[Senate Hearing 113-799]
[From the U.S. Government Publishing Office]





                                                        S. Hrg. 113-799

   TEN YEARS LATER: A LOOK AT THE MEDICARE PRESCRIPTION DRUG PROGRAM

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

                                HEARING

                               BEFORE THE

                       SPECIAL COMMITTEE ON AGING

                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS


                             FIRST SESSION

                               __________

                             WASHINGTON, DC

                               __________

                        WEDNESDAY, MAY 22, 2013

                               __________

                            Serial No. 113-5

         Printed for the use of the Special Committee on Aging



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                       SPECIAL COMMITTEE ON AGING

                     BILL NELSON, Florida, Chairman

RON WYDEN, Oregon                    SUSAN M. COLLINS, Maine
ROBERT P. CASEY JR, Pennsylvania     BOB CORKER, Tennessee
CLAIRE McCASKILL, Missouri           ORRIN HATCH, Utah
SHELDON WHITEHOUSE, Rhode Island     MARK KIRK, Illinois
KIRSTEN E. GILLIBRAND, New York      DEAN HELLER, Nevada
JOE MANCHIN III, West Virginia       JEFF FLAKE, Arizona
RICHARD BLUMENTHAL, Connecticut      KELLY AYOTTE, New Hampshire
TAMMY BALDWIN, Wisconsin             TIM SCOTT, South Carolina
JOE DONNELLY Indiana                 TED CRUZ, Texas
ELIZABETH WARREN, Massachusetts
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                  Kim Lipsky, Majority Staff Director
               Priscilla Hanley, Minority Staff Director
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
               
                                CONTENTS

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                                                                   Page

Opening Statement of Chairman Senator Bill Nelson................     1
    Prepared statement...........................................     2
Statement of Ranking Member Susan M. Collins.....................     3

                           PANEL OF WITNESSES

Margaret Woerner, Medicare Beneficiary and Helpline Volunteer, 
  Medicare Rights Center.........................................     5
Jack Hoadley, PhD, Research Professor, Health Policy Institute, 
  Georgetown University..........................................    11
Richard Smith, Executive Vice President for Policy and Research, 
  Pharmaceutical Research and Manufacturers of America...........    20
Robert G. Romasco, President, AARP...............................    45

                                APPENDIX
                      Prepared Witness Statements

Margaret Woerner, Medicare Beneficiary and Helpline Volunteer, 
  Medicare Rights Center.........................................     7
Jack Hoadley, PhD, Research Professor, Health Policy Institute, 
  Georgetown University..........................................    14
Richard Smith, Executive Vice President for Policy and Research, 
  Pharmaceutical Research and Manufacturers of America...........    22
Robert G. Romasco, President, AARP...............................    47

                  Additional Statements for the Record

National Committee to Preserve Social Security & Medicare........    82
The National Association of Chain Drug Stores....................    84
MARPx Coalition Principles for Prescription Drug Benefit Design..    89
Pharmaceutical Care Management Association.......................    93
Ron Pollack, Executive Director, Families USA....................    98

 
   TEN YEARS LATER: A LOOK AT THE MEDICARE PRESCRIPTION DRUG PROGRAM

                              ----------                              


                        WEDNESDAY, MAY 22, 2013

                                       U.S. Senate,
                                Special Committee on Aging,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 2:33 p.m., in 
Room 366, Dirksen Senate Office Building, Hon. Bill Nelson, 
Chairman of the Committee, presiding.
    Present: Senators Nelson, Wyden, Warren, Collins, and 
Ayotte.

       OPENING STATEMENT OF SENATOR BILL NELSON, CHAIRMAN

    The Chairman. Good afternoon. In the interest of time, 
since a vote will be called at 3:40, Senator Collins and I are 
going to forego the opening statements, and so we will get 
right in with your testimony. We will insert our statements in 
the record.
    [The prepared statement of Chairman Nelson follows:]
    
    
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    [The prepared statement of Senator Collins follows:]
    
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    The Chairman. Let me, first of all, introduce you all 
before.
    We are going to hear from Margaret Woerner. Ms. Woerner--
Dr. Woerner--is a Medicare beneficiary herself, and she has 
volunteered at the Medicare Rights Center in New York City for 
the past eight years. In this capacity, she has listened to 
other beneficiaries and their families, and provided them with 
information on a wide variety of issues. Being a volunteer and 
a beneficiary, Dr. Woerner has a unique perspective on Medicare 
Part D.
    Jack Hoadley--Dr. Hoadley--is a research professor at the 
Health Policy Institute at Georgetown. Recently, Dr. Hoadley 
has studied various aspects of Medicare Part D, including the 
spending trends and the use of formularies. Dr. Hoadley was 
also recently appointed to a three-year term as a member of the 
Medicare Payment Advisory Commission.
    And, Richard Smith, Executive Vice President for Policy and 
Research at the Pharmaceutical Research and Manufacturers 
Association--Mr. Smith has worked extensively in health care.
    And, Robert Romasco, he is the President of AARP.
    And so, this is a distinguished panel.
    And because, Senator Wyden, I said we are going to forego 
the opening statements since we have a vote coming up, we will 
get right with the witnesses.
    So, Dr. Woerner, we will start off with you.
    Your full statement will be placed in the record, and if 
you all could give us about a five-minute summary, we would 
appreciate it. Thank you so much.

    STATEMENT OF MARGARET WOERNER, MEDICARE BENEFICIARY AND 
           HELPLINE VOLUNTEER, MEDICARE RIGHTS CENTER

    Ms. Woerner. My name is Margaret Woerner. I am a Medicare 
beneficiary and have been a helpline volunteer for the past 
eight years at the Medicare Rights Center in New York City.
    The Medicare Rights Center is a national nonprofit 
organization that works to ensure access to affordable health 
care for older adults and people with disabilities.
    As a volunteer, I provide information and counseling to 
Medicare Part D beneficiaries and their family members on a 
variety of issues. This work is deeply gratifying because I can 
help people solve very real life problems.
    I have seen the positive impact that access to prescription 
drug coverage under the Part D benefit has had for so many 
older adults and people with disabilities. Yet, while these 
benefits are undeniable, many barriers to accessing needed 
medications still exist. I believe that the Part D benefit can 
be made even stronger by addressing these issues.
    I speak to countless beneficiaries who go to the pharmacy 
to fill a prescription only to find that their Part D plan 
refuses to cover the medication. When this happens, most 
beneficiaries leave the pharmacy empty-handed and without 
answers.
    Upon calling the plan, they are given any number of reasons 
for the denial. For example, the plan wants them to try a less 
expensive drug first, the drug is not on the plan's formulary, 
or the drug is being taken for an off-label indication.
    Yet, before a beneficiary can even begin to appeal to have 
the drug covered, I must counsel that she first must request a 
written coverage determination from her plan and include a 
letter of support from her doctor. Many of the people I speak 
to have not received instructions from their plan on how to do 
this.
    Callers often express frustration at the need to jump 
through so many hoops. Because of these hoops, some will try to 
pay for the prescriptions out of pocket; others will simply go 
without their medication because they cannot afford it.
    I helped a 75-year-old woman living in Florida who received 
a denial notice from her Part D plan, stating that they would 
not authorize a drug for her rheumatoid arthritis without 
additional medical information. When she had previously been 
living in Ohio, this same plan covered the same drug. So she 
was quite confused and upset as to why they would not fill this 
prescription this time. She left the pharmacy without her 
medicine, and it took four weeks for her to get the 
prescription covered. In the meantime, she had to suffer 
through the pain and inflammation caused by her arthritis.
    The large number of plans available and the frequent plan 
changes from year to year make it nearly impossible for many of 
our callers to make the right decision about enrolling in a new 
Part D plan or keeping their existing plan.
    I have found that from year to year my own out-of-pocket 
costs for the same coverage and for the same medications can 
vary greatly from plan to plan.
    I speak to many beneficiaries who attempt to understand 
their coverage before they enroll only to find out after they 
have enrolled that their medication is subject to numerous 
restrictions or that their costs are much higher than they can 
afford.
    To get the most out of your coverage, you must know the 
differences between preferred brand name drugs versus 
nonpreferred brand name drugs versus preferred generic drugs 
versus nonpreferred generic drugs versus specialty drugs; you 
must know how to obtain your drugs from preferred in-network 
pharmacies versus nonpreferred in-network pharmacies versus 
mail-order pharmacies; and, of course, you must know whether 
your drugs are subject to any restrictions.
    Part D has done many good things for older adults and 
people with disabilities, but there is much more that can be 
done to improve the program.
    Thank you for the opportunity to testify about my 
experience helping people with Medicare Part D.
    [The prepared statement of Ms. Woerner follows:]
    
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    The Chairman. Thank you, Dr. Woerner, and we are looking 
forward to some questions as we dig into this issue of the 
Medicare prescription drug benefit.
    Dr. Hoadley.

 STATEMENT OF JACK HOADLEY, PH.D., RESEARCH PROFESSOR, HEALTH 
            POLICY INSTITUTE, GEORGETOWN UNIVERSITY

    Mr. Hoadley. Thank you, Mr. Chairman, and thank you, 
members of the Committee. I do appreciate this opportunity to 
talk about my ongoing research work on the record of Part D 
over the 10 years since the law was passed, and that is the 
occasion for this hearing.
    Part D really marked several firsts in Medicare. It was the 
first outpatient drug coverage for Medicare beneficiaries, 
something that was not included in the original program; the 
first part of Medicare solely available through private plans 
and not part of the Fee-For-Service system; the first time 
Medicare had provided direct assistance to low-income 
beneficiaries not relying on Medicaid to provide that 
assistance; and an unusual benefits structure with a gap in 
coverage, also known as the donut hole.
    As we look at the record of Part D over the time since it 
started, there are some important successes but some ongoing 
issues and concerns, and I want to mention a few of each; 
first, the successes.
    The cost of Part D has been 30 percent lower than the 
initial budget projections, and that is a really important 
thing, something we do not often get to talk about. This is not 
so much a result, in my view, of plan competition as some have 
argued. But the program has been able to take advantage of the 
lower spending trend on prescription drugs over this period of 
time and the increased use of generic drugs as many of the 
popular drugs that people take have gone off formulary and have 
become available as generics. Lower enrollment has also been 
somewhat of a factor although not one of the ones that we 
should be so happy with.
    A second success is that enrollees in Part D have had 
reduced out-of-pocket spending and increased access to their 
needed drugs, and the research record is really very supportive 
of this finding.
    Third, Congress has taken steps to fix the most important 
design flaw in the program--that donut hole that I referred to 
earlier--and that is still on schedule to be phased out by 
2020. That means that people are not running into the problems 
of having to stop their drugs when they hit that donut hole as 
they did before, and once it is phased out, that issue will 
really have gone away.
    Fourth, the program's start back in 2006, despite a lot of 
initial concerns, went relatively smoothly. And while there 
were glitches along the way and glitches continue, in many 
cases during that initial rollout, problems were fixed and 
resolved, and we ended up with people enrolled in the program.
    But issues do remain. Although Congress and the CMS have 
made important adjustments, there is still room for 
improvement, and again, I want to highlight four areas.
    First, Part D remains complex and confusing to many 
beneficiaries as you just heard discussed a bit. Despite some 
really important CMS efforts to streamline the program, there 
are still too many plans with too many complicated differences 
that are hard for people to understand.
    People really regularly report that it is a confusing 
benefit. As a result, people do not always pick the plan that 
is best for them, and furthermore, they do not always look at 
alternative plans during the open enrollment period that might 
save them money and put them in a better situation.
    Second, not every Medicare beneficiary has drug coverage. 
It appears from the best available data that 10 percent--1 in 
10 beneficiaries--do not have adequate drug coverage, do not 
have Part D or some other equivalent coverage that is as good 
or better than Part D. We do not fully understand who those 
people are and why that has happened, but that is something we 
really need to redouble efforts to make sure everybody who 
needs that benefit really has access to it and gets it.
    Third, there are some important issues remaining with the 
low-income subsidy program. It has been a very powerful program 
and a big help to people who get the subsidy, but of the people 
who have to apply on their own and do not automatically get the 
subsidy through Medicaid, only 40 percent of those required to 
apply actually have done so and gotten the low-income subsidy. 
So more than half of people that we think are eligible are not 
enrolled in the subsidy, and that means they are not getting 
the extra help they are entitled to.
    Furthermore, those with the subsidy generally must switch 
plans on a fairly regular basis in order to gain all the 
benefits of the subsidy--for example, to keep a plan with no 
premium charge. Right now, we know that 1.6 million 
beneficiaries who are part of the low-income subsidy program 
are actually paying a premium to stay enrolled in Part D, 
something that they would not have to do if they were to switch 
to one of the eligible plans.
    But even the fact of switching to other plans--and CMS does 
reassign quite a few people each year--means that people's 
existing coverage is disrupted; they run into formulary issues, 
drugs that used to be covered that are not anymore and this 
sort of thing.
    So there is a problem sort of with both ways, and again, 
there are things that we could probably do to address some of 
these things.
    Fourth, although the cost has been below projections, 
spending trends in the future could add cost pressures. The 
wave of patent expirations that has been responsible for 
keeping spending down is slowing, and so that is going to mean 
we will not get the advantage of that in the future.
    And a lot of the new drugs on the market tend to be 
expensive specialty drugs--drugs that come at a high price tag. 
They are important therapies, and beneficiaries need 
appropriate access to those drugs, but they are going to be 
expensive drugs.
    And there are policy levers available, going everywhere 
from more availability of follow-on biologics--and there have 
been some steps taken in that direction--the potential to use 
the Part D rebates that the Chairman and others on the 
Committee have supported, and better medication therapy 
management by plan to try to make sure there is appropriate use 
of those drugs.
    And I could add some of the points that Dr. Woerner talked 
about--about the appeals process.
    The bottom line is that we can point to some clear 
successes in the program, but it is critical we not rest on the 
record of its success and address some of the outstanding 
issues.
    And, just as one last point, let me observe that the 
experience in launching this program may also offer some really 
valuable lessons to the launch of the insurance exchanges this 
fall, and I would be glad to talk more about that in response 
to questions.
    [The prepared statement of Mr. Hoadley follows:]
    
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    The Chairman. Dr. Hoadley, thank you for the value of your 
research.
    Mr. Smith.

STATEMENT OF RICHARD SMITH, EXECUTIVE VICE PRESIDENT FOR POLICY 
  AND RESEARCH, PHARMACEUTICAL RESEARCH AND MANUFACTURERS OF 
                            AMERICA

    Mr. Smith. Mr. Chairman, Ranking Member Collins and 
members, good afternoon.
    Medicare Part D has been highly successful. And, like my 
colleagues, I will come to a few points where we believe 
improvements can be made, and some of those will echo the 
points they have made, but overall, it has been highly 
successful.
    Nine in ten seniors have drug coverage. Ninety-four percent 
are satisfied with their coverage as reported by MedPAC.
    Program costs are 45 percent less than initially projected 
as we have worked with the CBO data, and average monthly 
premiums, which remained at about $30 from 2011 through 2013, 
are half the original forecast.
    Medicines, of course, play a central role in fighting 
disease, especially for seniors. Yet, they are a modest part of 
health spending. Part D accounted for only 10 percent of 
Medicare costs in 2012.
    In addition, growth in spending has been acknowledged. 
Growth in spending on medicines has undergone a sharp and 
sustained slowdown in recent years. In each of the last 3 
years, CBO has reduced its 10-year forecast for Part D by over 
$100 billion.
    And Part D is responsible for much of the overall slowdown 
in Medicare spending. Further, CMS says its spending per person 
in Part D will grow 1.8 percent in 2013, and marketwide, 4 of 
the 5 years with the lowest prescription drug spending growth 
have occurred since Part D began in 2006.
    One reason for slow growth in drug costs is the 
prescription drug life cycle in which brand companies develop 
medicines which later become generics, and here, I have a 
slight disagreement with my co-panelist. I believe that the 
market works to obtain maximum savings from the life cycle.
    Four out of five prescriptions are now filled with 
generics, and this system is unique to medicines. It contains 
costs and allows resources to be reallocated from older to 
newer treatments. Due to the life cycle, between 2006 and 2010, 
the average cost per day in 10 commonly used classes of 
medicines in Part D dropped from $1.50 to $1.00.
    Medicines can also help reduce other health costs. In 
November, CBO announced it will credit policies that increase 
use of medicines with savings on other Medicare services. In 
making this change, CBO cited research finding that in its 
first full year Part D reduced nondrug medical costs for 
beneficiaries who previously had no or limited coverage by an 
average of $1,200. This equaled about $13 billion in savings in 
2007.
    And new research suggests even greater potential. For 
instance, increased adherence with medicines for congestive 
heart failure could save Medicare $22 billion in the coming 
decade.
    Part D's competitive structure is a large part of the 
reason for its success. Part D plans bid competitively. These 
organizations already buy drugs on behalf of tens of millions 
of people in the commercial sector and use their clout and 
specialized expertise to negotiate discounts that lower Part D 
premiums and beneficiary cost-sharing. And, likewise, 
beneficiaries have an incentive to pick plans with low premiums 
and good coverage.
    And I will be glad to come back and address that in 
questions.
    Some suggest that more savings could come from Part D 
through government negotiation. We disagree. Because of the 
robust price negotiations by private plans already built into 
the program, CBO has consistently found that giving the 
government authority to negotiate would have a negligible 
effect on Federal spending unless the Secretary imposed new 
restrictions on access to medicines.
    Some have also proposed that imposing Medicaid's price 
controls are mandated rebates on medicines used by low-income 
Medicare beneficiaries. Proponents of this suggest it would 
simply be a return to the pre-Part D status quo, and I believe 
that is not accurate.
    First, the policy, as proposed, would apply to millions of 
people who were never eligible for Medicaid drug coverage.
    Second, Part D extended negotiated discounts to 11 million 
people who previously did not have them. It also increased 
generic use and led to new cost containment tools that have now 
been spread throughout the market.
    Third, there have been major policy changes since 2006. The 
BIO-PhRMA sector now pays a higher Medicaid rebate, a fee to 
the Medicaid Trust Fund and 50 percent discounts in the 
coverage gap. Analysts estimate these new costs add over $100 
billion over 10 years.
    And analysts, including a former CBO director and former 
CMS chief actuary, see mandated rebates as leading to higher 
premiums fewer plan choices and more restrictive formularies in 
Part D.
    Researchers have also found that price controls would 
discourage R&D investment in new medicines at great cost to 
private health, and CBO has noted that Part D rebates could 
discourage R&D investment in medicines mostly used by seniors.
    The U.S. leads the world in drug development, and the BIO-
PhRMA sector is one of the most R&D-intensive in the economy, 
accounting for 20 percent of all business-funded R&D in the 
United States. In addition to improving medicines that improve 
lives, R&D is widely recognized as driving economic growth.
    I will conclude by noting that, like any program, 
improvements could be made in Part D. For instance, not all 
eligible individuals are enrolled, as my colleagues have 
pointed out. Seniors could be encouraged to shop more among 
plans and be supported in that shopping to make good choices. 
And there could be improvements in medication therapy 
management in the specialty tier. However, program improvement 
should not undermine the hallmarks and successes of Part D.
    Continued innovation is challenging. There is a lot more to 
be done. Consider that without new treatments to alter the 
course of the disease, Alzheimer's will cost Medicare and 
Medicaid $300 billion annually by 2030. None of us want that to 
happen. So hope for the future lies with continued innovation.
    And I appreciate your invitation to testify.
    [The prepared statement of Mr. Smith follows:]
    
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    The Chairman. Thank you, Mr. Smith, and congratulations on 
your industry developing extraordinarily wondrous new drugs. 
And this will continue.
    Mr. Smith. Thank you, sir.
    The Chairman. Mr. Romasco.

        STATEMENT OF ROBERT G. ROMASCO, PRESIDENT, AARP

    Mr. Romasco. Chairman Nelson, Ranking Member Collins, 
Senator Warren, my name is Rob Romasco. I am a member of AARP's 
all-volunteer board of directors, and I proudly serve as AARP's 
president.
    On behalf of AARP's more than 37 million members, we thank 
you for holding this hearing on the Medicare Part D 
Prescription Drug Program.
    As we approach the tenth anniversary of the Medicaid 
Modernization Act, Part D is helping millions of Medicare 
beneficiaries afford the prescription drugs they need.
    AARP continues its strong support of the Medicare drug 
benefit, which provides help to older Americans, those with 
disabilities and those with low incomes or catastrophic drugs 
costs. Part D has improved their access to prescription drugs. 
Prescription drug coverage plays a vital role in the health and 
financial security of older Americans. Part D has been a true 
success in helping seniors get and stay healthy.
    As part of the Affordable Care Act, the initial Part D 
coverage gap is slowly being eliminated through escalating 
discounts. According to CMS, these changes have helped save 
people more than $5.1 billion on prescription drugs.
    Chairman Nelson, I would like to take this opportunity to 
thank you for your support of this key provision of the ACA.
    The Part D is coming under budget. We have heard the 
estimate is 30 percent lower than CBO's projection 2003. Last 
year, CBO acknowledged that taking medications helps prevent 
hospital admissions and reduces the use of other medical 
services. This shows the importance of Part D in helping 
control spending in the Medicare program and, critically, 
offers a path to controlling costs throughout the entire health 
care system.
    Among the most important protections in Part D is the extra 
help provided by the low-income subsidy to help those least 
able to afford their drugs.
    Amid the successes of Part D, however, we see opportunities 
for improving the program.
    Our members, especially Medicare beneficiaries, still tell 
us they continue to struggle to afford prescriptions. The Asset 
Test is a particular concern. To be eligible for the low-income 
subsidy in 2013, beneficiaries cannot have $1 more than $13,300 
in savings. This is hardly enough to get through the years of 
retirement, and that is why AARP has consistently opposed the 
Asset Test.
    Also, AARP believes recent recommendations to modify 
prescription drug co-payments for low-income beneficiaries may 
be premature. Instead, we recommend further research to help 
understand what is driving utilization and to ensure that any 
changes in the LIS benefit will not interfere with access to 
necessary drugs.
    Also, Part D enrollees are faced with increasing cost-
sharing as the drug plans get more complex, with more cost-
sharing tiers and increased cost-sharing for both preferred and 
nonpreferred brand name drugs.
    Further, AARP does not support making Part D enrollees pay 
higher premiums based on their income. Seniors in Medicare have 
already paid into the system through payroll taxes, and those 
with higher incomes paid more over their lifetimes. In many 
cases, seniors with higher incomes are still working and 
continue to pay Medicare taxes often because they do not have 
the savings they need to retire.
    AARP is concerned that those with higher incomes may simply 
choose not to participate in Part D, fundamentally changing the 
nature and quality of the program.
    We do, however, recognize we must take steps to reduce 
costs. AARP urges Congress to enact legislation that will lower 
overall costs in Part D rather than simply cost-shifting to 
older Americans and asking them to pay more for their care.
    In that vein, we strongly support the Medicare Drug Savings 
Act which would require prescription drug manufacturers to 
provide rebates for drugs provided to low-income beneficiaries 
dually eligible for Medicare and Medicaid. This would restore 
savings they received prior to the enactment of MMA. This 
legislation is estimated to save $141 billion over the next 10 
years.
    AARP looks forward to working with all members of Congress 
to enact this sensible legislation to improve fiscal stability 
of Medicare while protecting beneficiaries.
    We have also consistently supported legislation that would 
enable the Secretary of HHS to use the bargaining power of 
Medicare's 49 million beneficiaries to negotiate lower drug 
prices.
    Further, we support reducing the market exclusivity period 
for biologic drugs from 12 to 7 years. This could save billions 
for beneficiaries, the Medicare program, for employers and for 
health care payers.
    In conclusion, we should focus on efforts to hold down 
costs, not simply shift costs in the form of either higher 
premiums or co-payments for Medicare beneficiaries.
    We look forward to working with members of Congress on both 
sides of the aisle to improve Part D and find ways to keep drug 
coverage affordable for people with Medicare.
    Thank you very much.
    [The prepared statement of Mr. Romasco follows:]
    
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    The Chairman. Thank you to all of you.
    We are going to get into questions, and it will help flesh 
out, since Senator Collins and I did not make an opening 
statement, setting the table for the discussion today. And I am 
going to defer my questions until our colleagues have asked 
theirs.
    Senator Collins.
    Senator Collins. Thank you very much, Mr. Chairman. Let me 
begin by commending you for holding this series of hearings as 
we approach the 10th anniversary of the Medicare Modernization 
Act of 2003.
    I was proud to vote for that legislation, and I think that 
it is possibly--no, I am going to go out on a limb here and say 
it is the only entitlement program in history where the actual 
experience has produced much lower costs both for the 
government and for beneficiaries than was initially estimated. 
Usually, it goes the other way when we create a new benefit. So 
that is good news indeed as is the high satisfaction rate.
    Nevertheless, there are some very important issues that we 
need to explore as we approach the tenth year of this program.
    Dr. Woerner, I was very interested in hearing your 
experience in counseling beneficiaries. Many Part D plans now 
use medication utilization management tools such as prior 
authorization, medication substitution or quantity limits that 
restrict a beneficiary's access to prescription drugs.
    I have heard concerns from my constituents that some drug 
plans have what I refer to as a Fail First Policy in which a 
beneficiary may be prescribed a more expensive medication but 
first has to use a lower cost drug or a plan-preferred 
medication and actually experience the failure of that 
medication before they are allowed to use the medication that 
their doctor wanted to prescribe in the first place.
    I know of an elderly woman in Maine who had the experience 
of having side effects from a drug that was the lower cost drug 
and had a terrible cough for a month from it. When she was able 
to switch to the drug that her doctor originally prescribed, 
she was fine.
    Is this common in your experience?
    And do you have any suggestions--and I am going to ask all 
of you this question. Do you have any suggestions for how we 
can strike the right balance between making sure that plans do 
have the ability to legitimately control costs and yet not put 
our seniors through a situation where they are going to have to 
experience the failure of a drug before they can get the drug 
their doctor knew was the preferred medication in the first 
place?
    Ms. Woerner. You have it exactly right, Mrs. Collins. We 
get many, many calls from people who have gone through that 
process. Their doctor has prescribed a drug, and the plan says 
before we will cover that drug you must try sometimes two or 
three other drugs.
    Now very often the caller will tell me, I have tried those 
drugs, and I had a terrible rash when I got that, or I had a 
terrible intestinal problem.
    They have already been through those, but in order to 
convince the plan they need to get documentation from the 
doctors who prescribed those earlier medications. That is not 
always possible or certainly not always easy to do.
    So I would say that is a very common problem among the 
callers that we get.
    Senator Collins. Thank you.
    Ms. Woerner. I am not sure I have the ability to answer the 
question of how to improve the lot of these people who really 
need the drug that the doctor has prescribed and still have 
some cost containment issues.
    Senator Collins. Let me ask the rest of your panelists.
    It is very good to have you verify that you get those kinds 
of calls that my office does too, and we have gotten them even 
when the physician has written the letter saying the person 
needs this particular drug.
    Why don't I just quickly go down the panel?
    Dr. Hoadley.
    Mr. Hoadley. Yes, I think that there are some potential 
things you can do, and one of the things is just to understand 
how often this happens. We know; we have good data on how many 
drugs these limits apply to. What we do not know is how many 
people run into these issues in a simple way and how many run 
into them in a way that is more complicated and takes more 
steps to resolve. So just more information would be better.
    I think plans could be forced to target these measures 
better. There are some cases where there probably are 
appropriate measures. There are safety issues in some cases, 
and in those situations, certainly, there should be--these 
measures are appropriate. But if plans targeted them to a 
smaller, more select set of drugs, that would probably help.
    We also need clearer and simpler processes, both to go 
through this and to appeal it. But you hear the same thing from 
doctors; you know, the paperwork involved to request one of the 
exceptions or an authorization or to document that fail first 
or step therapy kind of situation is a real burden on doctors.
    And my last comment, I guess, goes exactly to this point 
that you were talking about a moment ago, which is you have 
already tried that drug before. And a better method to track 
this, certainly in one specific area, is if a person moves from 
Plan A to Plan B, that information that they tried and proved 
that information to Plan A should be carried along to Plan B. 
Obviously, if somebody is new to the program, then you are 
going to have to involve the doctor in some way. But a better 
way to carry the history forward--and maybe with some of the 
electronic tools we have got more ability to do that than we 
did in the past.
    But I think there are things that are not easy, simple 
solutions, however.
    Senator Collins. Thank you.
    Mr. Smith. Thank you, Senator.
    I will start exactly where Dr. Hoadley left off.
    I think that there is a real opportunity to improve the 
situation by bringing along information as individuals transfer 
among plans, and that is something that we have supported. And 
that also gives plans--the new plan--an opportunity to look at 
the full range of utilization and see if there are other issues 
that need to be worked out. So I think that would be a step 
forward for the program and for beneficiaries.
    I will also note that CMS has looked at some plan 
practices, and its call letter this year indicated that, you 
know, there are some instances in which we think you are 
overdoing it and we really do not want to see that. I think it 
leaves plenty of leeway for the plans without overdoing it.
    And it may be that we should be looking more to identify 
are there plans that are outliers; are there plans where we are 
seeing a particular pattern of problems, and then really 
looking intensively.
    And then, finally, I would say that it may be--and here, I 
am quite honestly thinking out loud. It may be that we should 
think that in some instances maybe the presumption should be in 
favor of the beneficiary so they do not have to fail first, and 
then you can unwind the issue later on.
    Senator Collins. Thank you.
    I know my time has expired, but I am going to ask for the 
record if you would provide me with AARP's----
    The Chairman. No, go ahead.
    Senator Collins. Thank you.
    Mr. Romasco.
    Mr. Romasco. Thank you, Senator.
    I think a lot of the things we are hearing here are 
transparency, information, portability.
    And one thing AARP has always supported is the primacy of 
the relationship between the doctor and the patient. My 
personal experience is the doctor understands what I need and 
what I have done before. And the only thing I would add is they 
make good judgments based on the total cost and impact.
    Studies at Johns Hopkins have shown when physicians see the 
total cost impact they make a good judgment--what is best for 
you medically combined with what the cost is.
    So I think those things, in combination with what my fellow 
panelists would do, would improve the situation.
    Senator Collins. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Senator Warren.
    Senator Warren. Thank you, Mr. Chairman. Thank you, Ranking 
Member Collins. I really appreciate your having this hearing.
    And thanks to all of you for being here.
    Now I want to look at another part of this. According to 
CMS, 93 percent of traditional Medicare spending goes toward 
the care of beneficiaries with multiple chronic conditions, and 
prescription drugs are clearly a vital part of their care. They 
allow us to manage successfully many chronic diseases, thanks 
in part to up-front investments and innovation in the 
pharmaceutical and biotechnology industries.
    But, unfortunately, just because a drug is prescribed does 
not mean a drug is actually taken according to the terms of 
that prescription, and this matters when we are trying to get 
better outcomes at lower costs across our health care system.
    I understand--and I think you alluded to this study; it may 
have been you, Mr. Smith--a study by Rand researchers found 
that patients at high risk for cardiovascular disease who 
reliably took their cholesterol-lowering drugs had about 35 
percent fewer hospitalizations compared with those who did not. 
That is a really remarkable difference just brought on by 
taking your drugs.
    And I understand the new CBO study shows that increased 
prescription drug use actually reduces the cost of other health 
care services.
    So one important way to improve effective drug use is 
through the medication therapy management programs that you 
spoke about. Medicare Part D plans, as I understand it, require 
these programs for seniors and those with multiple chronic 
conditions to help with their medication regimens, hopefully, 
increasing adherence and assuring that the drugs that are 
prescribed are taken effectively for each individual.
    But what I want to know is, how can we improve on the 
medication therapy management programs and if there are other 
evidence-based strategies that we might employ to get more 
people taking their prescription medication successfully?
    Mr. Smith, could I start with you on that?
    Mr. Smith. Certainly, Senator. Thank you very much for the 
question.
    This is an area that I think has tremendous potential, and 
it is one of those areas in health care where you can say, you 
know, we can actually get the cost savings we all want with 
better outcomes for the beneficiary. And you really cannot 
argue with that.
    So, in terms of medication therapy management programs, we 
are very encouraged to see CMS publish the first study this 
year about the experience with medication therapy management 
programs in Part D, and it found that for COPD and congestive 
heart failure the medication therapy management programs were, 
in fact, helping lower hospitals costs. So that is really good 
news--better quality care, lower costs overall, better results 
for the beneficiary.
    Senator Warren. And, Mr. Smith, let me just interrupt just 
for one second just because I want to make sure I understand.
    Mr. Smith. Yes.
    Senator Warren. It is lower cost on those two diseases----
    Mr. Smith. Yes.
    Senator Warren [continuing]. Because those were the two 
studied----
    Mr. Smith. Yes.
    Senator Warren [continuing]. Not because they found that 
there were not lower cost in other areas.
    Mr. Smith. Yes, I believe that is right.
    So I think a couple of points, and I will leave lots of 
time for my colleagues.
    A couple of points that I would suggest are I think we 
actually need a lot more research. We need to know more about 
what is going on with the medication therapy management 
programs, which strategies seem to work well, under what 
circumstances, so that there can be broader learning and we can 
take advantage of this opportunity.
    You asked about other strategies. One that might be related 
to taking advantage of medication therapy management that has 
attracted a good amount of interest lately is called 
synchronization.
    So you may have a senior who is taking five different 
medicines. They have to go to the pharmacy five different times 
during the course of a month.
    If you put it all together--and there is now software that 
will do it--you get a couple of benefits. The senior only has 
to go once, and you see all of those prescriptions together. 
So, if there are any issues in the contraindications among the 
medicines and so forth, you have an opportunity to take care of 
them.
    So I think looking at strategies like that--learning more 
about how MTMP is working and how its successes can be 
extended--is important.
    And we also need to learn why CMS reported that a fair 
number of seniors who were contacted for medication therapy 
management were not taking advantage of the opportunity 
offered. We need to learn about that so that we can work 
through it.
    Senator Warren. Good, very helpful.
    Mr. Romasco, would you like to add?
    Mr. Romasco. Just a couple of thoughts--one is I think 
everything Mr. Smith said is worthy of that, but the first 
barrier to compliance is making sure you can afford the drug in 
the first place, which is why a lot of the suggestions that we 
make here focus on keeping the costs down and potentially 
lowering the cost--because that is the first barrier, because 
the number of stories of people actually noncomplying on a 
conscious level, to basically spread their Lipitors over 60 
days versus 30 days, is unfortunately all too common.
    The second thing is compliance is habit-forming. Basically, 
if you are taking medication when you are 60 under a health 
care company plan, you will probably be more likely to keep 
doing it when you retire and are under Medicare. So we need to 
look at the entire compliance issue and learn from how the 
private plans are actually encouraging compliance as they have 
employers sponsor things.
    So I think those two issues--making sure the cost is low 
enough to make sure that you can afford the drug in the first 
place, and some of the suggestions that Mr. Smith made I think 
are worthy--understanding why people skip it even when they 
know it is good for them.
    Senator Warren. Would it be, Dr. Hoadley, if you could very 
quickly add anything more? We have got good ideas here.
    Mr. Hoadley. Yes, I would easily second the comments I have 
heard on affordability matters a lot.
    And we need to know a lot more about what the plans are 
doing in their MTM programs, and CMS is starting to put that 
record together.
    CMS also includes, or has proposed to include, more 
information in their Star Rating System, and this could be 
eventually a tool by which plans could compete over their 
ability to do this well. And so a consumer could say, ah, this 
plan has a better track record at helping to improve adherence.
    And I think there are some solutions where technology could 
play a role--the synchronization that Mr. Smith talked about.
    But even other things about taking the medications--if you 
are a person with those multiple chronic conditions and you 
have got four, five, six, eight, ten different drugs to take 
and each one says with food, on an empty stomach, this and 
that, helping that patient--maybe this is a role that 
pharmacists could play, or nurses, as part of a medical team. 
Help the person figure out what is the right way to array their 
medications across the day. Make it very easy to do that.
    People who are running into more disability problems, it is 
intimidating to look at that array of drugs. And, did I already 
take that one?
    And how can we provide more aids and tools to help people 
take them together. Get them lined up. Maybe figure out some of 
them are not needed. Get the important drugs and really build 
some assistance to the patient in trying to use their drugs 
well.
    Senator Warren. Very thoughtful.
    And I am out of time here. Dr. Woerner, did you just have a 
brief remark you would like to add?
    Ms. Woerner. Well, just that our callers do not talk about 
being in such programs, and I am not sure what that means.
    Senator Warren. Good. That is a very helpful point about 
going back and understanding this.
    I just want to thank you all. I think we have got some 
great ideas for how, if we make the right investments, we can 
get better outcomes at lower costs. And that has got to be 
where we are aiming.
    Thank you, Mr. Chairman.
    The Chairman. And I want to underscore what Mr. Romasco has 
said, that cost is still a major barrier. It is not unusual in 
Florida that a senior--fortunately, it does not happen very 
often, but a senior is making a choice between their medicine 
and food. And that should not be in America in the year 2013.
    Senator Ayotte.
    Senator Ayotte. I want to thank the Chairman and Ranking 
Member for having this hearing and the witnesses for being here 
today.
    I wanted to ask--I guess I would start first with Mr. Smith 
and anyone on the panel who has a comment on it.
    The Affordable Care Act created what is called the 
Independent Payment Advisory Board, and this board was--it is 
unique. I do not know if it is unique in its structure, but in 
order to overturn decisions of the board you actually need a 
three-fifths vote of Congress. So it would not be simply how we 
would normally pass legislation--an up or down vote--if we 
disagreed with the recommendations of the board.
    But also it contains a provision that a majority of the 
people making the decisions that would impact payments to 
Medicare providers--and, therefore, I think could also impact 
what recipients would receive, depending on what was covered. 
Those individuals, a majority, cannot be involved in treating 
patients or providing health care services to Medicare 
beneficiaries. So, obviously, they can serve on it but cannot 
be a majority who are making these decisions on what will be 
covered.
    I raise the issue because I have heard from many physicians 
in New Hampshire, and provider groups, that they are concerned 
about IPAB and how it would impact seniors' care.
    And just this past month 500 organizations, including 
several from New Hampshire--they really represent a diverse 
sector of the health care industry, small and large--wrote to 
Congress, urging us to eliminate IPAB.
    As I understand it, PhRMA has previously expressed 
opposition to IPAB. I wanted to ask you why that is, also what 
impact you think that IPAB could have potentially on Medicare 
Part D.
    And then certainly I would open it up to other panelists 
that have an opinion on this and would like to comment on it.
    So thank you.
    Mr. Smith. Thank you for the question, Senator.
    I think I would start at you are absolutely correct. We 
have expressed serious concerns about IPAB and opposition to 
IPAB, along with many, many others across the health care 
system and many other communities. And I think I would say that 
that starts with the fact that IPAB can make major changes to 
laws that Congress has passed without the usual checks and 
balances from Congress or the courts, and I think that that 
raises a lot of reasons for concern.
    I would note that its advocates argue that IPAB will focus 
on savings through quality improvement, through the sorts of 
things that we were just talking about and that I think are an 
intelligent way to go.
    But I think that is almost certainly wrong, and it is not 
because IPAB will be made up of short-sighted people. But the 
reality is it has to meet spending targets in one-year time 
frames, and quality improvements typically take longer to yield 
these kinds of savings.
    And CBO itself has pointed out that it expects IPAB to 
focus on payment cuts, and I think within that it will focus 
very much on Part B and Part D because those are called out in 
the statute to be targeted. And I think that manipulating 
payment amounts in this fashion can, of course, have very 
significant effects on beneficiaries' access to care.
    Today, because we have the market-based system we do in 
Part D--Mr. Romasco mentioned affordability around access--84 
percent of all prescriptions in Part D last year were dispensed 
with a co-pay of $10 dollars or less. And we have that market-
based system that has driven these kinds of results.
    But I do not think you are going to get that kind of result 
from this sort of board that has been created. I think it is 
going the traditional ways that really can significantly 
restrict access.
    Senator Ayotte. Thank you.
    Do others have opinions or thoughts on IPAB?
    Mr. Hoadley. I would just observe that for the moment at 
least the low spending growth trend we have seen in the last 
couple of years has made the triggers that are built into 
that--even if the IPAB had been staffed and existed, it would 
make those kinds of deliberations unnecessary.
    So maybe the observation to make here is that if we 
continue to maintain a track record like this particular 
program has maintained and do the kinds of things we have been 
talking about to keep it working well, then that will help make 
those deliberations unnecessary.
    Senator Ayotte. So we will not IPAB.
    Mr. Hoadley. We would not need IPAB.
    Senator Ayotte. But if we ever do, I, obviously, want to 
make sure that it does not create----
    Mr. Hoadley. Understand.
    Senator Ayotte [continuing]. A situation where people are 
not--you know, it creates--one of the concerns is, obviously, 
just the super majority that is required.
    Dr. Woerner, I do not know if you have a thought on IPAB.
    Ms. Woerner. I do not think I have anything to contribute 
on that topic.
    Senator Ayotte. Thank you.
    Mr. Romasco.
    Mr. Romasco. I think the legislation clearly calls for it 
as a failsafe because the real issue here is health care costs 
overall. If we cannot get them to grow at the economic rate or 
lower, that is where our problem is. So that is sort of a 
failsafe mechanism.
    And I think Dr. Hoadley's idea that it is there in case as 
opposed to mandatory is worthy of consideration. We need a 
mechanism that continues to focus on the $2.7 trillion we are 
spending and whether or not that is growing too fast and 
effective.
    Senator Ayotte. Now I appreciate that, but if the failsafe 
is there and you all are concerned--obviously, rightly so, as 
all of us are--in terms of what is the care that people 
receive, I want to make sure that that failsafe has 
accountability here. So, if decisions that are made are not 
correct, you know, this Congress can correct them in the normal 
course.
    And I am a supporter of actually ending it.
    But I do appreciate all of you coming here today and thank 
you for the work that you are doing on Medicare Part D. Thank 
you.
    The Chairman. Senator Wyden.
    Senator Wyden. Thank you, Mr. Chairman. And, Mr. Chairman, 
thank you for very timely leadership. I think this is a 
particular important time for us to look back.
    And, Dr. Woerner, it is so great to have the Medicare 
Rights Center. I can remember days when all of us had Diane 
Archer on speed dial for the wonderful work that she had been 
doing for the rights of seniors.
    And, welcome to all of you.
    Recalling just for a minute the ferocious debate that took 
place when this legislation was first considered, I think you 
have to start with the proposition that at that time the level 
of desperation among seniors for some measure of assistance 
with their medicine was just extraordinary, and at that time it 
really felt like this debate had gone on for eons.
    I mean, I can remember this back in the days when we were 
just getting the Gray Panthers off the ground in Oregon. We 
were talking about this very issue.
    And I came to the conclusion at the time that we were 
really at a fork in the road and that if we did not take the 
opportunity to at least get started it would probably be eons 
more before we ever got this effort underway.
    I told Senator Warren, I remember talking with Senator 
Kennedy, who of course worked for this for years.
    So I voted for the legislation. The welts on my back for 
doing so took a couple of years to heal. But the reality is at 
least we have gotten started and we have been able to help a 
lot of people.
    And, Dr. Woerner, your points with respect to the future 
are really spot-on.
    I just want to ask a couple of questions here by way of 
what is ahead.
    Now one of the major concerns today is how seniors are 
going to afford these specialty drugs--what are called, in 
effect--I guess the technical name is the specialty tier drugs. 
These were drugs that largely were not even on the boards back 
when this program got started--cancer drugs, arthritis drugs, 
MS drugs.
    I have been very concerned, for example, about Xeljanz. 
This is a drug where the government played a very large role in 
its development. Pfizer, now the company with the drug, looking 
like $25,000. That is a big lift for the seniors that Senator 
Nelson does such a good job advocating for.
    What would be your counsel with respect to how to deal with 
these specialty drugs that are so expensive?
    And I think, increasingly, they are going to be injectables 
and they are going to play a bigger and bigger role in the 
health care landscape.
    So, your thoughts on holding down the costs of these 
specialty drugs for seniors would be how I would start.
    Ms. Woerner. Well, there is a particular problem with 
specialty drugs for people who are really in lower incomes. 
What happens is for other medications, if the doctor prescribes 
a particular medication that is in a high tier, not a specialty 
tier, the client can appeal to lower the tier, lower the price, 
if there is not another drug that that person can use instead.
    Specialty drugs do not have that. One cannot appeal for a 
lower price for a specialty drug.
    And we have had many callers who have needed one of the 
specialty drugs for conditions like multiple sclerosis, for 
example, who cannot appeal to the company because they are low-
income.
    One woman I recall was living on about $1,700 Social 
Security income. She was above the level for the extra help--
low-income subsidy, and that is not a lot of income. So she 
really had to choose between her multiple sclerosis drug at a 
very high cost and food or other everyday living expenses.
    So I think the first thing would be to allow a process of 
the same kind of appeal that you have for tier appeals, 
lowering tier costs, apply to the specialty drugs.
    Senator Wyden. That sounds too logical for Washington.
    [Laughter.]
    Let us work with all of you. I want to see if I can get one 
other response.
    And then I thought Senator Warren asked a very good 
question about chronic disease and medicine, and I would like 
to get that in if I can.
    So why don't we have one more response?
    Mr. Smith. Sure. On the chronic disease issue and ways to 
move forward, Senator?
    Senator Wyden. Yes.
    Mr. Smith. Yes. So perhaps picking up where I left off, one 
of the issues with medication therapy management today, as it 
is set up in Part D, is who is targeted for medication therapy 
management. Right now, you have to have high drug expenditures, 
and in practice, you have to be taking a lot of different 
medicines.
    So part of the issue there is that we may be missing people 
who are not adherent because they are not taking their 
medicines and they do not have the level of drug expenditure 
that triggers MTMP.
    Maybe we ought to be looking at what is their total 
expenditure and what kind of conditions do they have and can 
MTMP be helping rather than just zeroing in the way we did. I 
think we have a lot of opportunity to make progress on cost and 
on quality by going these routes.
    Senator Wyden. My time is expired.
    I hope that all of you as companies and advocates will also 
start to factor in that these drugs affect people differently. 
For years and years, medicine has always been based on the 
proposition that this drug will affect Harry and George in the 
same way, and Sally and Betty in the same way.
    And I think this is particularly important in the area of 
chronic disease, where Senator Warren has made the important 
point that we ought to be focused more on patient management 
and relate to individuals. And to do that right, we are going 
to need to know more about the differential treatment of 
medicines for different people--what is really sort of the gun 
at least with personalized medicine, but where there is going 
to have to be a lot more work.
    Senator Nelson, again, a big thanks to you for all the 
leadership.
    The Chairman. Well, thank you, Senator Wyden, and thank you 
for bringing up the appeals process and for Dr. Woerner's 
excellent response.
    I will give you an example. A lady in Florida, Ms. Beagles, 
when her drug for a brain tumor went into the specialty 
category and she had no appeal process, it went from $30 a 
month to $650 a month. And, obviously, there is a need now.
    Any of the remaining three of you want to comment about the 
appeals process?
    Mr. Smith. Senator, I fully agree with Dr. Woerner's point. 
PhRMA has long been on record in support of treating the 
specialty tier in the same way as the other tiers are treated 
for this purpose.
    The Chairman. Okay, let's move on to another subject.
    Mr. Smith, you heard Mr. Romasco say that the very same 
drugs that Medicare used to pay for----
    Mr. Smith. Yes.
    The Chairman [continuing]. When the prescription drug 
legislation was passed in 2003----
    Mr. Smith. Yes.
    The Chairman [continuing]. Because those people that had 
been receiving their drugs under Medicare now are over age 65--
--
    Mr. Smith. Yes.
    The Chairman [continuing]. They get their drugs in 
Medicare.
    And now the price that the U.S. Government is paying is not 
the same. It is not the same to the degree of the statement by 
Mr. Romasco that it costs the U.S. taxpayer over 10 years an 
additional $147 billion.
    Now how can we justify that for these dual eligibles?
    Mr. Smith. So, Senator, thank you very much for the 
question, and I suspected I might get it. So I appreciate your 
putting it out there and the opportunity to respond.
    Let me begin by noting that Medicaid has never been viewed 
as the benchmark for Medicare for any service. It has not been 
viewed as the benchmark for physician payment. It has not been 
viewed as the benchmark for hospital payment.
    And I will also note that organizations such as Mr. 
Romasco's advocated aggressively for moving the dual eligibles 
out of Medicaid and into Medicare because of the 
restrictiveness and the uncertainty and the skimpiness that 
often accompanies Medicaid benefits.
    I think that we also have something of an apples to oranges 
comparison in that there have been major policy changes that 
are not taken into account when these calculations are done.
    So, for instance, since 2003, or since 2006 if you will, 
there are coverage gap discounts that the CMS actuary recently, 
or last year, estimated that just over 6 years, not the usual 
10 that we are all used to, comes at a cost to the industry of 
about $30 billion.
    So, spun out over 10 years, that is going to be $50 billion 
or $60 billion. There is $30 billion going into the Medicare 
Trust Fund that is paid by the industry.
    So I think that taking Medicaid over here and only taking 
part of Medicare over here and not looking at the totality of 
Medicare does create a little bit of an apples and oranges--or 
a lot of an apples and oranges--effect.
    Finally, I will add that we have strong, powerful 
purchasers with lots of tools out there to drive savings. They 
do drive savings. Part D costs today, for 2012, are 54 percent 
lower than was projected in 2004 after the program passed while 
Medicare as a whole has increased.
    So Medicare deserves fair prices, good prices, savings. It 
is getting them. That is why CBO has knocked $100 billion a 
year off the cost of the program in each of the last 3 years.
    And these powerful, sophisticated purchasers are buying 
them in a market. We think that is the right way to do it 
because government price controls layered on top of the market, 
I believe, will significantly undermine the program's 
effectiveness, its competitive forces, that lead to good 
results for beneficiaries and will significantly undermine the 
U.S. industry's innovative capacity.
    The Chairman. I want you to tell your employers that I give 
you an A for your response. If I were in your shoes, I would 
have liked to have been as articulate to respond as you do, but 
it does not cut it.
    And it does not cut it when the U.S. Government is, in 
fact, a big purchaser that you talked about----
    Mr. Smith. Yes.
    The Chairman [continuing]. In a competitive marketplace.
    The United States Government gets that discount with 
Medicaid, which is almost as big a program eventually as 
Medicare drugs will be.
    And the U.S. Government also gets that discount in the 
Veterans Administration, which is another multiple of tens of 
millions of veterans, each requiring drugs.
    And, the U.S. Government also gets that discount through 
the Department of Defense.
    So, when we talk about the competitive marketplace, 
clearly, since some of are invested with the idea that we are 
trying to get the biggest bang for the taxpayer's buck, and you 
have someone who is eligible here up until they get 64 years of 
age and 364 days, but on the 365th day they suddenly are 
eligible for those same drugs here, provided by the government.
    And remember, the way that we are phasing in under the 
health care bill--the way that they are phasing in Medicare 
Part D for seniors--is that the Federal Government will 
continue to pick up more and more of the cost as the donut hole 
is shrunk, and as a result, what there ought to be is balance 
in the system.
    Now I started my comments early on by complimenting you.
    Mr. Smith. Understood.
    The Chairman. Complimenting you on what your industry is 
doing is absolutely fantastic because of the miracles that you 
are creating before our eyes in what you are researching and 
developing, and in no way do we want to lessen that R&D. 
However, we have come down to a basic question of dollars and 
cents for the taxpayer, and this is one that we are going to 
have to look at.
    Now I, of course, took this on when we passed the health 
care bill, and I got beat in the Senate Finance Committee, but 
this issue is not going to go away. And so you should face 
that.
    And that is especially so over the course of the next 7 
years as the U.S. Government is picking up more and more and 
more so that, by 2020, 100 percent of the cost of the drugs in 
Medicare Part D on that donut hole are going to be absorbed for 
the senior.
    Mr. Romasco, you look like you are ready to say something, 
and then I am going to turn to my colleagues here.
    Mr. Romasco. I could not support the concept more fully. 
The U.S. Government is a huge purchaser, much bigger than any 
of the individual insurance companies. It continues to baffle 
me that it is like telling Wal-Mart they cannot negotiate with 
Procter and Gamble over the price of Tide. It just does not 
make sense.
    I think the other example--and I think Mr. Smith alluded to 
it, and it is a very important issue about research and 
development--is there was a similar argument in the early 
eighties about the Hatch-Waxman Act which paved the way for 
generic drugs. Oftentimes, the industry made the argument that 
this would stifle R&D, and yet, through their ingenious market 
forces, we now have generic drugs, everybody is prosperous, the 
industry has grown, and they continue to be successful and 
profitable.
    So I think that the concept of secretarial negotiating 
authority is a critical idea. I think shortening the generic 
biologic horizon from 12 to 7 years is another possibility. And 
the discount in the Act that your legislation supports is 
another way of keeping our eye on the ball as the affordability 
of the drugs, not only in Medicare but across the entire health 
system, is at stake.
    The Chairman. Before I turn to Senator Collins, let me just 
make note; I wish Senator Wyden were here because going back on 
the history of all of this, it is true that the prescription 
drug benefit was first authorized and set up in 2003 in the 
prescription drug bill, but there was another thing that was 
set up at that time, and it became very costly to the 
government.
    And it was setting up a new delivery of Medicare through an 
insurance company called Medicare Advantage, delivered through 
an HMO, which is an insurance company.
    And what happened in that 2003 legislation was insurance 
companies were given a 14 percent bump per senior citizen 
beneficiary of Medicare. That became so expensive that when the 
health care reform bill came along we had to save Medicare 
because it was going bankrupt, and one of the major reasons was 
that the Federal Government was paying out too much to the 
insurance companies, over and above Medicare Fee-For-Service. 
And that was leaned out over time through that health care 
bill.
    So, in the history of this whole continuum here, we have 
one overstepping and that now being corrected, and that is why 
I bring up this prescription drug benefit where there is such a 
significant increase to the taxpayer on the bill, on the drugs 
delivered through Part D.
    Senator Collins.
    Senator Collins. Thank you, Mr. Chairman.
    I am going to follow up on the Chairman's very interesting 
questions in this regard because this is an issue where I can 
see both sides of it, frankly.
    On the one hand, you look at the VA system, where 
government has used its purchasing power for years to negotiate 
prices. We do it in the Medicaid program. It was not just 
President Obama who has included this in his budget, but the 
Bowles-Simpson Commission also had the recommendation, which 
gives it some credibility in my eyes.
    On the other hand, you can certainly look at the 
marketplace and say that we have 1,000 plans, there is lots of 
competition, and we have sophisticated insurers who are doing 
that kind of negotiation with very good results for the 
consumer since the prices are so much less for premiums than 
had been projected in the costs for government.
    So I am truly of two minds about this and about which way 
is the better way to go.
    So, Mr. Smith, from your perspective, since you can 
legitimately point to a successful program that has driven down 
prices with successful, sophisticated negotiators in these 
plans, but if it should not be extended, why do we have it in 
Medicaid and in the VA program?
    Mr. Smith. Okay. Thank you for that question, Senator.
    So the first point I would make is that I think it is 
always possible to look somewhere else and find a different 
price point and say, why doesn't a different program get that 
price point?
    Medicare is, in fact, just central to the U.S. marketplace. 
It is a much more significant program than both Medicaid and 
VA. And I think because we have statutory provisions that have 
set prices in those programs over the year because there are 
exceptional reasons for those programs does not mean that we 
can expect that we would have the same effect if we extended 
that to Medicare.
    I think extending these rules for smaller programs that 
have exceptional circumstances--veterans and so forth--to 
Medicare would send very negative signals both into the Part D 
program and into the market as a whole.
    I know that there is a view that it is really just easily 
affordable.
    And I think that when I look at what McKinsey says, for 
instance, about pharmaceutical R&D, it says over the last--you 
know, in recent years, pharmaceutical R&D has not been earning 
a return on investment.
    When I see what a slew of analysts say about pharmaceutical 
R&D that echoes what McKinsey has to say, I think that it is 
clear that we are at a point where this kind of policy would 
force choices. And it is going to force choices about R&D. It 
is going to change the fundamental nature of Part D with the 
potential to increase premiums, have more restrictive 
formularies and so forth. And it is going to change the nature 
of the industry as an economic driver.
    Final point I will make is that those programs that we are 
often compared to--VA, Medicaid. Again, as I mentioned, there 
was a broad-based by the advocacy community to move 
prescription drug coverage out of Medicaid, into Medicare, 
specifically because of the shortcomings of the Medicaid 
program.
    And I think we have heard today that while there are issues 
to be addressed, there is a broad endorsement of how well the 
program today is working for seniors.
    And, second, I would note that many of those programs are 
very restrictive around access, far more so than Part D. Part D 
plans offer a far broader range of medicines than does VA. And, 
in fact, many veterans who have VA coverage are also enrolled 
in Part D, and they are using Part D because they are getting 
access to medicines that they are not getting in VA.
    So I think we have a range of issues, but the most direct 
point I can make is that I think what is being proposed is, in 
some sense, a race to the bottom because there is an example 
over here of a program with a specific set of prices; it should 
be transported over here.
    That has not been discussed around hospitals; it has not 
been discussed around doctors, where there are also dual 
eligibles. It has only been discussed around medicines.
    And for the reasons I have stated, I think it does force 
real choices instead of being something that will be without 
consequence.
    Senator Collins. With respect to the vital research and 
development on new drugs that the pharmaceutical industry does, 
isn't the American consumer really subsidizing that for the 
rest of the world?
    I mean, most countries do have controls on the cost of 
medications. I am very attuned to that issue, living in a 
border state with Canada.
    Mr. Smith. Absolutely.
    Senator Collins. And, in a way, it is the American consumer 
that is paying for that cost, are we not?
    Mr. Smith. Sure. Well, I think that American consumers pay 
for the cost, and I actually think consumers in foreign 
countries end up paying for the cost.
    Senator Collins. How?
    Mr. Smith. With significant restrictions on access to 
medicines.
    We also have a situation in which the global center of the 
biopharmaceutical research sector through the 1980s and so 
forth was in Europe. Today, the U.S. greatly outweighs Europe. 
And I think the fact that we have market-based pricing rather 
than government price controls is a significant part of the 
reason that that is the case.
    I will also note, finally, that our market-based system 
creates and drives incentives to use dollars where they are 
valuable.
    So, overseas, they have price controls on brand medicines, 
and they suppress R&D, and they suppress their use, and at the 
same time they pay about twice as much for generics. So, 
instead of rewarding innovation, where the medical advances 
come from, they actually suppress innovation and they pay twice 
as much for generics.
    Now generics are about 30 percent of spending on medicines 
in the United States. Imagine if we adopt the foreign 
government policies of paying twice as much for generics while 
pushing down on brand medicines.
    Senator Collins. Thank you.
    Mr. Romasco, just one final question. Recent studies have 
shown that the vast majority of Medicare Part D beneficiaries 
do not choose the cheapest plan, the least expensive plan, to 
meet their needs. And one study found that, on average, 
beneficiaries spend $368 more each year than they would have 
spent had they purchased the least expensive plan available in 
their region, given their medication needs. There has been a 
little bit of allusion to this today.
    But I want to ask you; based on your experience as the 
President of AARP, why do you think that is?
    Mr. Romasco. I think we alluded to it earlier today. Dr. 
Woerner basically gave us an insight into the complexity and 
the overwhelming--when we are faced with cajillions of choices, 
the human reaction is to avoid and stick with what you know.
    Senator Collins. But what those surveys show is that about 
40 percent of the beneficiaries think that there are too many--
--
    Mr. Romasco. Right.
    Senator Collins [continuing]. Choices and it is confusing, 
but 40 percent, the other 40 percent, think it is great and 
like having all those choices.
    Mr. Romasco. Well--and I think the issue is, do we have the 
tools in place to help people make those choices?
    Some of the suggestions that Dr. Smith and Dr. Hoadley made 
plus, as I recall, I think you and Senator Nelson authorized a 
GAO study----
    Senator Collins. We have. That was going to be in my 
statement.
    Mr. Romasco [continuing]. To figure out, are these tools 
working?
    And I think we heartily support and endorse that because 
that is another aspect of helping people make these choices.
    Simplification and transparency--the transparency is one 
thing, but if it is too confusing to people, it is hard for 
them to make the right choices.
    And the second thing is give them the right tools so when 
they engage it actually does benefit them.
    So we heavily endorse your effort to get to the bottom of 
that with that GAO study.
    The Chairman. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Senator Warren.
    Senator Warren. Thank you, Mr. Chairman.
    I want to go back to the cost question that you raised, but 
you were talking about the cost to the government about 
Medicare Part D. I want to talk again about out-of-pocket costs 
to the individual consumer.
    Back on this question about getting people to take their 
prescriptions and if they do not have their prescriptions 
filled and if they do not have them filled in a timely manner--
so every 30 days on a 30-day prescription--then obviously they 
cannot get the benefits from those prescriptions.
    I understand there is a Rand study out now that shows that 
for every $10 increase in the co-pay on a prescription that 
compliance rates on taking medications dropped by about 5 
percent. And we talked earlier about the importance of people 
taking those prescriptions if we are going to drive down costs 
and get good outcomes.
    Of course, this is, in my view, one of the best parts about 
the Affordable Care Act--is to close the donut hole so that we 
get more people filling their prescriptions.
    And I understand the CBO says they believe that just 
closing the donut hole is going to increase drug compliance--
people taking their prescriptions--by about 5 percent and that 
is going to save us about $35 billion.
    So these are very important about how we lower costs, and 
so I want to go back to this question about how we lower out-
of-pocket costs for our consumers--how people can get those 
costs down.
    So, Mr. Romasco, go back to this question. What should we 
be doing?
    Mr. Romasco. Well, I think, you know, I have touched on a 
couple of things that we think will have a significant impact 
on reining in these costs. Again, secretarial negotiating 
authority and the biologic window for closing that exclusivity 
on generics for biologic and biosimilars, I think are two 
possible avenues.
    A lot of the compliance issue--we talked about 
synchronization. If you look at the Affordable Care Act, the 
implementation of accountable care organizations begins to look 
at team approaches as opposed to silo approaches for patient 
care and the coordination of care, which allows people to both 
get the support of not only their physician but of their team 
of medical professionals, to focus on keeping the costs down 
and looking at the whole patient and all the dimensions of 
that.
    Senator Warren. I appreciate that point because it really 
goes back to the point that Senator Nelson was making earlier. 
This is not just about the out-of-pocket costs of the drugs, 
and it is not just about what the government spends on the 
drugs initially. It is to the extent that it causes people not 
to have their prescriptions filled, that it increases costs on 
down the line. And so we are talking about a much larger impact 
of how the drugs are actually priced and the out-of-pocket part 
on that.
    Mr. Smith, I will give you one more chance to say something 
about how we are going to bring those costs down.
    Mr. Smith. Sure. So I think that--look, I have already made 
my points about some of the issues that Mr. Romasco made, and I 
will just remind everyone because he has referenced the 
biologics a few times, and data exclusivity. I actually think 
that the one provision of the Affordable Care Act that was 
passed with strong recorded bipartisan majorities in both 
chambers was the 12 years of data exclusivity as a balance 
between incenting the innovation that we all want to see and 
creating a biosimilar pathway for affordability.
    We are closing the coverage gap, and I would note that--let 
me take it outside of Part D for a moment, just as an example.
    I would note that there are a number of employers, for 
instance, who--looking at how to bring down their costs--have 
actually cut their co-pays for medicines. And they did not do 
it just for generics. They did it for generics, and they did it 
for brands because, as Senator Wyden pointed out, people are 
different and need different treatments. Some are going to need 
a brand medicine. Others are going to be using a generic.
    And they are finding that they are having a good experience 
by actually reducing their co-pays, and it is helping them 
control costs.
    The final point I will make is that the co-pay is not--you 
know, medicines are about 10 percent of Medicare spending. 
Brand medicines--if you look at all Federal Medicare and 
Medicaid spending, brand medicines are about 8 percent of all 
of that spending.
    So I do not think that the kinds of proposals that have 
been suggested are what is really going to help improve 
adherence. I think it is some creativity, looking at how we tie 
medication therapy management to utilization and looking for 
opportunities to take advantage of the cost savings that 
medicines can bring.
    Senator Warren. Fair enough, Mr. Smith.
    Mr. Smith. Yes.
    Senator Warren. But, surely, you are not pushing back on 
the point in the Rand study, that a $10 increase in co-pay----
    Mr. Smith. No, no, no.
    Senator Warren. Okay, I just want to make sure that you 
were not saying----
    Mr. Smith. If I----
    Senator Warren. I may have misunderstood.
    Mr. Smith. Okay.
    Senator Warren. So long as we are clear on that.
    Mr. Smith. Yes.
    Senator Warren. Okay, Dr. Hoadley, did you want to add 
anything on that?
    Mr. Hoadley. Yes, I think you raise a really important 
point with the Rand study.
    We have also done our own project--research project--and 
published an article on generic co-pays and how the use of a 
zero co-pay for a generic drug can really increase utilization 
of that drug and adherence to that drug.
    And, as Mr. Smith said, some of the flexibility that has 
been tried in private plans with value-based insurance design 
and lowering co-pays--the problem with doing that in Medicare 
is two-fold.
    One is the basic design of Part D includes 25 percent 
average cost-sharing. So a plan that wants to lower their co-
pays overall has to do it as an enhanced plan with a higher 
premium, and that is one approach, or there has got to be some 
change in the legislation in terms of the overall average cost-
sharing level and bringing it down lower than 25 percent. 
Obviously, there are implications for doing that.
    But, even with that, perhaps some greater flexibility that 
CMS could look at, in terms of letting plans experiment with 
lower co-pays for certain classes of drugs that are really much 
more important clinically, is something to think about but, 
also, certainly trying to push plans and encourage plans to 
look at lower co-pays for generics where you can get more bang 
for the buck.
    The last comment I would make is one of the things that 
really complicates the story for the Part D program is that in 
the world of standalone drug plans, if we increase adherence, 
we are actually increasing the amount of spending that the 
plans are on the hook for.
    And so, we have built in kind of a perverse incentive to 
say they are going to do better when less spending occurs on 
the drugs, whereas, in fact, we may want more spending on drugs 
to get the higher occurrence, to get the payoff in Part A and 
Part B. So figuring out a way to change and rethink about how 
we build the standalone drug plans, to get away from that 
perverse incentive, is something really worth trying to think 
about.
    Senator Warren. That is a very good point.
    And, Dr. Woerner, did you want to add anything to this?
    I am over time, so I will ask you to be brief.
    Ms. Woerner. Only that I think by simplifying the process 
of choosing a plan it would help individuals find plans in 
which their costs would be lower. That is a minor thing, but it 
is something that could be done.
    Senator Warren. I do not see that as minor. I take it to be 
a good point.
    But I do understand that if we are trying to reduce costs 
overall, co-pay costs for the individual must come down, and 
that we are just caught in the wrong cycle right now with high 
co-pays. We have got to change that if we are going to have 
better outcomes at lower costs.
    Good. Thank you all.
    Thank you, Mr. Chairman. Thank you very much for doing 
this.
    The Chairman. Well, going to the broader issue, from drug 
plans to the Medicare Advantage plans, there is a Star Rating 
System. The idea is that you let the competitive market forces 
work--a senior sees that this insurance Medicare plan is rated 
higher on quality and that they would vote with their feet and 
they would go to the higher rated one.
    Now it has just been in existence for--just beginning.
    Do you all have any comment on the Star Rating System?
    Mr. Hoadley. The Star Rating System has been around. I mean 
the new financial incentives that are attached to it are the 
newest part of that, but we have had Star Ratings now really 
since almost the beginning of Part D.
    What we do not understand very well is the degree to which 
consumers are using those ratings to make choices of drug 
plans.
    The information is out there. It is on the web site, so it 
is very accessible. And we think we have done it in a 
reasonably comprehensible way. But we have not seen a lot of 
research yet to know how much people are using that 
information.
    When we look in the aggregate at how many people are in 
plans with different kinds of Star Ratings, we do not see a 
particularly higher enrollment in the 5-Star or 4-Star rated 
plans over the 3-Star rated plans.
    So I think more transparency and more publicity to those 
ratings but, also, more research to sort of see what is it that 
people take into account.
    And this whole phenomenon of simplifying the program--you 
know, to the extent that people just are not even shopping, 
then obviously, they are not shopping based on stars. If they 
say this is too complicated, I am going to stick in the plan I 
am in even though it has a 2.5-Star Rating and even though it 
has gotten more expensive within the last 3 years, that is 
where the problem lies.
    So finding ways to encourage people, to make it easy to 
shop, and then to take into account some of the ratings as well 
as the direct cost factors is something that we need to do 
better at.
    Mr. Smith. Senator, if I might, one of the important 
aspects of the Star Rating System is, in fact, adherence to 
medicines. It gets a pretty good weighting in the Star System. 
I think that that is important. It is a good incentive.
    And let me just add to Dr. Hoadley's comments that I think 
we have to recognize that some of this is going to be a work in 
progress.
    And there was discussion about the importance of 
beneficiaries shopping among plans, and I think that is 
absolutely right. Beneficiaries, when they do switch plans, 
they save money on their out-of-pocket costs. That is really 
important--an average of about $300.
    One of the things that MedPAC has found is that in the 
early years of the program we only had about 6 percent of 
beneficiaries who were switching plans at open enrollment. That 
is now ticked up according to MedPAC's finding to, I believe, 
13 percent. And among some of the younger enrollees coming in--
the younger cohort coming into the program--it is even a little 
higher; it is about 16 percent.
    So I think that there are opportunities. We want to 
encourage people to shop. We want to give them those tools. And 
that can help. It can help on the quality side. It can help on 
the out-of-pocket cost side because when they do switch they 
are saving money.
    The Chairman. How much, in your opinion, is the lowered 
cost that we are seeing due to the utilization of generics?
    Mr. Hoadley. It is really a very large factor in what has 
driven. And the study that I did, published last year, looked 
at the generic use as being one of the very important factors 
in the lower cost trends.
    We have had such a swing in the period of time since 2006, 
when the first enrollment in Part D occurred, to more generic 
use. And I think the numbers just between 2006 and 2010 were 
something like 60-some percent generic use up to 80 percent 
generic use, and it is undoubtedly higher since 2010 per the 
most recent data I have seen.
    So I do think that has been a very big part of the story, 
but it could be even more.
    Mr. Smith. If I might, I am going to agree that use of 
generics is a sizeable part of the savings, but two points 
about that that I touched on in my testimony.
    One is those generics originated with innovator medicines. 
They would not have been there if there were not innovator 
medicines to copy and that have been developed.
    And the second is that it is really our marketplace that 
drives the very high use of generics and maximizes the savings 
out of them. Mark McClellan, when he was CMS Administrator at 
the early days of the program, emphasized that Part D and its 
competitive forces are actually driving up generic use.
    The Chairman. But you are happy with the health care bill 
that gave 12 years exclusivity for the biologics?
    Mr. Smith. We fully agree with the determination made in 
Congress, absolutely.
    The Chairman. You brought out here in this hearing that the 
low-income subsidy assistance is not being utilized like it 
should. What can we do?
    Mr. Hoadley. I think it is a hard thing to address. I think 
some of it is the, again, complexity. So there is an Asset Test 
attached to the low-income subsidy eligibility unless people 
come in through their Medicaid programs in some states.
    And so there is some thought that the fact you have to not 
only meet an income test but you have also got to attest to 
your assets is something that some people just do not want to 
go through. They do not want to do that additional paperwork. 
It makes the forms longer and more complicated.
    We do not understand this question very well, and that is 
one of the dilemmas, but I think that it is probably one of the 
sources--the fact that you have to go through an application 
process. You have to submit an application either to the state 
Medicaid agency or to the Social Security Administration; fill 
out an application; wait and get that approved. That is also 
certainly a factor.
    And then I think some of it is just knowledge. I think Dr. 
Woerner talked about people who were not aware that there were 
these subsidies available. And we just need to do a better job 
of building awareness about the existence of the subsidies so 
that people know that they have that option available.
    The Chairman. I will wrap up if it is okay with you all.
    You mentioned, Senator Warren, the burdensome cost to 
seniors, and I had mentioned the excess cost to the U.S. 
Government in trying to afford the prescription drug benefit.
    The Inspector General has come out with a study that says 
that Medicaid as compared to Medicare with regard to drugs--
that Medicaid collected two-thirds as much in rebates as 
Medicare Part D despite having only one-quarter of the 
expenditures that Medicare has in their drugs.
    And the most shocking part about this finding is that the 
IG did this study with data before the Affordable Care Act 
mandated the Medicaid rebate percentage increase taking effect. 
So this is before all of that occurred. There was still this 
huge disparity.
    It is a disparity, for example--and we will have copies of 
this chart if you need it--that shows on Prevacid for heartburn 
and acid reflux, Medicaid paid 65 percent less than what 
Medicare paid; with Crestor, to lowering cholesterol, that 
Medicaid paid 42 percent less than Medicare, and so forth.
    Now that is in the IG study done back then.
    So I am going to call for the IG to have another study to 
get the latest information on these numbers, and then we can 
discuss that at a future hearing.
    Any further comments?
    Okay. Well, thank you all. You have been an excellent 
panel. The meeting is adjourned.
    [The prepared statements for the record are in the 
Appendix]
    [Whereupon, at 4:09 p.m., the Committee was adjourned.]

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