and you decrease safety.
    Mr. Pallone. Well, thank you. I am sorry I couldn't get to 
all of you but my time is limited.
    I just wanted to reiterate that I am disappointed in the 
bill. The Senate released a draft last week that was an obvious 
attempt to address the views of Members on both sides of the 
aisle. It represents a compromise, and I regret that the House 
Republicans felt the need to sway so far from the good work 
that so many Members have put into this issue throughout the 
last year. So hopefully we can still come up with a good 
product. I yield back, Mr. Chairman.
    Mr. Pitts. The Chair thanks the gentleman and recognizes 
the gentleman from Virginia, Mr. Griffith, 5 minutes for 
questions.
    Mr. Griffith. Thank you, Mr. Chairman.
    Dr. Davis, as you may have heard earlier, I represent a 
rural area with a lot of community pharmacists, and I want to 
focus your questions in regard to the e-pedigree program in 
California. How familiar are you with that program?
    Mr. Davis. I have a cursory understanding of the specifics 
of it but again, I understand the concerns of my colleagues in 
that State as well through discussions.
    Mr. Griffith. Well, let us talk about that. Do you know how 
the small pharmacies, the small-town pharmacies in California 
are dealing with that?
    Mr. Davis. We are still a few years away from pharmacies 
having to assume responsibility for their component of the 
program. But that being said, there are concerns surrounding 
the ability to absorb the costs and the labor associated with 
such a system.
    Mr. Griffith. Now, I understand you are not facing that, 
but have your colleagues in California given you some idea of 
what those costs would be for a small-town pharmacy?
    Mr. Davis. Well, they range. Our problem is, our margins 
continually shrink at this point, and we have less and less to 
work with and still maintain our practices as our communities 
expect them to be maintained. That being the case, the 
estimates from colleagues range anywhere from thousands of 
dollars to having to remove employees from their work staff to 
replace them with this process. So the clear projections aren't 
intact at this point but there is a significant impact that is 
going to either impact the profitability and the ability for 
that business to support its community, or the profitability of 
the business being able to support its current employee 
structure.
    Mr. Griffith. And as a part of those concerns, are there 
concerns that some of the small-town pharmacies won't be able 
to survive with this cost?
    Mr. Davis. Well, and that is always a question. I would say 
99 percent of our technology costs over the past decade have 
been to comply with regulations and maintain technology and 
processes to comply by State and Federal regulations. That 
being said, we are worried that sooner or later our spending, 
our technology spending and our process spending, is going to 
outpace our ability to absorb it, and there will be doors that 
close unfortunately.
    Mr. Griffith. OK. So there is some concern that some of the 
pharmacies won't make it, and if that pharmacy happens to be in 
a small town and the next town over is on the other side of a 
mountain and 40 miles away, I am going to ask a question that I 
already know the answer to, but how does that impact the 
patient?
    Mr. Davis. I come from a region very much like that, and 
what happens is, we see that patients are always trying to seek 
out the best care that they can at any given moment. That 
limits the patient's access to care and access to the best care 
that they can possibly get in their locations.
    Mr. Griffith. And in many cases, it is not just getting, 
you know, the prescription filled, it is that trust that has 
been built up. Sometimes you have--in fact, my pharmacist is 
the son of the pharmacist that we used when I was a child, and 
that trust has built up and so a lot of times there is a 
certain element of--am I doing the right thing heading down 
this direction, or they will come in and they will just 
chitchat about what is going on in their health care, and 
particularly for senior citizens, they may be getting different 
prescriptions from different folks and sometimes having that 
resource is very valuable, is it not?
    Mr. Davis. I agree, and most of my patients held me as a 
baby, so when I look them in the eye and I dispense medications 
or prescriptions to them, that is why this topic is so very 
valuable to me. I need to know that I am taking care of their 
families much like they took care of mine through patronage and 
loyalty. So making sure that we provide safe, secure, and 
efficient medications for them on a regular basis is paramount. 
My dad always said always make the best decision for your 
patient and you have made the best decision for your company, 
and we are trying to do that in this day and age with this 
particular topic as well.
    Mr. Griffith. Yes, and I can't remember what the specifics 
were but I do know that in regard to one of my children, we 
went to get the prescription and the doctor looked at it and he 
said but isn't he also taking this, let me call your doc, and 
called the doc and they changed the prescription, and I think 
that is very valuable, and in rural areas, if you eliminate 
that community pharmacist, you have eliminated a valuable part 
of that tool. And so that is why I think it is proper that we 
move forward with a plan but also that we do it in a way that 
the community pharmacists don't get left out of the formula.
    Mr. Davis. Thank you, sir.
    Mr. Griffith. I appreciate it, and yield back my time.
    Mr. Pitts. The Chair thanks the gentleman and now 
recognizes the gentlelady from California, Ms. Capps, 5 minutes 
for questions.
    Mrs. Capps. Thank you, Mr. Chairman.
    Dr. Catizone, I would like to ask you about the role 
wholesale distributors play in the integrity of the drug 
distribution supply chain. I know that FDA has stated in its 
reports on counterfeit drugs that counterfeit drugs are most 
likely to be introduced as a part of a supply chain that 
involves multiple wholesalers. That is correct, right?
    Mr. Catizone. Yes.
    Mrs. Capps. Because of widespread abuses in the early 
2000s, many States have tightened their licensure requirements. 
I believe Florida and California have especially strong 
licensure requirements, which they adopted to address specific 
problems that they had identified. However, there is, as you 
know, a wide variation in the rigor of different State 
requirements leaving many vulnerabilities in the system 
nationwide. My question is whether you agree that there is wide 
variation in State requirements for wholesale licensing and 
what has been the public health effect of these varying State 
requirements?
    Mr. Catizone. There is variation but not as wide as I think 
people have reported. As an explanation, the primary wholesaler 
since the PDMA have done an outstanding job of cleaning up the 
industry and making sure the supply chain has its integrity and 
validity. We have seen problems with secondary wholesalers and 
pharmacies entering the picture. The patchwork among the States 
is being equalized through the accreditation program that we 
have, which has become a de facto national standard, and for 
States waiting to see what happens with California. If 
California moves forward, other States would follow suit and 
that would become a national standard across the board.
    Mrs. Capps. OK. Given these differences, you say they are 
not as wide as we have been led to expect. Do you see any role 
for the FDA in setting federal standards for wholesale?
    Mr. Catizone. Yes. What we talked about earlier, the need 
for standards, the FDA's role is critical to this process 
because the States have tried to put together a patchwork and 
we need that overseeing nationally.
    Mrs. Capps. I get you. So thank you. And now I would like 
to get your views on the wholesale distributor licensing 
provisions of the House bill. It does require FDA to set 
licensure standards for all wholesale distributors. It also 
requires wholesale distributors to report annually to the FDA 
their name, address, dates in which they are licensed and any 
disciplinary actions that have been taken against them. The FDA 
would be required to publicly post the names of all wholesale 
distributors and the States in which they are licensed on their 
web page. However, the public would not be able to see the 
disciplinary actions that have been taken against any 
wholesalers that are on this site. In other words, that is not 
required in the bill. States would also be prohibited from 
having any licensure requirement except those established by 
FDA. Essentially, the new FDA standards could be seen as both a 
floor and a ceiling. Coming from a State like California with 
strong licensure standards, naturally I am concerned about 
that. So my question to you is whether you believe it is 
appropriate or necessary for the bill to prevent States from 
establishing or maintaining stricter standards or additional 
requirements to address local problems a particular State may 
have experienced. In other words, is this going to prevent 
individual States from addressing their own situations? Is 
there any public health benefit to the kind of system being 
described?
    Mr. Catizone. The answer is yes, it will prevent, and we 
are sympathetic to the industry establishing some sort of 
uniform process, so we would support that, but the States need 
the discretion to act where there is a significant occurrence 
within their State, and we believe the bill would address that 
and even allow the States to be included in discussion. That 
would be critical.
    In regard to the posting of information in response to the 
compounding issue, we will soon provide a listing of all the 
pharmacies in the United States, where they are licensed, what 
disciplinary action has been taken and whether or not they have 
been inspected. We can put that same system in place for 
wholesalers that we have accredited as well at no charge for 
the public.
    Mrs. Capps. Thank you very much. I just have a few seconds, 
but Mr. Coukell, could you give us your opinion on these 
provisions in the House bill? I know it is going to be brief.
    Mr. Coukell. In the interest of time, I will second what 
Dr. Catizone said. We think national standards are very 
desirable. There is an important role for FDA to play there but 
we don't want to tie the hands of States at being able to 
respond to local conditions.
    Mrs. Capps. I see a couple of heads nodding. Is this shared 
by anybody else on the panel? Could you indicate?
    Mr. Davis. We agree as well. National standards, I think, 
would make it easier for pharmacists to be able to access and 
purchase and manage prescription products throughout the United 
States with some conformity.
    Mrs. Capps. Thank you. Mr. Chairman, I yield back.
    Mr. Pitts. The Chair thanks the gentlelady and now 
recognizes the gentleman from New Jersey, Mr. Lance, 5 minutes 
for questions.
    Mr. Lance. Thank you very much, Mr. Chairman.
    To Mr. Rose from J&J, I think New York recently proposed 
supply chain security legislation similar to standards in 
California. New York is obviously our neighboring State in New 
Jersey, and in fact, many pharmaceutical companies in the 
district I serve have employees from New York. If the 
California law were fully enacted and if New York follows suit 
we will have two highly populated States on opposite sides of 
the country requiring a varying degree of standard by which the 
entire industry from the manufacturer all the way to 
pharmacists must comply. You cite in your testimony a patchwork 
quilt of regulations, and I am interested in knowing how 
exactly would establishing a uniform tracking system ensure 
patient safety.
    Mr. Rose. Thank you for that question. What it would do is, 
it would give us security through the whole Nation. These 
labels that we are putting on our product, this product is sold 
throughout the State, or throughout the country, and we are 
talking about interstate commerce here. When we manufacture it, 
we don't manufacture for New York or California or Florida.
    Mr. Lance. You do it for the entire Nation.
    Mr. Rose. The entire Nation, and so as a result, we have 
this system in place. The entire Nation would benefit from 
this. All the citizens throughout the Nation would benefit from 
this system. It would provide a veil and umbrella over top of 
the supply chain, ensuring that we would keep counterfeit 
products out of the supply chain. It would give us another 
level of mechanism, another layer which we could prevent 
counterfeits from getting in the supply chain throughout the 
Nation.
    Mr. Lance. Thank you. Your testimony reflects a strong 
commitment to patient safety. How often are products 
compromised? Under the current system if a product is 
compromised, how is the manufacturer, J&J or others, alerted to 
an issue, and how do you address the problem?
    Mr. Rose. We are alerted to it in many ways. We may have 
received a call from a patient. We may hear from a doctor or a 
pharmacist. We have mechanisms in which we handle those calls, 
and we receive it and then we do an investigation of whether or 
not that is a counterfeit product or not. So we have mechanisms 
which we put in place to verify the authenticity of that 
product and then determine what the next steps might be.
    Mr. Lance. Thank you. Would anyone else on the panel like 
to comment on my questions? Yes, sir.
    Mr. Coukell. Just briefly. I don't think we know how common 
it is. There was a story in the newspaper this week. It was a 
tiny story--I think it maybe only ran in Chicago--about a 
pharmacist who had bought counterfeit drugs from China, I 
believe it was, and was dispensing them to patients and had 
been caught doing that. We don't know how common that is, and 
that is not to tarnish the industry. You know, 99.99 percent of 
them are good guys and the supply is generally safe but how 
common are these problems? I don't think we know.
    Mr. Lance. Would anyone else like to comment? Dr. Davis?
    Mr. Davis. I think that again, the pharmaceutical industry, 
specifically, independent community pharmacists, rely on the 
rapport that we create with our patients, and it is very 
important for us to maintain that position. That being said, we 
take counterfeit medications, diverted medications and how we 
access and purchase medications in the industry very, very 
seriously. So that inherently adds a level of security that 
exists today.
    Mr. Lance. Thank you. Dr. Davis, let me say that I come 
from a small town and from a small family law practice, and we 
rely on a family pharmacy in a small town, and I know that 
there are many across America who rely on the good work of 
family pharmacies across this great country.
    Thank you, Mr. Chairman. I yield back the balance of my 
time.
    Mr. Pitts. The chair thanks the gentleman and now 
recognizes the gentleman from Utah, Mr. Matheson, 5 minutes for 
questions.
    Mr. Matheson. Thanks, Mr. Chairman, and I do want to thank 
all the stakeholders, more than just for being here today but 
there has been a lot of stakeholder involvement for a long time 
on this issue. I appreciate everyone spending the time to try 
to come up with a solution.
    I have said it in my earlier comments: I think we need a 
uniform standard in place, a national standard, and it is 
really for two things. It is to ensure integrity of the drug 
supply chain at a national level and also alleviate operational 
burdens. It also is to prevent counterfeit or diverted product 
from reaching consumers.
    So my first question is to Ms. Gallenagh. I was wondering 
if you could--you mentioned both the concern about operational 
burdens for stakeholders and the problem with counterfeit 
product hitting the market. Can you describe for me the 
operational challenges that your member companies would face in 
delivering product to their downstream partners across the 
country in a situation with no national standard and as 
different State laws go into effect?
    Ms. Gallenagh. Absolutely. As you already know, HDMA 
members are primary wholesalers, so they purchase directly from 
the manufacturer in most cases and provide their products 
directly to the pharmacy and providers. The challenge with a 
50-State approach, particularly when we start talking about not 
just pedigree but when we start talking about serialization and 
traceability really is the great unknown. If we are working on 
systems to be developed for California, for instance, that is 
one thing, but we operate national companies, much like the 
manufacturers. While we are not manufacturing product and we 
are not actually serializing that product, we will have to have 
the systems in place to be able to move it within our 
distribution networks, not just for the State of California but 
across the country. If we have a different standard for 
California than, for instance, in New York, which is also 
looking at this in their state legislature, then we have to 
segregate product according to region, and it makes it very 
difficult to know what types of systems we need to develop.
    Mr. Matheson. Do you have thoughts or can you elaborate on 
how a bad actor might circumvent more stringent State laws to 
introduce an adulterated product into a supply chain that 
doesn't have the national standard?
    Ms. Gallenagh. Sure. I think one of the problems with 
variation in State licensure was is one, the requirements. For 
example, some States don't choose to inspect wholesaler 
facilities when they are actually issuing licenses, and so then 
you end up with sort of fly-by-night actors or maybe 
substandard companies applying for and receiving licenses, and 
this has been shown to be a problem in States like Florida 
where when they did raise their licensure standards, they 
eliminated hundreds of bad actors and really not legitimate 
companies. I think that the other part of this, though, is also 
not just the variation in requirements but the variation in 
actually having to meet a standard bar. One kind of uniform set 
of requirements so that a bad actor can't move to the next 
State and get a license there, for instance.
    Mr. Matheson. Mr. Rose, in your testimony you described 
your company's experience with serialization of its products. 
You know, this is something that has been included in this 
discussion draft. Can you discuss the role that serialization 
plays in strengthening the integrity of the drug supply chain 
both in the near-term impact it could have as well as the role 
it would play in the longer term?
    Mr. Rose. Sure. In the near term, I think what it gives us 
is a capability that would be available in our product if we 
just looked at the discussion draft in its current form. You 
would have a serialized number on there that could then be 
verified, and that becomes important. I think what we would 
like to see as an end game is where every party in the supply 
chain is accountable for using that serial number and then also 
the information that is passed along with it. So we really 
believe that simple act of scanning that barcode becomes very, 
very important to help verify that package and ensure that it 
is the genuine package and then also the transactions that are 
associated with that package that can verify those transactions 
as well.
    Mr. Matheson. Thanks. Mr. Chairman, I will yield back.
    Mr. Pitts. The chair thanks the gentleman and now 
recognizes the gentleman from Texas, Mr. Green, 5 minutes for 
questions.
    Mr. Green. Thank you, Mr. Chairman. I got back just in 
time.
    Mr. Coukell, I have some questions about the time frames 
set up in the House bill. As you know, it doesn't require much 
until about 5 years after the enactment. At that point it would 
only require manufacturers to serialize their product and to 
begin tracing their products by lot number, not unit level. I 
understand that actually getting a unit-level interoperable 
electronic system up and running, particularly on the federal 
level, will take some time and has many complications, but I am 
concerned the House bill doesn't start us on that path soon 
enough. In fact, it actually prohibits FDA from going forward 
with a unit-level electronic system in absence of new federal 
legislation. My question is, can you comment on this? And I am 
sure we can all agree that we want to ensure that industry has 
a reasonable amount of time to comply with whatever federal 
system we put in place but do we really need to wait until 2018 
to even start on a lot-level non-electronic system?
    Mr. Coukell. Thank you for that question, sir. We 
absolutely share that concern as well as the view that the 
appropriate approach is to phase this in in a reasonable time 
frame that is something between California and what is proposed 
in the House draft, and I think one of the big impediments to 
this whole area moving forward has been the lack of regulatory 
certainty. So leaving 10 years and still not having that 
certainty is likely to delay the field a very long time.
    Mr. Green. Mr. Berghahn, do you have any thoughts on that 
too?
    Mr. Berghahn. Well, I think that what would be important to 
consider is that many of the pharma manufacturers and the 
industry are already preparing today and putting systems in 
place to serialize an aggregate as we speak, and certainly 
allowing that to continue would be in the best interests of 
everyone. It doesn't mean that we are going to get to a 
National standard in anything resembling the timelines put in 
place in California but it certainly means that the basis is 
there. I mean, California is more than 10 percent of the 
population of the United States, so we could say if we allowed 
it to continue as scheduled that by 2017 10 percent of the 
product in the U.S. supply chain would be serialized.
    Mr. Green. Mr. Catizone, how about you on that question? I 
am sure we all agree but do you really need to wait until 2018 
even to get started on a lot-level non-electronic system?
    Mr. Catizone. No, I think that is too long of a delay. I 
agree with the prior comments but also the caution, if this law 
preempts all existing State laws, there will be no oversight of 
the distribution system and the problems that we are seeing now 
will increase significantly so the medications you receive and 
I receive and others receive will not be safe if the State laws 
are all preempted.
    Mr. Green. Well, I hope that we can work together to ensure 
we don't have unnecessary delays in implementing a federal 
system. Although I know that California may have 10 percent, 
but for a fellow with my Texas accent, we might want to have 
our own. But I do think we need across State lines regulation 
as quick as possible. And again, like any other regulation, if 
you know it is going to happen, you can capitalize it and 
prepare for it over a period of years and it looks like the 
bill may not be as aggressive as some of us would like. It 
sounds like some of the witnesses share it.
    Thank you, Mr. Chairman. I will yield back my time.
    Mr. Pitts. The Chair thanks the gentleman and now 
recognizes the gentleman from Ohio, Mr. Latta, 5 minutes for 
questions.
    Mr. Latta. Well, thank you very much, Mr. Chairman. Again, 
thank you very much for allowing me to participate in the 
hearing today. I really appreciate your willingness. And again, 
I want to thank the witnesses that are here today for their 
testimony today because we have to have input from everyone, 
which we have been doing for quite a while now, meeting with 
the stakeholders.
    If I could start with Dr. Davis, and again, what we are 
looking at here, what we want is safety for the patients out 
there. We want to make sure that the supply chain is protected, 
that nothing is adulterated out there, and that when someone 
receives a medication, they know it is safe for them to take. 
And I think the chairman was talking about it a little bit 
earlier but if I could just ask you again, what is your view of 
having this phased in over time instead of something happening 
overnight? And I know that Mr. Griffith and Mr. Lance also kind 
of alluded to that in their questioning, but if I could ask 
you?
    Mr. Davis. Again, I think our concern is of the level of 
complexity that occurs at the patient-to-practitioner level. We 
have a lot of very specific business rule questions surrounding 
lot-level versus unit-level serialization and tracking. What 
would happen if a patient had a prescription that we prepared 
for them, they decided that it was too expensive and we had 
already removed it from the packaging and the ability for it to 
be traced any further? How do we get that back into our drug 
supply? How do we take processes such as that to make sure that 
our businesses remain profitable and don't waste dollars on 
unused inventory, unreturnable inventory? How do we access the 
information and utilize the information, and how do we insert 
those processes in our current practices?
    We are dependent. We are absolutely dependent on our 
technology vendors to provide us with the capabilities, and 
while we are wholeheartedly in to continue working with our 
partners to create a system in the United States and to 
maintain the system, we want to make sure that it is built in 
an efficient, affordable manner for us to implement in our 
communities.
    Mr. Latta. Thank you.
    Mr. Rose, in your testimony, you state that this 
legislation incorporates many of PDSA's proposed provisions 
including a uniform national standard with a phased 
implementation. I am just kind of following up on that. How 
important is that phased implementation?
    Mr. Rose. We believe the phased implementation is 
important. The California law in many regards goes from zero to 
60 very quickly so you go from serialization to this 
interoperable system. We really believe what is important here 
is to make sure that we have an approach that allows parties in 
the supply chain to prepare properly, to adopt these systems. 
As Dr. Davis mentioned, the pharmacies have some work to do, so 
do the wholesalers and the manufacturers. We still have a lot 
of work to do, as I indicated in my testimony. We have to give 
people some time to put those systems in place and make sure, 
to work out the interdependencies between the different 
stakeholders in the supply chain. That is where the real 
phased-in approach is really required is, how do we exchange 
data with the customers that we work with. It is very, very 
critical to do this, and it is not just the forward supply 
chain but it is also the reverse supply chain as well.
    Mr. Latta. Let me follow up with that. In your estimation, 
has California given you and the industry the guidance it needs 
for that operational clarity on how that law is going to work?
    Mr. Rose. We still are awaiting guidance on the 
interoperable system. Also, I think as I recall, and I will 
have to get back to you on this, but they have issued some 
guidance around grandfathering and I think they issued some 
guidance recently around inference, but we really do need to 
have much more guidance from them about their interoperable 
system, how that is going to work. That is a key piece right 
now.
    Mr. Latta. And I could turn real briefly, and I do mean 
briefly, Ms. Gallenagh, I believe we all share the same goal of 
improving the safety and the efficiency of the drug supply 
chain, as I mentioned earlier, that we want to make sure that 
everyone is safe out there. However, the argument has been made 
that what has been proposed to date doesn't go far enough to 
satisfy all the elements of a comprehensive system that some 
had envisioned. Could you in practical terms talk about how the 
elements of this proposal would create a platform upon which to 
build future technologies?
    Ms. Gallenagh. Absolutely. I think the intent of the bill, 
first of all, starts with what we traditionally call an interim 
pedigree step, essentially a direct purchase option and a full 
pedigree option across the board so that would be uniform 
across the country. It sets higher licensure standards to close 
those gaps across the States, and I think what we are all 
forgetting here when we talk about looking for the perfect 
solution is that this draft requires serialization for all 
products at the unit level regardless of where they are in the 
United States. I think that that alone sets a great foundation 
for what the industry can do with the product and with the 
systems once they are built. The lot traceability as a phase-in 
I think absolutely also lets us know how to work with that 
product and the serial numbers in a measured, responsible way 
and in a way that is practical for all of the supply chain 
partners.
    Mr. Latta. Thank you very much, Mr. Chairman, and my time 
is expired and I yield back.
    Mr. Pitts. The Chair thanks the gentleman. That concludes 
the questions of our members. I am sure they will have 
additional follow-up questions and we will send them to you. We 
ask that you please respond promptly.
    I would like to thank all of the witnesses for appearing 
today, two excellent panels, a lot of good information, a very 
important issue as we move forward, and I remind members that 
they have 10 business days to submit questions for the record. 
The members should submit their questions by the close of 
business on Thursday, May 9th.
    Without objection, the subcommittee is adjourned.
    [Whereupon, at 12:49 p.m., the Subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]


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