[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]


         THE PET MEDICATIONS INDUSTRY: ISSUES AND PERSPECTIVES

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

                                 HEARING

                               BEFORE THE

           SUBCOMMITTEE ON COMMERCE, MANUFACTURING, AND TRADE

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 29, 2016

                               __________

                           Serial No. 114-142
                           
                           
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]                           



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                    COMMITTEE ON ENERGY AND COMMERCE

                          FRED UPTON, Michigan
                                 Chairman

JOE BARTON, Texas                    FRANK PALLONE, Jr., New Jersey
  Chairman Emeritus                    Ranking Member
ED WHITFIELD, Kentucky               BOBBY L. RUSH, Illinois
JOHN SHIMKUS, Illinois               ANNA G. ESHOO, California
JOSEPH R. PITTS, Pennsylvania        ELIOT L. ENGEL, New York
GREG WALDEN, Oregon                  GENE GREEN, Texas
TIM MURPHY, Pennsylvania             DIANA DeGETTE, Colorado
MICHAEL C. BURGESS, Texas            LOIS CAPPS, California
MARSHA BLACKBURN, Tennessee          MICHAEL F. DOYLE, Pennsylvania
  Vice Chairman                      JANICE D. SCHAKOWSKY, Illinois
STEVE SCALISE, Louisiana             G.K. BUTTERFIELD, North Carolina
ROBERT E. LATTA, Ohio                DORIS O. MATSUI, California
CATHY McMORRIS RODGERS, Washington   KATHY CASTOR, Florida
GREGG HARPER, Mississippi            JOHN P. SARBANES, Maryland
LEONARD LANCE, New Jersey            JERRY McNERNEY, California
BRETT GUTHRIE, Kentucky              PETER WELCH, Vermont
PETE OLSON, Texas                    BEN RAY LUJAN, New Mexico
DAVID B. McKINLEY, West Virginia     PAUL TONKO, New York
MIKE POMPEO, Kansas                  JOHN A. YARMUTH, Kentucky
ADAM KINZINGER, Illinois             YVETTE D. CLARKE, New York
H. MORGAN GRIFFITH, Virginia         DAVID LOEBSACK, Iowa
GUS M. BILIRAKIS, Florida            KURT SCHRADER, Oregon
BILL JOHNSON, Ohio                   JOSEPH P. KENNEDY, III, 
BILLY LONG, Missouri                 Massachusetts
RENEE L. ELLMERS, North Carolina     TONY CARDENAS, California
LARRY BUCSHON, Indiana
BILL FLORES, Texas
SUSAN W. BROOKS, Indiana
MARKWAYNE MULLIN, Oklahoma
RICHARD HUDSON, North Carolina
CHRIS COLLINS, New York
KEVIN CRAMER, North Dakota

                                 7_____

           Subcommittee on Commerce, Manufacturing, and Trade

                       MICHAEL C. BURGESS, Texas
                                 Chairman
                                     JANICE D. SCHAKOWSKY, Illinois
LEONARD LANCE, New Jersey              Ranking Member
  Vice Chairman                      YVETTE D. CLARKE, New York
MARSHA BLACKBURN, Tennessee          JOSEPH P. KENNEDY, III, 
GREGG HARPER, Mississippi                Massachusetts
BRETT GUTHRIE, Kentucky              TONY CARDENAS, California
PETE OLSON, Texas                    BOBBY L. RUSH, Illinois
MIKE POMPEO, Kansas                  G.K. BUTTERFIELD, North Carolina
ADAM KINZINGER, Illinois             PETER WELCH, Vermont
GUS M. BILIRAKIS, Florida            FRANK PALLONE, Jr., New Jersey (ex 
SUSAN W. BROOKS, Indiana                 officio)
MARKWAYNE MULLIN, Oklahoma
FRED UPTON, Michigan (ex officio)

                                  (ii)
                                  
                                  
                             C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Michael C. Burgess, a Representative in Congress from the 
  State of Texas, opening statement..............................     1
    Prepared statement...........................................     2
Hon. Janice D. Schakowsky, a Representative in Congress from the 
  State of Illinois, opening statement...........................     3
Hon. Fred Upton, a Representative in Congress from the State of 
  Michigan, opening statement....................................     4
    Prepared statement...........................................     5
Hon. Frank Pallone, Jr., a Representative in Congress from the 
  State of New Jersey, opening statement.........................     6
    Prepared statement...........................................     7

                               Witnesses

Tara Koslov, Deputy Director, Office of Policy Planning, Federal 
  Trade Commission...............................................     8
    Prepared statement...........................................    11
    Answers to submitted questions...............................    78
Nathan Smith, Vice President of Strategy and International, True 
  Science, LLC...................................................    38
    Prepared statement...........................................    41
    Answers to submitted questions \1\...........................    91
John de Jong, DVM, Chair, Board of Directors, American Veterinary 
  Medical Association............................................    48
    Prepared statement...........................................    50
    Answers to submitted questions...............................    92

                           Submitted Material

Statement of the Animal Health Institute, April 29, 2016, 
  submitted by Mr. Burgess.......................................    69
Letter of April 28, 2016, from George P. Slover, Senior Policy 
  Counsel, Consumers Union, to Mr. Burgess and Ms. Schakowsky, 
  submitted by Mr. Burgess.......................................    73
Letter of April 28, 2016, from Jean E.Sander, Dean, Center for 
  Veterinary Health Sciences, Oklahoma State University, to Mr. 
  Mullin, submitted by Mr. Mullin................................    77

----------
\1\ The information has been retained in committee files and also 
  is available at  http://docs.house.gov/meetings/IF/IF17/
  20160429/104877/HHRG-114-IF17-Wstate-SmithN-20160429-SD054.pdf.

 
         THE PET MEDICATIONS INDUSTRY: ISSUES AND PERSPECTIVES

                              ----------                              


                         FRIDAY, APRIL 29, 2016

                  House of Representatives,
Subcommittee on Commerce, Manufacturing, and Trade,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 9:52 a.m., in 
room 2322, Rayburn House Office Building, Hon. Michael C. 
Burgess (chairman of the subcommittee) presiding.
    Members present: Representatives Burgess, Lance, Guthrie, 
Bilirakis, Brooks, Mullin, Upton (ex officio), Schakowsky, 
Clarke, Cardenas, Welch, and Pallone (ex officio).
    Also present: Representative Schrader.
    Staff present: Mike Bloomquist, Deputy Staff Director; 
Elena Brennan, Staff Assistant; Leighton Brown, Deputy Press 
Secretary; Rebecca Card, Assistant Press Secretary; Graham 
Dufault, Counsel, Commerce, Manufacturing, and Trade; Melissa 
Froelich, Counsel, Commerce, Manufacturing, and Trade; Giulia 
Giannangeli, Legislative Clerk; Paul Nagle, Chief Counsel, 
Commerce, Manufacturing, and Trade; Mark Ratner, Policy Advisor 
to the Chairman; Olivia Trusty, Professional Staff Member, 
Commerce, Manufacturing, and Trade; Dylan Vorbach, Deputy Press 
Secretary; Michelle Ash, Democratic Chief Counsel, Commerce, 
Manufacturing, and Trade; Jeff Carroll, Democratic Staff 
Director; Elisa Goldman, Democratic Counsel, Commerce, 
Manufacturing, and Trade; Dan Miller, Democratic Staff 
Assistant; Caroline Paris-Behr, Democratic Policy Analyst; and 
Andrew Souvall, Democratic Director of Communications, 
Outreach, and Member Services.
    Mr. Burgess. The Subcommittee on Commerce, Manufacturing, 
and Trade will now come to order. And the Chair will recognize 
himself for 5 minutes for the purpose of an opening statement. 
And I do want to welcome everyone here this morning. I 
certainly want to welcome our witnesses.

OPENING STATEMENT OF HON. MICHAEL C. BURGESS, A REPRESENTATIVE 
              IN CONGRESS FROM THE STATE OF TEXAS

    This morning, we will receive testimony from our witnesses 
about the status of the pet medication industry. It is 
important to start this process by understanding the status quo 
of the industry. From that point, we will build the necessary 
base to carefully examine whether additional Federal 
involvement is needed in the veterinary prescription medication 
space. The pet medication industry is an established market, 
and it continues to grow.
    In calendar year 2015, United States pet owners spent over 
$14 billion on pet supplies and over-the-counter medications. 
An additional $7 billion was spent on prescription medications. 
Pet care is a notable component of the family budget for well 
over two-thirds of the United States households.
    Last year, the Federal Trade Commission wrapped up a 
multiyear study of competition in the pet medication industry. 
And perhaps this morning, the Federal Trade Commission's 
witness can speak to the state of the industry with regard to 
prescription portability and distribution practices.
    In the report, the Federal Trade Commission noted that more 
study could be helpful in a number of areas, including pricing, 
dispensing errors, and the secondary distribution system.
    This morning, it would be helpful to understand whether any 
of that additional study has been undertaken to date. The 
veterinarian-pet ownership relationship is an important one, 
and another part of what we will explore today. I understand 
that Representative Chaffetz has introduced a bill to federally 
mandate the release of prescriptions that has been referred to 
this subcommittee. States have long held the bulk of authority 
over veterinary practice, and over 30 States have passed 
legislation dealing with prescription portability. I do remain 
concerned that this legislation, like legislation passed years 
ago mandating similar procedures for contact lenses, unduly 
interferes with the relationship between the doctor and their 
patient. Procedures currently exist in all 50 States to address 
the claims, issues, raised by the proponents of this 
legislation.
    So mark me as skeptical that a Federal approach rather than 
one that works with State regulators truly creates an 
environment that is beneficial to consumers and their pets.
    As we have done with other issues with State involvement, 
and as a matter of federalism, it is important to understand 
how States have addressed any of the issues raised with 
prescription portability and what their level of involvement 
has been.
    [The prepared statement of Mr. Burgess follows:]

             Prepared statement of Hon. Michael C. Burgess

    Good morning. This morning we will receive testimony from 
witnesses about the status of the pet medication industry.
    It is important to start this process by understanding the 
status quo of the industry. From that point, we will build the 
necessary base to carefully examine whether Federal involvement 
is needed in the veterinary prescription medication space.
    The pet medications industry is an established market and 
continues to grow. In 2015, U.S. pet owners spent over $14 
billion on pet supplies and over-the-counter medications, and 
an additional seven billion dollars on prescription 
medications. Pet care is a notable component of the family 
budget for the 65 percent of U.S. households that own a pet.
    Last year, the Federal Trade Commission wrapped up a 
multiyear study of competition in the pet medications industry. 
I hope the FTC's witness can speak to the state of the industry 
with regard to prescription portability and distribution 
practices. In the report, the FTC noted that more study could 
be helpful in a number of areas including pricing, dispensing 
errors, and the secondary distribution system. It would be 
helpful to understand whether any of that additional study has 
been undertaken to date.
    The veterinarian-pet-owner relationship is an important one 
and another part of what we will explore today.
    I understand Rep. Chaffetz has introduced a bill to 
federally mandate the release of prescriptions that has been 
referred to this subcommittee. States have long held the bulk 
of authority over veterinary practice and over thirty States 
have passed legislation dealing with prescription portability.
    I remain concerned that this legislation, like the 
legislation passed years ago mandating similar procedures for 
contact lenses, unduly interferes in the relationship between a 
doctor and his patient. Procedures currently exist in all 50 
States to address the claimed issues raised by the proponents 
of the legislation. I am skeptical that a Federal approach, 
rather than one which works with State regulators, truly 
creates an environment beneficial to patients.
    As we have done with other issues with State involvement, 
and as a matter of federalism, it is important to understand 
how States have addressed any issues raised with prescription 
portability and what their level of involvement has been.

    Mr. Burgess. I will conclude my opening statement with 
that, and I will recognize the subcommittee ranking member, Ms. 
Schakowsky of Illinois, 5 minutes for an opening statement.

       OPENING STATEMENT OF HON. JANICE D. SCHAKOWSKY, A 
     REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS

    Ms. Schakowsky. Thank you, Mr. Chairman. I must disclose 
that I have a personal interest in this topic. My husband and I 
have two very energetic rescue dogs at home, siblings named 
Franklin and Eleanor. And like any pet owner, that means, of 
course, we need to buy heartworm prevention and other pet 
medications.
    Ellie actually has Addison's disease. She has to take a 
pill every day and a shot every month to keep her healthy. Pet 
owners like me spend a combined total, as the chairman said, of 
$7 billion. I feel like I definitely pay my share on pet 
medications in 2013. And, now, compared to the spending on 
human prescriptions, that number is pretty small. But it is a 
significant cost for pet owners. We need to consider whether 
consumers are well-served by the existing market.
    Right now, the majority of pet meds are bought directly 
through a veterinarian. There may be some good reasons for 
this, getting prescriptions right at the vet may be more 
convenient. The pet owner may also want the vet to administer 
the medication in some cases. And when consumers prefer that 
convenience and service, they should buy their pet's medication 
through the vet. But that said, the pet medication industry 
needs fair competition.
    The Federal Trade Commission looked at competition in the 
pet medication industry in a 2015 report, hoping to hear more 
about that. The report concluded that portable prescriptions, 
having your choice of where to buy your pet's medication, 
allows for more choice and would likely lower prices. Expanded 
consumer choices already, the direction we are heading, some 
States already require prescription portability in some form. 
Many vets provide prescriptions upon request, and a growing 
number of consumers are choosing to fill their pet's 
prescriptions through retailers and online pharmacies. The 
question is whether we are currently getting the full benefit 
of competition. Consumers need to be aware of the choices that 
they have, and that choice needs to be real. Portable 
prescriptions do little good if the medications themselves are 
not available outside the vet's office.
    The FTC highlighted exclusive distribution policies as a 
potential impediment to competition. There is also the related 
issue of whether generic medications are widely available in 
the first place. We need competition not only among the sellers 
of prescriptions, but among the makers as well if we want to 
see more savings for consumers.
    Now, as a dog owner, I am very mindful of safety. As we 
have this debate, I want to make sure that medication is safe 
to be dispensed to my pets. I call them my kids. I believe 
there is a responsibility for whoever sells medication to fill 
prescriptions accurately and provide the necessary information 
to pet owners. The FTC report lays out a good framework for 
today's hearing. I am interested to hear about the current 
state of the pet medication industry, how we can improve the 
market for pet owners as well.
    I look forward to hearing from our witnesses, and I thank 
you for your testimony.
    And thank you, again, Chairman Burgess, for holding this 
hearing.
    I yield back.
    Mr. Burgess. The gentlelady yields back. The Chair thanks 
the gentlelady.
    The Chair recognizes the gentleman from Michigan, chairman 
of the full committee, Mr. Upton, for 5 minutes.

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

    Mr. Upton. Well, thank you, Mr. Chairman.
    Yes, this hearing is on pet medication industry. It is 
certainly an interesting look at large industry that most of 
us, as has been described already, have a very personal 
connection to. From dogs and cats to guinea pigs, fish, 
turtles, horses, you name it, millions in Michigan and across 
the country have opened their home to pets of all shapes and 
sizes.
    In my personal office, just down the hallway, we have 
always been a nine-to-Fido office. In fact, all four of my 
offices today have four-legged critters, and we have done that 
all the years on the Hill.
    So, today, we have Gideon. We have a Silky Terrier, Boston 
Terrier, Pomeranian named Scout, who really got a buzz cut 
yesterday. I almost didn't recognize him.
    But our beloved pets provide a constant source of joy and 
levity as well as companionship and unconditional love. And I 
forgot to bring my box of dog biscuits in this careful 
container that I allow my constituents to feed our friends as 
well.
    But to fully appreciate how large the marketplace is, and 
how important veterinarians are to keeping our companions 
healthy, all you have to do is stop and think about how many of 
our friends, loved ones, colleagues, and neighbors have pets. 
Two-thirds of American households have a pet. And in 2015, 
those same families spent over $60 billion on food supplies, 
medications.
    There is an entire ecosystem from manufacturers, 
distributors, retailers, veterinarians, pharmacies, all the way 
up to pet owners themselves. It is no surprise that over 700 
public comments were filed after the FTC's workshop examining 
the industry back in 2012. Folks care about their pets, for 
sure.
    But the stats reveal visits to the vets are down. The 
economy is still on shaky ground. After a lackluster recovery, 
affordable options for chronic and acute medical conditions are 
a kitchen-table issue. Pet safety is also of highest 
importance.
    I should also note that one of our State universities, 
Michigan State, is one of the premier institutions in terms of 
training vets to get to the marketplace.
    We should strive to strike a balance between consumers 
having the marketplace of options to choose from to make sure 
that their pet's safety receives the care that it needs, but 
doing so without breaking the bank. We also need to make sure 
that consumers have the information that they need to make an 
informed decision with their vets about the best care for their 
pets.
    So I am interested in hearing from all witnesses about the 
state of the pet medication industry today, what the States are 
doing to address these issues, and what we can learn from the 
FTC's deep dive into the nuances of this industry. I want to be 
clear that just as our pets are part of our extended families, 
our vets are a trusted part, too, of that equation to keep them 
healthy and happy.
    Today, we are here to listen, understand what role, if any, 
the Federal Government ought to play. I think we can all agree 
that the health and safety of the pets is a top priority for 
folks not only in Michigan, but around the country.
    And I yield back.
    [The prepared statement of Mr. Upton follows:]

                 Prepared statement of Hon. Fred Upton

    Today's hearing on the pet medication industry is an 
interesting look at a large industry that most of us have a 
personal connection to. From dogs and cats, to guinea pigs, 
fish, and turtles, you name it--millions in Michigan and across 
the country have opened their homes to pets of all shapes and 
sizes.
    In my personal office, we have always been a ``nine to Fido 
office'' where more often than not in my years on the Hill, we 
have had four-legged friends greeting folks from Southwest 
Michigan. These days we have Gideon--a silky terrier, Bugsy--a 
Boston terrier, and a Pomeranian named Scout. Our beloved pets 
provide a constant source of joy and levity as well as 
companionship and unconditional love.
    To fully appreciate how large the marketplace is and how 
important veterinarians are to keeping our companions healthy, 
all you have to do is stop and think about how many of our 
friends, loved ones, colleagues, and neighbors have pets. Two-
thirds of American households have a pet and in 2015 those same 
families spent over $60 billion on food, supplies, medications, 
etc.
    There is an entire ecosystem--from the manufacturers, 
distributors, retailers, veterinarians, pharmacies, all the way 
to the pet owners themselves. It's no surprise that over 700 
public comments were filed after the FTC's workshop examining 
the industry back in 2012. Folks care about their pets.
    The stats reveal visits to the veterinarian are down. The 
economy is still on shaky ground after a lackluster recovery. 
Affordable options for chronic and acute medical conditions are 
a kitchen table issue. Pet safety is also of highest 
importance.
    We should strive to strike a balance between consumers 
having a marketplace of options to choose from to make sure 
their pet safely receives the care it needs, but doing so 
without breaking the bank. We also need to make sure that 
consumers have the information they need to make an informed 
decision with their veterinaries about the best care for their 
pets.
    I'm interested in hearing from all the witnesses about the 
state of the pet medication industry today, what the States are 
doing to address these issues, and what we can learn from the 
Federal Trade Commission's deep dive into the nuisances of this 
industry.
    I want to be clear that just as our pets are a part of our 
extended family; our veterinarians are a trusted part of the 
equation to keep them healthy and happy. Today we are here to 
listen and understand what role, if any, the Federal Government 
should play. I think we can all agree that the health and 
safety of the pets is a top priority for folks in Michigan and 
families across the U.S.

    Mr. Burgess. The gentleman yields back. The Chair thanks 
the gentleman. The Chair recognizes the gentleman from New 
Jersey, ranking member of the full committee, Mr. Pallone, 5 
minutes, please.

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

    Mr. Pallone. Thank you, Mr. Chairman.
    Today's hearing is an opportunity to learn more about the 
present state of the pet medications industry and about the 
choices that are currently available to pet owners. And as has 
been stated by my colleagues, many pet owners consider their 
pet to be a member of their family. Since everybody is talking 
about their pets, I will have to add that our dog, Valetta, is 
certainly a member of the family. Although, I have to say, she 
likes my wife a lot better than me.
    Mr. Burgess. We all do.
    Mr. Pallone. Thank you. Thank you, Mr. Chairman.
    So, in any case, access to safe, effective, and affordable 
health care for their pets is important.
    In 2015, U.S. families spent more than $60 billion on their 
pets, and a significant portion of those dollars were in the 
growing pet medication market. The pet medication industry is 
in a period of transition, both over-the-counter and 
prescription pet medications have become more widely available, 
including through online pharmacies and big box stores. 
Although retail options have expanded within the industry, many 
stakeholders believe that the existing system for distributing 
pet medications has not evolved accordingly.
    In 2012, the Federal Trade Commission held a public 
workshop to explore the changes taking place in the pet 
medications market. The workshop received input from a variety 
of participants, including veterinarians, pet owners, drug 
manufacturers, drug distributors, retailers, and regulators. 
Some stakeholders argue that exclusivity agreements between 
drug manufacturers and distributors can artificially inflate 
prices and limit consumers' access to medication choice.
    For example, some retail outlets report difficulties 
ensuring that they have brand medications available for 
customers, and some veterinarians report difficulties ensuring 
generic medications are available at their clinics. Others 
reported that consumers are not being sufficiently informed of 
the options available to them when purchasing pet medications, 
including the option of receiving a written copy of their pets' 
prescription from their veterinarian.
    After holding the workshop and reviewing stakeholder 
comments, the FTC issued a report in 2015 on the pet 
medications industry. It highlighted the troubling lack of 
generic pet medications available for purchase, and explained 
that increased availability of generic pet medications could 
produce significant savings for consumers.
    The comparison to the human medication market is notable. 
Of the top 20 human medications that lost patent protection 
between 2005 and 2007, 100 percent had a generic version made. 
Of the top 20 pet medications during that time, only 20 percent 
went generic.
    So we know that generics have a profound impact on health 
care by drastically lowering drug prices and improving access 
to effective treatment. FTC's report suggests a number of areas 
for further study regarding pet medication, distribution, that 
may be causing inefficiencies and disincentivizing the 
development of new generics, and I encourage the FTC to proceed 
with that study.
    So I am hopeful that this hearing could also address other 
challenges facing the pet medications industry. I look forward 
to hearing from our witnesses on how we can work to ensure 
affordable pet medications for all pet owners.
    And I yield back, Mr. Chairman.
    [The prepared statement of Mr. Pallone follows:]

             Prepared statement of Hon. Frank Pallone, Jr.

    Thank you, Mr. Chairman. Today's hearing is an opportunity 
to learn more about the present state of the pet medications 
industry and about the choices that are currently available to 
pet owners.
    Many pet owners consider their pet to be a member of their 
family. Access to safe, effective, and affordable health care 
for their pets is important to them. In 2015, U.S. families 
spent more than $60 billion on their pets, and a significant 
portion of those dollars were in the growing pet medication 
market.
    The pet medications industry is in a period of transition. 
Both over-the-counter and prescription pet medications have 
become more widely available, including through online 
pharmacies and big-box stores. Although retail options have 
expanded within the industry, many stakeholders believe that 
the existing system for distributing pet medications has not 
evolved accordingly.
    In 2012, the Federal Trade Commission held a public 
workshop to explore the changes taking place in the pet 
medications market. The workshop received input from a wide 
variety of participants, including veterinarians, pet owners, 
drug manufacturers, drug distributors, retailers, and 
regulators.
    Some stakeholders argued that exclusivity agreements 
between drug manufacturers and distributors can artificially 
inflate prices and limit consumers' access to medication 
choice. For example, some retail outlets report difficulties 
ensuring they have brand medications available for customers, 
and some veterinarians report difficulties ensuring generic 
medications are available at their clinics.
    Others reported that consumers are not being sufficiently 
informed of the options available to them when purchasing pet 
medications, including the option of receiving a written copy 
of their pet's prescriptions from their veterinarian.
    After holding the workshop and reviewing stakeholder 
comments, the FTC issued a report in 2015 on the pet 
medications industry. It highlighted the troubling lack of 
generic pet medications available for purchase and explained 
that increased availability of generic pet medications could 
produce significant savings for consumers.
    The comparison to the human medication market is notable. 
Of the top 20 human medications that lost patent protection 
between 2005 and 2007, 100 percent had a generic version made. 
Of the top 20 pet medications during that time, only 20 percent 
went generic.
    We know that generics have a profound impact on health care 
by drastically lowering drug prices and improving access to 
effective treatments. FTC's report suggests a number of areas 
for further study regarding pet medication distribution that 
may be causing inefficiencies and disincentivizing the 
development of new generics. I encourage the FTC to proceed 
with that study.
    I am hopeful that this hearing can also address other 
challenges facing the pet medications industry. I look forward 
to hearing from our witnesses on how we can work to ensure 
affordable pet medications for all pet owners, and I yield 
back.

    Mr. Burgess. The gentleman yields back. The Chair thanks 
the gentleman. This concludes member opening statements. And 
the Chair would remind all members that pursuant to committee 
rules, members' opening statements will be made part of the 
record.
    We want to thank our witnesses for being here this morning 
and taking the time to testify before the subcommittee.
    Today's hearing will consist of two panels. Each panel of 
witnesses will have the opportunity to give an opening 
statement, following which there will be questions from 
members. Once we conclude with the questions of the first 
panel, we will take a brief recess to set up for the second 
panel.
    Our first witness for today's hearing is Ms. Tara Koslov, 
the Deputy Director of the Office of Policy Planning at the 
Federal Trade Commission.
    And we appreciate you being here this morning. And, 
Director Koslov, you are now recognized for 5 minutes for 
purposes of opening statement.

  STATEMENT OF TARA KOSLOV, DEPUTY DIRECTOR, OFFICE OF POLICY 
               PLANNING, FEDERAL TRADE COMMISSION

    Ms. Koslov. Chairman Burgess, Ranking Member Schakowsky, 
and members of the subcommittee, thank you for the opportunity 
to appear before you today. I am Tara Koslov, Deputy Director 
of the Federal Trade Commission's Office of Policy Planning. I 
am pleased to join you to discuss competition perspectives on 
the pet medications industry. The Commission has submitted 
written testimony describing the FTC's recent work in this 
area, including our October 2012 workshop, staff's reviewing 
consideration of over 700 public comments received in response 
to the workshop, and ultimately, our May 2015 staff report.
    My oral testimony and responses to questions reflect my own 
views, and not necessarily those of the Commission or any 
individual Commissioner.
    If your household is among the 65 percent in the U.S. with 
a pet, you know firsthand that pet medications are a major and 
growing expenditure for many American consumers. Pet owners 
spend over $7 billion per year on prescription and over-the-
counter pet medications. And this figure is expected to grow to 
over 8 billion by 2018.
    Most consumers purchase pet medications from their trusted 
veterinarians typically at the end of an office visit. Over the 
last decade, however, many more retail pharmacies and other 
retail outlets have been competing with veterinarians to sell 
pet medications. These new market participants include a number 
of online pharmacies that are owned and operated by licensed 
veterinarians and focus solely on filling veterinarians' 
prescriptions.
    Existing competition between veterinarians and other 
retailers already appears to have led to lower prices for 
certain pet medications as well as better service, greater 
convenience, more choices, and other consumer benefits. But 
recognizing the size of the industry and the large number of 
affected American consumers, FTC staff has examined two 
interrelated issues that may still impact competition for the 
sale of pet medications.
    The first issue is whether consumers know about and have 
access to portable prescriptions. That means a consumer can 
obtain a prescription from her veterinarian, then use it to 
purchase pet medications somewhere other than her 
veterinarian's office.
    Based on our findings, the Commission believes that 
consumers likely would benefit from increased pet medication 
prescription portability, which would enhance competition 
between veterinarians and other retailers of pet medications. 
Consumers are especially likely to benefit if they can shop 
around for the lowest prices and greatest convenience when 
purchasing preventive pet medications or long-term therapeutic 
treatments for chronic conditions.
    In contrast, portable prescriptions may not be appropriate 
for certain acute care and specialty medications that can only 
be properly dispensed by veterinarians. Also, consumers may be 
less likely to comparison shop in an urgent care situation when 
a pet needs immediate short-term treatment.
    The FTC staff report analyzes various arguments for and 
against automatic prescription release, whereby veterinarians 
would always be required to provide a portable prescription 
regardless of whether the client requests one.
    As the report notes, many veterinarians already honor their 
clients' request for portable prescriptions as required by some 
State laws and ethical codes.
    Some veterinarians may affirmatively offer portable 
prescriptions as well. But complaints persist that not all 
requests are honored. Also, many consumers still don't know 
that they can ask for a portable prescription. Other consumers 
may know but are uncomfortable asking, especially when their 
veterinarians require fees or liability waivers or make 
disparaging statements about competing retailers.
    As the report explains, FTC staff are skeptical of some of 
the alleged health and safety concerns cited by opponents of 
prescription portability.
    To the degree that these concerns are legitimate, existing 
regulatory measures may be sufficient to address them. We are 
aware of arguments that automatic prescription release may 
erode veterinary practice revenues, and force veterinarians to 
compensate by increasing their service fees. But as our report 
details, it is difficult to reconcile this argument with 
simultaneous claims that consumers already are aware of and 
have complete access to portable prescriptions, and that pet 
medication prices already fully account for the competition 
that exists between veterinarians and other pet medication 
retailers.
    Thus, we believe that the greater prescription portability 
likely would enhance competition for the sale of pet 
medications and that consumers would benefit from this 
competition in the form of lower prices.
    The second issue FTC staff have examined is that most 
manufacturers of pet medications have exclusive distribution 
policies to supply pet medications only to veterinary 
practices. Such policies may adversely affect competition. It 
appears that many nonveterinary retailers have trouble 
purchasing pet medications directly from manufacturers or their 
authorized distributors.
    Often, these retailers must rely on secondary supplies, who 
typically buy excess products from veterinarians. Although 
consumers likely benefit from lower prices than if exclusive 
distribution were being strictly enforced, this secondary 
distribution system may be inefficient, and prices might be 
even lower if there were no such constraints.
    As the report highlights, enhanced prescription 
portability, may increase consumer demand to buy pet 
medications from nonveterinary retail sources. This, in turn, 
might incentivize manufacturers to change their distribution 
policies in response to consumer choices. Continued growth of 
retail distribution could, as a result, increase competition 
and lead to even lower prices for pet medications in both 
veterinary and retail channels.
    Thank you for the opportunity to share the Commission's 
views and to discuss our efforts to promote competition and 
protect consumers. I am happy to respond to your questions.
    [The prepared statement of Ms. Koslov follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] 
    
    Mr. Burgess. The Chair thanks the gentlelady for your 
testimony. And we will move into the question portion of the 
hearing.
    I will begin by recognizing myself for 5 minutes for 
questions.
    Director, you mentioned the issue of liability for writing 
a prescription. Is that actually at issue? In the course of 
your study in preparing the report last May, did you come 
across issues of liability that a veterinarian might encounter 
for either writing or not writing a prescription?
    Ms. Koslov. So liability for not responding to a request 
for a prescription?
    Mr. Burgess. I guess I was thinking along the lines of 
professional liability, for the prescription either not being 
filled in a timely fashion or filled correctly. Were there 
medical practice, or veterinary practice questions that 
occurred?
    Ms. Koslov. So as we explained in the report, our 
understanding is that a veterinarian would not be liable if a 
pharmacy made an error in filling a portable prescription. The 
existing regulations that govern the pharmacist would cover 
that if it wasn't dispensed as written.
    Mr. Burgess. And that would be just part of the normal 
practice of the dispensing agency, correct?
    Ms. Koslov. That is correct. It would be the same as it is 
for a human prescription. If you take a prescription to a 
pharmacist, they are required to dispense it as written.
    Mr. Burgess. So why would it come up that someone would ask 
someone to sign a release of liability if the prescription was 
not dispensed at the office?
    Ms. Koslov. So as we explained in the report, we are not 
sure why there would be a request for release of liability, 
because it is our understanding that the existing regulations 
would already cover it, and you would not need an additional 
layer of liability release.
    Mr. Burgess. That would be my thought as well.
    So the subcommittee really appreciates the amount of time 
the agency spent putting the report together. Obviously, it was 
a significant report.
    Seven hundred public comments; is that correct?
    Ms. Koslov. Over 700, yes.
    Mr. Burgess. For some people to get a context, is that an 
unusual amount of comments, or is that about standard when you 
do an investigation like this?
    Ms. Koslov. So it is fairly standard. It was a little bit 
higher than average for this type of workshop. There were a 
number of comments that we received that were similar to each 
other. It is our understanding that perhaps a number of 
veterinarians may have all been encouraged to send in comments, 
and they all did. So that was one large group, but then we 
received a large number of substantive comments from a variety 
of stakeholders as well.
    Mr. Burgess. So the conclusion of all of that, and you put 
together the report, is there any type of economic analysis 
that you at the FTC do as far as the implications of the report 
that you are dispensing? Do you consult with any other agencies 
or anyone else in the administration, the Bureau of Economics, 
Office of Management and Budget, about the cost of implementing 
the procedures in the report?
    Ms. Koslov. Sure. So when we initiate a process of 
designing a workshop and holding a workshop and then generating 
a report, the staff team always includes a number of people 
from our Bureau of Economics. That is just our standard 
practice within the agency. And so our pet meds workshop team 
did include people from the Bureau of Economics. The report 
itself does reflect significant economic analysis by our staff 
internally, in particular, trying to understand the extent to 
which prescription portability might impact the economics of 
veterinary practices and also trying to understand how economic 
theory would predict how prescription portability might impact 
prices for pet medications.
    Mr. Burgess. And what are the general conclusions of the 
Bureau of Economics?
    If you can summarize them?
    Ms. Koslov. Sure. So I would absolutely refer you to the 
report for greater detail. It is woven in throughout the 
report.
    On prescription portability, this is ultimately all about 
consumers. It is all about giving consumers information so that 
they can exercise their choices in the marketplace. That is 
kind of the fundamental principles of competition that work 
throughout our economy. We would think it would work the same 
here. If consumers have more access to information and more 
choices in the marketplace, they are more likely to go out and 
use that information to generate competition, and that should 
tend to drive down prices.
    We think it already has. We see for some pet medication 
products where veterinarians may already be facing competition 
from alternative retail distribution, that has tended to bring 
down prices, and so we would expect to see more of that.
    As far as the impact on veterinary practices, if they were 
to lose revenues from the sale of pet medications, because we 
understand that is a portion of their revenues right now, I 
think the average is probably about 20 percent of their 
revenues come from pet medication sales. So if they are going 
to lose some of those sales, they might need to adjust their 
service fees and raise them to compensate.
    On the other hand, if, as we have heard, there is already a 
significant amount of competition and veterinarians already are 
building that competition into the price at which they sell 
their medications, then we would not necessarily expect them to 
lose very much revenues, because their prices already would 
reflect that competition.
    Mr. Burgess. If I could just--in your report, one of the 
statements made is more information regarding the secondary 
distribution system for pet medications could allow for deeper 
analysis of the economic product and safety concerns.
    In the years since this report was published, have you, in 
fact, done that deeper dive?
    Ms. Koslov. We have continued to observe what is going on 
in the secondary distribution market.
    Mr. Burgess. And is there any supplemental statement that 
the FTC has at this point, a year later, from where you were 
last May when this report was issued?
    Ms. Koslov. We do not have a supplementary statement. As 
best as we can tell, things have not changed very much in the 
year since the report was issued.
    Mr. Burgess. And I thank you for your prompt answers to the 
questions.
    Ms. Schakowsky, you are recognized for 5 minutes, please.
    Ms. Schakowsky. As you said, currently, most major 
manufacturers of pet medications use third-party distributors 
to market their products rather than selling directly to 
veterinarians or alternative retailers. Distributors explain 
that there are thousands of individual veterinary clinics 
across the country, and it is hard for manufacturers to reach 
them without a centralized distributor.
    We have also heard that many manufacturers and distributors 
have signed exclusivity agreements that limit what products 
distributors can carry and who they can sell those products to.
    Now, the FTC has found that exclusivity agreements are 
common in the pet medications industry. Could you tell us more 
about what the terms of these types of agreements usually 
require?
    Ms. Koslov. So we have not had access to or looked closely 
at individual contracts, so, I can't tell you precisely what 
the terms of those are. Our general understanding, based on the 
workshop record and our additional research is that a 
manufacturer might reach an agreement with the distributor, 
that that distributor would either only carry that 
manufacturer's product, or the distributor would carry that 
product but not a competing generic product.
    Ms. Schakowsky. So how do these agreements affect the 
ability of veterinarians and alternative retailers to offer 
their customers choices between branded products, or between 
branded or generic products?
    Ms. Koslov. So we do think that these exclusivity 
arrangements do have an effect on possible penetration of 
generic competition. So there are a few factors that affect 
generic entry, and one of them would be that if you don't have 
a sizable enough market for generic drugs because consumers 
aren't getting prescriptions for them, there might not be a big 
enough market to attract generic entry.
    As you are well aware, on the human side, we have the Hatch 
Waxman system, which provides for automatic substitution of 
generic drugs. We also have the situation where we mostly have 
insurance. And so our insurance providers are constantly 
putting pressure to drive down drug prices, and that tends to 
lead to more of us seeking generic drugs or being required to 
use generic drugs. We don't have those two factors at play in 
the pet med industry. So those are two other factors that 
affect generic entry.
    Ms. Schakowsky. OK. So I think you have answered this. We 
want generic drugs makers to get their products to 
veterinarians and retailers to have access to both branded and 
generic animal drugs. How can we help pet owners have that 
choice?
    Ms. Koslov. So the position that we have taken in our 
report is that by enabling greater prescription portability and 
giving consumers more access to these choices in the 
marketplace, that, ultimately, that will generate more consumer 
demand for these alternatives, including, perhaps, more 
consumer demand where consumers would ask, is there a safe 
generic alternative? But they would have a conversation with 
their veterinarian as part of that trusting relationship and 
start to explore those options and that, in turn, might put 
more pressure on manufacturers and on the marketplace to create 
more generic alternatives.
    Ms. Schakowsky. I am looking at this chart, I don't know 
who prepared it, potential savings for pet owners. And we are 
looking at, like, Rimadyl, generic savings, 53 percent over 
what would happen at the veterinary clinic, typically. So, you 
know, there is a lot of money to be saved, potentially.
    In the FTC report, you noted that requiring automatic 
prescription release without addressing the effects of 
exclusivity agreements would not solve the greater issue facing 
the pet medications market.
    Can you explain why?
    Ms. Koslov. The interdependence between those two issues, 
as I explained in my oral remarks, if you have greater 
prescription portability, but the distributors of the 
medications don't have access to enough supply to fill the 
prescriptions, then all the prescription portability in the 
world won't really help consumers. So we do see it as 
interrelated.
    Ms. Schakowsky. So is there a way to increase the demand 
for generics without changing the current distribution system 
and the distribution channel?
    Ms. Koslov. I think that by educating consumers about these 
options in the marketplace and, again, encouraging them to have 
these conversations with their trusted veterinarians, these are 
deep relationships between people who care deeply about the 
health of the animal. Access to affordable medications is a 
huge part of taking good care of your pet, and so I think if 
more consumers have those conversations with their 
veterinarians and talk about the price constraints they are 
facing, what options do I have out there in the marketplace, 
what can we do that is safe for my animal, I think that those 
conversations will ultimately start to affect the marketplace 
based on consumer demand.
    Ms. Schakowsky. Thank you so much.
    I yield back.
    Mr. Burgess. The gentlelady yields back. The Chair thanks 
the gentlelady.
    The Chair recognizes the gentleman from New Jersey, the 
vice chairman of the subcommittee, Mr. Lance, 5 minutes for 
questions, please.
    Mr. Lance. Thank you, Mr. Chairman.
    And good morning to you, Director.
    As I understand the issue, the bill that has been drafted 
may be based upon the model used regarding contact lenses. And 
the thought was that this would increase access to contact 
lenses through online sales.
    But there have been some negative consequences, in my 
judgment, in that space, mainly, as online retailers may have 
abused the law to market and sell contact lenses to consumers 
without prescriptions, and that may have put consumers at risk 
by lessening the doctor-patient relationship.
    And I am concerned that if we replicate that model, there 
may be concerns of safety regarding family pets. And I am 
interested in your views on that. And I am also interested in 
what the agency is doing regarding contact lenses. This is a 
significant issue in the district I represent. We are the 
medicine chest of the Nation in North Central New Jersey.
    Ms. Koslov. So we do see analogies between the situation 
with contact lenses and the situation with pet medications.
    Mr. Lance. Yes.
    Ms. Koslov. We enforce the contact lens rule. We have seen 
in that market that enhanced prescription portability has 
really opened up an entire marketplace and options for 
consumers. So we think, generally, there has been significant 
benefits for consumers. I recognize the safety concerns that 
you are citing. As a matter of fact, just recently, in the last 
couple of weeks, the FTC did send out a series of warning 
letters related to enforcement of the contact lens rule.
    Some of those enforcement letters, warning letters, went to 
sellers of contact lenses who might not be following the 
contact lens rule because they are filling expired or invalid 
prescriptions. However, a number of those warning letters also 
went to prescribers who may not be honoring the prescription 
portability requirements of the contact lens rule. So we are 
looking closely at that issue on both sides. But, obviously, 
safety is always a consideration.
    Mr. Lance. And do you believe that you would be able to 
give Congress a follow-up report on what is occurring regarding 
the contact lens situation?
    Ms. Koslov. We continue to look closely at contact lenses. 
There is a rulemaking proceeding open right now, because the 
contact lens rule is up for review. So as part of that process, 
we have solicited and received a large number of public 
comments.
    Mr. Lance. I believe in that space, you have received 
between 600 and 1,000 comments. Is that accurate?
    Ms. Koslov. That sounds about right.
    Mr. Lance. Thank you.
    Mr. Chairman, I would like an analysis of this issue in 
relationship to the contact lens issue, because I believe there 
are many similarities. And I hope as the discussion moves 
forward, we can examine this space based upon the experience in 
another space.
    I yield back the balance of my time.
    Mr. Burgess. The gentleman yields back. I thank the 
gentleman.
    The Chair next recognizes, I believe, it is the gentleman 
from California, Mr. Cardenas, 5 minutes for questions.
    Mr. Cardenas. Thank you very much, Mr. Chairman.
    Ms. Koslov, thank you for conducting the public workshop to 
advance the understanding of this important issue.
    Our family has three family members that are directly 
affected by today's committee topic. And our Chihuahua-Yorkie 
mix, Sophie, who thinks she is a person, really appreciates 
this. She will act like she understands everything we are 
saying. Our chocolate Lab, Coco, who knows she is a dog. She is 
much more well-balanced, and then also, our cat, Gracie, who 
knows that she rules the house, they all appreciate it, and so 
do the rest of the family.
    Our entire family appreciates that this committeeis 
carefully evaluating the pet medication industry today. In your 
testimony, Ms. Koslov, you discuss automatic prescription 
releases, and I have some questions.
    Did the workshop that the Federal Trade Commission 
conducted conclude that automatic prescription release is the 
best way to give a pet owner their portable prescription?
    Ms. Koslov. The report did not make a judgment on what the 
best way would be to approach this, but we did conclude that 
greater prescription portability would be a very important way 
to enable greater competition in the marketplace.
    Mr. Cardenas. OK. Did the workshop evaluate what the costs 
passed on to veterinarians for automatic prescription release 
might be?
    Ms. Koslov. There is an extensive discussion in the report 
of potential costs and benefits, including costs that might be 
incurred by veterinary practices, yes.
    Mr. Cardenas. OK. And, apparently, there is a great 
interdependence between prescription portability and product 
distribution. Is this second distribution system resulting in 
higher prices for pet owners? What is the effect there?
    Ms. Koslov. So we don't know the extent to which the 
secondary distribution system--we have not been able to 
quantify the extent to which that might be an increase in 
prices. Based on our economic modeling and our understanding of 
the dynamics of the industry, we certainly think that the way 
the secondary distribution system is operating right now is not 
as efficient as it would be if distributors had to write access 
to drugs from manufacturers, and that there is room to push 
prices down if we could fix some of the problems there?
    Mr. Cardenas. If product distribution remains the same, how 
much will portable prescriptions actually be used? What is the 
extrapolation there?
    Ms. Koslov. Portable prescriptions are already being used. 
There are a number of situations where veterinarians do honor 
the requests of their clients. There are also a number of times 
where a veterinarian doesn't carry a particular drug, and they 
offer a prescription to their client. So this is already going 
on. I think additional prescription portability would enhance 
competition and lead to even greater competition in that space. 
I think if consumers are asking for more product, ultimately, 
manufacturers may need to rethink how they are handling 
distribution, which may lead to more product flowing into the 
secondary distribution network.
    Mr. Cardenas. So on that point, in order to enhance choice, 
should manufacturers be able to sell directly to alternative 
retailers?
    Ms. Koslov. Manufacturers can choose however they would 
like to sell their products.
    Mr. Cardenas. Today?
    Ms. Koslov. Today. They choose today. They will continue 
to. They can unilaterally decide what is most efficient for 
them, what is most cost-profit maximizing for them. I think as 
the marketplace changes and evolves, I think many manufacturers 
may be rethinking their own economic model, their product 
structure, and trying to figure out how to respond to the 
changes in the marketplace.
    Mr. Cardenas. I have a good friend, Cesar Milan, who knows 
a lot about dogs. And he told me something interesting, that 
when he went to Germany, he found out that if you have a pet, 
the pet doesn't need a license; the human being needs a license 
to learn how to have that pet become a family member. I thought 
that was incredibly advanced.
    That being said, did your report in any way analyze what 
best practices around the world might help us understand the 
dynamics that they figured out over there that we might learn 
from?
    Ms. Koslov. So we did not look at that licensing issue. We 
did look generally----
    Mr. Cardenas. What I am saying, on this subject matter, 
like, for example, Germany, maybe they have crossed this kind 
of dialogue and these kinds of regulations, et cetera, in their 
own country. That is what I mean. With all due respect, I think 
us, as Americans, we think that we have done everything first 
or better than everybody in the world. But when it comes to 
pets, maybe we can learn from other countries. That is my 
point.
    Did your analysis look at any other world practices?
    Ms. Koslov. So we did look at practices in a number of 
other countries. In particular, we looked at the U.K., because 
it was an area that they were interested in as well. The FTC 
has extraordinary close and productive working relationships 
with our competition counterparts in other countries, and so we 
actually were talking to our counterparts in the U.K., because 
they were looking at the issue around the same time.
    Mr. Cardenas. Were we able to learn from them, and did any 
of that information get into the report?
    Mr. Burgess. Mr. Cardenas, your time is about to expire. We 
are deep into a vote. The bells are not working in here, 
because of the construction. I apologize to members that we 
have let things go, but I wanted to let your question time go 
through.
    Mr. Cardenas. Thank you so much.
    Mr. Burgess. But we are going to take a brief recess, and 
we will reconvene immediately after the vote series. It will 
not take long.
    [Recess.]
    Mr. Burgess. I will call the subcommittee back to order. 
And thank everyone for their forbearance during the vote 
series, and thank people for coming back.
    We were in the portion of the member questions when we 
adjourned. So the Chair at this point would like to recognize 
the gentlelady from Indiana, Mrs. Brooks. Five minutes for 
questions, please.
    Mrs. Brooks. Thank you, Mr. Chairman.
    Like so many Americans, and even like some of the panel 
that we have heard from or members that we have heard from 
today, animals have been an integral part of my life since 
childhood, including the 10 \1/2\-year-old dog, Scout, yellow 
lab, more than just a companion or a hunting dog with my 
husband, but truly a member of our family. And like a family 
member, we need to make sure that he has the medicines, all the 
up-to-date vaccines to keep him healthy and active.
    But I also know, because Indiana is the home of Elanco, one 
of the Nation's largest animal health distribution and 
manufacturing companies, that it takes a lot with respect to 
create medications and vaccines and so forth for our treasured 
pets. Whether it is price competition, medications, vet laws, I 
know these things not only affect consumers, but they also 
affect the manufacturers and the scientists in Indiana 
developing these products. So I am looking forward to hearing 
not only from you, but to the second panel as well.
    Ms. Koslov, were you able to gather the information? And 
what have you done with respect to the analysis of the, I 
believe, about 36 States right now by either the State or 
independent licensing boards or the self-policing associations, 
what can you tell us about whether or not veterinarians are 
actually withholding prescriptions from pet owners across the 
country? I mean, when 36 States already have laws on the books 
and in place, can you share with us a bit more about what 
practices you are most concerned about?
    Ms. Koslov. So it is our understanding that a number of 
States do have these laws on the books, and we realize that 
many veterinarians are honoring their client's requests for 
prescriptions. However, there are some States that do not have 
these rules in place. Moreover, there are no States that 
require a veterinarian to affirmatively offer a prescription.
    And in our experience, based on the anecdotal evidence and 
the testimony at the workshop, we think there are a large 
number of consumers who just aren't aware that they have the 
right to ask for a prescription and that would give them the 
opportunity to shop around in the marketplace. And so we are 
looking to enhance that part of the market as well.
    Mrs. Brooks. And I am sorry, I haven't studied all 36 
States' requirements, but certainly of the 36 States, people 
who ask for a prescription, though, in all likelihood, the 
veterinarian is required to provide one. Would that be correct?
    Ms. Koslov. It is our understanding that they would be 
required to provide one. However, we have received a number of 
anecdotes and comments, as part of the workshop, that some 
consumers are not, in fact, getting prescriptions when they ask 
for them.
    Mrs. Brooks. But then wouldn't that be a licensing problem 
or something that the consumer would then be able to file a 
complaint with the licensing board, if that were to take place, 
at least in the 36 States?
    Ms. Koslov. So consumers could choose to file some sort of 
complaint with the licensing board, or in some States it might 
actually be a law or a regulation. So it could be the board or 
it could be, if it is an ethical code in the State that 
requires veterinarians to do it, there might be other places 
they could complain.
    Mrs. Brooks. And do you know if those complaints have been 
filed in the 36 States, and if so, how many?
    Ms. Koslov. So we did not do an exhaustive study of how 
many complaints were filed in each State.
    Mrs. Brooks. Have any been filed in those 36 States?
    Ms. Koslov. I am not aware of whether any have been filed 
in those States. I know that we did receive a number as part of 
our comment process.
    Mrs. Brooks. But would that number be in the 36 States or 
are they in the other States that haven't yet moved in that 
manner with respect to regulations?
    Ms. Koslov. I don't know which States they were in.
    Mrs. Brooks. Has the FTC ever done any consumer campaign to 
inform consumers that they can ask for a prescription?
    Ms. Koslov. So the day that we issued the pet medications 
report last May, we actually did issue, at the same time, a 
consumer education piece that came out through our Bureau of 
Consumer Protection. We also shared it with a number of 
stakeholders in this industry and encouraged them, 
veterinarians and other consumer interest groups, so that 
consumers would get better information and be educated about 
their opportunities.
    Mrs. Brooks. And you are aware of concerns by the FDA 
regarding medications obtained online for pets, and we are also 
aware of some safety issues regarding something that 
Congressman Lance from New Jersey brought up with respect to 
contact lenses obtained online.
    Has the FTC taken any steps to educate consumers about safe 
sources of whether it is contact lenses or whether it is online 
pet medications, and if so, can you please explain what the FTC 
has done with respect to online purchases of medications?
    Ms. Koslov. Yes. In that consumer education piece that I 
just mentioned, one of the guidance pieces that we gave to 
consumers was that it would be helpful to look for a vet that 
is accredited pharmacy if they are looking at purchasing pet 
medications online. That accreditation process involves a 
number of safety mechanisms to ensure the authenticity of the 
medications and just to make sure that the process is as safe 
as possible. So we did encourage consumers to look for that 
certification.
    Mrs. Brooks. And is the FTC conducting any investigations 
of online purchases?
    Ms. Koslov. I can't comment on any nonpublic investigations 
and whether we are doing them or not. We are generally aware 
that there is a robust online marketplace for pet medications, 
and we are doing our best to keep an eye on it.
    Mrs. Brooks. Thank you. I yield back.
    Mr. Burgess. The Chair thanks the gentlelady. The 
gentlelady yields back.
    Seeing no other members of the subcommittee, it would now 
be my great honor to recognize a member of the full committee, 
Dr. Schrader from Oregon, 5 minutes for questions.
    You may have to move to a microphone that is actually 
working. I promise I didn't turn yours off. And thank you for 
being here, Doctor.
    Mr. Schrader. Thank you very much, Mr. Chairman.
    And, Ms. Koslov, I appreciate you being here. A difficult 
position, FTC trying to talk about health safety and price 
competition at the same time.
    I guess to make a comment here, I mean, in your own report, 
you acknowledge that there is increased competition in the 
veterinary prescription marketplace. Prices are going down 
already. PetMed Express claims to have 2.5 million customers, 
50 percent of the business being prescription meds.
    I guess I would ask, Where is the problem here? Where is 
the problem here?
    Ms. Koslov. We think that consumers benefit whenever they 
have additional information that enables them to exercise their 
choices in the marketplace. And based on the record that we 
developed as part of this workshop, although our understanding 
is that many consumers have a very close and trusting 
relationship with their veterinarians and they are already 
having these discussions about prescription portability, we 
think there is room for improvement.
    Mr. Schrader. Well, there is probably always room for 
improvement in anything. I think it is a point of diminishing 
returns. And also, to be honest with you, the tone a little bit 
is impugning my profession. I have been a veterinarian for 35 
years, and I could have made a lot more money in a lot of other 
professions. I went to school for an exhaustive period of time, 
in my opinion, and I chose veterinary medicine because I love 
working with animals.
    The prescription piece is a small part of what we do. And I 
think some of the testimony, with all due respect, that you 
have is outdated. You know, 20 percent of the business being 
prescriptions, I will wager you in this day and age, it is 
actually much less. My own practice over time back in the dark 
ages when I started, yes, medications were a big part, because 
there weren't a lot of opportunities elsewhere. That has 
changed. I think it has changed for the better for, you know, 
frankly, a lot of the folks out there, whether the client or 
the actual pet itself.
    And the trend in veterinary medicine, just so you are aware 
and my colleagues, is to pay for services, not for items 
dispensed. It is much like what we are seeing in human 
medicine, it is a value added type of reimbursement system. 
Veterinarians have voluntarily in recent years, last, I would 
say, 6, 8, 10 years reduced the number of vaccines they give, 
because good research has shown they don't need to be doing 
that. And I think that is a tribute to the profession. It is 
not about making money; it is about providing the best health 
care to the pet.
    And I appreciate the FTC comes at it from a different 
standpoint, you know, your background is in competition and 
getting the best price, best opportunity for the consumer, and 
that is fair, but that is not what veterinary medicine is all 
about. We are about protecting the health and safety of these 
animals.
    To be honest, as Ms. Brooks pointed out, these so-called 
complaints, you can't verify where they have come from, who 
they have come from. My guess is they come from, frankly, the 
PetMed type of distributors out there, who their one single 
motivation is to make money. You know, I respect that, this is 
America, it is a market system, but they do not have the best 
interest of the pet at all in their sights.
    And the biggest thing that I would recommend the FTC also 
look at as they go on with this--if they are going to go on 
with this--is to look at, you know, what is the implication of 
allowing these big national distribution chains to issue 
prescription medications at liberty? In other words, what we 
find in the veterinary field is you will have a prescription 
that says 30 days' worth of, you know, thyroid medication for 
your animal, and PetMeds will come back and give them 120 days. 
How does that give the veterinarian the chance to make sure 
that that client does not go beyond what is safe for that pet, 
to make sure that pet is getting the needed check, and to make 
sure that medication is actually working correctly for them?
    There is a huge disconnect between where I think you are 
going with regard to how the veterinarians act, and the real 
culprit, the real worry is how these prescription distribution 
business companies are. It is purely to take advantage of the 
marketplace. And I am all in favor of, you know, free market 
enterprise. I always encourage, like I think most 
veterinarians, to get the best deal.
    They come to us initially, you give them initial 
prescription, if it is chronic medication--consumers are very 
sophisticated these days. There may be a few that don't 
understand they can go online or, you know, get medications 
elsewhere, but I think in this day and age, most of them are 
very sophisticated. I have clients coming in saying, ``Hey, 
Doc, can I get my Rimadyl or my Heartgard from somebody else?'' 
I say, sure, because I am not making much money on it. I am 
probably losing money on it. You mark it up a tiny bit because 
of the competition that is out there, that is good. But it is 
there in case my clients need it in a crunch. They know I am 
going to be there for them. You know, PetMeds may take, you 
know, 24, 36 hours to get them their needed medication.
    So I would just add the health and safety thing in there. I 
think that is something that is being totally missed in the 
discussion at this point in time.
    The other issue I would bring up real quick, and hopefully 
would be commented on in the second panel, is the idea that 
somehow the distribution system is limiting generics for 
veterinary patients or veterinary clients. Nothing could be 
further from the truth. I get calls all the time as a 
veterinarian, member of the United States Congress, on, you 
know, gosh, you know, we are having trouble getting generic 
medications. And it is not because of the distribution network, 
it is because, frankly, the consolidation that has gone on in 
the generic industry, some of the health and safety standards, 
some of the people that are doing these things. And that is a 
whole different subject.
    The idea that this is a big problem for generic 
distributions is absolutely completely wrong. And most 
veterinarians, they don't deal with one distributor, they deal 
with multiple distributors. As a matter of fact, if you can't 
get it through a distributor, most of the Prednisone 
prescriptions, we go through a pharmacy, for goodness sakes. 
But that is getting to be difficult to afford compared to the 
old days. Prednisone used be a very inexpensive medication, 
wide, broad-spread effectiveness, one that you need to check 
on, because chronic administration can cause serious problems. 
So even if it is a generic medication doesn't mean that it 
doesn't need veterinary supervision.
    I think it is real important for the panel to understand, 
you know, what is going on here. The basic issue we have here 
is, who do you trust? Is this about trusting PetMeds, that is 
in this purely from a business standpoint to make money off of 
your pet, or is this about trusting your veterinarian, which 
has the best interests of you and your pet in mind? And I would 
urge the FTC to put a little bit of that heart into that 
business background that you are using as you go forward.
    And with that, I yield back, Mr. Chair.
    Mr. Burgess. The Chair thanks the gentleman. The gentleman 
yields back.
    The Chair recognizes the gentleman from Oklahoma, Mr. 
Mullin. Five minutes for your questions, please.
    Mr. Mullin. I am not sure how you follow that up. I think 
you summed it up pretty well.
    I have also got a letter here I want to present for the 
record from Oklahoma State University, from the dean, that also 
opposes this.
    Mr. Burgess. Without objection, so ordered.
    [The information appears at the conclusion of the hearing.]
    Mr. Mullin. I also would like to follow up on a couple of 
questions. Was there an epidemic of people reaching out to you 
on asking for this to happen? I mean, was there an overswell of 
the public that was saying, we are being cheated, we are being 
taken advantage of, we want it to be required that all vets 
write a prescription before they can give the drug to us so we 
have an option? Was that taking place?
    Ms. Koslov. So our study was prompted by legislation that 
was originally introduced in, I believe, 2011. And the reason 
that we did the study was that the----
    Mr. Mullin. Prompted by what?
    Ms. Koslov. We don't know what it was prompted by, but the 
legislation, if enacted, would have given us rulemaking 
authority.
    Mr. Mullin. So what did your----
    Ms. Koslov. And given that we would have had----
    Mr. Mullin. What did the study do? What did the study come 
up with? I mean, did you find out that there was a large outcry 
from the public that was wanting this?
    Ms. Koslov. Well, one of the things we needed to study was, 
given that the legislation would require prescription 
portability----
    Mr. Mullin. No. That----
    Ms. Koslov [continuing]. We needed to understand----
    Mr. Mullin. But that--I know. But when----
    Ms. Koslov [continuing]. How that would fit in.
    Mr. Mullin [continuing]. You did the study, did the study 
come out and say, ``Wow, there is a huge problem here''?
    Ms. Koslov. We found that there were a number of consumers 
who were either unaware of their right to take----
    Mr. Mullin. What is the number? What is the percentage that 
you use? Because, look, I have lived on a farm my whole life, 
and this whole comparison that you are using the same 
legislation for contact lenses, huge difference, big 
difference. Contact lenses, people didn't even know they needed 
a prescription. They didn't understand the difference between 
glasses and contacts. They didn't understand the reverse effect 
that would happen. My kids wear contacts, and so does my wife, 
until she had Lasix, but they didn't understand that the 
different material you put in your eye could cause problems. 
They didn't understand that there is a difference between one 
contact brand and the next contact brand.
    This is vets that are there with their patient, that are 
prescribing the medication right then. There is already over 30 
States that already have legislation in place that says that if 
a patient asks for it, that the vet will provide it. And I 
would say the other States, the vet would do it anyway. So why? 
Tell me the percentage to make you say that this has to be the 
legislation that you guys are proposing, because all it sounds 
like to me is just more regulation on an industry that is 
struggling the way that it is now. There is a shortage of vets, 
especially in rural America. We cannot find enough of them. And 
this is just another reason to keep people out of it.
    Ms. Koslov. So the Commission hasn't actually taken a 
position on the pending legislation. So the report focused more 
qualitatively on what is going on in the marketplace----
    Mr. Mullin. But you already support it, so you have taken a 
position.
    Ms. Koslov. The Commission has not come out in support of 
any specific legislation. We are supportive generally of 
measures to increase prescription portability.
    Mr. Mullin. Which is essentially saying that you support 
the legislation without saying you support the legislation. 
That is the way we do it all the time up here.
    So my point is, why? What was the percentage that prompted 
you to think that this is a good idea?
    Ms. Koslov. I don't have a specific percentage for you. The 
report focused much more on the policy of----
    Mr. Mullin. So this is just another piece of regulation 
that is being pushed out by a Federal agency without a need for 
it.
    Ms. Koslov. Well, we are not pushing the legislation.
    Mr. Mullin. I know that.
    Ms. Koslov. We are responding to the legislation.
    Mr. Mullin. But it doesn't matter.
    Ms. Koslov. We identified a need from consumers. Consumers 
need more information in this huge marketplace to be able to 
exercise their options.
    Mr. Mullin. Was there a lack of information being provided?
    Ms. Koslov. Our understanding was that a number of 
consumers did not have the----
    Mr. Mullin. Understanding. What was the study that showed 
that you are--you are speaking that there was a lack of 
information. So speak in specifics by saying what draw that. I 
don't want assumptions. What is the percentage that said that 
there was a lack of information being out there to the 
consumer?
    Ms. Koslov. I don't have a percentage for you. I would 
point you to the record of our workshop----
    Mr. Mullin. Then you can't say that there was----
    Ms. Koslov [continuing]. And our 700 public comments.
    Mr. Mullin [continuing]. There was a lack of information to 
the public. You are making that general analysis, and you are 
making it off of your belief, but there is no analogy to back 
that up.
    Ms. Koslov. We are making it based on the record of the 
testimony at our workshop, the 700 public comments, and the 
additional research that we conducted.
    Mr. Mullin. Then what was the percentage of the 700 that 
you got that information from?
    Ms. Koslov. We did not quantify what percentage of 
consumers----
    Mr. Mullin. Well, I think that would be pretty----
    Ms. Koslov [continuing]. Had asked for this information.
    Mr. Mullin [continuing]. Important. I mean, don't you? If 
we are going to come out in favor of legislation--which I know 
you haven't, but you have--wouldn't that be important for this 
committee to know?
    Ms. Koslov. I don't think that we need to be able to 
quantify a specific percentage of consumers who are----
    Mr. Mullin. Well, yes, it would, because if there are a few 
bad apples, let's go after the bad apples, let's not go after 
the entire industry and use a one-size-fits-all approach that 
we do so often up here.
    Ma'am, I appreciate the position that you are at, and I 
appreciate you coming here and talking to us, but even though 
you are not supportive, you are speaking in favor of it, yet 
you are not able to tell us why you are speaking in favor, 
other than you are saying that the consumers need it, but you 
can't tell us why the consumers need it.
    So I yield back, Mr. Chairman.
    Mr. Burgess. The gentleman yields back. The Chair thanks 
the gentleman.
    Seeing no other members wishing to ask questions, I do want 
to thank our witness for being here today. Mrs. Brooks had to 
leave. And we will try to get a question for the record in 
writing to you. I think this is an important point of the 
number of complaints that were received, the type of complaints 
that were received. So if we can get some quantification of 
that, I think that would be helpful to the subcommittee.
    And I do also want to stress this is not a legislative 
hearing. This is a hearing that was called on the basis of the 
report. And as you commented, you did the report because you 
saw legislation that would require you to enter into 
rulemaking. So it is proactive. And I appreciate having 
preventive medicine. I am a believer in having preventive 
medicine, but I do want to stress this is not a legislative 
hearing on a particular piece of legislation.
    Does the gentlelady from Illinois seek to----
    Ms. Schakowsky. I just wanted to make a comment. This 
hearing was requested by the majority based on a report that 
came from legislation that had been suggested. And I just felt 
the tone of the questioning was a bit of badgering of the 
witness, who, you know, is fulfilling her job, and I appreciate 
it, at the Federal Trade Commission.
    And given the number of pet owners, I think the issue is 
certainly important to many, many people, regardless of whether 
or not there is a percentage known of how many people; and 
that, you know, the idea, the possibility of more competition 
was raised in a piece of legislation that would have affected 
the Federal Trade Commission. So I want to thank you for the 
study that was produced. And then, of course, it is always up 
to us on whether or not we proceed forward with any kind of 
legislation.
    And I yield back.
    Mr. Burgess. The gentlelady yields back. The Chair thanks 
the gentlelady.
    Seeing no other members wishing to ask questions from our 
witness, I do want to thank our witness for being here today. I 
appreciate your forbearance through the voting recess that we 
took.
    This will conclude our first panel. We will take a brief, 
underscore brief, recess to set up for the second panel, and 
the committee will resume at that time. The committee stands in 
recess.
    [Recess.]
    Mr. Burgess. I will call the subcommittee back to order. I 
want to thank everyone for their patience, taking the time to 
be here today. We are going to move into the second panel for 
today's hearing. We will follow the same format as the first 
panel. Each witness will be given 5 minutes for an opening 
statement and then we will have questions from members.
    For our second panel, we have the following witnesses: Mr. 
Nathan Smith, the Vice President of True Science; and Dr. John 
de Jong, Chair of the Board of Directors at the American 
Veterinary Medical Association.
    We appreciate both of you being here with us this morning.
    We will begin the panel with you, Mr. Smith. You are 
recognized for 5 minutes for an opening statement, please.

  STATEMENTS OF NATHAN SMITH, VICE PRESIDENT OF STRATEGY AND 
INTERNATIONAL, TRUE SCIENCE, LLC, AND JOHN DE JONG, DVM, CHAIR, 
  BOARD OF DIRECTORS, AMERICAN VETERINARY MEDICAL ASSOCIATION

                   STATEMENT OF NATHAN SMITH

    Mr. Smith. Mr. Chairman, Ranking Member Schakowsky, and 
members of the subcommittee, my name is Nate Smith and I am the 
Vice President of Strategy and International for True Science. 
I appreciate you allowing me to testify today.
    True Science is a pet medication and wellness company 
founded in 2010. We deliver premium prescription and over-the-
counter pet medications and veterinarian-recommended products. 
We are dedicated to pet owners, the two of three American 
households who have at least one dog or cat. Americans love 
their pets. They provide us companionship and comfort.
    Pets are part of our families, which begs the question: 
Shouldn't we have the same access to affordable medications for 
our pets as we do for medications for our children, the same 
access to generics, and the same right to choose our pharmacy? 
We believe we should. That is why we support the Fairness to 
Pet Owners Act, a bipartisan bill to give pet owners the right 
to copies of their pets' prescriptions so they can shop around 
for the price, service, and convenience which suits them best.
    This bill will help pet owners and their pets. First, the 
80 million American households who own pets will save money, 
have more choices, and better access. Second, the marketplace 
will be more competitive and grow. We know competition and free 
markets work. Third, our pets will be better off. With 
medications more affordable and easier to obtain, pet owners 
will be better able to care for their dogs and keep them 
longer.
    At the outset, let me make clear that we cherish our vets, 
as do pet owners. We entrust them with the care of the pets we 
love. This is not an us-verse-them type issue. We just see the 
marketplace and its potential differently. We believe that if 
the market for pet medication is open to competition, everyone 
will benefit: manufacturers, veterinarians, pet owners, and 
pets alike.
    Today, the market for pet medication is bifurcated between 
those who can afford to buy pet medication and have reasonable 
access to vet clinics, and those with lower incomes or who do 
not have ready access.
    For pet owners who get their prescriptions, the savings can 
be significant. If we can pull up the chart, and this is the 
page that was referred to earlier. Heartgard is the leading 
heartworm preventative. Pet owners can save around 20 percent 
if they buy from a big box or club store, 25 percent buying 
online, and 35 percent if they purchase the generic. Rimadyl is 
a painkiller used for treating arthritis in pets. Pet owners 
can save 22 percent at big box clubs or stores, 28 percent 
online, and 50 percent if they purchase the generic.
    Mr. Chairman, in announcing this hearing, you asked whether 
Federal involvement is needed in the veterinary prescription 
medication space. That is an important question, since American 
households spend $7 billion every year on pet medications, $5.2 
billion of which requires a prescription.
    The fact is the Federal Government is already involved in 
the pet medication space, and in a major way. The Government 
prevents pet owners from purchasing most pet medications 
without the approval of a prescriber, including medications pet 
owners in other industrialized countries can be purchased over 
the counter. If the Federal Government is going to tell pet 
owners, you can't buy this without a prescription, shouldn't it 
give those pet owners the right to copies of their 
prescriptions so they can shop around for the price, service, 
and convenience they prefer?
    The problem is, anytime the Government restricts access to 
a product by making it available only by prescription but 
permits the prescriber to sell what they prescribe, it sets up 
a conflict of interest in which the consumer is put squarely in 
the middle. Pet owners must ask the veterinarian, on whom they 
rely for their pet's healthcare, for permission to take their 
business elsewhere, and that is only if pet owners know they 
have a choice.
    Policies and laws requiring pet owners to ask for a copy of 
their prescription simply do not work. We know they don't work, 
otherwise, far more pet owners would be buying generics and 
saving 50 percent, just like they do with human medications. 
These policies don't solve the conflict of interest. They don't 
let consumers know they have a choice. They lead to 
discriminatory prices, they deter interstate commerce, and they 
are unenforceable.
    Rather, the solution to this is simple, it is easy, and it 
is proven. Simply give pet owners a right to a copy of their 
prescription without having to pay a fee, sign a waiver. This 
is no easier, more efficient or more effective way to let pet 
owners know they have a choice. It has worked with human 
medications, with eyeglasses, contact lenses; it will work with 
pet medications.
    Thank you for considering our views. I look forward to 
answering your questions.
    [The statement of Mr. Smith follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] 
    
    Mr. Burgess. The Chair thanks the gentleman.
    The Chair recognizes Dr. De Jong. Five minutes for your 
statement, please.

                   STATEMENT OF JOHN DE JONG

    Dr. De Jong. Thank you, Mr. Chairman.
    Good morning, Mr. Chairman, and members of the committee. 
My name is Dr. John de Jong. I am the chair of the board of 
directors of the American Veterinary Medical Association and I 
am a companion animal practitioner in Massachusetts.
    The American Veterinary Medical Association represents more 
than 88,000 member veterinarians worldwide engaged in a wide 
variety of professional activities and dedicated to the art and 
science of veterinary medicine. Every day, my staff and I 
strive to serve the best interests of both our animal patients 
and their human owners. Whether it is a routine visit to the 
veterinarian or an emergency, we all want our pets to receive 
the very best veterinary care.
    Veterinarians understand that their clients must make 
financial decisions when planning and paying for services and 
medications, which is exactly why we support policies that give 
our clients the flexibility to choose where they fill their 
prescriptions. However, the Fairness to Pet Owners Act will 
require veterinarians to provide a written copy of every 
prescription for a companion animal, whether or not the client 
needs or even wants it. This is unnecessary and will place 
undue regulatory and administrative burdens on veterinarians 
and small businesses.
    Though not required by Federal law, the AVMA's Principle of 
Veterinary Medical Ethics and its policy on client requests for 
prescriptions call on veterinarians to write a prescription in 
lieu of dispensing a medication when desired by a client, and a 
majority of States have similar laws or policies.
    In some cases, veterinary medications are only available 
through a veterinarian, negating the need for a written 
prescription. In other situations, the client might choose to 
have the medication dispensed by their veterinarian for a 
variety of reasons, including convenience and timeliness. But 
if this bill were to pass, veterinarians would still be 
required to provide the written prescription to these clients, 
take the piece of paper back, and then dispense the medication. 
This creates an administrative burden for veterinarians, who 
should be spending their time and resources taking care of 
their animal patients.
    Although some of the bill's advocates claim that 
veterinarians are only interested in profiting from filling 
prescriptions in house, that is not the case. A report issued 
by Federal Trade Commission staff in 2015 did not find evidence 
of veterinarians withholding written prescriptions from their 
clients. Until we have real evidence showing that a problem 
actually exists, it is premature to consider such a sweeping 
Federal mandate.
    Thirty-six States have laws, regulations, or policies that 
require veterinarians to provide their clients with a written 
prescription upon request. If clients feel these requirements 
are not met, they can file a complaint for unprofessional 
conduct with any State's veterinary licensing board. And even 
in States that have not adopted formal laws or regulations in 
this area, State boards of veterinary medicine could find that 
a failure to honor a client's request for a prescription 
constitutes unconditional conduct, leading to discipline 
against a veterinarian.
    In addition to the threat of discipline, veterinarians have 
other incentives to honor client's requests for prescriptions. 
A veterinarian who denies such a request risks alienating 
clients and harming his or her practice. In cases where the 
patient's condition may worsen quickly without medication and 
the client wishes to fill the prescription at a pharmacy, 
denial of a written prescription may place the veterinarian at 
legal risk.
    The FTC report concluded that more study is needed on 
whether competition in the pet medication industry is affected 
by consumer knowledge of and access to portable prescriptions. 
There is no evidence that consumers in States without a 
requirement are adversely affected as to price or quality of 
pet medication services. In addition, the consumer outcry that 
would demand such a dramatic remedy simply does not exist.
    If pharmacies believe consumers are unaware of the option 
to obtain products from them, then they are free to market and 
advertise their services, much like they do for other products.
    We understand the financial burdens facing many of our 
clients, and we all want what is best for a pet's well-being, 
but we do not believe that this legislation would advance those 
goals. We are honored by the ongoing confidence and trust of 
pet owners, and we look forward to maintaining that trust. 
Thank you.
    [The statement of Dr. De Jong follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] 
    
    Mr. Burgess. The Chair thanks the gentleman.
    The Chair would first recognize Mr. Mullin from Oklahoma. 
Five minutes for questions, please.
    Mr. Mullin. Thank you, Mr. Chairman.
    And if I come across, you know, I guess badgering, it is 
not badgering, it is passion and frustration. Because 
badgering, to me, seems like someone that is trying to pick a 
fight. I am not someone to pick a fight, but I do have 
frustration when we have something that is claiming to be 
needed and it is not needed, but yet the vets themselves and 
the associations are saying they don't like it, but yet the 
other side is saying there is a need for it.
    And then, Mr. Smith, as you and I spoke in my office 
yesterday, the day before yesterday, we had, you know, a 
cordial conversation, and we agree to disagree on the issues. 
But I have some concerns about one thing that you said a while 
ago. You said that the system doesn't work, because if it did 
work, essentially there would be more prescriptions being 
bought online or from pharmacies? Am I summing up your opening 
statement and what you said there?
    Mr. Smith. As a part of the consortium of organizations 
that support this bill, we work with a lot of the leading 
pharmacies in the country, and we also have online pet 
pharmacies that are part of it. And every day, they experience 
thousands of people who weren't able----
    Mr. Mullin. But you said it wasn't working because there 
wasn't enough prescriptions being bought online and through 
pharmacies. Is that fair to sum up what your statement said?
    Mr. Smith. As a result of people not being able to get 
their prescriptions and having the intent or the----
    Mr. Mullin. But you are basing that on what, on what data? 
You are basing that on the fact because there is not enough 
people buying it, or maybe that is because there is not a 
problem with it?
    Mr. Smith. I am basing it on the experience of the members 
of our consortium, who----
    Mr. Mullin. Which are who?
    Mr. Smith. Which are the National Community Pharmacists----
    Mr. Mullin. But these aren't the vets and these aren't the 
patients?
    Mr. Smith. These are the licensed pharmacies that have the 
ability to dispense----
    Mr. Mullin. But they are not the vets and the patients.
    Mr. Smith [continuing]. If someone shows up with a 
prescription, which----
    Mr. Mullin. But, Mr. Smith, I am saying that you are basing 
your opinion not on the vets or the patients, the consumers. 
Are they the one asking for it, or is it your clients?
    Mr. Smith. Every day, thousands of pet owners show up to 
licensed pharmacists----
    Mr. Mullin. No. I am asking----
    Mr. Smith. And we are basing it on that, like, the actual 
experience.
    Mr. Mullin. OK. But are they asking for it?
    Mr. Smith. Yes, they are----
    Mr. Mullin. Who?
    Mr. Smith [continuing]. Asking for it.
    Mr. Mullin. Who is asking for it?
    Mr. Smith. Pet owners who come into every Walgreens, 
Walmart. Petcarerx.com.
    Mr. Mullin. They are coming in there because they already 
have a prescription, don't they?
    Mr. Smith. No, no. Ten percent of people who show up to 
petcarerx.com, for instance, have a prescription, despite 
wanting to buy it because of lower prices.
    Mr. Mullin. So did they ask--had they asked their vet for 
one?
    Mr. Smith. Yes. And in many cases----
    Mr. Mullin. They had? Because the doctor that just 
testified said that there is already a system in place, and the 
letter I submitted earlier for the record specifically stated 
to two regulations that requires them to do that even outside 
the States that don't have it. So I don't think you are 
actually getting the correct information.
    Also, I want to get to it before I run out of time. You 
also mentioned that this doesn't go to large animals, it 
specifically goes to companion pets. Is that what you told me 
in my office?
    Mr. Smith. Yes.
    Mr. Mullin. And yet we had this conversation that, what is 
considered a companion pet, because pigs are considered a 
companion pet now. So wouldn't that open the door to large 
animals? I mean, Shetlands are considered a companion pet now, 
and lot of people consider those horses. Wouldn't that open the 
door to large animals too?
    Mr. Smith. As we discussed in your office, our intent--the 
$7 billion being spent on pet medications is largely for dogs 
and cats----
    Mr. Mullin. But what my point was, is that this intent 
opens the door to larger regulations, it goes into unintended 
consequences. Once you go down this road, how do you stop it? 
How do you put it back in a box?
    And I am really concerned that we are going after an issue 
that you are in favor of that isn't needed. It is just undue 
regulation on an industry, as I stated earlier, that is already 
hurting.
    I mean, I haven't had anybody to actually give me the 
numbers of what is causing this support for this to go through, 
other than assumptions, and that is simply what I am hearing 
from you too. While I support your position to be able to have 
an opinion, I do think you are on the wrong side on this.
    I yield back, Mr. Chairman.
    Mr. Burgess. The Chair thanks the gentleman. The gentleman 
yields back.
    The Chair recognizes the gentlelady from Illinois, Ms. 
Schakowsky. Five minutes for questions, please.
    Ms. Schakowsky. Thank you.
    So as we have heard, exclusivity agreements between 
manufacturers and distributors force some retailers to acquire 
medications they sell through secondary distributors. As much 
as 25 percent of all pet medication being sold in the United 
States may have been acquired through secondary distributors.
    Mr. Smith, is this figure consistent with what you are 
seeing in your experience?
    Mr. Smith. Yes. We are a secondary distributor, so we 
supply all the leading human pharmacies the pet medications 
they have available, both Rx medications requiring a 
prescription and some of the leading over-the-counter 
medications.
    In terms of attempts to supply our generics, for instance, 
to veterinary clinics, the leading distributors for drugs going 
to veterinary clinics oftentimes have blocking agreements that 
won't allow our generic medications to go to the veterinarian 
so long as the brand from the pharmaceutical company is being 
offered through that distributor.
    Ms. Schakowsky. So to obtain the medications they sell, 
secondary distributors have to buy products that are diverted 
from the traditional supply chain. In some cases, secondary 
distributors acquire medications by purchasing overstock from 
veterinarians. Is that correct?
    Mr. Smith. Yes, that is correct. We source in a couple of 
different ways. Sometimes, just as you mentioned, we will buy 
excess inventory from veterinarians, sometimes we buy straight 
from distributors, and at other times we have been able to 
source direct from manufacturers. Different drugs travel in 
different ways. We carry a wide range of medications, but we 
have a broad array of ways that we get the product to then sell 
on to human pharmacies.
    Ms. Schakowsky. OK. So, Dr. De Jong, has the American 
Veterinary Medical Association surveyed veterinarians to find 
out how widespread the practice of reselling to secondary 
distributors is, and if so, what was the result?
    Dr. De Jong. We have never surveyed our members as far as 
that specifically. We do find out from our veterinarians all 
over the country that they are strongly opposed to this 
legislation. But as far as what percentage of veterinarians are 
actually buying and selling to secondary distributors, I could 
not tell you that.
    Ms. Schakowsky. So let's consider a branded flea and tick 
over-the-counter medication that is being sold at a big box 
store. The manufacturer has made the medication, sold it to a 
distributor, who sold it to a veterinarian, who sold it to a 
secondary distributor, who sold it to an alternative retailer, 
who then sells it to a consumer.
    So, Mr. Smith, it is not uncommon for pet medications to be 
sold three or four times within the distribution network before 
they are ever sold to an actual pet owner, correct?
    Mr. Smith. That is correct. The supply chain is longer. 
There are more players in it, more expense of moving things, 
additional profits being taken by each player. But despite 
that, on the example you mentioned, Frontline, Frontline Plus, 
generally speaking, those clubs will still, despite the 
additional costs, have a 20 percent lower price than the price 
offered----
    Ms. Schakowsky. But isn't it fair to say that everybody in 
the supply chain is hoping to make a profit from these 
transactions, or at least to recoup their administrative costs? 
Isn't that right?
    Mr. Smith. For sure.
    Ms. Schakowsky. And most of them aren't selling the product 
at a loss, right?
    Mr. Smith. No.
    Ms. Schakowsky. So, therefore, it is possible that the 
price of these pet medications has been marked up multiple 
times long before they are sold to consumers, right?
    Mr. Smith. That is correct.
    Ms. Schakowsky. So in your experience, how much does this 
affect the prices that pet owners end up paying out of pocket 
for pet medications? I heard you say that there still, at the 
end of the day, can be a lower price for consumers, but this 
does not seem to be an efficient supply chain, to me, in terms 
of best buy for the consumer.
    Mr. Smith. Prevailing prices, and we don't know exactly, 
but you would imagine prices could fall an additional 15 to 30 
percent, based on the elimination of those extra steps in the 
supply chain.
    Ms. Schakowsky. Thank you. And I yield back.
    Mr. Burgess. The Chair thanks the gentlelady. The 
gentlelady yields back.
    And the Chair would like to exercise the chairman's 
prerogative and ask Mr. Schrader if he would like to go next in 
the questioning. And I will yield to you. Five minutes, sir.
    Mr. Schrader. Thank you very much, Mr. Chairman. I 
appreciate it.
    Mr. Smith, where are you from?
    Mr. Smith. Utah.
    Mr. Schrader. Utah. Do you know where the sponsor of the 
bill, pet fairness medication, is from?
    Mr. Smith. Yes, I do.
    Mr. Schrader. And where is that?
    Mr. Smith. Utah.
    Mr. Schrader. OK. OK. Could you tell me a little bit about 
how you distribute your two products that you manufacture? How 
do you distribute them? And what do you manufacture?
    Mr. Smith. We manufacture generic versions of all patent 
medication. We also manufacture pet treats and pet wellness 
products, including a medicinal line for hip and joint, dental 
products. So we have a wide range of things that we manufacture 
and sell ourselves.
    Mr. Schrader. You also manufacture, as I understand it, 
Carprofen and----
    Mr. Smith. We do.
    Mr. Schrader [continuing]. Your version of ivermectin/
pyrantel?
    Mr. Smith. We do. It is called TruProfen.
    Mr. Schrader. Very good. Good commercial. That is fine. I 
am OK with that. Good businessman.
    So it is my understanding you sell only direct to 
pharmacies, is that correct, for at least those last two 
medications?
    Mr. Smith. Yes, we sell to human pharmacies.
    Mr. Schrader. Just to pharmacies. Isn't that correct?
    Mr. Smith. We have attempted to sell through the leading 
distributors of all the medications to veterinary clinics, but 
because of the blocking agreements, we have been told that they 
are unable to carry substantially similar generics to the 
brands without losing their ability to distribute the brands.
    Mr. Schrader. That certainly hasn't been my experience.
    Dr. De Jong, do you want to comment on that, please?
    Dr. De Jong. Not necessarily.
    Mr. Schrader. Yes. I mean, what we have seen here is that 
there are usually a lot of opportunities. Now, the fact that 
you are prescribing and distributing only to pharmacies as 
opposed to direct to the patients, direct to other 
distributors, the secondary market that Congresswoman 
Schakowsky talked about, why aren't you distributing direct to 
them?
    Mr. Smith. We are a 6-year-old business, so our initial 
start was dealing with the big pharmacies. Our whole 
infrastructure is set up to work in large quantities sufficient 
to meet the needs of the country's biggest pharmacies in the 
country.
    Mr. Schrader. So what you have done is made a business 
choice to limit the distribution of your products to make 
money, and I get that. Doesn't this fly in the face of your 
argument a moment ago about increased competition and making 
sure it is available through all different outlets?
    Mr. Smith. As our company has grown, our intent actually is 
to expand to more direct to veterinary opportunities. We have 
started the process of trying to figure out a way to 
sufficiently distribute broadly.
    Mr. Schrader. But currently the bottom line is you restrict 
access to your medications.
    So to be honest with you, Mr. Chairman, I think that flies 
in the face of what we are talking about. I don't know too many 
businesses that are advocating for more Federal involvement, 
particularly in an area that is not a problem, I think it has 
been clearly stated.
    Just a last comment if I may, Mr. Chair. I am very 
concerned about what we are trying to do with this type of 
approach to distribution of prescription medications and other 
things that, frankly, need some sort of doctor-patient, you 
know, relationship on an ongoing basis. It flies in the face of 
a lot of what we passed yesterday out of our full committee.
    We are very concerned about overprescription, overuse of 
opioids. And here we are going down a track of trying to make 
these medications, many of which are very dangerous to our pet 
populations, more widely distributed, more subject to potential 
abuse. I think that, you know, based on what this committee has 
been working on, this sort of flies in the exact opposite 
direction.
    I would also argue, respectfully, that the administration 
has made it a point to be very concerned about the overuse of 
antimicrobials and other medications in livestock operations. 
And, again, you know, we are trying to pull it back from some 
of the over-the-counter use, not because we don't want the 
farmers or ranch communities to be successful; we are worried 
about, you know, inadvertent circumstances and problems without 
direct veterinary supervision.
    So, Mr. Chairman, with all due respect, I think that this 
whole approach to the distribution and, frankly, the impugning 
of the veterinary community is exactly the opposite of where 
this committee has been going. And I hope that this is the 
first and last hearing we have on this sort of bill, with all 
due respect.
    I appreciate everyone's time. Thank you.
    Mr. Burgess. The gentleman yields back. The Chair thanks 
the gentleman for his forthright testimony.
    And Dr. Schrader touched on something, Dr. De Jong, that I 
was going to ask, and I will anyway because it is now my time. 
And I yield to myself 5 minutes for questions.
    You know, a lot of parallels to the contact lens 
legislation from 2003 have been drawn. And one of the concerns 
that has come up now several years later is that a contact lens 
prescription is written and then it is refilled. Yes, the 
prescribing physician has an opportunity to interject some 
professional opinion when it is presented for a refill to the 
online contact lens dispenser, but there is also a fairly 
finite period of time in which the prescriber can reply, and if 
they don't, by default, it was approved.
    So you get into these situations where the office was 
queried, but perhaps if it was the wrong time of day, the time 
frame was short, nobody responded, so I guess it is, ``OK, here 
is your stuff, we will ship it this afternoon.''
    Dr. Schrader brought up the question, or an observation 
with a medication like Prednisone. And Prednisone is something 
that you want to be thinking about. You just would never want 
to write an indefinite prescription for Prednisone to take 
forever, even though we recognize there are some conditions 
where a patient, in this case a pet or an animal, is going to 
require the medication over a long period of time, still there 
needs to be some real physician or veterinarian interaction and 
some questions asked.
    So is that something which you are in general agreement 
about, that there would be a hazard just by these indefinite 
refillings of prescriptions if we followed the same pathway as 
the contact lens legislation?
    Dr. De Jong. Absolutely. I think it is important that we 
have to monitor our patients on a regular basis if they are 
being given any medication that has side effects, and just 
about every medication out there potentially does have side 
effects. If you were to give an indefinite prescription without 
monitoring the patient, you could do real harm to the patient.
    Mr. Burgess. You know, and everybody else has talked about 
their pet today. I didn't as I started my opening statement. 
Now I am regretting that I didn't, because if my dog is 
watching, I am sure he feels left out.
    Ms. Schakowsky. Go for it.
    Mr. Burgess. But February a year ago, our little dog Sammy, 
who at that time was 15 years old, developed signs and symptoms 
of congestive heart failure. And my wife took him to the vet 
and said, ``Please, what can you do? We would miss our little 
friend.'' And he said, ``Well, I can't do much, but I will give 
you some stuff, and we might get 1, 2, or 3 months out of it.'' 
Well, doggone it, that little dog is still going strong today. 
But every month, basically, my wife goes back to the vet to get 
the medications.
    Sure, we could get them from an on--if I had had any idea 
he was going to live this long, maybe I would have. But I 
always thought it was a short-term venture, but it is also 
helpful, because there is an interaction that takes place of 
how's little Sammy doing, and is he looking good, you know, 
does he need to come in for a recheck? And several times, in 
fact, that recommendation has been made and followed and a 
medication adjustment has been made, which you wouldn't have 
had the opportunity to do, while I guess you could have taken a 
picture with your iPhone and sent it in to the 1-800 number and 
gotten some advice back, but let's face it, we are not to that 
level of sophistication.
    So I realize that is anecdotal, and the plural of anecdote 
is not data, and I get that, but at the same time, I think 
there is some value in the pet owner-veterinarian interaction 
that takes place, and I think that brings value to the 
transaction. I think that is something that I would be 
uncomfortable about just saying that it--I would discount that 
and that is not important. Sure, people should be able to make 
their own decisions.
    Have you ever denied a patient or an animal owner a written 
prescription if they asked you for one?
    Dr. De Jong. Never. And I can't think of any veterinarians 
or colleagues that I know that have.
    I can tell you that in my almost 31 years in practice next 
month, I have had plenty of clients ask, can you give me a 
written prescription, or can I call online and have it sent in? 
We get them in our office every day. But I have never, ever 
experienced a client say, is that an option?
    I think the knowledge base of the consumer, of the general 
public is well aware. The amount of commercials for online 
pharmaceuticals are on every TV station in America, and the 
consumers today are educated. With the advent of the Internet 
and commercial advertising, they know it is out there.
    Mr. Burgess. I am sure there are Facebook ads. And I agree 
with Dr. Schrader. I think that is a positive thing that 
consumers do know that they have more choices.
    I just have to make one other editorial comment. Many 
people have said today that, you know, we spend a lot of money 
on pet medications, true enough, we do, and should we not have 
the same options for our pets that we do for our families?
    I would just caution people to be careful what you wish 
for. I know my dog wouldn't want to go to an HMO. And the fact 
that my dog is taken care of by a veterinarian where it is a 
cash transaction, I recognize they may get a little bit better 
attention than I get when I go to my HMO. And there is nothing 
like a cash business. People ought to be careful what they wish 
for, because, after all, our pets are pretty darn important.
    Is there anyone on the panel that wishes a followup or 
additional or redirected question?
    Seeing no additional members wishing to ask questions for 
this panel, I do want to thank our witnesses for being here 
today.
    Before we conclude, I would like to submit the following 
documents for the record by unanimous consent: a letter from 
the Animal Health Institute, a letter from Consumers Union, a 
letter from Oklahoma State University.
    [The information appears at the conclusion of the hearing.]
    Mr. Burgess. Pursuant to committee rules, I remind members 
that they have 10 business days to submit additional questions 
for the record, and ask the witnesses that they submit their 
responses within 10 business days upon receipt of those 
questions.
    So without objection, the subcommittee is adjourned. And 
thank you all for being here.
    Dr. De Jong. Thank you.
    [Whereupon, at 11:56 a.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]
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    Mr. Smith's replies to submitted questions for the record 
have been retained in committee files and also are available at 
 http://docs.house.gov/meetings/IF/IF17/20160429/104877/HHRG-
114-IF17-Wstate-SmithN-20160429-SD054.pdf.

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