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




                               BEFORE THE

                         SUBCOMMITTEE ON HEALTH

                                 OF THE

                        HOUSE OF REPRESENTATIVES


                             SECOND SESSION


                           FEBRUARY 26, 2014


                           Serial No. 113-119


      Printed for the use of the Committee on Energy and Commerce

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                          FRED UPTON, Michigan

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


                         Subcommittee on Health

                     JOSEPH R. PITTS, Pennsylvania
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
PHIL GINGREY, Georgia                GENE GREEN, Texas
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

Hon. Joseph R. Pitts, a Representative in Congress from the 
  Commonwealth of Pennsylvania, opening statement................     1
    Prepared statement...........................................     2
Hon. Marsha Blackburn, a Representative in Congress from the 
  State of Tennessee, opening statement..........................     3
Hon. Frank Pallone, Jr., a Representative in Congress from the 
  State of New Jersey, opening statement.........................     9
Hon. Gene Green, a Representative in Congress from the State of 
  Texas, opening statement.......................................    10
Hon. Michael C. Burgess, a Representative in Congress from the 
  State of Texas, opening statement..............................    10
Hon. John Shimkus, a Representative in Congress from the State of 
  Illinois, opening statement....................................    21
Hon. Bill Cassidy, a Representative in Congress from the State of 
  Louisiana, opening statement...................................    21
Hon. Henry A. Waxman, a Representative in Congress from the State 
  of California, opening statement...............................    24
Hon. Fred Upton, a Representative in Congress from the State of 
  Michigan, prepared statement...................................   173


Jonathan Blum, Principal Deputy Administrator, Center for 
  Medicare, Centers for Medicare & Medicaid Services, Department 
  of Health & Human Services.....................................    35
    Prepared statement...........................................    37
    Answers to submitted questions...............................   175
Douglas Holtz-Eakin, President, American Action Forum............   123
    Prepared statement...........................................   126
    Answers to submitted questions...............................   190
Carl Schmid, Deputy Executive Director, The AIDS Institute.......   135
    Prepared statement...........................................   137
Joe Baker, President, Medicare Rights Center.....................   140
    Prepared statement...........................................   142

                           Submitted Material

Letter of February 18, 2014, from Jerry Neff, Chief Medical 
  Officer, Centerstone of Indiana, et al., to Marilyn Tavenner, 
  Administrator, Centers for Medicare & Medicaid Services, 
  submitted by Mrs. Blackburn....................................     4
Statement of February 26, 2014, by the National Kidney 
  Foundation, submitted by Mr. Burgess...........................    12
Statement of February 26, 2014, by the American Society of 
  Transplant Surgeons, submitted by Mr. Burgess..................    14
Letter of February 26, 2014, from James L. Martin, Chairman, 60-
  Plus Association, to Mr. Pitts, submitted by Mr. Pitts.........    22
Letter of March 7, 2014, from Abcam, Inc., et al., to Marilyn B. 
  Tavenner, Administrator, Centers for Medicare & Medicaid 
  Services, Department of Health & Human Services, submitted by 
  Mr. Pitts......................................................    26
Memorandum of July 29, 2008, from Daniel R. Levinson, Inspector 
  General, Department of Health & Human Services, to Kerry Weems, 
  Acting Administrator, Centers for Medicare & Medicaid Services, 
  Department of Health & Human Services, submitted by Mr. Pitts 
Report, dated July 2008, ``Review of Medicare Part D Contracting 
  for Contract Year 2006,'' submitted by Mr. Pitts \1\
Letter of February 25, 2014, from Alliance for Retired Americans, 
  et al., to Mr. Pitts and Mr. Pallone, submitted by Mr. Pitts...    52
Letter of February 26, 2014, from Ronald F. Pollack, Executive 
  Director, Families USA, to Mr. Pitts and Mr. Pallone, submitted 
  by Mr. Pallone.................................................    55
Letter of February 25, 2014, from David A. Balto, Attorney at 
  Law, Independent Specialty Pharmacy Coalition, to Mr. Pitts and 
  Mr. Pallone, submitted by Mr. Pallone..........................    57
Letter of February 25, 2014, from Alaska Pharmacists Association, 
  et al., to Marilyn B. Tavenner, Administrator, Centers for 
  Medicare & Medicaid Services, Department of Health & Human 
  Services, submitted by Mr. Pallone.............................    60
Letter of February 25, 2014, from Saul M. Levin, CEO and Medical 
  Director, American Psychiatric Association, to committee and 
  subcommittee leadership, submitted by Mr. Murphy...............    80
Letter of January 14, 2014, from Mr. Murphy to Marilyn Tavenner, 
  Administrator, Centers for Medicare & Medicaid Services, 
  Department of Health & Human Services, submitted by Mr. Murphy.    83
Statement of February 26, 2014, by the National Association of 
  Chain Drug Stores, submitted by Mr. Pitts......................    94
Letter of February 18, 2014, from Daniel R. Salomon, President, 
  American Society of Transplantation, to Marilyn B. Tavenner, 
  Administrator, Centers for Medicare & Medicaid Services, 
  Department of Health & Human Services, submitted by Mr. Pitts..   101
Letter of February 25, 2014, from Dan Weber, President and 
  Founder, Association of Mature American Citizens, to Mr. Pitts 
  and Mr. Pallone, submitted by Mr. Pitts........................   103
Memorandum of February 25, 2014, ``Proposed Interpretation of the 
  Noninterference Provision Under Medicare Part D,'' 
  Congressional Research Service, submitted by Mr. Gingrey.......   113
Article, dated June 6, 2012, by Mr. Burgess, ``Medicare-less: 
  Patients will have fewer options under Obamacare,'' Washington 
  Times, submitted by Mr. Burgess................................   170

\1\ The memorandum and the report are available at http://



                      WEDNESDAY, FEBRUARY 26, 2014

                  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 2123 of the Rayburn House Office Building, Hon. Joseph R. 
Pitts (chairman of the subcommittee) presiding.
    Members present: Representatives Pitts, Burgess, Shimkus, 
Murphy, Blackburn, Gingrey, Lance, Cassidy, Guthrie, Griffith, 
Bilirakis, Ellmers, Barton, Pallone, Capps, Schakowsky, Green, 
Barrow, Christensen, Castor, Sarbanes, and Waxman (ex officio).
    Staff present: Clay Alspach, Chief Counsel, Health; Sean 
Bonyun, Communications Director; Matt Bravo, Professional Staff 
Member; Karen Christian, Chief Counsel, Oversight and 
Investigations; Noelle Clemente, Press Secretary; Paul Edattel, 
Professional Staff Member, Health; Brad Grantz, Policy 
Coordinator, Oversight and Investigations; Sydne Harwick, 
Legislative Clerk; Sean Hayes, Counsel, Oversight and 
Investigations; Robert Horne, Professional Staff Member, 
Health; Peter Kielty, Deputy General Counsel; Chris Pope, 
Fellow, Health; Chris Sarley, Policy Coordinator, Environment 
and the Economy; Heidi Stirrup, Policy Coordinator, Health; 
Josh Trent, Professional Staff Member, Health; Ziky Ababiya, 
Democratic Staff Assistant; Phil Barnett, Democratic Staff 
Director; Eddie Garcia, Democratic Professional Staff Member; 
Kaycee Glavich, Democratic GAO Detailee; Amy Hall, Democratic 
Senior Professional Staff Member; Karen Lightfoot, Democratic 
Communications Director and Senior Policy Advisor; and Karen 
Nelson, Democratic Deputy Staff Director, Health.
    Mr.  Pitts. The subcommittee will come to order. The Chair 
recognizes himself for an opening statement.


    The Medicare Part D Prescription Drug Benefit is a 
government success story. Last year, nearly 39 million 
beneficiaries were enrolled in a Part D prescription drug plan. 
Competition and choice have kept premiums stable. In fact, in 
2006, the first year the program was in effect, the base 
beneficiary premium was $32.20 a month. In 2014, the base 
beneficiary premium is $32.42; a 22-cent increase over 9 years, 
and still roughly half of what was originally predicted. More 
than 90 percent of seniors are satisfied with their Part D drug 
coverage because of this. African-American and Hispanic seniors 
report even higher levels of satisfaction, at 95 percent and 94 
percent, respectively.
    The program has worked so well because it forces 
prescription drug plans and providers to compete for Medicare 
beneficiaries, putting seniors, not Washington, in the driver's 
seat. Part D should be the model for future reforms to the 
Medicare Program. Instead, in its January 6, 2014, proposed 
rule, the Centers for Medicare & Medicaid Services, CMS, 
proposes to dismantle the very features of the program that 
have made it so popular and successful. CMS has taken it upon 
itself to interpret the noninterference clause in the statute 
to mean that it can interfere with negotiations between plans 
and pharmacies. Congress expressly created the clause to 
prevent CMS from doing what it intends to do in this rule, yet 
CMS is choosing to ignore the law.
    The proposed rule seeks to essentially eliminate preferred 
pharmacy networks. A 2013 Milliman Study shows that preferred 
pharmacy networks will save taxpayers $870 million this year, 
and anywhere from $7.9 billion to $9.3 billion over the next 10 
years. CMS itself says that 96 percent of the Part D claims it 
reviewed showed seniors saved money at preferred pharmacies, 
and nearly 25,500 seniors in my congressional district have 
chosen Part D plans with a preferred pharmacy network, yet CMS 
would take that away from them.
    Today, the average senior has 35 different plans to choose 
from this year. This rule would reduce that choice to 2 plans. 
Fifty percent of the plans offered today will be gone, and the 
healthcare that seniors like may go with it. Limiting seniors' 
choices like this will inevitably lead to higher cost. By some 
estimates, the restrictions on the number of plans that could 
be offered could cause premiums to rise by 10 to 20 percent. 
Cost to the Federal Government may increase by $1.2 to $1.6 
billion, according to a study by Milliman.
    How is this beneficial? I am at a loss to understand why 
CMS has proposed these changes, and what problems with the Part 
D Drug Benefit it is attempting to solve. I don't see how any 
of these proposals provide tangible benefits to seniors, but I 
do see more bureaucracy, less choice and competition, and 
higher cost to both beneficiaries and the Federal Government in 
the future if the proposed rule is enacted.
    I urge Secretary Sebelius and Administrator Tavenner to 
rescind this rule. And I welcome our witnesses here today. I 
look forward to their testimony.
    [The prepared statement of Mr. Pitts follows:]

               Prepared statement of Hon. Joseph R. Pitts

    The Medicare Part D prescription drug benefit is a 
government success story.
    Last year, nearly 39 million beneficiaries were enrolled in 
a Part D prescription drug plan (PDP).
    Competition and choice have kept premiums stable. In fact, 
in 2006, the first year the program was in effect, the base 
beneficiary premium was $32.20 a month. In 2014, the base 
beneficiary premium is $32.42--a 22-cent increase over 9 
years--and still roughly half of what was originally predicted.
    More than 90 percent of seniors are satisfied with their 
Part D drug coverage because of this. African-American and 
Hispanic seniors report even higher levels of satisfaction, at 
95 percent and 94 percent, respectively.
    The program has worked so well because it forces 
prescription drug plans and providers to compete for Medicare 
beneficiaries--putting seniors, not Washington, in the driver's 
    Part D should be the model for future reforms to the 
Medicare program.
    Instead, in its January 6, 2014, proposed rule, the Centers 
for Medicare & Medicaid Services (CMS) proposes to dismantle 
the very features of the program that have made it so popular 
and successful.
    CMS has taken it upon itself to interpret the 
``noninterference'' clause in the statute to mean that it can 
interfere with negotiations between plans and pharmacies. 
Congress expressly created the clause to prevent CMS from doing 
what it intends to do in this rule. Yet CMS is choosing to 
ignore the law.
    The proposed rule seeks to essentially eliminate preferred 
pharmacy networks.
    A 2013 Milliman study shows that preferred pharmacy 
networks will save taxpayers $870 million this year and 
anywhere from $7.9 billion-$9.3 billion over the next 10 years.
    CMS itself says that 96 percent of the Part D claims it 
reviewed showed seniors saved money at preferred pharmacies, 
and nearly 25,500 seniors in my district have chosen Part D 
plans with a preferred pharmacy network. Yet CMS would take 
that away from them.
    Today, the average senior has 35 different plans to choose 
from this year. This rule would reduce that choice to two 
plans. Fifty percent of the plans offered today will be gone, 
and the health care that seniors like may go with it.
    Limiting seniors' choices like this will inevitably lead to 
higher costs. By some estimates, the restriction on the number 
of plans that can be offered could cause premiums to rise by 
10-20 percent. Costs to the Federal Government may increase by 
$1.2 to 1.6 billion, according to a study by Milliman.
    How is this beneficial?
    I am at a loss to understand why CMS has proposed these 
changes and what problems with the Part D drug benefit it is 
attempting to solve.
    I don't see how any of these proposals provide tangible 
benefits to seniors, but I do see more bureaucracy, less choice 
and competition, and higher costs to both beneficiaries and the 
Federal Government in the future if the proposed rule is 
    I urge Secretary Sebelius and Administrator Tavenner to 
rescind this rule.
    I welcome our witnesses here today, and I look forward to 
their testimony.

    Mr.  Pitts. Thank you, and I yield the remainder of my time 
to the gentlelady from Tennessee, Mrs. Blackburn.


    Mrs.  Blackburn. Thank you, Mr. Chairman. I thank you for 
the hearing today, and I have to agree with you, Medicare Part 
D is very popular with seniors, and the majority of 
beneficiaries not only participate in Part D, they express 
satisfaction with the program, and it is definitely working the 
way it was intended.
    I join you in being very concerned about the rule and the 
proposed rule. This is something that would not serve groups 
well, certainly not my seniors in Tennessee. There are over 250 
groups which include patients and physicians that oppose the 
rule, and I would like to submit a letter from an organization, 
Centerstone. I submit that for the record. They provide mental 
health care in Tennessee.
    Mr.  Pitts. Without objection, so ordered.
    [The information follows:]


    Mrs.  Blackburn. And I thank the gentleman for yielding the 
time, and I yield back the balance of my time.
    Mr.  Pitts. The Chair thanks the gentlelady. Now yields to 
the ranking member of the subcommittee, Mr. Pallone, 5 minutes 
for an opening statement.


    Mr.  Pallone. Thank you, Chairman Pitts.
    The Centers for Medicare & Medicaid Services, CMS, recently 
proposed program changes to the Part D Prescription Drug 
Benefit for 2015, and I believe it is important that we 
thoughtfully examine these changes, and the effects they will 
have on the program and on beneficiaries.
    Unlike my Republican colleagues' tactics towards the 
Affordable Care Act, my initial opposition to the Part D law 
has not stopped me from working to improve and strengthen the 
program for seniors. In fact, the ACA took important steps to 
address the inadequacies that first caused me concern. 
Specifically, we closed the doughnut hole. So I welcome today's 
hearing so we can learn from the agency and other stakeholders 
about what is working and not working in the Part D Program, 
and, of course, how we can strengthen the program to work 
better for seniors and taxpayers alike.
    Truthfully, it frustrates me that the Republicans are 
politicizing this issue using alarmists and exaggerated 
rhetoric to make a politically motivated point. Given the 
significance of the Medicare Program, I hope we can have a 
constructive and sincere discussion today on CMS' recent 
proposals regarding the Medicare Drug Benefit. The committee 
has a valuable function of monitoring and looking for ways to 
improve programs under its jurisdiction, however, let's not 
forget that CMS also plays a role in ensuring that its programs 
are working as effectively and efficiently as possible. One way 
it does this is by promulgating regulations to make 
adjustments, and respond to changes in the healthcare landscape 
and evolving needs. Importantly, part of the federal rule-
making process involves making the proposed program changes 
available for public comment, and taking comments into 
consideration before finalizing the regulation.
    Mr. Chairman, there are many positive provisions in this 
rule that, even if it is not perfect, I do not agree with the 
naysayers who have called for its dismissal outright. Rather, 
we should move forward on how best to achieve our objectives 
for a Part D program that serves its beneficiaries as best as 
possible. For example, the proposed rule seeks to make 
improvements to transparency, and to reducing fraud and abuse. 
These are issues I think we can all agree are important to 
continue to work on. I can also see the value in offering 
meaningful choices for beneficiaries, rather than just more 
choices, which create unnecessary complexity in making plan 
    Now, there are some policies in this proposed rule that 
give me pause. In particular, the proposed Protected Classes 
policy. I think everyone here should share in the 
administration's goal of lowering prices, but I do worry that 
the benefits to Medicare may not outweigh the risks when it 
comes to vulnerable patient populations.
    So, Mr. Chairman, I just hope that today we can have 
meaningful discussion about these policies. I look forward to 
hearing from our witnesses about the rule, and how we can 
continue to improve and strengthen Part D.
    I'd like to yield now the remainder of my time to Mr. 
Green, if he'd like.


    Mr.  Green. Thank you. Thank you for yielding to me, and I 
want to thank the chairman and also the ranking member for 
having the hearing today.
    Some of us were on the committee when we drafted the 
prescription drug plan, Medicare Part D, in 2003, and it was 
also a very partisan issue, just like the Affordable Care Act. 
In fact, in some of my emails over the years that said that the 
Affordable Care Act was passed at night, I really remember the 
vote being left open for about 6 hours, and I think our vote 
was about 5:00 a.m. in the morning, and my colleague from 
Illinois knows that. So even Congress can work at night 
sometimes on both issues. And I also recall that the Affordable 
Care Act had trouble rolling out. We actually worked with our 
constituents to help people use community college, community 
computers to help people access it, even though I considered 
the plan flawed. Although over the years there have been 
changes and a reform, mainly administrationwise, and I think 
that is what we are going to see today.
    While it is clear that Part D programs provide prescription 
drugs for Medicare beneficiaries who previously didn't have it, 
there is still room to improve the program. And I have concerns 
about individual provisions in the proposed rule, but I support 
increased transparency and expanded access to affordable 
pharmacies, and cost sharing for Medicare beneficiaries.
    And again, I thank my colleague for yielding the time, and 
I yield back.
    Mr.  Pallone. And I yield back, Mr. Chairman.
    Mr.  Pitts. The Chair thanks the gentleman. Now recognize 
the vice chair of the subcommittee, Dr. Burgess, for 5 minutes 
for an opening statement.


    Mr.  Burgess. I thank the chairman for the recognition. Mr. 
Blum, welcome to our committee today, and to our other 
witnesses, we are happy to hear from you.
    So December of last year, the end of 2013, marked the 10-
year anniversary of the creation of the Medicare Part D 
Prescription Drug Benefit. Not only has Part D come in at 45 
percent under budget, the Congressional Budget Office has 
reduced its 10-year projections for Part D by over $100 billion 
for each of the last 3 years. The success of Part D is largely 
attributed to its competitive, free-market structure.
    I would remind my friend from Texas that, different from 
the Affordable Care Act, the Part D changes were noncoercive 
and based on free-market principles, entirely different from 
the ACA.
    So despite a proven track record of success, the Center for 
Medicare & Medicaid Services has proposed to fundamentally 
restructure the Part D Program; restructure it with a 700-page 
rule allowing the government to interfere in private plan 
negotiations, restrict beneficiary choice of plans, and limit 
incentives that lower costs for consumers. Only in Washington 
would there be a big government solution in search of a problem 
that simply does not exist.
    The interference by the Centers for Medicare & Medicaid 
Services is projected to eliminate almost half of current Part 
D plans in 2015. So what effect will that have? Well, it is 
going to drive premiums higher for nearly 14 million seniors, 
and increase costs across the entire Medicare Program. Even 
more concerning is the proposal by the Centers for Medicare & 
Medicaid Services to eliminate several of the protected classes 
of drugs under Part D. We all remember when Dr. McClellan came 
to this committee, and the Democrats asked some pretty incisive 
questions, and Dr. McClellan was able to defend the Part D 
Program based on the fact that there would be these protected 
classes under Part D. They were designed to ensure that 
vulnerable populations of patients have continued access to 
lifesaving drugs. Not all drugs are interchangeable, especially 
in the case of immunosuppressants.
    Without this committee getting into the pharmacology of how 
these drugs work, if we don't understand how they work, how can 
we change the policy so that--and not affect the patient at the 
same time? The removal of these drugs from protected class 
status risks the lives of current and future beneficiaries, 
further jeopardizing transplanted organs and patients' lives.
    Yet again, the Centers for Medicare & Medicaid Services has 
proposed a policy that is penny wise and pound foolish. Not 
only has the program increased patient access to drugs, and 
made positive effects on the health of beneficiaries, the 
program has extended the solvency of the entire Medicare 
Program, saving billions of dollars over the past 10 years. So 
rather than continue a successful program and encourage 
innovation, now we are faced with a rule to ruin one of the 
only working parts of our current healthcare system, leaving 
patients with the short end of the stick.
    I would like to submit for the record a statement by the 
National Kidney Foundation and the American Society of 
Transplant Surgeons. And yield to Mr. Shimkus.
    Mr.  Pitts. Without objection, so ordered.
    [The information follows:]



    Mr.  Shimkus. Thank you. And I thank my colleague and 
    More than 250 organizations united for a common goal, 
protecting seniors and individuals with disabilities from 
harmful changes to Medicare Part D. And that is what your 
proposed rule actually does, is harm seniors. It gives them 
less choices, it will project higher costs, and from an 
administration that cut $716 billion out of Medicare, to 
propose a 700-page rule trying to fix something that is not 
broken, is disastrous at a time when people are paying more, 
even in the national healthcare rollout.
    It is safe to say when I go to my district, people pay more 
now for their insurance and get less, and this is just going to 
fall down to our seniors.
    I also want to focus on the fact that Medicare Part D has 
been successful. I want to focus on medical therapy management 
issues, that moving that level down that small is just going to 
hurt medical therapy management for those bigger populations 
that actually need the care.
    And I yield the rest of my time to Dr. Cassidy.


    Mr.  Cassidy. Thank you.
    I am a doc, and so when I talk to constituents back home 
about how changes by Obamacare and this administration are 
going to decrease their choices and increase their costs, I 
understand the issue.
    Medicare was cut $716 billion to fund Obamacare, and 
frankly, when you cut that much, it has got to give. It is 
going to force beneficiaries to find new healthcare plans, 
despite the President's promise that you could keep your health 
insurance if you like it, period. Instead, they get 
cancellation notices.
    Now, the Medicare cut $300 billion, or to the Medicare 
Advantage Program, and now I understand that--for--there is a 
further 3.55 percent cut on top of the cumulative 6.5 percent 
cut that the industry has already suffered. It is a very 
popular program. If you cut funding, seniors have less choice 
and increased cost.
    Moving forward, we must preserve that and decrease those 
costs. We need policies that help seniors, not threaten access 
and choice.
    I look forward to the questioning. Thank you. I yield back.
    Mr.  Pitts. The Chair thanks the gentleman and seeks 
unanimous consent to enter into the record the letter from 
Sixty-Plus Association.
    Without objection, so ordered.
    [The information follows:]


    Mr.  Pitts. The Chair now recognizes the ranking member of 
the full committee, Mr. Waxman, 5 minutes for an opening 


    Mr.  Waxman. Thank you, Mr. Chairman.
    Today's hearing will focus on the Medicare Part D drug 
    When President Bush signed the Part D benefit into law, 
Democrats had many concerns. We thought the structure of the 
law was too confusing for beneficiaries, we thought the 
doughnut hole was bad for seniors, and we felt the law did not 
do enough to reduce drug costs, and most of us voted against 
it. But, Mr. Chairman, we didn't find dozens of ways to 
sabotage the program. We didn't send out massive document 
requests in order to delay and intimidate contractors. We 
didn't shut down the government to try to force its repeal, or 
vote over 40 times to repeal the law. Instead, we worked with 
the Bush administration to make sure our constituents could get 
the benefits they deserved, and ultimately, as part of the 
Affordable Care Act, we improved benefits, closing the Part D 
doughnut hole.
    Mr. Chairman, your constituents and the Nation would be 
much better off if your party took a similar approach to the 
Affordable Care Act.
    We improved the Part D law, but there are still adjustments 
we can make to strengthen the program for both beneficiaries 
and taxpayers, improving transparency and addressing fraud and 
    CMS recently proposed a rule that would make some of these 
changes. I appreciate the agency's efforts. They show that the 
administration continues to work to improve Medicare for 
    The proposed Part D rule provisions would increase 
transparency, and increase access to community pharmacy 
services. Many community pharmacies have been unable to 
participate in Part D plan's preferred networks, even if they 
are willing to meet the plan's preferred prices. CMS proposes 
to allow any pharmacy who can meet the plan's prices to 
participate. This change would increase pharmacy access for 
patients, particularly in underserved communities where 
patients may not have access to preferred pharmacies.
    CMS has also proposed simplifying beneficiary choices under 
Part D. CMS and patient advocates have long noted that seniors 
find the array of plan choices dizzying, and that plans are 
using the multitude of choices to segment risks and maximize 
profit. It makes sense for both the patient and the taxpayer 
that CMS address these matters.
    There are other places where I would like to see the agency 
rethink its approach. In particular, the Six Protected Classes 
policy. I share the administration's goal of lowering prices, 
and ensuring that Medicare is able to get the best deal 
possible. CMS has correctly observed that eliminating some 
drugs from the Protected Classes category would allow Part D 
plans to negotiate for lower prices, but it is hard to ignore 
the concerns of patient groups and Medicare advocates that 
these changes will make it more difficult for seniors to get 
the drugs they need.
    There is a better way. Adopting my Part D Drug Rebate Bill, 
the Medicare Drug Savings Act would be a much sounder and 
beneficiary-friendly approach. This bill would allow Part D to 
get some discounts on drugs for low-income seniors that 
Medicaid and private sector purchasers receive. It would, 
according to the CBO, save over $140 billion over the next 
    The administration was correct to include this provision in 
its new budget. It is a commonsense idea that would save 
taxpayers billions of dollars without affecting access to Part 
D drugs for seniors.
    Mr. Chairman, I am pleased that Deputy Administrator John 
Blum is here today to explain CMS' approach in the Part D rule. 
I look forward to discussing how we can improve Part D for 
seniors, and reduce taxpayers' costs, and yield back the 
balance of my time.
    Mr.  Pitts. The Chair thanks the gentleman, and again seeks 
unanimous consent to enter a letter to Administrator Tavenner 
from a coalition of 250 organizations on Medicare Part D.
    Without objection, so ordered.
    [The information follows:]


    Mr.  Pitts. We have on our first panel today Mr. Jonathan 
Blum, Principal Deputy Administrator, Centers for Medicare & 
Medicaid Services, U.S. Department of Health & Human Services. 
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 for 5 minutes for your 
opening statement.



    Mr.  Blum. Thank you. Chairman Pitts, Ranking Member 
Pallone, members of the committee, thank you for the 
opportunity to discuss our thoughts on ways to improve the Part 
D Drug Program.
    Mr.  Pitts. Just pull that a little closer to you, if you 
can. Yes, thanks.
    Mr.  Blum. We believe the Medicare Part D Program has never 
been stronger. All Medicare beneficiaries have many plan 
choices to select from, premium growth has been flat, and the 
Affordable Care Act took strong steps to close the Part D 
coverage gap or doughnut hole. By 2020, the gap will be 
completely closed.
    In general, Medicare beneficiaries are satisfied with their 
drug coverage, and there is growing evidence that the Part D 
Drug Benefit has led to some decreases in other program costs.
    While Medicare Part D is strong, we also see many 
vulnerabilities that can and should be addressed. This year, 
Medicare Part D will cost more than $70 billion, or about 12 
percent of total program costs. According to CBO, total Part D 
spending is projected to grow dramatically faster than other 
parts of the program. These projected spending trends, as well 
as other vulnerabilities, led us to take a comprehensive review 
of the program, and to propose in an open and transparent way 
some changes to our current regulations. According to our 
actuaries, the proposed rule will reduce overall program costs 
and Part D premiums.
    In addition to rapid spending growth, we see other 
vulnerabilities in Part D. First, while we see broad measures 
of beneficiary satisfaction, CMS receives far too many 
complaints from beneficiaries. In 2013, the program received 
over 30,000 complaints from beneficiaries regarding their Part 
D coverage. Far too high. Second, we see very high rates of 
inappropriate prescribing. While we are very, very sensitive to 
the concerns we have heard over changing the Protected Classes 
designation for three drug classes, we have to acknowledge the 
requirement for Part D plans to cover all drugs in these 
classes, with very little restriction, has led to harmful 
overprescribing--particularly antipsychotic drugs to sedate 
nursing home patients. Third, the program has too much 
prescriber fraud. This agency made a commitment to the Homeland 
Security Committee to reduce this fraud. This proposed rule 
honors that commitment. Fourth, we have seen too many Part D 
sponsors have significant compliance issues that have resulted 
in harm to Medicare beneficiaries. Fifth, we see weak data 
evidence that preferred pharmacy networks always leads to cost 
savings for beneficiaries and the taxpayers. Sixth, while most 
beneficiaries have many plan choices, the evidence suggests 
that beneficiaries rarely change plans, even though they could 
reduce their out-of-pocket costs by changing plans. We support 
private plan competition in Medicare Part D, so long as 
beneficiaries can understand their choices and make changes 
easily. And seventh, CMS, under current regulations, cannot 
share detailed Part D claims data with outside researchers. We 
believe this data, if shared appropriately, can make the 
program even stronger.
    Our proposed Part D rule is designed to address all these 
vulnerabilities, and to make the benefit work better for 
Medicare beneficiaries. In short, we believe that we must 
celebrate Part D's success, but also take a critical look at 
its vulnerabilities and take action where we can. The status 
quo is hardly perfect. However, we deeply respect the views of 
those who have stated their concerns and opposition to the 
rule, particularly patient groups and their concerns over the 
changes to the protected class definition. CMS will listen very 
carefully to the views of all Part D stakeholders and partners. 
We will make our final decisions after carefully reviewing all 
stakeholders' comments.
    Thank you. Happy to address your questions.
    [The prepared statement of Mr. Blum follows:]


    Mr.  Pitts. The Chair thanks the gentleman. And we will now 
go to questions and answers. I will begin the questioning. 
Recognize myself for 5 minutes for that purpose.
    Mr. Blum, nonpartisan experts are warning us that millions 
of seniors will see higher costs and fewer choices if this 
regulation is finalized. Seniors in my district tell me how 
much they enjoy the Part D Program, many times when I talk to 
    As you acknowledge in your testimony, the Medicare Drug 
Benefit is under-budget, and 94 percent of seniors are happy 
with it. Why would CMS propose this regulation if everyone is 
telling us that it is going to force seniors to lose their 
plans, decrease access and increase cost?
    Mr.  Blum. Well, a couple of points, Mr. Chairman. We see 
the overall Part D Program being a tremendous success, but the 
nonpartisan CBO projects that Part D spending in the next 10 
years will grow faster than the other parts of the program. It 
is the fastest-growinig line item for the Medicare Program. The 
entire Medicare Program, since the Affordable Care Act, has 
dramatically been reduced, but for Part D. Part D is projected 
to be the fastest-growing program.
    Now, CMS' proposed rule is a consistent path for us to 
simplify plan choices, to reduce, you know, kind of extra plans 
being offered by the same plan sponsors. CMS started this work 
back in 2010. We heard the same concerns from the plan 
industry, the PBM industry, that those changes would raise 
premiums, decrease choices, create greater dissatisfaction. 
That hasn't happened.
    As you pointed out during your opening statement, the Part 
D premium has stayed flat, while at the same time we have 
reduced kind of extra plan choices dramatically, cut them in 
half. And looking at the past track record, the arguments that 
we are hearing today were similar arguments that we heard back 
in 2010, but those arguments back in 2010 did not prove true.
    Mr.  Pitts. Given the fact that the President's healthcare 
law cut $716 billion from seniors' Medicare Program, and we are 
already seeing how those cuts are negatively impacting seniors 
throughout the country, why should they believe that this 
proposed rule won't hurt them even more?
    Mr.  Blum. Well, I think going back to the payment 
reductions that were passed in the Affordable Care Act, while 
we appreciate that there is now reduced spending within the 
Medicare Program, we see that every--signs on quality have 
increased. We see more private plans wanting to come into the 
program, we see premiums remain flat. The Part D premium this 
year was negative. Part D premiums, premiums for plans, have 
fallen, not risen. So we appreciate the fact that we are paying 
less today than we paid for some services before the Affordable 
Care Act, but every quality sign that we track, every quality 
sign that we measure, has gone up, premiums have gone down, and 
so we believe very strongly that beneficiary care, beneficiary 
costs have not been impacted by these changes.
    Mr.  Pitts. The law includes a noninterference clause, 
which prohibits the government from interfering with 
competition, and this has helped to prevent CMS from 
interfering with negotiations between drug plans and 
pharmacies. Such a prohibition has helped reduce costs for our 
    I and my colleagues read your regulation to violate the 
noninterference clause. In fact, department officials have 
weighed in against the very interpretation included in the 
proposed rule. I would ask that you open the document, document 
1, in the document binder before you. This memo is from the HHS 
Inspector General, and I would ask you to read the highlighted 
portion of the document. You can go ahead and read that out 
    [The information is available at http://docs.house.gov/
    Mr.  Blum. So this is a statement to Kerry Weems back in 
2008: ``We agree that the Act prohibits the Government from 
interfering with negotiations between PDP sponsors and 
pharmacists and from instituting a price structure for the 
reimbursement of covered Part D drugs.''
    Mr.  Pitts. Now, did you or agency staff specifically 
review the Inspector General's memorandum before issuing your 
proposed rule?
    Mr.  Blum. I don't know. I can check. I personally did not, 
but I think it is important for us to explain why we chose to 
propose this change.
    CMS, in the course of day-to-day interactions with plans 
and pharmacies and other entities, gets drawn into individual 
contract disputes. Plans ask us to arbitrate contract disputes 
with pharmacies and other entities. Pharmacies ask us to 
arbitrate disputes from Part D plans. And we agree, the statute 
is clear: CMS shall not interfere with the price structures. 
What we try to do is to articulate when and will not CMS 
interfere with these contract disputes.
    Now, our challenge is on a day-to-day basis that plans and 
pharmacies ask us to arbitrate, and we wanted to propose a 
clear definition, not to degrade the noninterference clause but 
to strengthen it to make sure that we are absolutely clear with 
partners, stakeholders, when CMS won't arbitrate contract 
disputes, but we have no intention to negotiate price 
structures. The law is very clear. During my time on the Senate 
Finance Committee, that I had a hand in helping to draft that 
provision, I understand the intent, I understand why that was 
    Mr.  Pitts. Well, you know, I am not sure it is responsible 
for agency staff to issue a rule that completely contradicts 
the written legal opinion of the HHS Inspector General.
    So with that, I'll recognize the ranking member, Mr. 
Pallone, for 5 minutes for questions.
    Mr.  Pallone. Thank you, Mr. Chairman.
    You know, I know you mentioned, Mr. Chairman, the Medicare 
Advantage changes in the ACA, and as you know, nearly every 
Republican in the House of Representatives voted for or 
supported the very same changes or savings. In fact, the 
savings were part of the Republican budgets written by the 
House Budget Chair, Paul Ryan, in 2011, 2012, and 2013, and 
these same policies put in place by the ACA were continued in 
these budgets, and the majority of House Republicans voted for 
them in each of those years.
    But let me ask Mr. Blum. If you listen to the critics of 
the proposed rule that you are discussing today, it sounds like 
the end of western civilization as we know it, and the refrain 
we keep hearing is that most beneficiaries are satisfied, and 
costs are lower than anticipated when the program was enacted 8 
years ago, therefore, we should make no changes. And today's 
hearing is titled ``Messing With Success.'' But, frankly, I 
believe that we should continually seek to improve Medicare for 
beneficiaries and taxpayers. It seems strange to me that people 
would want to block changes that could improve the program. In 
fact, organizations representing these so-called satisfied 
beneficiaries that we keep hearing about, such as the National 
Council on Aging, National Committee to Preserve Social 
Security, and Families USA, strongly support many of your 
proposed changes.
    So could you comment on why CMS chose to move forward a 
proposal to further strengthen Part D at this time?
    Mr.  Blum. Well, we see the program being tremendously 
successful. We also see that the program has many 
vulnerabilities. We receive recommendations from the IG 
frequently for us to take stronger steps to reduce prescriber 
fraud in the program. We see that, while the Part D premium has 
remained stable over the past several years, that is only one 
part of Part D's costs, and the Part D premium doesn't measure 
the complete cost of the program. Part D is projected to spend 
faster than other parts of the program, dramatically faster 
than the Part A Program, the Part B Program.
    We feel it is our responsibility to propose changes to 
improve the operations. We also feel that it is our 
responsibility to do it through the propose and notice comment 
period. We want to create a conversation about the best ways to 
improve the Part D Program. We respect and we will carefully 
review the comments, concerns and the criticisms, but for us to 
argue that the Part D Program is perfect, the status quo is 
perfect, is contrary to what we see as our obligations to this 
committee, to the Congress, and to the beneficiaries that we 
    Mr.  Pallone. Well, I certainly agree. We have also heard 
that the unfettered competition in the Part D Program is 
responsible for bringing costs down below initial projections, 
and that the CMS rule is messing, I think the word is, with 
competition, but could you comment on what had led to the lower 
costs in Part D? I know you have already, but maybe a little 
    Mr.  Blum. Well, two points I think that are important for 
us to state on the record. If you speak to our CMS actuaries 
and ask them what has accounted for the lower costs than 
projected back in 2003, I believe the number 1 answer would be 
the fact that we have much more generic prescribing happening 
in the Part D Program, and the fact that we have fewer brand-
new breakthrough medications right now on the market than the 
CMS actuary, and CBO, staff projected back in 2003. So it is 
not necessarily private competition that has caused the lower 
Part D cost trends previously, but the fact that we have kind 
of fewer brand-name drugs coming onto the program.
    I think it is also important for this committee to 
understand that the Part D Program is not a truly competitive 
model, that it is not simply that CMS pays a fixed capitated 
payment to Part D plans; they can negotiate said benefits as 
best they see fit. Medicare in many respects is a cost-based 
program. For the low-income beneficiaries, Medicare pays just 
about the full cost of the benefit, not based upon a fee 
schedule, but based upon the prices Part D plans negotiate. For 
beneficiaries that exceed certain thresholds, the catastrophic 
limit, Medicare pays just about the full cost of those drugs 
past that limit. So to say that Part D is competitive in a pure 
sense doesn't meet the statutory definition of the program, and 
I think what our actuaries tell us is that the primary reason 
that Part D spending has been lower than projected is the fact 
that we have more generic prescribing, due to the fact that we 
have fewer new brand-name drugs brought to market.
    Mr.  Pallone. Thank you. Mr. Chairman, I have 4 letters--I 
would ask unanimous consent. I have 4 letters in support of the 
rule and the provisions that foster greater transparency and 
competition, as well as enhance beneficiary protections, from 
beneficiary advocacy groups, including the Medicare Rights 
Center, Families USA, Independent Specialty Pharmacy Coalition, 
and the National Community Pharmacists Association.
    Mr.  Pitts. Without objection, so ordered.
    [The information follows:]


    Mr.  Pallone. Thank you.
    Mr.  Pitts. The Chair thanks the gentleman. Now recognizes 
the vice chair of the full committee, Mrs. Blackburn, 5 minutes 
for questions.
    Mrs.  Blackburn. Thank you, Mr. Chairman. Thanks, Mr. Blum, 
for being here.
    Avalere has said that the changes you are going to make 
would eliminate 39 percent of all of the enhanced plans by 
2016, and that would be 214 of the current 552 enhanced PDP's 
to be terminated or consolidated.
    So what would you say to the seniors in my district who 
like the plan that they have but cannot keep it if you get your 
    Mr.  Blum. Well, there are a couple of things, 
Congresswoman. First is that CMS, since 2009, has put in place 
a strategy to reduce the number of kind of extra plans that 
sponsors provide. We started that process back in 2009/2010. We 
heard the same----
    Mrs.  Blackburn. You are doing this through the rules?
    Mr.  Blum. Correct.
    Mrs.  Blackburn. OK. Let me ask you this. Avalere also said 
that the regulation would impact 7.4 million of the 7.9 million 
Medicare beneficiaries who are enrolled. That is 94 percent. So 
why would you and the President support a regulation which is 
going to disrupt 94 percent of seniors in Medicare Part D who 
have a plan that they like, and would really like to keep it 
but you are not going to let them do that?
    Mr.  Blum. So I think it is important to think about the 
history of the marketplace. Before the doughnut hole was 
closed, Part D plans oftentimes offered kind of supplemental 
benefits to fill in that doughnut hole. The doughnut hole is 
now being closed due to the Affordable Care Act.
    By 2020, the doughnut hole will be completely closed. There 
have been very strong steps so far to close that doughnut hole. 
We see----
    Mrs.  Blackburn. OK----
    Mr.  Blum [continuing]. Little opportunity for Part D plans 
really to distinguish themselves from other plans----
    Mrs.  Blackburn. So you see this----
    Mr.  Blum [continuing]. Those same sponsors offered----
    Mrs.  Blackburn [continuing]. As an opportunity?
    Mr.  Blum. We see this as a way to simplify the Part D 
Program, to make it much easier to navigate. The concerns 
    Mrs.  Blackburn. So by limiting choice and options, you see 
that as a simplification and a way to improve this program?
    Mr.  Blum. I think some of the concerns that I hear, 
oftentimes from the beneficiary community, are that there are 
many Part D choices, too many to choose from, and we know from 
academic literature that the more choice, more confusion----
    Mrs.  Blackburn. So you think people are confused?
    Mr.  Blum. I think----
    Mrs.  Blackburn. That seniors are confused----
    Mr.  Blum. I personally hear----
    Mrs.  Blackburn [continuing]. And they need CMS to----
    Mr.  Blum. I personally hear----
    Mrs.  Blackburn [continuing]. Simplify that?
    Mr.  Blum [continuing]. Tremendous confusion----
    Mrs.  Blackburn. OK, let me----
    Mr.  Blum [continuing]. From the beneficiary community.
    Mrs.  Blackburn. Let me ask you another question. You have 
talked about actuaries a lot. Are you listening to actuaries or 
    Mr.  Blum. We listen to both beneficiaries----
    Mrs.  Blackburn. You are listening to both?
    Mr.  Blum [continuing]. And----
    Mrs.  Blackburn. OK.
    Mr.  Blum. And to our career actuaries.
    Mrs.  Blackburn. OK. Well, you know, the surveys show that 
95 percent of the seniors are satisfied with their plan, and 
Part D is estimated to cost 48 percent less than initially 
estimated by the CBO, and Milliman has projected that if your 
new rule goes into effect, the Federal Government will be on 
the hook for $1.6 billion more than expected in 2015. So where 
are you going to get the money?
    Mr.  Blum. So I think a couple of things. I think we see a 
future for the Part D Program that is growing very quickly; 10 
percent per year. That is dramatically faster than other parts 
of the program.
    Mrs.  Blackburn. OK.
    Mr.  Blum. So to say that we shouldn't take a critical look 
at the future, we don't agree.
    We heard the same concerns back in 2010 that premiums would 
skyrocket, beneficiaries would be left by their plan when CMS 
started to----
    Mrs.  Blackburn. Yes, we heard that----
    Mr.  Blum [continuing]. Consolidate--.
    Mrs.  Blackburn [continuing]. About the Affordable Care 
Act, and that indeed is happening. I will tell you, I have 
plenty of stories I can share with you there.
    Well, if Part D is not broken, then why do you think you 
need to go put something in here that is going to cost more, 
limit options, take seniors out of their plans, you know, it 
doesn't make a whole lot of commonsense, Mr. Blum. And I think 
that what we would like to do is see seniors who have a product 
they like, they are satisfied, bear in mind Medicare is 
something seniors have had money coming out of their paycheck 
every day of their working life and going into a Medicare trust 
fund, and they have prepaid their participation in this 
program, and I think that CMS needs to be listening to those 
enrollees and maybe paying less attention to these actuaries 
that obviously are going to give you--let me ask you this. What 
is your goal? What are you trying to achieve by this? What is 
your outcome?
    Mr.  Blum. I think we have several goals. We want to reduce 
the prescriber fraud in the program, we want to make the 
benefit less confusing, more clear to our beneficiaries, we 
want to make sure that when the program pays the majority of 
costs for low-income beneficiaries, that we are paying the best 
possible rates. When we see preferred pharmacy networks being 
created, we want to encourage innovation----
    Mrs.  Blackburn. OK.
    Mr.  Blum [continuing]. So long as those cost savings get 
passed on to our beneficiaries, passed on to the taxpayers.
    Mrs.  Blackburn. OK.
    Mr.  Blum. So Part D, yes, has been tremendously 
successful, but we do not think it is perfect, nor do we get 
    Mrs.  Blackburn. My time has expired. One last question. 
Can you cite for me the statute that gives you the opportunity 
to go in and settle these disputes between the manufacturers 
and the pharmacies?
    Yield back.
    Mr.  Blum. Sorry, is that a question or----
    Mr.  Pitts. Did you want to respond?
    Mr.  Blum. We are happy to provide our legal clarification. 
We see that the changes to the noninterference don't weaken, 
but they strengthen. On a day-to-day basis we are pulled into 
many disputes that we feel that we need to provide clear rules.
    Mr.  Pitts. OK. The Chair thanks the gentlelady and now 
recognizes the ranking member of the full committee, Mr. 
Waxman, 5 minutes for questions.
    Mr.  Waxman. Thank you, Mr. Chairman.
    Mr. Blum, there is a lot of concern about the proposed rule 
removing two classes of drugs, antidepressant and 
immunosuppressants, from the list of protected classes. I would 
like to hear your rationale. I know there are cost concerns, 
and cost concerns are always legitimate.
    When I did my oversight work on Part D in 2007 and 2008, my 
investigations also revealed the prices for the drugs on the 
Protected Classes list were much higher than they should have 
been, but I think seriously the concerns that have been 
expressed by patients, that removing drugs from the Protected 
Classes list will mean their Part D plans may not cover them, 
and seniors will not be able to get the drugs they need.
    Give us your rationale here.
    Mr.  Blum. Well, I think we came to this proposal with 
difficulty, with much analysis, and kind of weighing the pros 
and cons for a proposed change, and one of the reasons why we 
felt comfortable to take a careful step towards lifting the 
class definition is that the Part D Program has many 
protections built into place; the appeal system, transition 
policy, the very rigorous formulary review that we do for Part 
D plans.
    We cover drugs in about 140 drug classes, and we have 6 
classes that are now protected, and other drug classes that 
treat very important conditions, diabetes, hypertension, 
congestive heart failure, don't receive this designation, yet 
we don't hear the concerns regarding beneficiaries having 
access to the drugs they need.
    Mr.  Waxman. Well, there are a lot of concerns being 
    Mr.  Blum. Sure.
    Mr.  Waxman [continuing]. About this, and I appreciate your 
efforts to reduce the taxpayer cost, and I know you are serious 
about making sure that seniors can get the drugs they need, but 
I believe there is a better way, and I have introduced to the 
last two Congresses the Medicare Drug Savings Act that would 
end one of the worst giveaways that was included in the 
original Part D bill.
    For people who were covered by Medicaid, before Part D, 
there was a rebate for these dual eligibles, and when Part D 
was adopted, suddenly that rebate ended and the prices of those 
drugs went up so that the Medicare Program paid a much higher 
price. It was a sweetheart deal. It resulted in a substantial 
drug manufacturer windfall at taxpayers' expense.
    My bill would reverse that windfall, adding drug a 
manufacturer rebate so that Medicare Part D prices are no 
higher than prices in programs like Medicaid.
    Do you have any thoughts on this rebate bill?
    Mr.  Blum. Well, I think the President supports the 
legislation. In his last budget, the President proposed a very 
similar change to your legislation, to enable the Part D 
Program to receive better prices for drugs that were previously 
paid much less when the beneficiaries received their benefits 
through State Medicaid Program.
    Mr.  Waxman. I would not interfere in any way with any of 
the drugs that people would get, it would just mean a huge 
savings for those drugs, restoring the price we pay for those 
drugs that the manufacturers received prior to Part D.
    We have heard a lot of concern about Medicare 
beneficiaries, and I know that, Mr. Chairman, your side of the 
aisle talks a good game when it comes to being concerned about 
Federal spending. I would like to suggest that our committee 
look at this opportunity, take action, and pass this bill, 
Medicare Drug Savings Act, which would cut beneficiary costs, 
protecting seniors, make sure they have access to drugs.
    Mr. Blum, I have heard a great deal about CMS' discussion 
of the noninterference provisions in the proposed Part D rule. 
Part D statute states, ``Secretary may not interfere with the 
negotiations between drug manufacturers and pharmacies and PDP 
sponsors; and may not require a particular formulary or 
institute a price structure for the reimbursement of covered 
Part D drugs.''
    So we have a witness that has gone on to suggest that your 
rule rests on a questionable legal foundation, it violates the 
intent of the Congress. I would like to understand this 
proposal a little better. Does your proposal rule interfere 
with negotiations between drug manufacturers and pharmacies?
    Mr.  Blum. No.
    Mr.  Waxman. Does your rule interfere with negotiations 
between drug manufacturers and PDP sponsors?
    Mr.  Blum. No.
    Mr.  Waxman. Does your rule require a particular formulary?
    Mr.  Blum. No.
    Mr.  Waxman. Does your rule institute a particular price 
    Mr.  Blum. No.
    Mr.  Waxman. So it would seem to me that your rule does not 
do anything that the Part D statute prohibits you from doing, 
yet the mere specter of the word ``noninterference'' has set 
some industry groups ablaze.
    Could you briefly explain what your rule does in this area? 
My understanding is that the proposed rule merely states that 
whatever prices are, they all have to be reported consistently, 
is that correct?
    Mr.  Blum. Correct. I think we want to make sure that we 
are clear when and won't the agency will become involved in how 
Part D plans operate. As I expressed earlier, we often get 
pulled into disagreements, contract disagreements, contract 
disputes. Our principle is to make sure that Part D plans honor 
the requirements, that they have to have complete pharmacy 
networks, complete pharmacy access standards, but to me and to 
the agency, this proposed change clarifies what we believe the 
clause should mean in operations, to us that work to strengthen 
the requirement, not weaken it, but we have no intention to 
interfere in the price negotiations between Part D 
    Mr.  Waxman. Thank you. Thank you, Mr. Chairman.
    Mr.  Pitts. Chair thanks the gentleman. Now recognize the 
gentleman, Dr. Burgess, 5 minutes for questions.
    Mr.  Burgess. Thank you, Mr. Chairman. And, Mr. Blum, thank 
you, and thank you for being here.
    If I understood correctly in your comments to Chairman 
Pitts, you said that costs are going down. You extolled some of 
the virtues of the Part D Program, and then in the next breath 
you said some of the fastest growth is projected to be in the 
Medicare Part D Program.
    It reminds me of the old line from the Marx Brothers movie: 
``Who are you going to believe, me or your own eyes?'' So it 
almost can't be both ways. One or the----
    Mr.  Blum. Well----
    Mr.  Burgess. One or the other has got to be true.
    Mr.  Blum. Let me clarify, please. So looking back, Part D 
has cost the taxpayers, cost beneficiaries less than what CBO 
and the CMS actuaries projected back in 2003. That is true, and 
that is a great statement for us to make together, and a reason 
to celebrate Part D's success.
    When you look at CBO's current projections for the future, 
not the past but the future, Part D total spending, not just 
the Part D premium but all the pieces that the program pays, 
the low-income subsidy, the reinsurance, that is the fastest-
growing part of the program.
    Mr.  Burgess. Correct. But you just have to ask, what is 
that based on? So let me ask you----
    Mr.  Blum. Why do you--you know the answer to that 
    Mr.  Burgess. Let me--well, let me ask you. When you have 
this proposed rule that is some 700 pages, that I assume that 
you have read and approved----
    Mr.  Blum. Yes.
    Mr.  Burgess [continuing]. Is that correct?
    Mr.  Blum. Correct.
    Mr.  Burgess. Can you provide the committee with the cost 
analysis that you did for this rule?
    Mr.  Blum. Sure. By requirement, we have to do an economic 
estimate. This rule was significant, so per OMB process, we put 
our estimate----
    Mr.  Burgess. Have you provided that to the committee?
    Mr.  Blum. That is part of the rule.
    Mr.  Burgess. OK. Have you provided it already, or is it 
    Mr.  Blum. We are happy to send a copy of the rule to you.
    Mr.  Burgess. Let me ask you this. In that, is there also 
going to be the delineation of the legal justifications for 
proposing the rule?
    Mr.  Blum. The proposed rule went through our general 
counsel. They cleared it. We are happy to answer any questions 
regarding their legal views regarding the regulation.
    Mr.  Burgess. Well, let us--and we need that. I mean it is 
critical to our discussion.
    On the noninterference that has come up several times this 
morning, the noninterference policy, the cornerstone of the 
Part D Program, under the proposed rule, CMS reinterprets this 
part of the statute, asserting the language of the law does not 
apply to negotiations between pharmacies and prescription drug 
sponsors. So in my mind, there is some confusion as to why, 
after 10 years, your agency felt that it must now reinterpret 
the noninterference clause.
    What has changed that propelled you to make this 
    Mr.  Blum. Well, I think we interact with our Part D plan 
sponsors on a day-to-day basis. We approve, we review, we have 
a very rigorous process----
    Mr.  Burgess. Do you have evidence to which you can point 
and provide to this committee why----
    Mr.  Blum. We are happy to do that.
    Mr.  Burgess [continuing]. You have changed?
    Mr.  Blum. Yes, we are happy to do that.
    Mr.  Burgess. I would ask you to submit that for the 
record, and how do you anticipate how the Center for Medicare 
and Medicaid Services intervention in these negotiations to 
improve the program. What is your expectation of improvement, 
can you provide that to the committee?
    Mr.  Blum. Absolutely.
    Mr.  Burgess. Are you aware of the requirements within the 
oft-mentioned Affordable Care Act, are you aware of the 
requirements to keep the proprietary contract terms 
confidential? That is Section 3301 of the PPACA. And it seems 
to me it would be contrary to the policy you are proposing in 
the Part D proposed rule.
    Mr.  Blum. We are happy to review that section of the 
statute to make sure that we are consistent.
    Mr.  Burgess. And again, I would--you need to do that and 
it needs to be detailed.
    Let me just ask you again about, were you or Administrator 
Tavenner or Secretary Sebelius, did you receive any legal 
memoranda, was any legal memorandum prepared for you that 
provided you the ability to proceed forward with this rule?
    Mr.  Blum. I am not sure about legal memorandum.
    Mr.  Burgess. Well, let me restate that to the proposed 
noninterference interpretation.
    Mr.  Blum. So let me be clear. All major regulations go 
through rigorous review through the department. That includes 
our general counsel staff. The general counsel cleared the 
regulation, which means they believed that CMS had the 
    Mr.  Burgess. And had you received a memorandum to that 
    Mr.  Blum. I don't know, but I can check for you, sir.
    Mr.  Burgess. We need, the committee needs that.
    Let me just ask you, were there any doctors on the panel 
that evaluated the immunosuppressant drugs relative to the 
proposed protected class?
    Mr.  Blum. The CMS chief medical officer for Medicare was 
part of the panel. And----
    Mr.  Burgess. So is that----
    Mr.  Blum [continuing]. By the way, he was the same chief 
medical officer that helped design the Protected Classes back 
in 2005.
    Mr.  Burgess. Well, was there--has there been any 
breakthrough or change in the science on immunosuppressant drug 
treatments since 2005 that many of us on the committee might 
have missed?
    Mr.  Blum. Well, I think we recognize the very strong views 
of patient groups, physician groups. We understand this is a 
significant change.
    Mr.  Burgess. Mr. Blum, I am going to run out of time. With 
all due respect, it is not just strong views, you give the 
wrong immunosuppressive, you lose the graft. This may be a 
graft that has been given a living donor, or someone who 
donated that upon their demise, but you reject a graft. That is 
a big deal, and it costs you at CMS a ton of money to then put 
that kidney patient, graft recipient back on dialysis after 
they reject their graft, or worse, then pay for another 
transplant some point down the road. I mean that is an 
incredible inefficient use of funds. So it is hard for me to 
believe that you really have the cost benefit analysis in hand 
when this type of behavior is allowed to go on at CMS.
    Thank you, Mr. Chairman, for your indulgence. If the 
gentleman wishes to respond, but I will yield back.
    Mr.  Blum. I pledge that the agency will carefully review 
both the clinical arguments and the concern from patient 
classes regarding the changes to the Protected Classes. We 
understand this is a change. We understand that there are 
clinical implications, and we will take a very careful look at 
the comments and the thoughtful arguments coming to us during 
the comment process.
    Mr.  Pitts. Chair thanks the gentleman. Now recognize the 
gentleman from Texas, Mr. Green, 5 minutes for questions.
    Mr.  Green. Thank you, Mr. Chairman, and thank you, Mr. 
Blum, for being here.
    I understand that some plans have used significant 
incentives, for example, zero cost sharing, to steer patients 
to the mail-order pharmacies, and I believe patients, of 
course, should be able to choose the pharmacy setting that best 
meets their needs, whether it be mail-order or bricks and 
mortar; however, CMS found that these incentives caused 
increased demand for mail-order prescriptions, sufficient to 
disrupt timely delivery of prescriptions to patients. In a 
retail setting, the beneficiary often was notified of a problem 
with a prescription in real time, or within hours, but when it 
happens with a mail-order, the time it takes to find, 
communicate, and resolve the problem may delay the delivery 
date and resulting in gaps into the therapy.
    I believe that timely access to medicines are critical for 
patients, and I understand CMS is proposing to establish 
requirements for timely fulfillment of prescriptions from mail-
order pharmacies, as well as for home delivery services and 
retail pharmacies. This would provide consistent expectations 
for beneficiary access to drugs.
    Mr. Blum, when you proposed these standards for the timely 
delivery, did you come up with these standards, or were these 
guidelines already in existence that you used to develop your 
proposed standards?
    Mr.  Blum. Well, I think we looked at common standards for 
any kind of mail-order program. We believe strongly that we 
should have both pharmacy networks and mail-order options for 
our beneficiaries, that both should provide value to our 
beneficiaries and provide clear standards. We want to make the 
options stronger for our beneficiaries, to work better for our 
beneficiaries, we want to make sure that beneficiaries 
understand the benefits of preferred pharmacy networks, 
community pharmacies and mail-order pharmacies, to ensure that 
both the beneficiaries see clear benefits from different 
delivery options, but also the taxpayers. And I think more 
importantly, we want to make sure that plans operate with 
consistent standards.
    We receive complaints from beneficiaries regarding the 
timeliness, the accuracy of drugs being shipped to them by 
mail. We think it is appropriate for all plans to compete on a 
level playing field to ensure that they're providing consistent 
care and consistent delivery to our beneficiaries.
    Mr.  Green. OK. Beneficiary groups are strongly supportive 
in ensuring timely access to their needed medicines, whether 
provided by a pharmacy counter or the mail-order. Could you 
further elaborate on the proposal and the ruling why CMS 
believes this is an important beneficiary protection to pursue?
    Mr.  Blum. Well, I think we, right now, have standards for 
pharmacies to fulfill drugs in a timely manner. We believe that 
similar kinds of timely standards are appropriate for mail-
order pharmacies as well, and we want to make sure that 
beneficiaries receive timely delivery. We want to make sure 
that we have clear standards, but our goals simply are to 
provide uniformity throughout how the benefit is delivered, and 
to ensure that plans compete in a transparent way.
    Mr.  Green. OK. Mr. Chairman, those are my only questions, 
and I will be glad to yield back.
    Mr.  Pitts. Chair thanks the gentleman. Now recognizes the 
gentleman from Illinois, Mr. Shimkus, 5 minutes for questions.
    Mr.  Shimkus. Thank you, Mr. Chairman. Mr. Blum, it is good 
to see you again. We have worked together before, and welcome.
    I go to schools a lot and they talk about the Constitution, 
and so these questions are meant just as a position of a 
constitutional basis of what's Article One, which is Article 
Two. And the basic premise, even I taught government history, 
was that the administration enforces law. That is the job of 
the administration. So these questions are posed based upon a 
real concern out there in America that this administration does 
not enforce the law, or picks and chooses which pieces of the 
law they want to enforce.
    So let me begin with stating that, as you know, the statute 
clearly states that CMS may not interfere with negotiations, 
and I quote, ``between drug manufacturers and pharmacies and 
PDP sponsors.''
    I was here, as a few of us were, when Part D was passed. 
That was an intentional to put that in the law, to ensure that 
CMS would not interfere with any of these three parties.
    Can you tell me why CMS has chosen, based upon this 
proposed rule, to go against the law as Congress intended?
    Mr.  Blum. Well, I think on a practical basis, and 
overseeing the Part D Program on a day-to-day basis, we 
constantly or frequently get asked to intervene in contract 
disputes by plans, by hospitals, by pharmacists. And so we 
don't necessarily always feel that we can simply say no, we are 
not going to interfere when beneficiary access is a concern. We 
have no interest to negotiate prices between Part D plans and 
pharmacies and drug manufacturers, but on a day-to-day basis, 
particularly when a----
    Mr.  Shimkus. Well, let me--and I appreciate that, but 
wouldn't it be a better response if you feel the need to do 
that, than to have someone sponsor a piece of legislation and 
correct the law?
    Mr.  Blum. Well, I think we----
    Mr.  Shimkus. I mean constitutionally. I mean just----
    Mr.  Blum. Yes----
    Mr.  Shimkus [continuing]. In the real world of how we 
teach our kids, that would be the correct answer.
    Mr.  Blum. Well, I am not a constitutional lawyer, so I 
can't speak to that process with authority, but what I can 
articulate is the day-to-day challenge of how we operate the 
program, how we get drawn into individual disputes. We are open 
to the best ways to----
    Mr.  Shimkus. Well, let me follow on because I have two 
more questions that just kind of follow on with this.
    In the original final Part D regulations published in 2005, 
CMS separately responded to comments on its original proposed 
regulation as follows: ``As provided in Section 1860D-11(i) of 
the Act, we cannot intervene in negotiations between pharmacies 
and Part D plans.'' And again, in the same document, as 
provided in Section 1860D-11(i) of the Act, ``we have no 
authority to interfere with the negotiations between Part D 
plans and pharmacies, and, therefore, cannot mandate that Part 
D plans negotiate the same or similar reimbursement rates will 
all pharmacies.''
    So if that was the ruling from CMS based upon the law, how 
can the agency today say it is not unlawfully interpreting the 
noninterference clause, when CMS clearly stated in 2005 that it 
does not have the authority to negotiate between plans and 
    Mr.  Blum. Well, I think two points, Congressman. One, we 
are happy to provide our legal justification to this committee 
as to how we got to our proposal. But second, the 2005 
regulations were drafted at a time before CMS had experience 
with reviewing, negotiating and approving competing Part D 
    When I was on the Senate Finance Committee, I think the 
working assumption would be only a handful of the standalone 
Part D drug plans would choose to provide coverage. The good 
news is we have many, many entities wanting to provide drug 
coverage to our beneficiaries. We have more plans wanting to 
come into the program every year. And I think the operational 
realities, the complexities of day-to-day negotiations and 
interactions with the agency and partners created us--or caused 
us to take this proposal.
    Mr.  Shimkus. Let me finish with this. In the preamble 
discussion and the final regulation issued in April 2010, CMS 
stated the noninterference provisions in Section 1860D-11(i) of 
the Act explicitly provides that the Secretary may not 
interfere with the negotiations between pharmacies and PDP 
sponsors, which would include payment negotiations between the 
party sponsors and pharmacies for MTM services.
    Mr. Blum, you were director of the Center for Medicare, and 
had operational authority over the Part D Program in 2010. Why 
did you--why did your interpretation of noninterference 
    Mr.  Blum. Well, I think----
    Mr.  Shimkus [continuing]. Four years later?
    Mr.  Blum. I mean, I think with more experience, with more, 
you know----
    Mr.  Shimkus. But again, that is a debate on the law.
    Mr.  Blum. Well----
    Mr.  Shimkus. The law is pretty clear.
    Mr.  Blum. Well, we understand the concerns regarding the 
legality of the provision. We are happy to provide our 
justification. What I can say is that the complexity to oversee 
this benefit has, you know, caused us to reinterpret certain--
    Mr.  Shimkus. You are not tasked to reinterpret the law. 
You are tasked to follow the law.
    Thank you, Mr. Chairman. I yield back.
    Mr.  Pitts. Chair thanks the gentleman. Now recognizes the 
gentleman, Mr. Barrow, 5 minutes for questions.
    Mr.  Barrow. Thank you, Mr. Chairman. And thank you, Mr. 
Blum, for being here.
    Mr. Blum, for seniors, Medicare is kind of like home; when 
you have to go there, they have to take you in. When it comes 
to prescription drug benefits, Medicare Part D is like home; 
when you have to go there, they have to take you in. So I want 
to take stock of what positive has happened before we assess 
the cost of the benefits to seniors, to our customers, as 
opposed to the institutional interests that you all have.
    First of all, why do you think the program is costing less 
than it was originally projected to? What is your number one--
what is the number one takeaway we get from you as to why the 
program is costing less than projected?
    Mr.  Blum. Well, I think there are many reasons why the 
Part D Program has cost less than the 2003 projection. I think 
the first reason is that the Part D Program pays for many more 
generic drugs today than I think CBO or the CMS actuaries 
projected back in 2003. I think Part D private plan competition 
also has caused the Part D premium growth to stay moderate, but 
I think the number one reason is the fact that we have many 
more generic drugs provided through the Part D Program than 
projected back in 2003 by CBO and the CMS actuaries. But----
    Mr.  Barrow. Referring to your secondary consideration, 
more competition than anticipated, does that also have a role 
in this; the fact that some folks are providing generics and 
others aren't? Isn't that----
    Mr.  Blum. Well, I think there are----
    Mr.  Barrow [continuing]. A little cause and effect there?
    Mr.  Blum. Well, I think there are three, you know, kind of 
primary reasons. The first is, you know, due to the fact that 
we have fewer new blockbuster brand-name drugs today on market 
than I think what the actuaries, CBO, projected back in 2003. I 
think the second reason is Part D private plan competition. 
Plans compete very hard for their members, which is why we do 
not agree that Part D premiums will skyrocket due to some 
changes in how we oversee Part D plans. And third is, the 
agency is a much more rigorous reviewer of Part D bids and 
benefit plans coming into CMS. CMS negotiates vigorously with 
Part C plans, Part D plans, but I think the number one reason 
that both CBO and CMS actuaries would cite why the costs are 
lower than projected back in 2003 is the fact that we have 
fewer new blockbuster brand-name drugs than was previously the 
case back in 2003.
    Mr.  Barrow. All right, we have taken stock of how we got 
here, now I want to take stock of where this--how the--where 
you want to take us.
    Let us talk about the costs and the benefits of the 
proposed rule. I heard in response to previous questioning that 
your understanding--your cost benefit analysis is in the rule. 
I want to focus for a second on the costs and benefits to our 
customers, as opposed to the cost and benefits to CMS as the--
the institutional interests you all have in managing the 
program the way that you all think it ought to be managed.
    Can you tick off for me just what you think of the 
principle costs to seniors of the direction you all want to 
take us in? What is going to be the impact as far as they are 
    Mr.  Blum. Well, I think we look at costs in kind of 
multiple ways. One, we want to make sure that the premiums, 
Part B premiums, Part D premiums, remain--growth remains 
tempered. The Part B premium has been flat and for the first 
year has, I think, come down, which is due to the changes 
passed by the Affordable Care Act. The Part D premium in the 
last several years has stayed flat. We also want to make sure 
the cost sharing that beneficiaries pay----
    Mr.  Barrow. Well, but my point is it stayed flat without 
taking the direction that you all want to take us in. Do you 
see foresee any kind of cost impact to the customers as a 
result of the proposed rule?
    Mr.  Blum. Well, I think we should look back at CMS changes 
over the past 4 or 5 years.
    In 2010, we required plans to offer no more than 3 plans, 
you know, coming down from 5, 6, 7 of benefit offerings down to 
3. We heard arguments from the same entities that we hear from 
today that premiums will skyrocket, when, in fact, they didn't, 
they stayed flat. So we don't see, based upon prior experience, 
that, when going from 3 plans down to 2, particularly with the 
Part D doughnut hole being filled in, that we will see----
    Mr.  Barrow. Well, I am asking you whether or not there 
have been any--there are any adverse impacts to seniors, to our 
customers, as a result of the proposal you all are making, and 
I am hearing you say none. What are the proposed benefits that 
you think the seniors are going to get out of the proposed 
changes you all want to make?
    Mr.  Blum. Well, I think they will see greater clarity, 
they will have greater confidence that the program is doing 
everything we can to reduce provider fraud. They will----
    Mr.  Barrow. That is more of an institutional interest than 
a customer interest.
    Mr.  Blum. Well, I think our customers have an interest to 
make sure that the program doesn't pay inappropriately.
    Mr.  Barrow. Sure, but they want to make sure that they are 
going to have the full range of options they have got too, and 
they want to make sure they are not going to lose out on this 
    Mr.  Blum. Well, here----
    Mr.  Barrow [continuing]. In some other way.
    Mr.  Blum. Well, here is the past 5 years. We have more 
sponsors than ever before wanting to come into the program. For 
2015, we continue to see more plan sponsors wanting to come 
into the program to expand benefits, consistent with the past 
trends. We have heard arguments since the Affordable Care Act 
that the changes due to the Affordable Care Act would reduce 
plan premiums, when, in fact--I am sorry, would raise premiums. 
They have come down by 14 percent.
    So I think we have to look at the past 5 years in order to 
make judgments regarding the future.
    Mr.  Barrow. Mr. Chairman, thank you very much. I would 
like to follow up on this but my time has expired.
    Mr.  Pitts. The Chair thanks the gentleman. Now recognizes 
the gentleman from Pennsylvania, Dr. Murphy, 5 minutes for 
    Mr.  Murphy. Thank you, Mr. Chairman.
    Despite the success of Medicare Part D, CMS proposed a rule 
last month that would threaten the health and wellbeing of our 
most vulnerable seniors: those with mental illness.
    Now, having authored the Helping Families in Mental Health 
Crisis Act, which is H.R.3717, cosponsored by many members of 
this committee, it codifies protected class status for 
antidepressant and antipsychotic medications. And having 
written to Administrator Tavenner on this issue last month, I 
am deeply concerned that the agency's proposal will have huge, 
unintended consequences.
    Now, this is not one of cost-saving or convenience, it is 
not about swapping generic and brand drugs. Apparently, a panel 
is what advised you on making these changes, and some 
consultant. Do you have a list of the panel members who made 
this decision?
    Mr.  Blum. We can provide it. They were CMS career 
physicians and pharmacists.
    Mr.  Murphy. Psychiatrists?
    Mr.  Blum. I don't know, but I can check for you, sir.
    Mr.  Murphy. I see. I would think that psychiatric 
medication, some decision would be made by a psychiatrist.
    So these are career people, so they work where?
    Mr.  Blum. Within CMS, but I want to also clarify----
    Mr.  Murphy. Are they practicing physicians?
    Mr.  Blum. I am not sure, but one thing I want to also 
clarify is that our analysis is on the Web. We proposed the 
change in an open way, and we understand----
    Mr.  Murphy. No, I read the analysis, and it does not say 
who did it, and it has very limited things.
    So let me offer you something. So is it true that, in terms 
of the proposed rule, there were things from the APA Practice 
Guidelines that said the effectiveness of antidepressant 
medications is generally comparable between classes and within 
the class of medications? You know that is what the register 
wrote, are you aware of that?
    Mr.  Blum. Yes.
    Mr.  Murphy. OK. Is it your view that drugs covered in 
Medicare Part D 6 protected classes are interchangeable?
    Mr.  Blum. I think--our clinical review is that some of the 
drugs are today and----
    Mr.  Murphy. I--no, I didn't ask--well, let me go on. Did 
you validate your findings with the American Psychiatric 
    Mr.  Blum. We proposed these changes in an open way. We are 
going to listen very carefully to comments from all medical 
    Mr.  Murphy. Including the National Association on Mental 
    Mr.  Blum. We will--I plan----
    Mr.  Murphy [continuing]. And the National Council for 
Behavioral Health?
    Mr.  Blum [continuing]. Tomorrow--we will work very 
carefully with both the clinical patient communities to ensure 
that our----
    Mr.  Murphy. How about the National Institute on Mental 
    Mr.  Blum. We are happy to meet with all stakeholders.
    Mr.  Murphy. Now, I have in my hand a letter here from the 
American Psychiatric Association, and I want to read you a 
couple of quotes from this. It says, ``We find it particularly 
disturbing that CMS used selective and improper references to 
APA Treatment Guidelines as justification for limiting coverage 
of these medications.'' The letter goes on to state that 
``selective quoting from our guidelines and flawed clinical 
logic apparently led CMS to conflate the supposed 
`interchangeability' of drugs within the classes of both 
antidepressants and antipsychotics with overall evidence for 
efficacy when this is just one element of a drug's 
appropriateness for an individual patient.''
    Were you aware that CMS selectively quoted from the APA?
    Mr.  Blum. Well, I think one of our principles, sir, was to 
make sure that we----
    Mr.  Murphy. Yes or no----
    Mr.  Blum. We----
    Mr.  Murphy [continuing]. Were you aware?
    Mr.  Blum. We wanted to make sure that our analysis was 
public, detailed----
    Mr.  Murphy. I see. There is a letter in front of you. You 
have that letter?
    Mr.  Blum. Yes.
    Mr.  Murphy. There is a highlighted section.
    Mr.  Blum. Sure.
    Mr.  Murphy. Could you read that out loud?
    Mr.  Blum. ``CMS also cited the APA Treatment Guidelines in 
support of its claim that there is a `lack of unique effects 
for distinguishing individual drug products when initiating 
drug therapy' and that treatment guidelines ... generally do 
not advocate preference of one SSRI drug over another for 
initiation of therapy. CMS' conclusion is not supported by the 
evidence it cites. It misinterprets and misrepresents APA's 
clinical practice guidelines multiple times as justification 
for limiting patient access to'' the necessary products.
    Mr.  Murphy. Exactly. So it is important. I mean, you are 
going back then for a comment, but you didn't list them in the 
first place.
    Do you know what an SSRI is?
    Mr.  Blum. I have been advised.
    Mr.  Murphy. Do you know how long it takes for one to take 
    Mr.  Blum. Not personally, but I have been advised.
    Mr.  Murphy. About 2 to 4 weeks, and yet there is a 
standard here if it doesn't have an impact on someone's 
hospitalization within 7 days, it can be disregarded.
    Do you know that according to the National Alliance on 
Mental Illness, that seniors who died by suicide, 20 percent of 
them do it the day of their doctor's appointment, 40 percent 
the week of their doctor's appointment, and 70 percent the 
month of their doctor's appointment? So psychiatrists and their 
patients know that not all medications are created equal. Each 
one is in a different therapeutic, or within a therapeutic 
class have different molecular makeups, different side effects, 
different drug-drug interactions, they impact a person's brain 
in unique ways, which is why physicians and patients with 
serious mental illness often try different therapies until they 
find the right one that works.
    If you restrict access to these drugs, you restrict the 
treatment of mental illness, you impact increasing hospital 
stays, you raise suicide rates among a population that has an 
increased suicide rate once people reach 65, and you restrict 
and you forbid the use of life-saving drugs.
    On behalf of the mental health community, I urge CMS to 
reconsider, because senior citizens with schizophrenia, bipolar 
illness or depression, this is a matter of life and death. So I 
want to ask you, will you commit to removing this unscientific, 
callous, and anti-medical decision that will lead to harm for 
seniors with mental illness?
    Mr.  Blum. Sir, I will commit to making sure that our 
policy is right for patients.
    Mr.  Murphy. Sir, you are not a physician. You are the 
people's worst fears. You have no background, no education, no 
training, and it sounds like the people in this panel are not 
practicing physicians either and not psychiatrists. You are 
practicing medicine without a license. This cannot stand. For 
people who are at high risk for depression and suicide and 
mental illness, I urge you to go back and remove this rule.
    Thank you. I yield back.
    Mr.  Pitts. Chair thanks the gentleman. Now recognize----
     Voice. [Inaudible.]
    Mr.  Pitts. Without objection, so ordered.
    [The information follows:]


    Mr.  Pitts. The Chair now recognizes the gentlelady from 
Virgin Islands, Dr. Christensen, for 5 minutes for questions.
    Ms.  Christensen. Thank you, Mr. Chairman, and thank you, 
Mr. Blum.
    I have a similar question to begin with. We have had many 
issues with CMS over N-stage renal disease patients and the 
regs that have been changed over the years. Were there any 
transplant physicians who served on the panel?
    Mr.  Blum. I don't believe so, but again, CMS proposed 
these changes in an open, transparent way. We walked through 
every detail of our analysis, and we welcome feedback, we 
welcome disagreement to ensure that we get the policy right.
    Ms.  Christensen. Well, given the risks to this vulnerable 
population, which make up a large part of the CMS-covered--
especially Medicare, covered population, it--doesn't--if they 
do not receive the appropriate immunosuppressant medication, 
doesn't CMS think it is important for a transplant physician 
who has experience treating patients with varying organ 
transplants to weigh in on how clinical practice guidelines 
should be interpreted?
    Mr.  Blum. We agree that CMS should do everything possible 
to make sure that patients receive the drugs prescribed to 
them, that meet their clinical needs. I think it is important 
to recognize that we pay for about 140 drug classes, and while 
we have 6 protected, we don't hear the concerns regarding lack 
of that kind of patient access--however, we deeply recognize 
and deeply appreciate the concerns from patient groups, 
physicians, and we pledge to make sure that we listen, we 
understand, and to have our final policies best serve patients.
    Ms.  Christensen. And we appreciate that. My experience is 
that clinical guidelines are an important reference for 
physicians to use to identify the treatments with the strongest 
evidence base, but that they are indeed a guide and the 
decisions and immunosuppressant drug regimens and psychiatric 
medications must be tailored to the individual patients' needs, 
and this decision is best made by the transplant physician who 
really knows the medical history of the patient.
    I have a question that I also need to ask. CMS is proposing 
to make changes to the number of enhanced plans that can be 
offered by any one sponsor, and to the number of contracts a 
sponsor can have in a bid region. I want to ask about this 
proposed requirement.
    I have seen one industry-sponsored study that says 7 
million beneficiaries will be affected, a letter by the 
chairman notes that more than 8 million will be affected, 
another industry-sponsored study cites 14 million people who 
will be affected. The number seems to be growing like 
Pinocchio's nose. On the other hand, organizations representing 
Medicare beneficiaries are strongly supportive of the proposed 
two-plan requirement. They believe it strengthens the program 
for beneficiaries, making choices more meaningful and making 
sure plans aren't gaming the system.
    So I would like to provide you with the opportunity to 
discuss these proposals. My first question is why did CMS 
believe it was important to address these issues, and 
rationalize the number of plans that can be offered in an area? 
Was the agency seeing gaming?
    Mr.  Blum. Well, I think one game that we have seen right 
now, or that the program is now experiencing, is that some plan 
sponsors offer what they call enhanced coverage, that is 
actually coverage far cheaper than their basic benefits. And 
that is a strategy to select healthier beneficiaries to lower-
cost plans.
    Now, that may be good for the program, but on the other 
hand, what happens is that the low-income beneficiaries who are 
auto-assigned to that higher-premium plan, if the program pays 
the full premium cost, that costs the government, not saves the 
government. So we need to take a balanced look at how plan 
structures are being offered to ensure they best serve 
beneficiaries, they are not confusing, but they also lower 
total program costs----
    Ms.  Christensen. Let me try to get a----
    Mr.  Blum [continuing]. In our program.
    Ms.  Christensen [continuing]. A couple--thank you for that 
clarification. Could you comment on how the Federal Government 
taxpayers and plans--well, I guess you did, with dual eligible 
beneficiaries are paying more than they should because of the 
way the plan sponsors are offering multiple plans in that area. 
Did that pretty much address that question?
    Mr.  Blum. Well, I think dual-eligible beneficiaries pay 
the same copayment. They are fixed in statute, but the Medicare 
Program pays just about the complete cost of those drugs, not 
based upon a set fee schedule, but based upon the prices 
negotiated by the Part D plans. We want to make sure that we 
are paying the right, correct, fair rates on an apples-to-
apples basis with the Part D plans.
    Ms.  Christensen. And some of us cited this proposal will 
hurt dual eligible beneficiaries in the basic plans, but I 
interpret it exactly oppositely. Some enhanced plans with dual 
eligibles are not enrolled and may be consolidated with other 
plans, but dual eligible will benefit from lower costs in the 
basic plans that they enroll in. If I could just get an answer 
to that. Is that correct?
    Mr.  Blum. Well, I think we want to make sure that when 
plans provide what is called enhanced coverage, that it is more 
generous than their basic plan offerings; one, so beneficiaries 
clearly understand what it means to sign up for coverage that 
is enhanced, but also to make sure that when the program is 
paying the complete cost, the full premium, that we are not 
paying more than what we should if the plan structures were 
more consistent.
    Ms.  Christensen. Thank you, Mr. Chairman, for allowing the 
    Mr.  Pitts. Chair thanks the gentlelady, and now recognizes 
the gentleman from Virginia, Mr. Griffith, 5 minutes for 
    Mr.  Griffith. Thank you, Mr. Chairman. I appreciate that.
    Let me start off by saying that I am concerned when you 
keep saying, you know, you can provide us with the legal status 
memorandum. This appears to be a major controversy as to 
whether or not this--these changes are legal, and most of the 
folks up here believe that it is not legal, particularly when 
it is so large a change. And I will have to tell you, this is 
what happens when one agency goes rogue. It wasn't yours, but, 
you know, I dealt with the Solyndra situation, as many people 
up here did, and general counsel there did not give legal--good 
legal advice, in my opinion. They gave bad legal advice, the 
agency acted on it, and I think they violated the law not once, 
but about 3 times. And that was my opinion after reviewing all 
of the documents involved, and all the opinions involved, is 
they got bad counsel. So I am going to ask you to get a second 
opinion after you provide us with what you already have from 
your legal counsel, I am going to ask that perhaps you look at 
getting a second opinion because this is a very serious matter, 
and it appears that the legality is in serious question.
    Now, that being said, I have a little bit different tack, 
because last year, based on conditions in my district, I asked 
you all to do something, and that was to take care of our 
pharmacies. And I have recently had a conversation with one of 
my pharmacists who is willing to accept the price negotiated in 
the region, you know, just let me be able to provide my 
customers with the drug that they need, or the drugs that they 
need, and he has been told no. And so when you say to us today 
that you are getting a lot of complaints, I understand that.
    Now, my question is last year I wrote a letter, and I am 
going to write you another letter, thanking you all for taking 
care of the community pharmacies, and saying, hey, if you meet 
the price, you can do it, because I represent a mountainous 
district, it may not be the big mountains they have in the 
west, but in the east we have some pretty good mountains in 
southwest Virginia. And so if you don't have a preferred 
pharmacy, you might be in the same county, but you might not be 
in an area where my people can get there easily, particularly 
if we happen to have 20 inches of snow on the ground, it is 
going to be even more difficult to travel those 10, 20, 30 
miles that may pile up to get to the next pharmacy that is on 
the list. And so I do appreciate what you all did in that 
    Question becomes whether or not you have a legal basis to 
do it.
    Now, under your theory, with what you are changing in this 
rule, and, of course, it is not the whole 800 or 700-and-some 
pages, and I do have serious questions about the rest of it, 
you are trying to take care of that situation, you are trying 
to make it so that my constituents can go to the pharmacy down 
the street instead of having to drive around the mountain to 
the next pharmacy over, isn't that correct?
    Mr.  Blum. So I think a couple of things. We want to make 
sure that we are proposing these changes in an open and 
transparent way. And so one of the benefits is that, going 
through the notice and comment process, we get the best legal 
advice, not just from our lawyers but from the Congress, from 
outside stakeholders.
    And so to your first point about getting a second opinion, 
that is precisely why we chose to go through the notice and 
comment process.
    To your second question regarding the pharmacists 
protections, we believe that Part D plans should be able to 
offer tiered pharmacy networks. We see evidence that they do 
reduce costs for the program, for beneficiaries, but we have 
two principles. Principle one is that beneficiaries need to 
benefit from those tiered pharmacy networks. It can't just be 
the plan sponsor that benefits, but it has to benefit both the 
beneficiaries and the taxpayers. And we agree that tiered 
pharmacy networks need to be fair, not just to the plan, not to 
the beneficiary, but to the community pharmacists. And so we 
have a hard time seeing the data evidence that we are seeing 
today, that the evidence for cost savings is mixed, and telling 
community pharmacies, well, they can't participate with major 
Part D plans. We want those tier pharmacy networks to be fair, 
we want to make sure that beneficiaries see clear savings, but 
we agree that preferred pharmacy tools can be a good tool for 
the Part D program if structured correctly.
    Mr.  Griffith. And here is the concern you are hearing 
today. Look, I think if you are fair to the beneficiaries, and 
I want fairness as well, if you are fair to the beneficiaries 
then you are being fair to the community pharmacists because, 
in most cases, particularly in the rural areas, the folks know 
their pharmacists, they want to go to that pharmacist, and they 
go to somebody who is close by, and they want to make sure they 
don't have to drive around the mountain to get to the other 
side of the mountain in order to get their drugs, because it 
may not look like much on a map, but it is a big deal when you 
are having to drive that. But I have to say, you know, Mr. 
Shimkus was right earlier when he said the whole idea is if you 
don't have the authority, it doesn't matter how much fairness 
you want, you need to bring that to us, and you need to say we 
need a bill to make this fair. And if what I need to do to take 
care of my people is to introduce a bill, then I will do that, 
but let us make sure that we don't have the Constitution being 
set aside because it is inconvenient.
    I yield back.
    Mr.  Pitts. Chair thanks the gentleman. Now recognizes the 
gentlelady from California, Mrs. Capps, 5 minutes for 
    Mrs.  Capps. Thank you, Mr. Chairman. And Deputy 
Administrator Blum, thank you for your testimony today.
    I believe this proposed rule has some serious problems, but 
it also includes some important steps forward to ensure that 
future CMS decisions are based on the best data available. But 
today's hearing shows that it is important for us to be 
cautious as we evaluate ways to make this program more 
sustainable and efficient.
    One area that I would like to add my voice of concern is in 
the proposal to eliminate some of the protected classes of 
prescription drug coverage. You know, I have been a public 
health nurse for too many years in my community, and I 
understand that access to the right treatment at the right time 
is very critical for some of our most vulnerable groups, and I 
have grave concern that if this rule is proposed, it could put 
that in jeopardy. This is especially important as many of the 
ailments that would lose this status are said common--
morbidities affecting perhaps many more individuals than we 
might think. And while I have concerns about access for 
vulnerable populations due to that part of the rule, I do want 
to applaud the agency for another change that will also have an 
important impact for improving care for patients, and that is 
the enhanced eligibility criteria for Part D medication therapy 
management, the MTM Program.
    I welcome CMS' recognition of the importance of MTM that it 
plays in increasing medication adherence, improving healthcare 
outcomes, and reducing overall program costs. Specifically, the 
proposed rule would lower the threshold for beneficiary 
eligibility, meaning that an additional 16\1/2\ million 
beneficiaries could be able to benefit from this important 
    My question is, would you outline the specific benefits 
that you envision this expansion will deliver to beneficiaries 
as well as to the Part D Program, just so we get that on the 
    Mr.  Blum. Well, one of the things that we know is that 
there are greater opportunities to assist beneficiaries, to 
ensure they stay compliant, to help manage complicated 
polypharmacy regimes. Our team sees growing evidence that the 
MTM Programs can help to improve drug compliance, can lower 
overall costs of the program. We agree that a well-designed 
Part D benefit works not only to improve patient care, but to 
lower total program costs. And so our goal is to expand the 
availability of these programs to more beneficiaries, to ensure 
more beneficiaries get the benefits of these programs.
    Mrs.  Capps. Thank you. And, you know, clearly, there have 
been some concerns about the policies in this and other 
proposed rules. Maybe it is a lack of understanding, maybe it 
is just the complexities of the issues, but one of the main 
concerns we hear from supporters and opponents of changes 
proposed by CMS is that the data is not accurate. The proposed 
rule we are discussing today seems to get at some of those data 
discrepancies by requiring uniform standards for reporting 
negotiated drug prices across Part D sponsors, but I know that 
some groups are concerned that this could interfere with 
negotiations regarding drug prices with pharmaceutical 
manufacturers. It is a very complicated arena, but would you 
now expand on CMS' intent for this particular aspect of the 
proposed rule? What is the goal of this portion of the rule, 
and how do you think this is going to affect price 
negotiations, which, after all, is the bottom line?
    Mr.  Blum. Well, I think a couple of things, Congresswoman. 
The Part D benefit is not a purely capitated program where CMS 
simply pays a premium to plans and lets the plans negotiate 
prices. There are other payment mechanisms built within the 
Part D Program. There are risk corridors, reinsurance, 
catastrophic coverage, the fact that for many low-income 
beneficiaries, dual eligibles, the program pays just about the 
entire cost of the drug bill.
    Now, we have no interest or no policy desire to interfere 
with the negotiations between Part D drug plans and 
pharmaceutical manufacturers, but we believe that those prices 
should be reported, kind of in a consistent way, to make sure 
the program is paying fairly, and if the Part D plan is 
benefitting from the lower negotiated price, and given the 
large size of the premium costs, the cost sharing, the 
catastrophic coverage, the reinsurance, the risk corridor, that 
those prices should be paid--should be reported in a consistent 
way to ensure those discounts not just get retained by plans, 
but get passed on to beneficiaries and to the taxpayers that 
are funding the vast majority of the program costs.
    Mr.  Pitts. Chair thanks the gentlelady. Now recognizes the 
gentlelady from North Carolina, Mrs. Ellmers, 5 minutes for 
    Mrs.  Ellmers. Thank you, Mr. Chairman. And thank you, Mr. 
Blum, for being with us today.
    Mr. Blum, I think it is important that you know that over a 
half a million seniors in North Carolina will be affected by 
these proposed rules, and I just want to start off by stating 
that fact.
    I am a little concerned with the interpretation that you--
CMS has on not interfering or arbitrating or mediating between 
pharmaceutical companies and manufacturers. You are basically 
coming in and saying, ``We are not going to be in the middle, 
what we are going to do is take over and dictate.'' Is that not 
essentially what you are doing?
    Mr.  Blum. I don't see any desire or attempt for us to 
dictate the negotiation of prices between Part D plans and 
providers, manufacturers. We believe in private plan 
competition, we believe in choice, but choice that is fair to 
beneficiaries and fair to the taxpayer.
    Mrs.  Ellmers. OK, and you have stated that, and you are 
basically reiterating what I said, but essentially what you are 
saying is you are going to come in and control the situation as 
a whole, kind of as a whole umbrella effect----
    Mr.  Blum. That is not what I said----
    Mrs.  Ellmers [continuing]. Of control.
    Mr.  Blum [continuing]. Congresswoman. What I said is that 
we get pulled into disagreements between plans, pharmacies, 
other entities. And so our view is this clarification helps to 
strengthen the noninterference, to describe precisely how we 
interpret it on a day-to-day basis, but from a day-to-day 
basis, CMS continuously gets pulled into disputes----
    Mrs.  Ellmers. OK. Well, let us move on. Let us move on. 
The CMS rule proposed that prescription drug plans are limited 
to offering only one standard benefit and one enhanced benefit. 
Is this correct?
    Mr.  Blum. That is correct.
    Mrs.  Ellmers. So essentially, 50 percent of the plans that 
are available now will be decreased and eliminated?
    Mr.  Blum. I think, a couple of clarifications. The first 
is, this is a continuation and a continuous pathway for us to 
reduce the number of enhanced plans. There are only 2 percent 
of Medicare beneficiaries that are in that category of plans 
that could be eliminated----
    Mrs.  Ellmers. But----
    Mr.  Blum [continuing]. If CMS chose to finalize the 
proposal. When CMS moved from 5 plans down to 3 plans, we heard 
the same concerns, the same arguments, that premiums would 
skyrocket, that beneficiaries would go without coverage, they 
would have to change plans. And as we have heard, you know, 
throughout this hearing, the Part D premium has stayed 
constant, has stayed flat. So we need to be concerned regarding 
the comments and the criticisms coming to us regarding this 
change, but we also have to look on the past 4 or 5 years to 
really make a complete judgment regarding this proposed change.
    Mrs.  Ellmers. OK, well, there again, to your point that 
you are making, you are basically justifying the reasoning 
behind eliminating, as you pointed, only 2 percent of these 
patients receive the benefit from what is being eliminated, 
    Mr.  Blum. I am trying to give the justification for CMS' 
proposal. This is still on comment, and we have----
    Mrs.  Ellmers. And this is----
    Mr.  Blum [continuing]. Made no policy----
    Mrs.  Ellmers [continuing]. From a perspective of trying to 
save dollars in healthcare, is that correct?
    Mr.  Blum. I think our total estimate, if the proposed 
change is completed, is that it is overall savings, small but 
overall savings, and we are also trying to make the benefit 
work better for our beneficiaries.
    Mrs.  Ellmers. Do you realize, though, that the changes 
that are being made to Medicare Part D will then actually 
increase the spending in Medicare Part A and Part B, because 
many times these patients will then be rehospitalized, sent to 
the hospital for care?
    You cited in part of your justification at the beginning 
the vulnerabilities, one of which has to do with the protected 
classes of drugs. Nursing home patients being a large patient 
body that receives those medications, that is an ongoing issue. 
Have you ever been to a nursing home before?
    Mr.  Blum. Yes, I have. And, also, we understand that the 
nursing home industry is also very concerned regarding the high 
rate of use, and the high degree of variability in 
antipsychotic use----
    Mrs.  Ellmers. OK, so would it not be more efficient, then, 
to go to the source? You cited overprescribing of medication. 
Wouldn't it make more sense to narrow down who it is that is 
overprescribing drugs than it would be to eliminate the entire 
    Mr.  Blum. Well, I think we have--Congresswoman, we have 
worked very closely with the nursing home industry----
    Mrs.  Ellmers. OK, I only have one more moment, because it 
is not the nursing home that prescribes the drug, it is the 
physicians that prescribe the drugs. So I want to make that 
clarification. In relation to the potential impact on seniors, 
because of any willingness provider provision, staff of the 
Energy and Commerce Committee spoke with the Office of the 
Actuary, who told them, ``Any time you make a network wider, 
costs go up.'' Can you respond to that? Because you have just 
told me that this is an effort at decreasing cost.
    Mr.  Blum. I agree that pharmacy networks have the 
potential to lower costs for the program for beneficiaries. In 
our current program today, we see strong evidence that pharmacy 
networks do reduce costs. We also see evidence that some 
pharmacy networks in their current forms don't lead to cost 
savings for our beneficiaries and for the program.
    Mrs.  Ellmers. So, basically, what you are saying is a 
direct complete----
    Mr.  Blum. What I am saying is----
    Mrs.  Ellmers [continuing]. Opposite opinion of the----
    Mr.  Blum. No, that is not what I am saying.
    Mrs.  Ellmers [continuing]. Office of the Actuary.
    Mr.  Blum. What I am saying is that we believe that 
pharmacy networks, if structured correctly, make clear to 
beneficiaries the pros and cons of preferred pharmacy networks 
versus not, they do reduce cost, but the data right now shows 
that some pharmacy networks in their current forms don't reduce 
costs for beneficiaries. Our goal is to make sure that 
preferred pharmacy networks work, and work well for 
beneficiaries, but also work well for----
    Mrs.  Ellmers. Thank you. I----
    Mr.  Blum [continuing]. And----
    Mrs.  Ellmers [continuing]. Have gone way over my time----
    Mr.  Blum [continuing]. And for the----
    Mrs.  Ellmers [continuing]. So I appreciate----
    Mr.  Pitts. The Chair thanks the gentlelady. Now recognizes 
the gentlelady from Florida, Ms. Castor, 5 minutes for 
    Ms.  Castor. Well, I want to thank you, Chairman Pitts, for 
calling this Oversight hearing for Medicare Part D, and thank 
Mr. Blum who is here from the Center for Medicare and Medicaid 
Services, and thank everyone at CMS for working to improve 
Medicare Part D, helping to simplify it for beneficiaries, make 
benefits more meaningful and cost-effective for everyone. But 
it has to be balanced by science, and I think that many of the 
many advocates for beneficiaries and those who have chronic 
illnesses and other sicknesses have very valid points about the 
Protected Class Policy.
    So I want to make sure everyone is aware; this is a 
proposed rule, this is what CMS has proposed in January, 
    Mr.  Blum. Correct.
    Ms.  Castor. And there is an open comment period where you 
can receive comments from people all across the country, 
whether they are medical, professionals, beneficiaries, family 
members, pharmacists, is that correct?
    Mr.  Blum. That is correct, Congresswoman, and we pledge to 
meet with all stakeholders on this issue to understand comments 
and concerns, and this is proposed and we pledge to talk to 
clinicians, beneficiary groups to ensure that----
    Ms.  Castor. And the comment period is----
    Mr.  Blum [continuing]. We get the policy right.
    Ms.  Castor [continuing]. Open until when?
    Mr.  Blum. I believe March 10, March 14.
    Ms.  Castor. OK. Mr. Blum, many private insurance plans 
steer patients toward preferred pharmacy networks and mail-
order pharmacies in an attempt to lower costs, but CMS has 
found that total drug costs were not consistently lower in 
preferred pharmacy networks, and, in fact, the retail 
pharmacies in the nonpreferred network were actually offering 
savings to the Medicare Trust Fund through discounted generics 
at prices below those offered by pharmacies with preferred cost 
    And I hope you have reviewed the research done by the 
National Community Pharmacist Association. The community 
pharmacists chose one commonly purchased prescription drug 
plan, and entered in the Medicare plan finder for the most 
frequently prescribed drugs; the generic version of Lipitor, 
the generic version of Plavix, Diovan and Nexium. The costs 
were then compared between preferred, mail-order and 
nonpreferred pharmacies in 9 cities across the country, and 
according to the analysis, I think it is quite surprising, 89 
percent of the time preferred pharmacy costs to Medicare were 
higher than those of nonpreferred pharmacies, and 100 percent 
of the time, mail-order costs to Medicare exceeded those of 
nonpreferred pharmacies.
    Now, this is really counterintuitive to how you think it 
would work. How can Medicare be paying more for mail-order and 
more for drugs at preferred pharmacies? Medicare is supposed to 
be benefitting from competition here that will bring prices 
down, and it is troubling that plans are offering little to no 
savings in the aggregate in their preferred pharmacy pricing, 
particularly in mail-order for generic drugs. So instead of 
passing on lower costs available through economy scale of 
deeper discounts, a few sponsors are actually charging the 
program higher prices. So preferred networks and mail-order 
pharmacies should save the patient and the Medicare Program 
money, I would think.
    So I would like to ask you first, is the situation I have 
described where mail-order and preferred pharmacies are costing 
Medicare more than community pharmacies, similar to what CMS 
found in your analysis of Part D?
    Mr.  Blum. Thank you for the question.
    First, to clarify. The comment period for the proposed rule 
closes March 7. I apologize for not giving the accurate answer.
    To your question regarding preferred pharmacy networks. I 
think the reason why CMS proposed this change was that we saw 
similar data results. When you look at the actual cost of the 
drug being paid by the program, being paid by the beneficiary 
through cost sharing, there is not a consistent pattern that 
preferred pharmacy networks, mail-order, lead to consistent 
lower prices for beneficiaries, for the program. And we want to 
make sure that our Part D plans have all the cost containment 
tools that they can use to lower costs, benefit beneficiaries, 
benefit taxpayers, but when the program is permitting plans to 
restrict some pharmacies to not participate within their 
networks, we believe the principle should be that we need to 
demonstrate there is savings to our beneficiaries, to our 
    So we embrace preferred pharmacy networks so long as they 
are fair to beneficiaries, they are fair to pharmacists, and 
they are fair to the taxpayers that fund the vast majority of 
the cost of the program.
    Ms.  Castor. So you would agree that it is inconsistent 
with the Part D law that preferred networks would cost Medicare 
more money?
    Mr.  Blum. I think the intent of the program is to ensure 
that Part D plans have tools to lower costs, not just the 
premium, but cost sharing, reinsurance payments, risk corridor 
payments, and that should be the principle that the Medicare 
Program follows.
    Ms.  Castor. Thank you very much. I have nothing else.
    Mr.  Pitts. Chair thanks the gentlelady. Now ask consent to 
submit for the record three letters: one from the National 
Association of Chain Drug Stores, one from the American Society 
of Transplantation, and one from the Association of Mature 
American Citizens.
    Without objection, so ordered.
    [The information follows:]


    Mr.  Pitts. Now the Chair recognizes the gentleman from New 
Jersey, Mr. Lance, 5 minutes for questions.
    Mr.  Lance. Thank you, Mr. Chairman.
    Good morning to you, Mr. Blum. I will be concentrating on 
what I believe is an overreach by the department, and I 
understand when the law was written, there was a debate whether 
there should be negotiations involving the Federal Government, 
but as I read the law, that was clearly decided in the 
statutory law and I am deeply concerned at what I believe is 
the illegal reading of the law by the agency.
    My concerns go not only to this situation but to several 
other situations where the administration has unilaterally 
delayed the ACA. I think the administration should have come to 
us in Congress with statutory change, recess appointments 
argued before the Supreme Court several weeks ago. I believe 
the Supreme Court will rule those recess appointments were 
unconstitutional. EPA regulation under the Clean Air Act, 
argued before the Supreme Court earlier this week. Now, that is 
not your purview, any of those matters, I understand that, but 
you are here this morning regarding the topic under discussion.
    There is a legitimate debate in this country; whether or 
not there should be negotiations by HHS, I understand that, but 
the noninterference provision is, in my judgment, unambiguous 
that that is not the right or the responsibility of HHS, it 
does not permit negotiations between Part D sponsors and 
pharmacies. And as I understand what was statutorily created, 
Senator Grassley stated, for example, that the noninterference 
provision is at the heart of the bill's structure for 
delivering prescription drug coverage through market 
competition. I think that is a good deal for consumers, rather 
than through price fixing by the CMS bureaucracy.
    In the conference report at the time the legislation became 
law, this is a direct quote, ``In order to promote competition, 
the Secretary is prohibited from interfering with the 
negotiations between drug manufacturers and pharmacies and PDP 
sponsors.'' Between drug manufacturers and pharmacies and PDP 
sponsors. And yet as I read what has occurred in this proposed 
rule, prohibits only HHS' involvement in negotiations between 
drug manufacturers and pharmacies, and between drug 
manufacturers and PDP sponsors, but under the rule, not 
prohibiting HHS involvement in negotiations between pharmacies 
and PDP sponsors. Am I accurate in that?
    Mr.  Blum. I think we have clarified how we interpret the 
noninterference provision of the statute. I agree that they 
were vitally important to the framework of the 2003 
legislation. During my time on the Senate Finance Committee----
    Mr.  Lance. Yes.
    Mr.  Blum [continuing]. I worked very closely with Senator 
Grassley's office----
    Mr.  Lance. Yes.
    Mr.  Blum [continuing]. And so I agree with----
    Mr.  Lance. That is why I raised it.
    Mr.  Blum [continuing]. The premise. Now, we do not believe 
that the Part D Program should interfere with price 
    Mr.  Lance. Um-hum.
    Mr.  Blum [continuing]. As I said previously, oftentimes 
Part D plans, pharmacists try to bring the agency into contract 
disputes. We felt it was important to clarify how we interpret 
the noninterference clause, but I am very familiar with how it 
was drafted, very familiar----
    Mr.  Lance. Probably more familiar----
    Mr.  Blum [continuing]. With----
    Mr.  Lance [continuing]. Than I.
    Mr.  Blum. Yes.
    Mr.  Lance. Well, thank you. Let me say, I think that the 
current interpretation is novel, and I think it strains 
statutory credulity. I think it strains the statutory text 
beyond reasonable limits.
    Now, I am an attorney, and I am familiar with the deference 
doctrine under Chevron, but as I read applicable law, 
particularly from the DC Circuit and from the Second Circuit, I 
think this goes well beyond any deference that would be 
permitted under the Chevron doctrine. And, undoubtedly, this 
will be litigated if the rules are finalized, and I would urge 
the administration, based upon sound principles of law, to 
reconsider this matter, and if a change is required, as is true 
in so many areas, the ACA, recess appointments, EPA 
regulations, I urge the President of the administration to come 
before Congress to seek statutory change.
    Thank you, Mr. Chairman.
    Mr.  Pitts. The Chair thanks the gentleman. Now recognizes 
the gentleman from Maryland, Mr. Sarbanes, 5 minutes for 
    Mr.  Sarbanes. Thank you, Mr. Chairman. Thank you, Mr. 
Blum, for being here.
    I think it is an important undertaking what CMS is doing. I 
think it is a fair expectation on the part of the taxpayers and 
the beneficiaries that periodically you kick the tires on the 
program, even if it is working very well and we are all happy 
with the track record. I mean when this was first rolled out, 
there were problems. Democrats who were initially concerned 
about the program, I think stepped up to try to improve it, and 
we now have a program that works well and is respected by its 
beneficiaries. So that doesn't mean that you don't come along 
every so often and try to make it better, which is what you 
    So we ought to be going through this exercise, and I 
endorse the process that you have undertaken. The rule--the 
proposed rule covers a lot of different areas, as you have 
indicated. I share some of the concerns you have heard with 
respect to removing the Protected Class for certain categories 
of drugs, and as you know, there is a broad coalition that has 
expressed those concerns, and I encourage the agency to pay 
careful attention to that.
    In terms of the requirement to reduce the number of plan 
offerings, I agree with you, I think that is an important step 
to consider. I think you are right to point to the alarm that 
existed the last time you did something like this, and the 
track record now shows that it has been an improvement overall. 
And there is still potential for a lot of confusion on the part 
of seniors and beneficiaries when they look at the plan 
offerings. So as long as you are not diminishing the quality of 
the options that are available across the board, I think that 
that is a reasonable change to pursue.
    I share, and you have seen this on both sides of the aisle, 
concerns on the part of independent and community pharmacists 
that they are not getting the full benefit and access to some 
of these preferred networks and so forth, and that is clearly 
something that the rule is trying to address.
    The Medicare Program, the Part D Program, is not permitted 
to negotiate with drug manufacturers, correct?
    Mr.  Blum. Correct.
    Mr.  Sarbanes. But you reimburse plans that are themselves 
negotiating with those drug manufacturers.
    Mr.  Blum. Correct. Part D plans negotiate the formularies 
and negotiate the prices with manufacturers. It is not true 
that CMS simply pays a fixed premium to Part D plans. We pay 
many other separate payments that are based upon the actual 
prices being negotiated. We don't plan or don't want to 
interfere in those negotiations. But the 2003 law that was 
legislated created many separate payment mechanisms that the 
program pays Part D plans. And, for many beneficiaries, we're 
essentially a cost-based reimbursement, particularly for the 
dual-eligible beneficiaries that receive continuity of 
    Mr.  Sarbanes. It is certainly fair for the program to 
expect that if the plans are securing discounts, that some of 
that benefit would come back to the program and to the 
taxpayers. If the program was not doing a reimbursement, if the 
patient was paying directly to a plan that originally cost $100 
for a drug, and the plan was paying the manufacturer $75 and 
getting a $25 mark-up, but then was able to go negotiate and 
get that for $50, there would certainly be an outcry on the 
part of the consumer if none of that savings was being passed 
through. I think the transparency that the program is demanding 
in terms of what the drug pricing is and how it works is to get 
to the notion that taxpayers also have a rightful expectation 
that, if there are significant discounts being earned by the 
plans relative to the manufacturers, that some of the benefit 
of that ought to come back to the program. And that doesn't--
that interest on your part in transparency does not translate 
into interference or trying to negotiate directly with 
manufacturers, or anything else, that is just basic fair 
transparency. Is that not right?
    Mr.  Blum. Correct, and we believe that competition has 
served the Part D Program well in the past 10 years. At the 
same time, we believe that prices reported to the program for 
purposes of paying cost-sharing assistance or other, you know, 
kinds of payment mechanisms need to be reported in a consistent 
way to ensure that competition is fair, to ensure that both 
beneficiaries and taxpayers benefit from that competition.
    Mr.  Sarbanes. Thank you.
    Mr.  Pitts. Chair thanks the gentleman. Now recognize the 
gentleman from Louisiana, Dr. Cassidy, 5 minutes for questions.
    Mr.  Cassidy. Hi, Mr. Blum.
    Mr.  Blum. How are you?
    Mr.  Cassidy. You always know your stuff, man. I don't 
always agree with you, but you know your stuff, so thank you.
    Let us just put it on the table. In your testimony, you 
mentioned the concerns, recent changes to the MA Program will 
result in lower enrollment, higher cost appear unfounded, but 
let us be honest, only a small fraction of the scheduled cuts 
have come into being, and, indeed, the cuts that were already 
scheduled were papered over by large grants by CMS. I would 
note, GAO questioned the legality of those demonstration 
projects. A cynic would say they were being papered over prior 
to the last presidential campaign, but far be it for me to 
accuse the administration of politics.
    So given that, I mean you see no basis that these cuts 
going forward could have an impact on the care that patients 
are receiving?
    Mr.  Blum. So before the Affordable Care Act was signed 
into law, Medicare paid on average about 13 to 14 percent more 
than the same cost for the traditional Fee-For-Service Program. 
Today, we are paying roughly about 103 percent of costs on 
average, compared to the Fee-For-Service Program. So a dramatic 
decrease in the total cost that the program paid private plans. 
That includes the costs to our quality bonus demonstration.
    During that time period of dramatically lower premiums----
    Mr.  Cassidy. But going--I--not to interrupt, we have 
limited time, I don't mean to be rude. Going forward, there are 
further cuts, I think, what, I see J.P. Morgan says that 
payments will be cut at least 4 percent in 2015, which is more 
than you suggest, but nonetheless, so the cuts begin to 
    Mr.  Blum. So we estimate that the proposed change that CMS 
put forward last week for the Medicare Advantage Plans, on 
average, will be roughly the same change that was finalized for 
2014, the current year. For----
    Mr.  Cassidy. But without the demonstration projects.
    Mr.  Blum. Net, net. So, you know, apples-to-apples 
    In 2014, we are on track to exceed our 5 percent growth 
    Mr.  Cassidy. But let me ask you. Those cuts are in 
addition to the previous cuts.
    Mr.  Blum. So----
    Mr.  Cassidy. So you add cuts--you have more cuts, you have 
more cuts in '16 and more cuts in '17, at some point the 
cumulative effect, that--saying 3 percent this year is not 
going to result in any worsening that 3 percent last year, 
ignores the fact that you had 3 percent last year.
    Mr.  Blum. So every year, CMS phases in parts of the 
Affordable Care Act changes. Every year, we hear that plans 
will pull out, benefits will be cut----
    Mr.  Cassidy. No, no. Now you are dodging the question. The 
fact is is that you have an accumulation of cuts. So, sure, we 
can speak about rhetoric and about how, you know, you give 
grants and somehow it doesn't happen, but there is 3 percent, 
there is 3 percent, and it accelerates, and to say that it 
doesn't--that is not going to--I mean are you really 
maintaining that these cuts are going to eventually have no 
    Mr.  Blum. I think----
    Mr.  Cassidy. Yes or no.
    Mr.  Blum. What we are saying is our--what I believe is 
that the past 5 years we have seen----
    Mr.  Cassidy. Never mind. That is fine. I don't mean to be 
rude but this is clearly a talking point. I don't mean to be 
rude but I am not getting a yes or no, I am sorry.
    Next, one of your things is that you are going to require 
physicians to be enrolled in Part D in order to participate. 
Now, I am a doc. I get so sick of bureaucrats telling me how to 
run my show. There are so many things that already are looking 
at me. I mean physicians must be one of the most scrutinized 
people in terms of bureaucracy staring at them. Why are we 
going to kick our box from the ability to prescribe if they are 
not a Medicare provider?
    Mr.  Blum. Well, I testified to the Senate Homeland 
Security Committee, based upon reports from the IG that found 
that the program was paying for prescriptions written by 
prescribers that were not licensed physicians. We think it is 
appropriate for us to have the same standard----
    Mr.  Cassidy. Now stop. If I may, there are other ways to 
weed out unlicensed physicians. Do we have to say, OK, you 
can--if you are licensed, you cannot work for a nursing home in 
an underserved area, you are not going to be able to work for 
them, because somebody without a license should be kicked out 
    Mr.  Blum. Well, that is the situation that we have today. 
That is the rule that we have today, that we rely on State 
pharmacy licensure, and that hasn't worked.
    Mr.  Cassidy. Now, I will say that that doesn't mean that 
now we are going to use, as a surrogate for that not working, 
another set of regulations. As--speaking for my fellow 
physicians who are groaning under the burden of paperwork laid 
upon them by CMS, and thinking about getting out of the system 
because they are so sick of it, this threatens a senior's 
access to physician care because CMS doesn't understand that 
one more piece of paperwork is just enough to make me retire to 
    Mr.  Blum. Well, we understand the burdens, but we also----
    Mr.  Cassidy. If you do, you are not operationally 
understanding it.
    Mr.  Blum. Well, our principle is to make sure that 
prescribers who are writing scripts pay for the Part D Program, 
are licensed----
    Mr.  Cassidy. I don't see the rationale for that beyond you 
don't think other laws are being implemented, being enforced. 
It seems better to enforce those other laws than add on more 
    Mr.  Blum. Well, those are State laws, and I think we feel 
that we have a responsibility to ensure that the taxpayers that 
front the vast majority of costs to the Part D Program are 
paying for prescriptions that are written by legitimate 
    Mr.  Cassidy. With that defense of further centralization 
of healthcare and to the Federal Government, I yield back.
    Mr.  Pitts. Chair thanks the gentleman. Now recognize the 
gentleman from Kentucky, Mr. Guthrie, 5 minutes for questions.
    Mr.  Guthrie. Thank you, Mr. Blum. Thank you for coming. I 
appreciate that.
    I just want to first go back to what--I think are questions 
that Mr. Shimkus and you had. If I heard correctly, which I 
think I did because I wrote it down, he quoted a 2010 position 
that CMS had that would not have allowed this rule to go 
forward, and then you said, and I quote, ``reinterpreted the 
law'' to allow this rule to go forward. You also said that you 
understand the legal concerns that we have, not in that 
exchange, but you understand the legal concerns that we have, 
which I would say you understand that, the basis is quite 
questionable or else you wouldn't understand our concerns if 
you didn't understand how we could question that. And you say 
that you have been pulled in by other groups to get involved in 
negotiations, and you had to come up with this rule because 
other groups want you to be involved. And I hear from people 
all the time in my district; veterans, other things that they 
are in bad situations, and I just have to say to them I wish I 
could help you, but the law is the law, and it is my job to 
change the law and fix the law to help you in that situation, 
but I can't just go reinterpret the law. And that is what you 
said. And I think all of my colleagues, whether Republican or 
Democrat, House or Senate, should be really concerned with what 
you said today; that there could be a position of CMS, you want 
to do something different so you go back and reinterpret the 
law on a questionable basis. Or I think that--I just want to 
put out this--what was said, and I will give you a chance to 
respond to that if you want to do so, or I can go into my 
    Mr.  Blum. Well, I think a couple of things. As I said 
during my opening statement, the Part D Program has many 
vulnerabilities, and we did a comprehensive review based upon 
the policy concerns that come to us from members of Congress, 
stakeholders, partners, and based upon our own operational 
experience. We chose to propose changes, to talk about our 
principles, to testify here today to discuss our concerns, to 
discuss the vulnerabilities that we see.
    Mr.  Guthrie. Well, did you have to reinterpret the law to 
go forward with this?
    Mr.  Blum. We want to invite comment, we want to invite 
conversation, that we don't believe the status quo for the Part 
D Program is perfect. There are vulnerabilities. We have to 
accept that. We have to accept the program is spending $70 
billion, the fastest projected----
    Mr.  Guthrie. Well, let me----
    Mr.  Blum [continuing]. Program----
    Mr.  Guthrie [continuing]. Just--I only have a--I want to 
get to the question, but if you have a--if all that is true, 
and if we accept all that, but that doesn't mean you can just 
do it without the legislative----
    Mr.  Blum. And that is precisely what----
    Mr.  Guthrie [continuing]. Authority.
    Mr.  Blum. That is precisely why we go through the notice 
and comment period. We want to invite a perspective, we wanted 
to testify before this committee to explain our rationale, to 
hear disagreement.
    Mr.  Guthrie. But to the legal side. I am not just saying 
whether the----
    Mr.  Blum. Well----
    Mr.  Guthrie [continuing]. Rules are correct or not or----
    Mr.  Blum [continuing]. During the comment process, many 
stakeholders submit legal opinions, law firms submit comments 
to us to tell us whether we are right or we are wrong.
    Mr.  Guthrie. Well, I don't--but you had to reinterpret the 
law to get to where you were, that was your quote.
    Mr.  Blum. I would call it a clarification, sir.
    Mr.  Guthrie. OK. Well, you--OK, you said--one complaint I 
don't hear from my constituents is Medicare Part D. I just 
don't hear from them on Medicare Part D as a problem moving 
forward. And you did say in your opening statement----
    Mr.  Blum. I would invite you to look at the complaint----
    Mr.  Guthrie. I am going to look to your complaints and 
see, but I don't--when I go to town hall meetings, nobody 
stands up and says I don't like my drug plan. But--so one of 
the things you said, you support competition as long as seniors 
understand. And, you know, that--I imagine going into a 
superstore and saying here is the aisle limited choices for 
people that are 65 and older, and here is the rest of the 
superstore for everybody else. And, you know, it just says, you 
know, they do understand and it is--the Milliman report says up 
to 15 percent of Part D plan choices may be eliminated or 
materially changed during 2015 or 2016, based on provisions in 
the rules. So some of my constituents will have plans that they 
chose, plans that they like, and if they like what they have, 
they can keep it, as we have heard, and I know that when 
constituents under the ACA were--plans were changed, and people 
were just saying, well, they were paying for something they 
shouldn't have paid for because it wasn't worthy insurance. I 
have heard that even in this committee. And, obviously--so that 
is just assuming people don't understand what they are buying. 
And I don't think that is the case. I think people are far more 
sophisticated and smarter than maybe what those kinds of 
comments give them credit for.
    And so what do I tell my constituents if they can't get 
plans because they are limited? You said it is only 2 percent, 
but that is 2 percent.
    Mr.  Blum. Well, I think a couple of things. One is we want 
to make sure that we are incorporating into our final policies 
the views from the beneficiary communities, beneficiary 
stakeholders. What we hear from the beneficiary community is 
that the benefit is confusing. We see from the academic 
literature that beneficiaries would have the opportunity to 
reduce their out-of-pocket costs dramatically by changing 
plans. We want beneficiaries each year to take a critical look 
at their benefit offerings, because we know that many 
beneficiaries will be able to save, reduce their out-of-pocket 
costs. That is why we have private plan choices. We want 
competition, we want beneficiaries to evaluate and be able to 
understand the benefits for different plan options, but we know 
that most beneficiaries year-to-year don't change plans, even 
though they could benefit dramatically by changing plans.
    Part of the reason that we hear from the beneficiary 
community, and again, we invite this public conversation, is 
the benefit is confusing. We see plans cherry-picking the 
healthiest beneficiaries, raising costs for the rest of the 
program. But we will respectfully review and carefully review 
comments sent to us to make sure that we are fostering 
competition, but in a way that helps beneficiaries choose the 
best possible plan, but also make sure the taxpayers don't 
overspend. I would hope the Congress would want us to manage 
the Part D budget in the most prudent way.
    Mr.  Guthrie. Well, thanks. I do appreciate you coming 
today. Appreciate it, and I yield back.
    Mr.  Pitts. Chair thanks the gentleman. Now recognizes the 
gentleman from Georgia, Dr. Gingrey, 5 minutes for questions.
    Mr.  Gingrey. Mr. Blum, you have been with CMS since 2009, 
is that correct?
    Mr.  Blum. Correct.
    Mr.  Gingrey. You have been in this current position, 
number 2 guy, for, what, about a year?
    Mr.  Blum. Roughly speaking, yes.
    Mr.  Gingrey. Yes. And I certainly can understand a new 
coach coming in, wanting to do something kind of drastic, but 
quite honestly--and I commend you on the transparency aspect of 
this proposed rule, but I think the rule is boneheaded. In 
fact, Bill O'Reilly would probably call it pinheaded.
    I would expect, since you have been around since 2009, that 
you know on, let us say, a 5-year average, the last 5 years, 
how many participants in Medicare Part D, the prescription drug 
plan, have reached the doughnut hole, what percentage on 
average over the past 5 years?
    Mr.  Blum. I don't have the numbers in my head, but what is 
true is many fewer beneficiaries are hitting the doughnut hole 
because it is being closed.
    Mr.  Gingrey. Yes, but I suspect that number is pretty low. 
I am surprised you don't have that. Maybe somebody behind you 
could whisper in your ear----
    Mr.  Blum. We would be happy----
    Mr.  Gingrey [continuing]. And tell you----
    Mr.  Blum. But I believe the numbers are roughly year-to-
    Mr.  Gingrey. Well----
    Mr.  Blum [continuing]. And it changes year-to-year, 
roughly 3 to 4 million Medicare beneficiaries hit the doughnut 
    Mr.  Gingrey. Yes. Yes
    Mr.  Blum [continuing]. Each year. However, but----
    Mr.  Gingrey. I would suggest that, you know, you are 
trying to kill a gnat by torching a village. You are trying to 
fix things that are not broken, and to do it, maybe the optics 
of closing the doughnut hole look great. And so you have to go 
back and say, well, we are going to look at these Protected 
Classes, and we are going to do something about that and we are 
going to save money so we can close the doughnut hole. And 
look, listen to these 6 drug classes. Antineoplastics, that is 
cancer, ladies and gentlemen. Anticonvulsants. Maybe we ought 
to add marijuana to that. Antiretrovirals, that is AIDS drugs. 
Antipsychotics. Antidepressants. Anti-immunosuppressants. These 
are people who have had transplants--renal transplants, and if 
they don't get the drugs necessary within 3 to 5 years--they 
can't pay for them, and all of a sudden they reject these 
    I just, you know, I wish I could tell you that I was 
shocked at the egregiousness of this proposed rule, and that 
this was all just a mistake, but that would be too kind.
    At this point, we must recognize the pattern of this 
administration attacking any healthcare program that empowers a 
free market, no matter the pain it causes beneficiaries. I 
personally, as a physician, find it reprehensible that the 
administration is so against any market-based system, that they 
are willing to once again harm seniors to serve the purpose. My 
colleague from Maryland said, you know, every now and then you 
have to kick the tires to see if a program is working. Well, on 
the Affordable Care Act, you--every time you kick the tires, 
your foot goes through the sidewall. So maybe you are a little 
reluctant, so you kick the tires of a good program and your 
foot comes bouncing right back in your face. And that is what 
is going on here. And let us be clear, this proposed rule will 
destroy the Part D Program as we know it. It will limit our 
seniors' coverage options, and it will force higher premiums, 
unwarranted changes to a program where beneficiaries are 
overwhelmingly satisfied. It just doesn't make sense.
    Now, Mr. Blum, even as I disagree with the contents of the 
rule, I also question whether CMS, you guys, even have the 
legal authority to reinterpret the clear Congressional intent 
in the Medicare Modernization Act of 2003. I was here. I was 
here when that was passed. The Energy and Commerce majority 
staff requested that CRS review the legality of your actions, 
and we requested a memo in response. The memo cites, and I will 
just give you a little bit of it because I am running out of 
time, a Supreme Court decision that interpreted a statute, a 
court should always turn first to one cardinal cannon before 
all others; that a legislature says in a statute what it means, 
and it means in the statute what it says.
    Mr. Blum, Congress has opined on this. Why does CMS feel 
the need to act at all when the law is crystal clear on this 
    Mr.  Blum. Well, I haven't seen the CRS reports. I would 
welcome having a chance to look at it.
    Mr.  Gingrey. Well, Mr. Chairman, I request unanimous 
consent that we make this report from the Congressional 
Research Service on the proposed interpretation of the 
noninterference provision under Medicare Part D as part of a 
permanent record. And I will come back to the----
    Mr.  Pitts. Without objection, so ordered.
    [The information follows:]


    Mr.  Gingrey. Let me just conclude. I am urging you, Mr. 
Blum, to withdraw this rule, and I personally, as a member of 
this committee, am prepared, and I will also urge our 
leadership, fight with every tool available to repeal this rule 
legislatively if you guys do not heed the wishes of our seniors 
and the American people.
    I have gone over my time, and, of course, I yield back, Mr. 
    Mr.  Pitts. Chair thanks the gentleman. And I would like to 
ask the staff to provide a copy to the minority, please.
    Chair now recognizes the gentleman from Florida, Mr. 
Bilirakis, 5 minutes for questions.
    Mr.  Bilirakis. Thank you, Mr. Chairman. I appreciate it 
very much.
    And again, I represent over 100,000 seniors in the Tampa 
Bay area, and they seem to be very pleased with Medicare Part 
D, and I am along with Dr. Gingrey: If it ain't broke, don't 
fix it.
    Mr. Blum, specifically, I am concerned about CMS' 
reinterpretation of the noninterference clause of the Medicare 
Part D statute. It was clearly written so that CMS would not 
interfere with the negotiations between drug manufacturers, 
pharmacies, and Part D sponsors.
    You may or may not know that I am in a unique position 
here, since my father, Congressman Mike Bilirakis, was the 
chairman of the subcommittee, and again, he remembers the 
intent of the law as written by him and his colleagues, and it 
was not to allow CMS to interfere in any of these negotiations. 
And I was in the legislature at the time in 2003, and I 
followed this as well, and that was my interpretation of the 
law, that the intent was for CMS not to interfere, and not to 
allow CMS to interfere again in the negotiations.
    You should know that, of course, you were the--I believe 
you were on Senator Baucus' staff at that time, so I am sure 
you remember. So I would like to ask you, Mr. Blum, are you 
telling me that the authors of the legislation, of course, 
including my father, are wrong when they say that they intended 
for CMS not to interfere in these negotiations?
    Mr.  Blum. So going back to my days on the Senate Finance 
Committee, I worked with your father and his staff during the 
conference committee that produced the final Part D 
legislation, and so I understand well the intent of the 
Congress at the time. Senator Baucus, my former boss, and the 
team that he had, myself included, were directly involved in 
the drafting of the Part D legislation. So I understand well 
why Congress chose to put in place the noninterference clause.
    While we understand the disagreement, and it is clear from 
this hearing today there is a disagreement, we proposed the 
change with the interest to make the provision work better, to 
have it be stronger, to make it really clear when CMS will and 
won't get involved with contract disputes--with Part D sponsors 
and pharmacies. We get asked frequently to get involved with 
those disputes, and we want to kind of articulate to the public 
when and won't CMS try and broker, you know, beneficiary access 
issues or pharmacy network issues.
    Mr.  Bilirakis. OK.
    Mr.  Blum. We will thoroughly review--I look forward to 
looking to the CRS documents to understand our authority to 
make sure that our legal team understands it, but as I said 
several times during this hearing, our intention is not to 
interfere with the price----
    Mr.  Bilirakis. Thank you.
    Mr.  Blum [continuing]. Negotiations.
    Mr.  Bilirakis. And you understood the intent of the law 
then, and now you understand it as well.
    Mr.  Blum. Having served on the Finance Committee staff 
during the 2003 drafting, I understand the 2003 legislation----
    Mr.  Bilirakis. Thank you.
    Mr.  Blum [continuing]. Well.
    Mr.  Bilirakis. Thank you, sir, because I don't have a lot 
of time, I want to get onto the next question. Appreciate it.
    You justify some of the changes in the rule as a means to 
address prescription drug abuse. It seems to me that we could 
manage some of the prescription drug problem through the use of 
a pharmacy lock, the lock-in program, where a single point of 
sale could provide more protection against the problem of 
doctor shopping, pharmacy shopping, and inappropriate drug 
therapies for high-risk beneficiaries. Pharmacy lock-in has 
been used successfully in State Medicaid, of course, as you 
know, and also with TRICARE and commercial insurance. Are you 
in support of pharmacy lock-in, sir?
    Mr.  Blum. I testified on the record last summer to the 
Senate Homeland Security Committee that we believe lock-in 
provisions can help to reduce inappropriate prescribing, 
prescriber fraud. We have concluded that Congress would have to 
act to authorize us to allow pharmacy lock-in, but we believe 
that is a change that Congress should make.
    Mr.  Bilirakis. So in other words, you agree with the 
pharmacy lock-in. Why isn't it in this particular rule?
    Mr.  Blum. We don't have the authority for that change. I 
testified that Congress would have to give us that authority.
    Mr.  Bilirakis. OK. I have introduced a bipartisan bill on 
this particular issue, but staff at CMS have not replied to 
requests from this committee for technical assistance on this 
bill. Today, would you commit to me, you personally, to review 
this legislation that I have offered? I have actually filed it. 
It has been about a couple----
    Mr.  Blum. Absolutely.
    Mr.  Bilirakis [continuing]. A few months. So I would like 
to get your feedback----
    Mr.  Blum. Yes.
    Mr.  Bilirakis [continuing]. With regard to this 
legislation. Would you personally commit to me that you will 
review that and respond to me?
    Mr.  Blum. Absolutely.
    Mr.  Bilirakis. OK, thank you very much. Appreciate that.
    Mr.  Pitts. Chair thanks the gentleman. Chair thanks Mr. 
Blum for spending 2\1/2\ hours with the subcommittee this 
morning. We really appreciate your time and patience. We will 
send you additional questions. We ask that you please respond 
to those promptly.
    There are two things I want to highlight. Dr. Burgess' 
question was for the full and complete cost analysis that led 
to the rule. If you will provide that. And Mr. Guthrie's 
question, the call sheets, the full complaint data that you 
referenced that you say shows seniors don't like their Part D 
plans, would you provide those to the committee?
    Mr.  Blum. To clarify the complaint data, in 2013 CMS 
received over 30,000 complaints on various Part D issues. We 
have to protect beneficiary confidentiality, but we will do our 
best to make sure that we can summarize that data in a way that 
would be helpful to this committee.
    Mr.  Burgess. Redact the names and let us have it.
    Mr.  Pitts. Go ahead.
    Mr.  Burgess. Mr. Chairman, I think you can redact the 
names and let us have the information.
    Mr.  Blum. We will look into it.
    Mr.  Burgess. The complaints themselves will be 
    Mr.  Blum. Yes, we will look into it, sir.
    Mr.  Burgess. Thank you, Mr. Chairman.
    Mr.  Pitts. All right. Chair thanks the gentleman. We will 
now take a 5-minute recess as the second panel sets up.
    Mr.  Pitts. Our time of recess having expired, we will go 
to our second panel. We have three witnesses on our second 
panel today. We have Mr. Douglas Holtz-Eakin, President, the 
American Action Forum; Mr. Carl Schmid, Deputy Executive 
Director, The AIDS Institute; Mr. Joe Baker, President of the 
Medicare Rights Center. Thank you all for coming. You will each 
have 5 minutes to summarize your testimony. Your written 
testimony will be placed in the record.
    Dr. Eakin, you are recognized for 5 minutes for your 
opening statement.



    Mr.  Holtz-Eakin. Well, thank you, Chairman Pitts, and 
Ranking Member Pallone, members of the committee, for the 
privilege of being here today to discuss what I consider to be 
a crucial proposed rule from CMS.
    You have my written statement. Let me make just a few brief 
points at the outset. First, as has been discussed, the Part D 
Program has a tremendous record of success. It has come in well 
below the projected budget costs, and I note with irony that 
Mr. Blum said one reason to do this rule is CBO was saying it 
is going to cost so much in the future, when it came in at $55 
billion, after my CBO projected it would cost $122 in 2012.
    It also has had stable beneficiary premiums, it has a very 
high level of beneficiary satisfaction, 85 percent of seniors 
are very happy with Part D. For those who are interested in the 
statistics on this, I will point out 30,000 complaints is less 
than 1/10 of a percent of Medicare beneficiaries. So we have 
approval at 85, complaints at under 1/10 of 1 percent. And 
seniors have, in 2013, at least 23 choices in every plan area. 
And so that record of success is not an accident. If you think 
about how Part D works, the plans sit in the middle and the 
plan sponsors, and they negotiate with the drug manufacturers 
discounts on their drugs on the basis of a volume of business 
they can deliver. And to do that, over here they go out and 
offer different plans with different formularies, not to 
confuse seniors but to attract more volume and get better deals 
over here, and they develop these preferred pharmacy networks 
with special provisions, again, by offering lower prices, they 
get more volume, they get more ability to negotiate over here 
with the drug manufacturers. That capacity to undertake these 
negotiations is at the heart of the success of Part D. And for 
Mr. Blum to suggest that by setting a saving standard--a 
minimum saving standard, that you have to get in a preferred 
pharmacy network, that is a direct intervention in the price 
negotiation for those pharmacies, and to suggest that you offer 
to someone you have never negotiated with exactly the same deal 
you have given to somebody you have negotiated with, that is a 
direct intervention of the negotiations. I believe that the 
idea that this is not violating Congressional intent with the 
noninterference clause is just transparently false. I mean I 
was there at the birth of the Part D benefit, as were many in 
this committee. This is just flatly inconsistent with what 
Congress intended.
    I am not a lawyer, so I don't know about the statutory 
authority, but the lawyers I have consulted with say they don't 
have the authority to do this. And for Mr. Blum to suggest that 
it somehow strengthens the noninterference clause is just 
Orwellian doublespeak, and I am deeply troubled by the fact 
that they would do this.
    The implications, I think, are very important. First, and 
this is your self-interest, if they do this in Part D, they 
don't need you anymore. Not this committee, not the full 
committee, not the House, not the Senate, not the Congress. 
They can do whatever they want with the Part D benefit, and I 
believe that is an inappropriate power for an administration to 
have. And it would also hurt the program as a whole because if 
you are a plan sponsor, and you have an administration that has 
the power to do whatever it wants without real consideration of 
the consequences, you are either not going to participate or 
you are going to charge a lot to participate, and that is going 
to hurt the seniors, which, in the end, are the focal point of 
the program.
    So I believe those provisions are ones that certainly 
cannot be rushed through in the next couple of weeks. It 
shouldn't happen at all, and I would urge the committee to do 
everything in their power to stop them.
    The other features of the rule, there are many details in 
here, but limiting the number of plans qualms the negotiations 
that they can do with the drug manufacturers. As a result, 
there is no real way that CMS can claim to be monitoring 
savings in the program by looking at one half of this equation. 
That is incomplete and incorrect, and any support for this rule 
on that basis has to be questioned. They need to provide a lot 
better support, as in the cost analysis that you mentioned. I 
think that overall there have been some private estimates to 
suggest the limiting in choice, the limiting competition is 
going to raise plan bids by about 10 percent. That may not 
directly translate into 10 percent higher premiums for 
beneficiaries, but those 10 percent costs will go somewhere in 
the system. That is bad news for taxpayers, bad news for 
beneficiaries, or both, and we need to be concerned about that.
    There is no question that I think this leads to higher 
budget costs for a program that has consistently surprised on 
the downside, and, you know, we have had a lot of discussion, 
this is going to restrict some seniors' access to their doctors 
and/or their particular pharmaceuticals, and those are steps in 
the wrong direction from the point of view of the program.
    I guess the last thing I would close with is there has been 
a lot of discussion about seniors getting in the right plan. It 
is not as if there is no other way to do that. This is a 
terrible way to solve that problem. Mr. Blum runs a Web site 
called Medicare.gov, with a plan finder. He might want to 
devote his efforts to improving that.
    Thank you.
    [The prepared statement of Mr. Holtz-Eakin follows:]


    Mr.  Pitts. Chair thanks the gentleman. Now recognizes Mr. 
Schmid for 5 minutes for an opening statement.

                    STATEMENT OF CARL SCHMID

    Mr.  Schmid. Thank you. Good afternoon.
    The AIDS Institute is pleased to offer our views on CMS' 
proposed Medicare Part D rule. Since we believe aspects of the 
proposed rule would erode a patient's ability to obtain the 
medications that their providers prescribed, we are urging CMS 
to scrap the proposal to change the 6 protected classes.
    Frankly, just like many of you, we were rather surprised 
the Obama administration would propose such a rule, given its 
strong commitment to quality healthcare, including mental 
health, and to others living with illnesses and diseases.
    For people with HIV, and so many other patients, new drug 
therapies have saved millions of lives, and prolonged millions 
more. The advent of antiretroviral medications in the late 
'90's turned HIV from a near certain death to a more manageable 
disease if patients have access to quality care and 
    We know all medications are not the same, and each person 
reacts differently to a particular drug. Doctors and patients 
together make careful decisions about which therapies are most 
appropriate on a case-by-case basis. Some individuals may 
develop side effects to a particular drug, while another may 
need a therapy to avoid a harmful interaction for a drug being 
taken for another health condition. For people with HIV, drug 
resistance can occur, requiring them the ability to switch to 
another drug without interruption.
    It is for these reasons, when Medicare Part D was first 
implemented, CMS determined that a minimum of only 2 drugs in 
the class, which is what the law requires, was simply not 
enough for certain patients, including those with HIV, mental 
illness, cancer, epilepsy, and those undergoing organ 
transplantation. The 6 Protected Classes was created so that 
patients could have access to all the drugs in these classes.
    For the past 10 years, Medicare Part D has been working for 
millions of seniors and people with disabilities, including 
over 100,000 people a year with HIV. As part of the Affordable 
Care Act, Congress even codified the 6 protected classes. We 
see no reason why the protected classes should be changed, and 
if they were, we would like to see more classes of drugs gain 
protected status rather than reducing them, so that more 
patients can gain access to the medications prescribed.
    As I commented earlier, we were shocked when we read the 
proposed rule. The Secretary used the authority granted to her 
under the ACA to develop criteria to alter the 6 protected 
classes, and, at the same time, proposed to eliminate 3 of 
them. One would think if the administration was contemplating 
any changes, their criteria for class review would be developed 
first with adequate public comment before it was applied. 
Instead, a very arbitrary criterion was developed in secret, 
and then arbitrarily applied at the same time.
    Thankfully, the proposed rule continues the protections for 
antiretrovirals. That would not be the case for antidepressants 
and immunosuppressants in 2015, and antipsychotics in 2016, if 
the proposed law--proposed rule was finalized.
    Frankly, we are worried. Who will be next? How much longer 
will people with HIV, cancer and epilepsy have access to all 
the medications they need through Medicare Part D?
    Because it is estimated that about half the people living 
with HIV experience mental illness or substance abuse, we are 
concerned that people with HIV who rely on antidepressants and 
antipsychotics will not be able to access their medications. We 
are also concerned that people with Hepatitis, who we also 
advocate for, who undergo liver transplants, will not be able 
to access their immunosuppressants.
    Medicare Part D, including the 6 protected classes, is 
working. It is enabling the elderly and the disabled to access 
the medications their providers prescribe, and at the same 
time, saving and prolonging countless lives. We see no reason 
to change the protected classes, and urge the administration to 
withdraw this proposal.
    We are encouraged by CMS statements this morning they are--
that they are sensitive to and are carefully listening to our 
concerns. Hopefully, in the end, they will do the right thing 
for patients.
    Thank you.
    [The prepared statement of Mr. Schmid follows:]


    Mr.  Pitts. Chair thanks the gentleman. Now recognize Mr. 
Baker for 5 minutes for an opening statement.

                     STATEMENT OF JOE BAKER

    Mr.  Baker. Thank you, Chairman Pitts, and Ranking Member 
Pallone, for the opportunity to testify today on the proposed 
rule for Medicare Advantage and Part D prescription drug plans.
    Excuse me. As you know, the Medicare Rights Center is the 
national nonprofit that works to ensure access to people with 
Medicare, both older adults and people with disabilities. We 
answer over 15,000 questions each year from beneficiaries, 
family, caregivers and professionals, and our Online resources 
receive more than 1 million visits annually.
    I want to stress 3 key points today. First, we believe that 
each one of the proposed policies reflected in this rule should 
be evaluated on its own merits, as opposed to supporting or 
redirecting the entire rule as a whole. We note that the 
comment period, as has been said, for the rule is still open, 
and all interested parties should submit comments and give CMS 
a chance to modify the rule based upon those comments.
    In this spirit, I would like to talk about a couple of 
provisions that we strongly support, and others that we do 
    Second, I think the rule reflects CMS' belief that 
increased oversight and monitoring is required to ensure that 
Medicare Advantage and Part D plans are adequately serving 
people with Medicare. We wholeheartedly agree with this 
determination. In particular, we strongly support CMS' proposal 
to ensure meaningful differences among Part D plans by further 
consolidating plan options. On our helpline, we observed that 
older adults and people with disabilities find choosing among a 
large number of Part D plans to be a dizzying experience. Most 
people with Medicare fail to re-evaluate their coverage options 
on an annual basis. According to one analysis from 2006 to 
2010, only 13 percent of beneficiaries switch prescription drug 
plans during each annual enrollment period, despite changes in 
premiums, cost sharing and coverage.
    So ensuring that there are real meaningful differences 
between offerings from the same plan sponsor reduces confusion 
and helps people better comparison shop.
    Further related to Part D, CMS acknowledges that Medicare 
Advantage plans with prescription drug coverage are not 
adequately coordinating beneficiary care with respect to drug 
denials. When a Part D drug is denied because it should be 
covered by Part A or B of the plan, CMS finds that some plans 
are not adequately informing beneficiaries that their drugs 
should be covered. This indicates that some plans are not 
living up to their promise to coordinate care efficiently for 
their members. To fix this, CMS appropriately suggests new 
requirements for plans to facilitate access to these medicines.
    Throughout the proposed rule, CMS demonstrates a commitment 
to enhancing transparency. For instance, increased transparency 
is at the heart of proposals concerning drug pricing fairness, 
and accuracy with respect to preferred pharmacy. CMS also aims 
to make information about annual changes to Medicare Advantage 
and Part D plans more transparent throughout proposals to 
strengthen beneficiary notices ahead of and during the annual 
enrollment period. We support these proposals.
    Finally, CMS aims to increase oversight and monitoring of 
prescribing providers to address problems with Medicaid--
medication diversion and abusive practices. We appreciate the 
rule's aim and that it avoids placing burdensome restriction on 
beneficiary access to needed medicines, but we would like to 
see additional beneficiary protections in any new system.
    Third, we are deeply concerned about CMS' proposed policy 
to scale-back the protected classes. Specifically, CMS argues 
that existing beneficiary protections, including the Part D 
appeals process, will preserve access for beneficiaries if open 
formulary access is relaxed for antidepressants, antipsychotics 
and immunosuppressants. Based on our experience counseling 
Medicare beneficiary, we believe these protections are 
insufficient, especially the Part D appeals process. Echoing 
our experience, the 2011 data released by CMS finds that over 
half of plan-level denials are overturned by the independent 
review entity; the first time an entity other than the plan 
reviews the appeal. This alarming rate of reversal raises 
serious questions about how well the appeals process is 
working, and demands greater transparencies. We urge members of 
Congress to request that CMS make plan-level appeals data 
accessible so that targets for improvement can be identified. 
In addition, Congress should encourage CMS to improve the Part 
D appeals process, first and foremost by allowing a beneficiary 
to receive a formal denial from the Part D plan at the pharmacy 
counter, as opposed to expecting beneficiaries and their 
doctors to submit a formal request to the plan for the denial 
before the appeals process can begin.
    Finally, we do believe that pricing is an issue, and CMS is 
trying to get at that through this proposal. We believe that 
Congress should restore Medicare drug rebates for beneficiaries 
that are dually eligible for both Medicare and Medicaid, which 
would save taxpayers over $140 billion over 10 years.
    Thank you for this opportunity to testify.
    [The prepared statement of Mr. Baker follows:]


    Mr.  Pitts. Chair thanks the gentleman. And we will now go 
to questioning. I will recognize myself 5 minutes for that 
    Dr. Holtz-Eakin, in a recent final regulation issued in 
April 2011, CMS reiterated the noninterference clause's 
application to Part D, sponsor pharmacy negotiations, in its 
response to a comment, ``As provided in Section 1860D-11(i) of 
the Act, we are prohibited from interfering with negotiation 
between Part D plans and pharmacies.''
    Dr. Holtz-Eakin, you were at CBO during the time that the 
Part D Program was operating. How did CBO interpret the 
noninterference clause that Congress passed in 2003?
    Mr.  Holtz-Eakin. Well, we were asked on numerous occasions 
what would happen if the noninterference clause were to be 
deleted from the law, and indeed shortly after its passage, 
this is a letter from January 23, 2004, we wrote a letter to 
then-Majority Leader Frist, which said that striking the 
provision would affect negotiations between drug manufacturers 
and pharmacies and sponsors of prescription drug plans. So 
there is no question that it covered the pharmacies, and there 
is no question that the kind of action that CMS is proposing in 
this rule is at odds with the intent of Congress.
    Mr.  Pitts. In the proposed regulation, CMS has 
reinterpreted the noninterference clause, clearly outlined in 
Federal law, such that, in my opinion, the proposed regulation 
actually contradicts the meaning of the statute.
    If CMS can effectively change the meaning of settled 
Federal law via regulation, then we must ask ourselves what are 
the outrebounds of the abuse of that authority.
    Dr. Holtz-Eakin, could CMS require pharmacies or 
manufacturers to give them records access?
    Mr.  Holtz-Eakin. Certainly, they could, and I don't know 
what the outrebounds are, Mr. Chairman. I am not certainly a 
lawyer by training, but, you know, the clear intent was to not 
do what is proposed in this rule, and if they are to go forward 
with this and not see it struck down by the courts, which I 
think it very well would be, then there is nothing they can't 
do to the Part----
    Mr.  Pitts. Could----
    Mr.  Holtz-Eakin [continuing]. Part D----
    Mr.  Pitts. Could CMS set volume caps on prescriptions 
under Part D?
    Mr.  Holtz-Eakin. They certainly could.
    Mr.  Pitts. Could CMS require participating pharmacies 
maintain stockpiles of certain drugs?
    Mr.  Holtz-Eakin. Yes, they could.
    Mr.  Pitts. The Office of the Actuary at CMS produced an 
analysis of the estimated budgetary impact of the proposed 
rule, yet they acknowledged in conversations with committee 
staff that not all elements of the proposed rule had been 
    Well, Milliman actually did a complete cost analysis by 
surveying drug plan sponsors and PBM's to evaluate the 
anticipated effect of the rule on the Part D Program, and found 
it would cost billions of dollars. Do you believe that the 
American public deserves a full cost accounting from CMS on 
this issue?
    Mr.  Holtz-Eakin. I do. I believe this rule is so sweeping 
as to essentially constitute new law, that Congress ask for a 
budgetary analysis from the CBO before it enacts new law, I 
think the same thing should be done in this case.
    Mr.  Pitts. CMS rule proposes that prescription drug plans 
are limited to offering only 1 standard benefit, and 1 enhanced 
benefit plan per region, is that correct?
    Mr.  Holtz-Eakin. That is correct.
    Mr.  Pitts. So let me ask this, if 2 of my constituents are 
enrolled in 2 different enhanced benefit plans offered by the 
same PDP, 1 of those 2 seniors will lose their current 
prescription drug plan under the proposed rule, isn't that 
    Mr.  Holtz-Eakin. That is correct, and in my written 
testimony, we have an estimate of the number of seniors who 
would be affected in each State.
    Mr.  Pitts. Well, I don't think CMS should be outlawing 
seniors' current prescription drug plans by placing arbitrary 
caps on the number of plans that can be offered. CMS should not 
be taking away the prescription drug plans that seniors rely on 
today, do you agree?
    Mr.  Holtz-Eakin. I agree with the principle that seniors 
should be able to choose, that choice is an important part of 
our society.
    I want to emphasize one of the things I said in my opening. 
You can't look at that in isolation. The ability to have more 
plans, gets you more volume and lowers the cost of the program 
as a whole. And I think the CMS analysis is fundamentally 
flawed by ignoring that.
    Mr.  Pitts. All right, thank you. Chair recognizes the 
ranking member, Mr. Pallone, 5 minutes for questions.
    Mr.  Pallone. Thank you, Mr. Chairman.
    I wanted to ask Mr. Baker, when Part D was enacted into 
law, many of us were skeptical the program would work. In fact, 
we were opposed to turning Medicare over solely to private 
insurance companies because of concerns with gaming and the 
ability to fully protect beneficiaries in these plans that may 
be more interested in corporate profits than patient wellbeing.
    Nevertheless, once Part D became the law, Democrats put 
aside their reservations and have worked hard to ensure that 
patients get the best deal possible under the law. And I would 
contrast this with the way the Republicans have behaved since 
the enactment of the Affordable Care Act, actively trying to 
undermine implementation of the law and keep consumers from 
getting access to important program benefits. However, the 
Affordable Care Act made a number of improvements to Part D, 
most importantly, it filled in the doughnut hole, and the ACA 
also made a number of changes to the Medicare Advantage 
Program, ensuring that consumers and taxpayers get good value 
for their dollars.
    So, Mr. Baker, could you talk briefly about the way the 
Affordable Care Act has improved Part D and Medicare Advantage 
for beneficiaries?
    Mr.  Baker. Well, once again, you are absolutely right. The 
closure of the doughnut hole has been a great boom to people 
with Medicare Part D coverage, and we hear about that on our 
helpline. As well, with regard to the changes in the Medicare 
Advantage Program that have been implemented through the 
Affordable Care Act, I note the wellness visit that is now 
covered, preventive care that is now covered, the prohibition 
about charging higher coinsurance or copayment amounts for 
care, like skilled nursing facility care or chemotherapy care. 
This makes sure that there is no gaming amongst the plans, in 
trying to provide disincentives for folks with, for example, 
cancer--a history of cancer from joining certain plans, from 
consolidating offerings, once again, as Mr. Blum referred to, 
in Part D, but also in the Medicare Advantage Program, there 
has been a constant effort by CMS under the Affordable Care Act 
to make sure the plans have meaningful differences. And so that 
has helped consumers understand the program better and use the 
program better, I think. And finally, the out-of-pocket cap 
that CMS has implemented in the Medicare Advantage Program has 
provided seniors with, I think, great security in knowing that, 
yes, they have copayments amount but their--copayments amount 
in Medicare Advantage plans, but they will be capped at a 
certain amount out-of-pocket, and I think that has done a lot 
to make the program more attractive to seniors. They flock to 
Medigap Programs in the context of original Medicare because 
they see a lot of financial security there for that first 
dollar of coverage. I think many now see the out-of-pocket 
maximum to Medicare Advantage as a similar financial security 
measuring, and so that has made the program more attractive.
    Mr.  Pallone. I know that you expressed significant concern 
with the section of the rule related to categories or classes 
of drugs of clinical concern and which identify classes of 
drugs require Part D plans to include all or substantially all 
covered drugs on their formularies. And you are aware, CMS has 
indicated that these protected classes of drugs were not 
necessarily meant to be permanently protected, recognizing now 
on the one hand in many instances as generics become available, 
broadly mandating that every drug be available may not make 
sense, but on the other hand, new classes of drugs may need to 
be deemed protected to ensure patient access. And as such, the 
Secretary was directed to establish criteria by which 
identified classes, including new classes of drugs for 
inclusion under the protected status.
    If you could--I know you are concerned about the Part D 
appeals process. Can you just basically describe some of the 
problems that you see with the current appeals process, and 
why, if the appeals process is not fixed, the protected classes 
proposal would be especially problematic for patients?
    Mr.  Baker. Yes, I would be happy to. You know, first off, 
this issue that I mentioned earlier about when folks go to the 
pharmacy counter, they get a denial, and in effect, they are 
told their drug is not going to be covered and be dispensed to 
them, but that is not an ``actual denial'' by the plan. It is 
not a coverage determination. They then need to either go home 
or otherwise call or email or somehow contact the plan to 
actually get a coverage determination and denial, and this can 
take a lot of time, it can take a lot of calls. So we are 
really calling for that denial at the plan counter to be the 
denial or coverage determination that does help them initiate 
and allow them to initiate an appeal. So that is one issue 
    There are also then 2--at least 2 levels of redetermination 
that the plan has in addition to that denial at the pharmacy 
counter. We believe that could be slimmed to get to the 
independent review entity sooner. I think also we are also 
concerned generally that there is not a lot of data about how 
plans internally are dealing with appeals, and we think that 
information, some of it could be publicly available, and could 
help consumer gage whether or not plans are doing a good job by 
those who have problems with the plans' determinations.
    Mr.  Pallone. All right, thanks a lot.
    Mr.  Pitts. Chair now recognizes the vice chairman of the 
committee, Dr. Burgess, 5 minutes for questions.
    Mr.  Burgess. And I thank the chairman.
    I would offer for those limited comparisons between ACA and 
the Medicare Modernization Act from 10 years ago. There are 
some significant differences, of course. The Medicare 
Modernization Act was not the coercive, broad, overreaching 
legislation that the ACA was. There was difference in scope and 
size, and thus, the implementation, while there may be 
similarities, there are also vast differences.
    Mr. Schmid, just like you, to say I was blindsided by this 
rule would be an understatement. I thought things were working 
reasonably well. I don't understand the discussion, why we are 
even having the discussion about dispensing with any of the 6 
protected classes. And Dr. McClellan came here and very 
patiently, in 2005 and 2006, very patiently went through what 
the reasons were for developing those classes. I think you 
heard Dr. Murphy talk about the--on the psychiatric side. I 
have discussed on the immunosuppressant side. You have very 
eloquently discussed on the--with the antiretroviral drugs, why 
these are important to have these as protected classes. And I 
really cannot--and I don't--I did not hear from Mr. Blum why 
there was a reason for doing this, so I agree with you. I am 
completely blindsided by the rule.
    Dr. Holtz-Eakin, I mean, Chairman Pitts asked you this to 
some degree already, but let me just ask you again: What--in 
your opinion, what was the original intent of the 
noninterference clause?
    Mr.  Holtz-Eakin. Its intent was to make sure that, on both 
sides of the negotiations, that plans had the unfettered 
ability to negotiate aggressively with drug manufacturers, and 
to structure their plans and their pharmacy networks to attract 
the volume necessary to get good deals with the manufacturers. 
And the idea was to keep the Congress and the administration 
out of those negotiations.
    Mr.  Burgess. So if we are doing away with the 
noninterference clause, perhaps we are instituting an 
interference clause. Would that be a logical assumption?
    Mr.  Holtz-Eakin. I view this as direct interference in 
negotiations. I don't see any other way to read it. If I 
negotiate with you, and then turn around and CMS orders me to 
give him the same deal, that is a pretty clear interference. I 
don't understand that.
    Mr.  Burgess. Well, of course, Congress loves to interfere, 
so that will give us an opening.
    Mr.  Holtz-Eakin. I would encourage you to restrict those 
impulses please.
    Mr.  Burgess. Well, that is, of course, why we are having 
this discussion, but it would--I mean that interference--then 
if we label that the interference clause, the interference 
clause is going to have an effect on the direct cost to 
beneficiaries, is it not?
    Mr.  Holtz-Eakin. It is. I mean the core costs are the 
pharmaceuticals, and the deal that can be cut with the 
manufacturers is at the heart of the cost of the program. 
Things that impair the ability of plans to cut good deals are 
going to raise the cost to everybody; beneficiaries, taxpayers, 
it is going to show up somewhere.
    Mr.  Burgess. And I was going to make that point. It is not 
just the beneficiaries, obviously, the person who is ultimately 
paying the bill, which is the United States taxpayer, or our 
generations to follow, since some of it is not paid for 
immediately, they will all be affected by the institution of an 
interference clause where none existed before. Is that a 
correct statement?
    Mr.  Holtz-Eakin. That is correct.
    Mr.  Burgess. So the proposed CMS rule suggests that, for a 
competitive market to function, that they, Centers for Medicare 
& Medicaid Services, have a duty to ensure that there is a 
competitive market, and encourage elements to promote 
competition. So maybe as a professor in economics, you can tell 
us how this interference would promote competition.
    Mr.  Holtz-Eakin. I don't think it is pro-competitive. If 
you take, for example...
    Mr.  Burgess. Well, but between members of Congress, 
wouldn't it?
    Mr.  Holtz-Eakin. Well, just for a second. Just a narrow 
provision, you know, the idea that any pharmacy should be able 
to provide at the terms negotiated between and plan and its 
preferred pharmacy network, there is already competition. 
Anyone can right now go to any pharmacy and get their 
prescription filled. They may not get the terms from the 
preferred network but they can go. That forces those who are 
not in the network to compete on nonpriced grounds; service, 
variety of things in the store, whatever it may be. That is how 
economics works. For them to step in and interfere undercuts 
that competition.
    Mr.  Burgess. And I, again, don't mean to interrupt you, 
but the time will draw short.
    And that competition is what gave us the $4 prescription at 
Wal-Mart, and then other chains followed suit with that. Those 
are indirect effects of the Medicare Part D law that oftentimes 
no one discusses. So----
    Mr.  Holtz-Eakin. Yes, I think that is one of the reasons 
it came in under budget cost. I mean, we thought the 
competitive incentives were quite strong with CVL, we did, but 
a couple of things happened that we didn't anticipate. One is 
we never had any trouble getting sponsors to enter. There was a 
fear of having to have government fallback plans, those were 
priced in there. None of that ever happened, however 
competitive incentives. And the second was the network size, 
the pharmacy and the savings in the pharmacies were bigger than 
we expected.
    Mr.  Burgess. And just as a consequence to that, I mean and 
Mr. Blum testified to the fact that costs came in lower, he 
thought because of generic prescribing. I will tell you that I 
think that generic prescribed existed because of the so-called 
coverage gap, or doughnut hole. Now that we have done away with 
that, or we will do away with that in future years, what is 
going to happen to that driver that kept costs low?
    Mr.  Holtz-Eakin. Well, and I know you are over, but 
briefly, I don't think his reading of the record is correct. 
The biggest difference between the projections and reality was 
lower enrollment. Fewer bodies are cheaper, and that is the top 
thing, not generics. Generics are in there, but there was a lot 
of generic substitution anticipated because a lot of the 
patented pharmaceuticals were going to go off patent over the 
first 10 years. We knew that so that was priced in at the 
outset, so it is not really a surprise in the data.
    Mr.  Burgess. Very good.
    Thank you, Mr. Chairman. I will yield back.
    Mr.  Pitts. The Chair thanks the gentleman. Now recognize 
the gentleman from Texas, Mr. Green, 5 minutes for questions.
    Mr.  Green. Thank you, Mr. Chairman.
    Mr. Baker, you have heard from Mr. Holtz-Eakin's testimony 
certain estimates suggest that a large number of beneficiaries 
would lose their current plan due to CMS' proposal to level the 
playing field for pharmacies wishing to offer preferred cost 
sharing under a plan's preferred network. To me, this doesn't 
sound right. Expanding the availability of pharmacies can often 
reduce cost sharing as long as they can meet negotiated price, 
only seems to expand access to other places. And it is 
reasonable to expect that allowing any pharmacy to match the 
competitive prices offered by preferred pharmacies would result 
in more competition and better access to lower-priced drugs for 
seniors. It also would seem to help beneficiaries who prefer to 
retain trusted relationships with community providers at their 
local pharmacy, as well as beneficiaries who do not have nearby 
access to a big box retailer.
    And my question, Mr. Baker, can you confirm this line of 
reasoning? Has it been your experience that all beneficiaries 
can currently access preferred networks and preferred pricing, 
or are some of them left out in the cold?
    Mr.  Baker. It is our experience that some--in our written 
testimony, our longer, written testimony, we do talk about a 
woman in Maryland who did not, you know, lost access to her 
local pharmacy because they were not able to provide the 
preferred pricing that she could get at another pharmacy where 
she had not had a 40-year relationship with that pharmacy. So 
we do believe that opening up, just as we have any willing 
provider in the general networks in the Part D plans opening 
up, that any willing provider in preferred networks will expand 
options and access for consumers, and we certainly are 
supportive of that proposal.
    Mr.  Green. So you agree with helping beneficiaries get 
access to more pharmacies that provide reduced cost is good for 
those patients?
    Mr.  Baker. Yes, I do.
    Mr.  Green. OK. It seems that pharmacies who have contracts 
today really don't want to compete with community pharmacies 
who are prohibited now. Would you comment on this? Wouldn't 
allowing participating of any pharmacy who can meet the plan's 
terms and prices actually help competition and improve access 
for patients?
    Mr.  Baker. I think that, you know, certainly, as Mr. 
Holtz-Eakin was saying, there are other components on which 
pharmacies can compete at such a service, et cetera, what is in 
the front of the house, as it were, and not at the pharmacy 
counter, but we do believe expanding access by allowing 
community pharmacies and others to be able to match preferred 
prices will spur further competition, and certainly increase 
access and decrease cost for consumers, and hopefully for the 
program itself.
    Mr.  Green. Well, I would have--I think I remember, because 
I was on the committee when we did this in '03, it was a very 
long markup, same with the Affordable Care Act, and I think 
there was an amendment to this effect that was part of that, 
and I am trying to--I will go back and look at the records, but 
I understand that, you know, when we deliver healthcare for 
doctors, you know, the office visit is basically the same, you 
know, if you go have a certain procedure, it is basically the 
same. And, now, granted, we do have preferred providers on 
certain things, but that is not--that is through an insurance 
policy, not necessarily through Medicare, but--so anyway.
    I want to yield back to--yield my time to the ranking 
    Mr.  Pallone. Thank you. Mr. Baker, I wanted to ask, I 
didn't get a chance, that while you have concerns with the 
Protected Classes Policy, you still do believe that many of the 
other provisions in the rule that protect patients should go 
forward, is that correct?
    Mr.  Baker. Yes, we do.
    Mr.  Pallone. All right, thank you. I yield back.
    Mr.  Pitts. The Chair thanks the gentleman. Now recognizes 
the gentlelady from North Carolina, Mrs. Ellmers, 5 minutes for 
    Mrs.  Ellmers. Thank you, Mr. Chairman, and thank you to 
our panel.
    Dr. Holtz-Eakin, I have a question for you that is North 
Carolina-specific. I am very concerned with the number. I think 
with--this proposed rule has a potential of affecting over half 
a million of my seniors. Do you know how many of those 
healthcare plans, I mean in your numbers and in your research, 
do you know how many plans will be eliminated as a result of 
this in North Carolina?
    Mr.  Holtz-Eakin. We have an estimate that we would be 
happy to get to you. When we----
    Mrs.  Ellmers. OK.
    Mr.  Holtz-Eakin [continuing]. Did our analysis, we found 
out the number of beneficiaries in North Carolina----
    Mrs.  Ellmers. Um-hum.
    Mr.  Holtz-Eakin [continuing]. We then looked at the plans 
in North Carolina, especially the large plans, we could 
identify those that had preferred pharmacy networks that would 
be eliminated----
    Mrs.  Ellmers. Um-hum.
    Mr.  Holtz-Eakin [continuing]. Or other plans that would be 
eliminated, and we can get that to you.
    Mrs.  Ellmers. Great, thank you. I would appreciate that. 
You know, there was a Milliman study done, a survey analysis in 
January 2014, CMS Medicare Part D proposed rule, found that 
approximately 12.9 million Medicare Part D beneficiaries 
currently enrolled in preferred pharmacy PDPs may experience 
material premiums and cost-sharing increases in 2015 as a 
result, on average, because of the proposed rule.
    Do you think this is right, is it 12.9 million seniors will 
be affected this way? What are your thoughts on that?
    Mr.  Holtz-Eakin. It doesn't surprise me. I don't know if 
the precise estimates----
    Mrs.  Ellmers. Um-hum.
    Mr.  Holtz-Eakin [continuing]. The right one, but if you 
change the terms the way the rule proposes, there is not really 
anything known as a preferred pharmacy anymore.
    Mrs.  Ellmers. Yes.
    Mr.  Holtz-Eakin. So a plan can't go to pharmacy----
    Mrs.  Ellmers. Pretty much just goes to--yes.
    Mr.  Holtz-Eakin. Right, and so they can't cut as good a 
deal, the----
    Mrs.  Ellmers. Um-hum-
    Mr.  Holtz-Eakin [continuing]. Cost sharing will go away 
and the prices--the net price to consumers will go up.
    Mrs.  Ellmers. Which is exactly what I am hearing today as 
we are doing this subcommittee hearing, is there are 2 trains 
of thought that somehow we are going to be saving money----
    Mr.  Holtz-Eakin. Right.
    Mrs.  Ellmers [continuing]. And yet it is contradicting 
each other, that by doing this we are actually going to be 
saving money, and yet we keep seeing that it is actually not 
going to be the case.
    Mr.  Holtz-Eakin. Right. I would just say that the 
committee, I mean this issue has these 2 sides, which is you 
want to be able to take terms of a contract to another pharmacy 
if you can----
    Mrs.  Ellmers. Um-hum.
    Mr.  Holtz-Eakin [continuing]. Wouldn't that be great, but 
can you cut a deal with as good of terms and----
    Mrs.  Ellmers. Um-hum.
    Mr.  Holtz-Eakin [continuing]. How does that balance out. 
There has been a lot of work done by the Federal Trade 
Commission whose sole mandate is to identify pro-consumer 
aspects of the competition, and they have found these preferred 
networks are very effective in helping beneficiaries and 
consumers. And I think the committee should look at that, and I 
think CMS should look at that one.
    Mrs.  Ellmers. Um-hum. Um-hum. Thank you. Mr. Schmid, you 
know, in my years as a nurse, certainly, one of those groups of 
patients that I have had the honor of taking care of and come 
to know, and their families I have come to know, are our HIV 
and AIDS patients. So first of all, I just want to thank you 
for all of the work that the institution is doing, because you 
are a vital, vital voice in how much treatment has advanced for 
our AIDS patients.
    And I just want to ask your opinion. With the provisions 
that are being put forward in this proposed rule, is this not 
going to have a negative effect on our Medicare Part D patients 
who especially are receiving AIDS treatment?
    Mr.  Schmid. Yes, well, right now they are not proposing to 
eliminate access to antiretrovirals, but as I mentioned in our 
testimony, we are just concerned we could be next. And the 
criteria that they came up with, it was very arbitrary, the 7 
days initiate----
    Mrs.  Ellmers. Um-hum.
    Mr.  Schmid [continuing]. Medication that will result in 
hospitalization or disability for----
    Mrs.  Ellmers. Um-hum.
    Mr.  Schmid [continuing]. A typical patient. They are not 
looking at a Medicare patient. Yes, we are very concerned and--
for the future and the harm that it could have to patients.
    Mrs.  Ellmers. Um-hum.
    Mr.  Schmid. But most immediately, it would have harm to 
those who need immunosuppressants and antidepressants, and in 
the future, antipsychotics. And as I said in my testimony, a 
lot of people with HIV also have mental health issues.
    Mrs.  Ellmers. Yes.
    Mr.  Schmid. And so, you know, around 50 percent. So we are 
very concerned about access for medications for them. And then 
our organizations also advocates for people with Hepatitis----
    Mrs.  Ellmers. Um-hum.
    Mr.  Schmid [continuing]. Who undergo----
    Mrs.  Ellmers. Um-hum.
    Mr.  Schmid [continuing]. Liver transplants, and they need 
immunosuppressants as well.
    Mrs.  Ellmers. Immunosuppressants, absolutely. Thank you.
    And, Mr. Baker, I just have a quick question for you. The 
proposed rule change, CMS actually pointed out that, in this 
discussion that has already gone forward, and hopefully we are 
going to be able to have enough time for a future discussion, 
although I think that that time is falling short. The 
safeguards that are in place, do you feel that these patients 
are being safeguarded enough? And, as we have discussed, the 
idea that we are actually saving money--some of CMS' own 
findings are showing that this is not the case. What do you say 
to that? And I will just make one point that CMS put forward 
April 2013. It basically pointed out, it said negotiated 
prices--pricing for the top 25 brands and 25 generics in Part D 
Program at a preferred retail pharmacy is lower than a 
nonpreferred network pharmacy.
    How do you justify the position that we are actually going 
to be saving money when we are already doing that, but by 
making this proposed rule change, that we will end up saving 
more money?
    Mr.  Baker. I think there are projections and--on both 
sides of the ledger, as it were, from various actuaries. I 
mean, we certainly think that, given the track record that Part 
D has had thus far, and the stewardship that CMS has been 
engaged in, that the proposal will lead to lower costs not only 
for consumers but also for the program itself. And so I think--
and that is because of the--any willing provider that has been 
in the pharmacy network overall, we are thinking that same will 
happen in the preferred network.
    Mrs.  Ellmers. Um-hum. So we are projecting that, but we 
aren't seeing those results though.
    Mr.  Baker. Well, there is a lot of----
    Mrs.  Ellmers. Thank you. And I apologize, Mr. Chairman. I 
have gone over my time.
    Mr.  Pitts. Chair thanks the gentlelady. And now recognizes 
the gentleman from Maryland, Mr. Sarbanes, 5 minutes for 
    Mr.  Sarbanes. Thank you, Mr. Chairman. Thank the panel.
    I wanted to talk first about the consolidation idea which I 
think is a good one. I know the premise of Dr. Holtz-Eakin's 
perspective is that if you reduce the number of options that 
are available, that undermines competition, that ends up being 
a problem in terms of better prices for the program, and a 
better set of offerings for the beneficiary and so forth, but 
in order for there to be a competitive environment, the people 
making the choices have to feel that they can choose 1 over the 
other. And my understanding, Mr. Baker, is that the evidence 
suggests that when seniors have that opportunity to make a 
change, they are so typically overwhelmed by the number of 
options that are available, that they just choose to stick with 
the plan they have. And the competition that you want to 
encourage among the providers, among the plans, is both with 
respect to any new beneficiaries that are coming in, but also 
more so with the existing pool because that is the bigger part 
of the opportunity.
    So if, as a practical matter, seniors are coming and 
saying, well, I am in this plan, and yes, I can go choose a 
different one, but I am not going to sit here and go through 
all of these different offerings, then the market is not really 
working. I mean the assumptions that your perspective are based 
on don't hold. And so if you reduce and consolidate this 
dizzying array of options that are available, you may actually 
get more people choosing something different, which will send a 
signal to the plans that are offering these opportunities that 
they have to compete more robustly.
    Now, moving to the issue of the preferred pharmacy 
providers and so forth. I think it is outrageous that there--
you have independent community pharmacists that are essentially 
being locked out of the opportunity to participate in a 
preferred pharmacy network, even when they are willing to 
accept the same terms. In a way that is happening, and I had 
the benefit of pharmacists in my district in Halethorpe, which 
I represent, a fellow named George Garmer who actually came and 
sat with me and kind of took me through his experience, and it 
may even be that the Maryland woman you are talking about was 
one of his customers, because it sounds very much the same, but 
she really couldn't stick with his pharmacy because the way the 
copayments were being differentiated between those who were 
able to be in the preferred pharmacy network and his situation 
meant that she was going to pay another $300 a year if she 
wanted to continue to go to the pharmacy that she had been 
going to for 40 years, and where she had a relationship.
    So getting to this issue of the market and how it works, 
there is the theory and there is the practice. And I notice 
that in your testimony, you made the statement, Mr. Baker, that 
with this kind of pharmacy provider network manipulation, plans 
distort market behavior by lowering beneficiary cost sharing 
where the full cost of the drug is the same or higher than it 
would be at nonpreferred pharmacy. And this is important. 
Instead of harnessing the power of consumer choice to lower 
costs overall by aligning lower cost sharing with lower total 
costs, the plans divide the interests of individual 
beneficiaries on the one hand, and the Medicare Program on the 
other, in order to increase the profits of related entity mail-
order pharmacies. That is not the way it should work, and I 
just want to give you another opportunity because I feel pretty 
passionately about this, just based on this particular 
constituent who came and brought it to my attention, if you 
could speak again as to why this is a distortion of the market 
that we are supposedly trying to encourage here.
    Mr.  Baker. Right. I think the distortion is exactly as you 
said, and that is that these lower cost sharing for 
beneficiaries into these preferred networks is not matched by, 
in many instances, in some instances by actual lower prices for 
the program. And so you are, you know, steering, if you will, 
beneficiaries to higher cost pharmacies that are either chain 
pharmacies or pharmacies that are wholly or partially owned by 
the plans themselves. And plans are reaping and pharmacies are 
reaping profits from that.
    We really think that the interests of the program and 
beneficiaries should be aligned, not only for lower prices, but 
also because beneficiaries care about the sustainability of the 
Medicare Program and of this benefit, and to the extent that 
there can be that win-win, and also at the same time allowing 
community pharmacists into the equation to provide the services 
that they have been providing, you have more access at lower 
    Mr.  Sarbanes. My time is up, but I will just note that if 
you have more transparency, it will promote better alignment, I 
    Mr.  Baker. Yes.
    Mr.  Sarbanes [continuing]. By definition. Thank you.
    Mr.  Pitts. Chair thanks the gentleman. Now recognizes the 
gentleman from Virginia, Mr. Griffith, 5 minutes for questions.
    Mr.  Griffith. Thank you, Mr. Chairman. And, Mr. Chairman, 
I appreciate you having this hearing, and this is one of those 
hearings where it has put me into a dilemma of sorts because I 
have great concerns that CMS doesn't have the authority to do a 
lot of things that they are doing in this rule-making process, 
and I noted with interest Dr. Gingrey earlier brought up the 
report from the CRS, and one of the things that he didn't 
mention is that what they are attempting to do is to take the 
legislative language and shift an ``and'' to an ``or,'' and 
that causes me as an attorney who believes that the agencies 
ought to do what the law says, and if there is a problem come 
back to us, that they ought not be changing the law 
unilaterally, and that they ought to be exercising the 
constitutional prerogative of bringing their suggestions and 
their recommendations to the United States Congress.
    So on that side, I agree with many of the comments of my 
colleagues on this side of the aisle. On the other side, I 
represent a fairly rural district, and while it may be lowering 
the price somewhat to have the preferred network, if the 
preferred network, the chain pharmacy, is located 20 miles away 
and around the other side of the mountain, I have people who 
aren't being adequately served by this program.
    And so, gentlemen, I ask you, how do we solve that problem? 
How do we solve the problem where we may be getting the price 
down, but we are making it very, very difficult for my 
constituents to get to see the pharmacist who is prescribing 
their drug, and who--and, you know, in these rural areas, 
particularly a rural, mountainous area where they may not have 
but one pharmacy, and if that pharmacy is not in that 
particular town, part of this preferred network, and they have 
to go to the next town over, it may be a good distance. And 
particularly when most of these folks may not really like 
getting out driving, particularly, as we have had this winter, 
a fair amount of snow. How do you solve that problem? And I 
don't mind putting a bill in if that is what you think we need 
to do, but I do think that, Dr. Holtz-Eakin, it may impact the 
pricing somewhat, but there is a big difference between walking 
down the block in New York City and getting from Haysi to 
    Mr.  Holtz-Eakin. I agree with that completely, and I am 
not familiar with your district so I won't pretend too much 
knowledge, but we won't have to solve all problems with the 
same provisions. And the overall goal of this should be to get 
prescription drug coverage at as low cost possible for 
beneficiaries. I mean that is a key feature of the design.
    Now, which vender delivers that, I don't think we should 
have a stake in. Perhaps mail-order is better for some of your 
folks as opposed to traveling at all. Have it delivered to 
their home. We need to make sure that we have a system that 
allows the negotiations to be as intense as possible with the 
manufacturers to get prices down, and then use a variety of 
delivery mechanisms to get them to seniors. And I think that 
should be the overall objective. No question.
    We should trust the seniors to figure it out.
    Mr.  Griffith. Well, of course the problem, in all 
fairness, with mail-order is if you have questions or if you 
have had a little rash that might have been caused by that, 
your pharmacist is in a far better position than your UPS or 
mail deliverer to----
    Mr.  Holtz-Eakin. OK.
    Mr.  Griffith [continuing]. Explain to you that, well, that 
is actually one of the side effects buried way down in the 
notes I have here.
    Mr.  Holtz-Eakin. I would concur, and I----
    Mr.  Griffith. And so that is another problem that I have.
    Mr.  Holtz-Eakin [continuing]. Almost never have a--
discussion. But I guess the second thing I would say is not all 
competition is on prices. We do want low prices, but there are 
many services associated, you know, advice about prescriptions, 
people are worried about seniors being in the right plan, well, 
we trust people to make choices right up to the age of 64 on 
the exchanges, and 65 suddenly they are incapable? I think they 
can probably figure it out, but if they can't, they can talk to 
their pharmacist, am I in the right plan, this what I typically 
have. You know, there are some other aspects----
    Mr.  Griffith. I am running out of time.
    Mr.  Holtz-Eakin [continuing]. That could be----
    Mr.  Griffith. I do want to give Mr. Baker an opportunity 
to resolve the dilemma, and you may want to touch on how the 
CMS has the legal authority to go forward with what they are 
doing, even though I agree with you on the any willing provider 
    Mr.  Baker. I think that 2 things. One is that, certainly, 
there is a balancing here, and the example that we have in our 
testimony was a $300 difference. So I mean I don't think the 
service component allows that person to afford the $300 at the 
local community pharmacy. So I think, once again, the any 
willing provider is, I think, a moderate solution. I mean, I 
think for 2 reasons I am the wrong person to ask about the 
interference piece, one, because I am not--I am a lawyer but I 
am not, I don't think, qualified to do this constitutional 
interpretation, and----
    Mr.  Griffith. But you do agree there is a difference 
between and and or.
    Mr.  Baker. I would agree----
    Mr.  Griffith. As a lawyer, you know there is.
    Mr.  Baker [continuing]. With that.
    Mr.  Griffith. Yes.
    Mr.  Baker. I will agree with that.
    Mr.  Griffith. Yes. Absolutely. And so that is my concern. 
And I hate to cut you off because I am running out of time.
    Mr.  Baker. Sure.
    Mr.  Griffith. I have other concerns about both the rule 
and the fact that maybe it is time for us to take a look at 
some of the things that may be working to a disadvantage. I 
have another letter here from one of my pharmacists who is in a 
specialized area, and they can't even figure out what they are 
going to get paid until after they have already provided the 
drug because of the way the system is set up, but that--I will 
have to deal with that another time because my time is out.
    I do appreciate it. I have been--this hearing--totally, Mr. 
Chairman, I have been educated even more on this subject 
matter, and do appreciate it, and that is why we have these 
discussions and it is good to have.
    Thank you, sir, and I yield back.
    Mr.  Pitts. Chair thanks the gentleman, and we will provide 
questions to you, if you will please respond in writing 
    I remind members that they have 10 business days to submit 
questions for the record. And I ask witnesses to respond 
promptly. And members should submit their questions by the 
close of business on Wednesday, March 12.
    Dr. Burgess, you have a unanimous consent request?
    Mr.  Burgess. Yes, Mr. Chairman. I have an opinion piece 
from June of 2012 that almost prophetically foretold the 
problems that would be visited upon the Part D Program by the 
Affordable Care Act, and I would like to submit that for the 
record. It was a very insightful piece that was written.
    Mr.  Pitts. Without objection, so ordered.
    [The information follows:]


    Mr.  Pitts. This has been a very informative hearing, very 
important issue. Thank you very much for your----
     Voice. Thank you.
    Mr.  Pitts [continuing]. Patience.
    Without objection, the subcommittee is adjourned.
    [Whereupon, at 1:24 p.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]