[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]
Printed for the use of the Committee on Energy and Commerce
energycommerce.house.gov
___________
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21-206 PDF WASHINGTON : 2016
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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
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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
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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:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
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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