    [House Hearing, 115 Congress]
    [From the U.S. Government Publishing Office]

                          EXAMINING THE DRUG SUPPLY CHAIN

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

                                    HEARING

                                   BEFORE THE

                             SUBCOMMITTEE ON HEALTH

                                     OF THE

                        COMMITTEE ON ENERGY AND COMMERCE
                            HOUSE OF REPRESENTATIVES

                         ONE HUNDRED FIFTEENTH CONGRESS

                                 FIRST SESSION

                                   ----------

                               DECEMBER 13, 2017

                                   ----------

                               Serial No. 115-88

      [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

          Printed for the use of the Committee on Energy and Commerce

                            energycommerce.house.gov

                            __________

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                        COMMITTEE ON ENERGY AND COMMERCE

                              GREG WALDEN, Oregon
                                     Chairman
    JOE BARTON, Texas                    FRANK PALLONE, Jr., New Jersey
      Vice Chairman                        Ranking Member
    FRED UPTON, Michigan                 BOBBY L. RUSH, Illinois
    JOHN SHIMKUS, Illinois               ANNA G. ESHOO, California
    MICHAEL C. BURGESS, Texas            ELIOT L. ENGEL, New York
    MARSHA BLACKBURN, Tennessee          GENE GREEN, Texas
    STEVE SCALISE, Louisiana             DIANA DeGETTE, Colorado
    ROBERT E. LATTA, Ohio                MICHAEL F. DOYLE, Pennsylvania
    CATHY McMORRIS RODGERS, Washington   JANICE D. SCHAKOWSKY, Illinois
    GREGG HARPER, Mississippi            G.K. BUTTERFIELD, North Carolina
    LEONARD LANCE, New Jersey            DORIS O. MATSUI, California
    BRETT GUTHRIE, Kentucky              KATHY CASTOR, Florida
    PETE OLSON, Texas                    JOHN P. SARBANES, Maryland
    DAVID B. McKINLEY, West Virginia     JERRY McNERNEY, California
    ADAM KINZINGER, Illinois             PETER WELCH, Vermont
    H. MORGAN GRIFFITH, Virginia         BEN RAY LUJAN, New Mexico
    GUS M. BILIRAKIS, Florida            PAUL TONKO, New York
    BILL JOHNSON, Ohio                   YVETTE D. CLARKE, New York
    BILLY LONG, Missouri                 DAVID LOEBSACK, Iowa
    LARRY BUCSHON, Indiana               KURT SCHRADER, Oregon
    BILL FLORES, Texas                   JOSEPH P. KENNEDY, III,
    SUSAN W. BROOKS, Indiana                 Massachusetts
    MARKWAYNE MULLIN, Oklahoma           TONY CARDENAS, California
    RICHARD HUDSON, North Carolina       RAUL RUIZ, California
    CHRIS COLLINS, New York              SCOTT H. PETERS, California
    KEVIN CRAMER, North Dakota           DEBBIE DINGELL, Michigan
    TIM WALBERG, Michigan
    MIMI WALTERS, California
    RYAN A. COSTELLO, Pennsylvania
    EARL L. ``BUDDY'' CARTER, Georgia
    JEFF DUNCAN, South Carolina
                             Subcommittee on Health

                           MICHAEL C. BURGESS, Texas
                                     Chairman
    BRETT GUTHRIE, Kentucky              GENE GREEN, Texas
      Vice Chairman                        Ranking Member
    JOE BARTON, Texas                    ELIOT L. ENGEL, New York
    FRED UPTON, Michigan                 JANICE D. SCHAKOWSKY, Illinois
    JOHN SHIMKUS, Illinois               G.K. BUTTERFIELD, North Carolina
    MARSHA BLACKBURN, Tennessee          DORIS O. MATSUI, California
    ROBERT E. LATTA, Ohio                KATHY CASTOR, Florida
    CATHY McMORRIS RODGERS, Washington   JOHN P. SARBANES, Maryland
    LEONARD LANCE, New Jersey            BEN RAY LUJAN, New Mexico
    H. MORGAN GRIFFITH, Virginia         KURT SCHRADER, Oregon
    GUS M. BILIRAKIS, Florida            JOSEPH P. KENNEDY, III,
    BILLY LONG, Missouri                     Massachusetts
    LARRY BUCSHON, Indiana               TONY CARDENAS, California
    SUSAN W. BROOKS, Indiana             ANNA G. ESHOO, California
    MARKWAYNE MULLIN, Oklahoma           DIANA DeGETTE, Colorado
    RICHARD HUDSON, North Carolina       FRANK PALLONE, Jr., New Jersey (ex
    CHRIS COLLINS, New York                  officio)
    EARL L. ``BUDDY'' CARTER, Georgia
    GREG WALDEN, Oregon (ex officio)

                                 C O N T E N T S

                                  ----------
                                                                       Page
    Hon. Michael C. Burgess, a Representative in Congress from the
      State of Texas, opening statement..............................     1
        Prepared statement...........................................     3
    Hon. Gene Green, a Representative in Congress from the State of
      Texas, opening statement.......................................     7
        Prepared statement...........................................     6
    Hon. Greg Walden, a Representative in Congress from the State of
      Oregon, opening statement......................................     7
        Prepared statement...........................................     8
    Hon. Frank Pallone, Jr., a Representative in Congress from the
      State of New Jersey, opening statement.........................     9
        Prepared statement...........................................    10

                                   Witnesses

    Lori Reilly, Executive Vice President for Policy, Research, and
      Membership, Pharmaceutical Research and Manufacturers of
      America........................................................    12
        Prepared statement...........................................    14
        Answers to submitted questions...............................   246
    Tom DiLenge, President, Advocacy, Law, and Public Policy,
      Biotechnology Innovation Organization..........................    33
        Prepared statement...........................................    35
        Answers to submitted questions...............................   254
    Chip Davis, President and CEO, Association for Accessible
      Medicines......................................................    49
        Prepared statement...........................................    51
        Answers to submitted questions...............................   262
    Elizabeth Gallenagh, Senior Vice President, Governmental Affairs
      and General Counsel, Healthcare Distribution Alliance..........    66
        Prepared statement...........................................    68
        Answers to submitted questions...............................   271
    Mark Merritt, President and CEO, Pharmaceutical Care Management
      Association....................................................    74
        Prepared statement...........................................    76
        Answers to submitted questions...............................   275
    Matt Eyles, Senior Executive Vice President and Chief Operating
      Officer for Policy and Regulatory Affairs, America's Health
      Insurance Plans................................................    92
        Prepared statement...........................................    94
        Answers to submitted questions...............................   282
    Tom Nickels, Executive Vice President for Government Relations
      and Public Policy, American Hospital Association...............   108
        Prepared statement...........................................   110
        Answers to submitted questions...............................   298
    Gerald Harmon, M.D., Chair, Board of Trustees, American Medical
      Association....................................................   119
        Prepared statement...........................................   121
        Answers to submitted questions...............................   301
    B. Douglas Hoey, CEO, National Community Pharmacists Association.   129
        Prepared statement...........................................   131
        Answers to submitted questions...............................   307
    David Mitchell, Founder and President, Patients for Affordable
      Drugs..........................................................   140
        Prepared statement...........................................   142
        Answers to submitted questions...............................   317

                               Submitted Material

    Statement of the AARP, submitted by Mr. Green....................   194
    Statement of Express Scripts, submitted by Mr. Burgess...........   197
    Statement of the American Pharmacists Association, submitted by
      Mr. Burgess....................................................   200
    Statement of the Senior Care Pharmacy Coalition, submitted by Mr.
      Burgess........................................................   203
    Statement of the Coalition for Affordable Prescription Drugs,
      submitted by Mr. Burgess.......................................   217
    Statement of the National Multiple Sclerosis Society, submitted
      by Mr. Burgess.................................................   220
    Alliance for Transparent & Affordable Prescriptions, submitted by
      Mr. Burgess....................................................   239

                        EXAMINING THE DRUG SUPPLY CHAIN

                                  ----------

                          WEDNESDAY, DECEMBER 13, 2017

                      House of Representatives,
                                Subcommittee on Health,
                              Committee on Energy and Commerce,
                                                        Washington, DC.
        The subcommittee met, pursuant to call, at 10:00 a.m., in
    room 2123 Rayburn House Office Building, Hon. Michael Burgess
    (chairman of the subcommittee) presiding.
        Members present: Representatives Burgess, Guthrie, Barton,
    Shimkus, Blackburn, Latta, Lance, Griffith, Bilirakis, Long,
    Bucshon, Brooks, Mullin, Hudson, Collins, Carter, Walden (ex
    officio), Green, Schakowsky, Matsui, Castor, Sarbanes, Lujan,
    Schrader, Cardenas, Eshoo, DeGette, Welch, and Pallone (ex
    officio).
        Staff present: Ray Baum, Staff Director; Mike Bloomquist,
    Deputy Staff Director; Adam Buckalew, Professional Staff
    Member, Health; Kelly Collins, Staff Assistant; Zack Dareshori,
    Legislative Clerk, Health; Jordan Davis, Director of Policy and
    External Affairs; Paul Edattel, Chief Counsel, Health; Adam
    Fromm, Director of Outreach and Coalitions; Ali Fulling,
    Legislative Clerk, Oversight & Investigations, Digital Commerce
    and Consumer Protection; Jay Gulshen, Legislative Associate,
    Health; James Paluskiewicz, Professional Staff, Health;
    Jennifer Sherman, Press Secretary; Danielle Steele, Counsel,
    Health; Hamlin Wade, Special Advisor, External Affairs; Jeff
    Carroll, Minority Staff Director; Tiffany Guarascio, Minority
    Deputy Staff Director and Chief Health Advisor; Una Lee,
    Minority Senior Health Counsel; Rachel Pryor, Minority Senior
    Health Policy Advisor; Samantha Satchell, Minority Policy
    Analyst; Andrew Souvall, Minority Director of Communications,
    Outreach and Member Services; Kimberlee Trzeciak, Minority
    Senior Health Policy Advisor; and C.J. Young, Minority Press
    Secretary.

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

        Mr. Burgess. The subcommittee will come to order. I will
    recognize myself for 5 minutes for an opening statement.
        I want to thank everyone for being here today. We are going
    to talk about the U.S. drug supply and the complex way it is
    interwoven with multiple stakeholders involved in each step of
    the process. Improving access to lifesaving treatments for
    consumers and patients should be a nonpartisan priority for
    every person in the room. Two weeks ago, the Health
    Subcommittee held a hearing on the implementation of the 21st
    Century Cures Act. We heard testimonies from officials at the
    helm of the National Institute of Health and the Food and Drug
    Administration about the law's transformative impact on
    maintaining our nation's global leadership in biomedical
    innovation. Built into that very concept is the expectation
    that innovative and breakthrough treatments will get developed,
    approved, and introduced into the therapeutic market to cure
    diseases or effectively manage chronic conditions so people
    lead healthier, fuller lives.
        Today's hearing will serve as an important educational
    opportunity to better understand the intricacies of our
    nation's drug supply chain. To help us work toward that goal,
    we will hear from a diverse group of representatives--ten to be
    exact--that represent many facets of the supply chain process,
    and I do want to welcome each of you to the subcommittee this
    morning. It is my hope that our discussion today is substantive
    and will be focused on the patients who are prescribed these
    medications because, at the end of the day, it is the patients
    who matter most in our conversation.
        Practicing medicine, I cared most about prescribing for my
    patients a drug that was efficacious and safe, and really not
    wanting to think too much whether or not they would be able to
    fill their prescription at the pharmacy. But now, the
    conversation has shifted to a complicated back and forth
    between doctors, patients, insurance companies, pharmacies
    about drug co-pays, prior authorizations, drug formularies,
    step therapies, amongst other things. Over the last few years,
    we have also learned about acquisitions and mergers within the
    various drug supply chain as companies seek out increased
    integration of their operations with an eye towards more
    efficiencies.
        Prescription drugs continue to play a vital role in the
    United States health care system. From significantly improving
    patients' lives to producing health care savings through fewer
    hospitalizations and medical procedures. A patient's access to
    prescription drugs is a key health care issue for Americans and
    within that context now the debate is over affordability.
        I will be frank with you. I expect disagreement this
    morning. But while there are legitimate differences of opinion,
    I recognize that every participant here this morning does
    aspire to the common goal of saving lives and alleviating human
    suffering. And so out of these areas of disagreement, I hope to
    begin to identify areas of consensus so that we can begin
    delivering solutions to the problems that we do identify this
    morning.
        These stakeholders here include pharmaceutical
    manufacturers that primarily research, develop, and produce
    brand name and generic drugs, biologic, and biosimilars. These
    medicines treat a spectrum of diseases and conditions from
    allergies, infections, hypertension to cancer, diabetes, and
    rheumatoid arthritis.
        Next, the pharmaceutical wholesalers purchase these drugs
    and store them in regional distribution centers for delivery
    points that include our pharmacies, our supermarket retailers,
    hospitals, physician groups, and other health care providers.
    Wholesalers also provide other ancillary services such as
    repackaging, consulting, inventory management, and patient
    discount programs.
        Overall, pharmacy benefit managers manage prescription drug
    benefits on behalf of employer-sponsored health plans, health
    maintenance organizations, state and federal health programs
    including Medicare Part D, and Medicaid-managed care plans.
    These managers impact the lives of 226 million insured
    Americans with most of them enrolled in private health plans.
    So they have a special role in the drug supply chain that
    includes determining payments and pricing for drugs, processing
    pharmacy drug claims, negotiating rebates and discounts from
    drug manufacturers, designing drug plan formularies, and
    operating mail order businesses.
        Retail pharmacies have a large neighborhood presence
    representing large drug store chains, pharmacy departments in
    local supermarkets and big box retailers, and independent
    community pharmacies that occupy a unique and essential role
    within the drug supply chain. Many drug stores contract with
    payors and pharmacy benefit managers to join health plan
    pharmacy networks. Some larger pharmacy chains have also
    entered into joint ventures with PBMs and insurers.
        Finally, private health insurance plans are likely
    recognized by most Americans to have a direct impact on their
    ability to access prescription drugs, largely due to the
    dictates of federal laws such as the Affordable Care Act on
    benefit requirements and out-of-pocket spending limits. They
    employ utilization controls to manage cost such as multi-tier
    drug formularies, step therapies, prior authorizations for
    certain high-cost brand name medicines.
        Again, I want to welcome all of our witnesses here today.
    As you see, we have the entire panoply of the supply chain here
    before us.
        I look forward to your testimony and we will recognize Mr.
    Green of Texas, the ranking member of the subcommittee, 5
    minutes for an opening statement.
        [The prepared statement of Mr. Burgess follows:

                 Prepared statement of Hon. Michael C. Burgess

        The Subcommittee will come to order.
        The Chair will recognize himself for an opening statement.
        The multifaceted nature of the current U.S. drug supply
    chain system is complex and interwoven with multiple
    stakeholders involved in each step of the process. Improving
    access to life-saving treatments for consumers should be a non-
    partisan priority for all of us. Two weeks ago, the Health
    Subcommittee held a hearing on the implementation of the 21st
    Century Cures Act and heard testimonies from officials at the
    helm of the National Institutes of Health and the Food and Drug
    Administration about the law's transformative impact on
    maintaining our nation's global leadership in biomedical
    innovation. Built into that very concept is the expectation
    that innovative and breakthrough treatments will get developed,
    approved, and introduced into the therapeutic market to cure
    diseases or effectively manage chronic conditions, so people
    can lead healthier, fuller lives.
        Today's hearing will serve as an important educational
    opportunity to better understand the intricacies of our
    nation's drug supply chain. To help us work toward that goal,
    we will hear from a diverse group of representatives--ten to be
    exact--that represent the many facets of the supply chain
    process. I want to welcome each of you to the subcommittee this
    morning. It is my hope our discussion today is substantive and
    largely focused on the patients who are prescribed these
    medications because, at the end of the day, they are who matter
    most in this conversation.
        Practicing medicine, I cared most about prescribing my
    patients a drug that was efficacious and safe without thinking
    too much about whether they would be able to fill their
    prescription at the pharmacy. Now, the conversation has shifted
    to a complicated back-and-forth between doctors, patients,
    insurance companies, and pharmacies about drug copays, prior
    authorizations, and drug formularies, among other things. Over
    the last few years, we have also learned about acquisitions and
    mergers within and amongst the various drug supply chain as
    companies seek out increased integration of their operations
    with an eye towards more efficiencies over the larger continuum
    of the system.
        Prescription drugs continue to play a vital role in the
    United States health care system, from significantly improving
    patients' lives to producing health care savings through fewer
    hospitalizations and medical procedures. A patient's access to
    prescription drugs is a key healthcare issue for Americans, and
    within that context is the debate over affordability.
        Now, I also expect disagreement. But, while there are
    legitimate differences of opinion, I recognize that every
    participant here this morning does aspire to the common goal of
    saving lives and alleviating human suffering. And so out of
    these areas of disagreement--I hope to begin to identify areas
    of consensus so that we can begin delivering solutions to the
    problems identified this morning.
        These stakeholders include pharmaceutical manufacturers
    that primarily research, develop, and produce brand-name and
    generic drugs, biologics, and biosimilars. These medicines
    treat a spectrum of diseases and conditions, such as allergies,
    infections, and hypertension to cancer, diabetes, and
    rheumatoid arthritis.
        Next, pharmaceutical wholesalers purchase these drugs and
    store them in regional distribution centers for delivery points
    that include pharmacies, supermarket retailers, hospitals,
    physician groups, and other healthcare providers. Wholesalers
    also provide other ancillary services such as repackaging,
    consulting, inventory management, and patient discount
    programs.
        Overall, pharmacy benefit managers (PBMs) manage
    prescription drug benefits on behalf of employer-sponsored
    health plans, health maintenance organizations, state and
    federal health programs, including Medicare Part D and Medicaid
    managed care plans. PBMs impact the lives of 266 million
    insured Americans, with most them enrolled in private health
    plans. They have a special role in the drug supply chain that
    include determining payments and pricing for drugs, processing
    pharmacy drug claims, negotiating rebate and discounts from
    drug manufacturers, designing drug plan formularies, and
    operating mail-order and specialty pharmacies.
        Retail pharmacies have a large neighborhood presence,
    representing large drug store chains, pharmacy departments in
    local supermarkets and big-box retailers, and independent
    (community) pharmacies that occupy a unique and essential role
    within the drug supply chain. Many drug stores contract with
    payers and PBMs to join health plan pharmacy networks; some
    larger pharmacy chains have also entered into joint ventures
    with PBMs and insurers.
        Finally, private health insurance plans are likely
    recognized by most Americans to have a direct impact on their
    ability to access prescription drugs, largely due to the
    dictates of federal laws, such as the Affordable Care Act, on
    benefit requirements and out-of-pocket spending limits. They
    employ utilization controls to manage costs, such as multi-
    tiered drug formularies, step therapies, and prior
    authorizations for certain high-cost brand-name medicines.
        I again want to welcome our witnesses and thank you for
    being here. I look forward to your testimony.

       OPENING STATEMENT OF HON. GENE GREEN, A REPRESENTATIVE IN
                    CONGRESS FROM THE STATE OF TEXAS

        Mr. Green. Thank you, Mr. Chairman, and thank you to our
    witnesses for being here this morning.
        Too many Americans face real barriers in accessing the
    medications they need. Annual drug spending in the U.S. is
    expected to reach more than $500 billion by 2018.
        In 2015, the rise in prescription drug spending outpaced
    all other health care services, surpassing hospital care as
    well as physician and clinical services.
        While new life changing and lifesaving therapies continue
    to enter the market each year, patients must be able to afford
    these treatments in order to benefit from these breakthroughs.
        The issue of high drug costs is not a simple challenge with
    a simple solution. Instances of bad actors buying up off-patent
    generic drugs with only one manufacturer astronomically jacking
    up the price has posed one type of challenge while breakthrough
    treatments capable of curing previously incurable disease but
    will have staggering price tags poses a different one.
        These challenges are magnified by the proliferation of the
    high deductible plans which expose more and more consumers to
    the full list of their medications.
        We have a responsibility to explore the full spectrum of
    the supply chain to protect patients which are distinct for
    generic and brand name drugs and frustratingly complex.
        The United States leads the world in biomedical
    development, but having 21st Century Cures means much less if
    people cannot access because of the high prices.
        It's important to also recognize that pharmaceutical
    companies sponsor the research that leads to these advances. We
    must find a workable solution that incentivizes competition in
    the pharmaceutical marketplace, reward value, and encourage the
    development of these affordable and high quality drugs.
        We must also monitor steep prescription drug price
    increases when they rise, particularly when no additional
    research or development has occurred.
        There are a number of policy proposals that are represented
    to address the issue of high prescription drug costs.
    Transparency and value-based approaches are some of the keys to
    market-based reforms that will lead to better prices, continued
    investment in research and development, and ensure that
    taxpayers receive a real return on their investment.
        I want to note that in pursuit of the lower drug prices,
    Congress must be careful to avoid the policies that will
    diminish patient safety.
        Filling out an application to the FDA is one step in what
    can be a decades-long process to get from the lab table to the
    bedside.
        Proposals that would lower FDA safety and effective
    standards effectively outsource FDA oversight to other
    countries, push the stage of three trials into the post-
    approval space are unlikely to translate into meaningful
    savings for customers and are likely to put patients at risk.
        Making the FDA approval process as sophisticated and
    efficient as it can be is one thing, but rolling back patient
    protections in the name of lower drug prices is not an
    acceptable path.
        We should be looking on how we pay for drugs and reward
    real value in the order of safety and meaningful, address the
    rising costs of prescription drugs.
        Following our bipartisan work on the 21st Century Cures
    Act, our recent work to reauthorize the FDA user fee programs,
    it is my hope that we can advance bipartisan policies to
    address rising drug costs.
        This problem demands a bipartisan and thoughtful process
    that includes a full spectrum of stakeholders. The American
    people expect us to work together to find answers and I believe
    we can do so.
        I want to thank you for being here today and look forward
    to the day's discussion. And Mr. Chairman, I have one more
    minute. I'd like--anybody would like to have a minute? No? OK.
        I'd like to ask unanimous consent to place into the record,
    Mr. Chairman, a letter from AARP.
        Mr. Burgess. Without objection, so ordered.
        [The information appears at the conclusion of the hearing.]
        Mr. Burgess. I believe the chair actually already used your
    minute.
        Does the gentleman yield back?
        Mr. Green. I yield back.
        Mr. Burgess. The chair thanks the gentleman.
        Mr. Green. You owe me a minute sometime.
        Mr. Burgess. Oh, next week.
        The chair now recognizes the gentleman from Oregon, the
    chairman of the full committee, Mr. Walden, 5 minutes, please.
        [The prepared statement of Mr. Green follows:]

                     Prepared statement of Hon. Gene Green

        Thank you Mr. Chairman, and thank you to our witnesses for
    being here this morning.
        Too many Americans face real barriers to accessing the
    medications they need.
        Annual drug spending in the U.S. is expected to reach more
    than $500 billion by 2018.
        In 2015, the rise prescription drug spending outpaced all
    other health care services, surpassing hospital care as well as
    physician and clinical services.
        While new life-changing and life-saving therapies continue
    to enter the market each year, patients must be able to afford
    these treatments in order to benefit from these breakthroughs.
        The issue of high drug costs is not a simple challenge with
    a simple solution.
        Instances of bad actors buying up off-patent generic drugs
    only made by one manufacturer and astronomically jacking up the
    price poses one type of challenge, while breakthrough
    treatments capable of curing previously un-curable disease but
    have a staggering price tag poses a different one.
        These challenges are magnified by the proliferation of
    high-deductible plans, which expose more and more consumers to
    the full list price of their medications.
        We have a responsibility to explore the full spectrum of
    the supply chain to protect patients, which are distinct for
    generic and brand-name drugs, and frustratingly complex.
        The United States leads the world in biomedical
    development, but having 21st century cures means much less if
    people cannot access them because of high prices.
        It is important to also recognize that pharmaceutical
    companies sponsor the research that leads to these advances.
        We must find workable solutions that incentivize
    competition in the pharmaceutical marketplace, reward value,
    and encourage the development of affordable and high quality
    drugs.
        We must also monitor steep prescription drug price
    increases when they arise, particularly when no additional
    research and development has occurred.
        There are a number of policy proposals that have been
    presented to address the issue of high prescription drug costs.
        Transparency and value-based approaches are some of the
    keys to market-based reforms that will lead to better prices,
    continued investment in research and development, and ensure
    that taxpayers receive a real return on their investment.
        I want to note that in the pursuit of lower drug prices,
    Congress must be careful to avoid policies that will diminish
    patient safety.
        Filing an application with the FDA is the last step in what
    can be a decade's long process to get from the lab table to the
    bedside.
        Proposals that would lower FDA safety and effective
    standards, effectively outsource FDA oversight to other
    countries, or push stagethree trials into the post-approval
    space are unlikely to translate into meaning savings for
    consumers and are likely put patients at risk.
        Making the FDA approval process as sophisticated and
    efficient as it can be is one thing, but rolling back patient
    protections in the name of lower drug prices is not an
    acceptable path.
        We should be looking at how we pay for drugs, and reward
    real value in order to safely and meaningfully address the
    rising costs of prescription drugs.
        Following our bipartisan work on the 21st Century Cures Act
    and our recent work to reauthorize the FDA user fee programs,
    it is my hope that we can advance bipartisan policies to
    address rising drug costs.
        This problem demands a bipartisan, thoughtful process that
    includes the full spectrum of stakeholders.
        The American people expect us to work together to find
    answers and I believe we can do so.
        Thank you all for being here today, and I look forward to
    today's discussion.

      OPENING STATEMENT OF HON. GREG WALDEN, A REPRESENTATIVE IN
                   CONGRESS FROM THE STATE OF OREGON

        Mr. Walden. Dr. Burgess, thank you for holding this
    important discussion. I appreciate your comments and those of
    Mr. Green's about the full set of issues before us and the
    overwhelming desire by our constituents that we dive deep into
    the whole drug chain and figure out how we can put consumers
    first not only in developing new medicines and new innovation
    and better pricing as well.
        As Mr. Green mentioned, this community unanimously
    reauthorized and the president signed into law the FDA
    Modernization Act. This committee last Congress championed the
    21st Century Cures Act with Congresswoman DeGette and
    Congressman Upton at the helm of that, celebrating its one-year
    anniversary.
        But, clearly, there is more to be done, and as chairman of
    the committee, I felt it was really important that we hear from
    the entire sector from the development of new drugs to the
    final end place where we buy them, we consume them, we use
    them.
        For more than 4 years, members of this committee have
    listened to patients. We have listened to providers. We have
    listened to payors. The Federal Government is one of the
    biggest payors in this effort and we are all about accelerating
    the discovery, development, and delivery of innovative drugs
    and medical devices. That was a lot of what was behind passage
    and implementation of 21st Century Cures.
        We have heard from Dr. Gottlieb and we have heard from the
    head of NIH about the progress they are making already with the
    legislation we have enacted.
        Today, though, we want to get a more full appreciation for
    the drug supply chain, and I think you all would have to
    acknowledge its complexity, and we want to ask questions
    instead of jumping to conclusions.
        I encourage members on both sides of the aisle to dismiss,
    to a certain extent, any of your preconceived notions and let's
    focus on how each stage of the drug supply chain impacts
    access, delivery, and delivery of drugs and, of course, costs.
        We need to listen to the complex journey from molecular
    discoveries to patient deliveries that one dose of medicine
    takes along the way and we all need to learn about the impact
    each participant in the supply chain has in the ultimate cost
    to patients.
        And we have no shortage of witnesses today to help us gain
    a better understanding, and we appreciate you all being here.
    We have representatives from the manufacturers, the
    distributors, the payers, the pharmacists, the providers, and
    the patients.
        And I promise today's hearing will be an informative
    discussion and, I dare say, not the last as we move forward to
    better educate ourselves and then look at the public policy
    changes that need to be made to move America forward in these
    areas.
        So I thank you all for your participation. I think you'll
    find the committee is very interested in every step of this
    process and with that, Mr. Chairman, I would yield the balance
    of my time to the chairwoman of the Telecommunications
    Subcommittee, the gentlelady from Tennessee, Mrs. Blackburn.
        [The prepared statement of Mr. Walden follows:]

                     Prepared statement of Hon. Greg Walden

        Thank you, Dr. Burgess, for holding this important
    discussion.
        As we all know, no one is immune to sickness and disease.
    This is, in part, why our committee--under the bipartisan
    leadership of former Chairman Fred Upton and Congresswoman
    Diana DeGette--championed the 21st Century Cures initiative.
        For more than 4 years, members of this committee listened
    to patients, providers, and payors. Accelerating the discovery,
    development, and delivery of innovative drugs became a
    nationwide mantra for the passage of Cures. And I'm proud to
    say that today--thanks to the tireless advocacy of patients
    across the country and the endurance of members of this
    committee--we celebrate the one-year anniversary of this
    landmark bill being signed into law.
        But our work isn't done. As Dr. Burgess has said, ``As we
    continue to build on the success of the transformative 21st
    Century Cures act, our committee must fully comprehend how each
    step of the drug supply chain process impacts consumers.''
        He's right. And it is why we are here today--to learn from
    patient and industry experts and improve our understanding of
    the drug supply chain.
        In order to fully appreciate the drug supply chain you have
    to acknowledge its complexity and ask questions instead of
    jumping to conclusions. I encourage members on both sides of
    the aisle to dismiss any preconceived notions and focus on how
    each stage of the drug supply chain impacts access and delivery
    of drugs. Listen to the complex journey--from molecular
    discoveries to patient deliveries--that one dose of medicine
    takes.
        Now, I'll be up front: For me, this isn't a drug pricing
    hearing. There's enough rhetoric about the cost of drugs. But
    having said that I know that I have more to learn about the
    impact each participant in the supply chain has in the ultimate
    cost to patients. And we have no shortage of witnesses to
    question As you can see, we have invited witnesses from each
    step of the process: manufacturers, distributers, payors,
    pharmacists, providers, and patients. I promise today's hearing
    will be an informative discussion.
        On that note, I'd like to welcome to each of our expert
    panelists. I appreciate your generosity and willingness to
    participate today. And I yield to Mrs. Blackburn of Tennessee,
    who would like to offer a few opening remarks.

        Mrs. Blackburn. Thank you, Mr. Chairman, and I thank
    Chairman Burgess for the hearing and to each of you. We know it
    is the busy time of year. We are appreciative that you are here
    before us and, as Chairman Burgess said, we have the entire
    panoply of the system.
        And most of my constituents will tell you they understand
    how their doctor, their insurance plan, and the pharmacy play
    into the prescriptions they receive. They do not have the
    understanding, as Chairman Walden said, of the complex system
    that goes from research to the time they pick up that
    prescription, and we are so interested in looking at this
    access, delivery, and cost issue within this entire spectrum.
        It does affect health care delivery, and being from middle
    Tennessee, we have a lot of health care in my congressional
    district and this entire supply chain is an issue that we
    discuss often.
        And we are excited about some of the new innovations that
    are coming your way with technology. So that will enter into
    our discussion today. Thank you for your presence and, Mr.
    Chairman, I will yield back to you the balance of the time and
    if there is another member who would like to claim that time.
        Yield back.
        Mr. Burgess. Seeing none, the gentlelady yields back. The
    chair thanks the gentlelady.
        The chair recognizes the gentleman from New Jersey, the
    ranking member of the full committee, Mr. Pallone, 5 minutes
    for an opening statement, please.

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

        Mr. Pallone. Thank you, Mr. Chairman.
        This committee has spent considerable time examining the
    drug supply chain both through the Drug Quality Security Act
    and, more recently, through the 21st Century Cures, and today
    is actually the 1-year anniversary of when President Obama
    signed 21st Century Cures. Both of these legislative efforts
    were the result of considerable oversight and discussion as to
    how the drug supply chain worked, how it could be better
    secured and how we could encourage efficiencies to improve drug
    development. And these bipartisan efforts have helped to
    address the post-market security of products and the regulatory
    review process. But neither effort focused on how prescription
    drugs move through the supply chain through the financial lens.
        Prescription drug prices are higher than ever, and while
    the dramatic rise in prescription spending has come down a
    little, we know addressing drug costs continues to be a top
    priority for many American families. The costs of prescriptions
    have forced so many American families to make tough choices.
    For some, it is a choice of filling their prescriptions or
    filling their tank of gas to get to work. For others, they are
    leaving prescriptions unfulfilled, skipping doses, or cutting
    pill in half so they don't have to purchase their prescriptions
    that often, and none of these choices is acceptable.
        Today, prescription drug spending represents about 14
    percent of overall health care spending. It is no wonder that
    six in 10 Americans have said that lowering prescription drug
    costs should be a top priority for Congress and this
    administration and I am pleased that there has been such
    bipartisan interest in this topic both during consideration of
    the FDA Reauthorization Act and at recent member briefings, and
    I do believe that making prescription drugs more affordable for
    the average consumer is an issue that we all care about and can
    support.
        And that is why today's hearing is so important. This
    morning, we have the opportunity to better understand the drug
    supply chain and the often-complicated ways that drugs move
    through the supply chain to the patient. As my colleagues have
    pointed out, we will hear from each of our witnesses about the
    role they play regarding drug delivery, the impact they have on
    the cost of drugs, and the value they bring to patients and
    consumers, and I hope and expect that today's hearing will
    serve as a foundation for future hearings on policy solutions
    that may help reduce prescription drug costs in our health care
    system.
        While understanding how the supply chain works is
    critically important to this committee, I also would urge
    Chairman Walden to schedule a legislative hearing in the early
    part of next year to examine specific proposals to address the
    high prices of prescription drugs.
        Our constituents want and expect us to take concrete action
    to address this growing problem. And the problems we are seeing
    in the supply chain cannot be addressed through one policy
    solution and all of our witnesses have a role to play in these
    solutions.
        It is long past time for Congress to take a serious look at
    all solutions that will help American families to afford the
    medications they depend on and I look forward to further
    bipartisan discussion on what that broad range of policy
    solutions may look like.
        And I want to thank each of our witnesses for being here
    and look forward to learning more about your role in the drug
    supply chain and how we can improve access to drugs for
    patients in the future, and I would like to yield the remainder
    of my time to Congressman Lujan from New Mexico.
        [The prepared statement of Mr. Pallone follows:]

                 Prepared statement of Hon. Frank Pallone, Jr.

        This Committee has spent considerable time examining the
    drug supply chain both through the Drug Quality Security Act,
    and more recently through 21st Century Cures. Both of these
    legislative efforts were the result of considerable oversight
    and discussion as to how the drug supply chain worked, how it
    could be better secured, and how we could encourage
    efficiencies to improve drug development. These bipartisan
    efforts have helped address the post market security of
    products and the regulatory review process, but neither effort
    focused on how prescription drugs move through the supply chain
    through the financial lens.
        Prescription drug prices are higher than ever, and while
    the dramatic rise in prescription spending has come down some,
    we know addressing drug costs continues to be a top priority
    for many American families. The costs of prescriptions have
    forced so many American families to make tough choices. For
    some, it's a choice of filling their prescription or filling
    their tank of gas to get to work. For others, they are leaving
    prescriptions unfilled, skipping doses, or cutting pills in
    half so that they don't have to purchase their prescriptions as
    often. None of these choices are acceptable.
        Today, prescription drug spending represents about 14
    percent of overall healthcare spending. It's no wonder that six
    in ten Americans have said that lowering prescription drug
    costs should be a top priority for Congress and this
    Administration. I am pleased that there has been such
    bipartisan interest in this topic--both during consideration of
    the Food and Drug Administration Reauthorization Act and at
    recent Member briefings. I do believe that making prescription
    drugs more affordable for the average consumer is an issue that
    we all care about and can support.
        That is why today's hearing is so important. This morning
    we have the opportunity to better understand the drug supply
    chain and the often complicated ways that drugs move through
    the supply chain to the patient. As my colleagues have pointed
    out, we will hear from each of our witnesses about the role
    they play regarding drug delivery, the impact they have on the
    cost of a drug, and the value that they bring to patients and
    consumers.
        I hope and expect that today's hearing will serve as a
    foundation for future hearings on policy solutions that may
    help reduce prescription drug costs in our healthcare system.
    While understanding how the supply chain works is critically
    important to this Committee, I urge Chairman Walden to schedule
    a legislative hearing in the early part of next year to examine
    specific proposals to address the high prices of prescription
    drugs. Our constituents want and expect us to take concrete
    action to address this growing problem.
        The problems we are seeing in the supply chain cannot be
    addressed through one policy solution and all of our witnesses
    have a role to play in these solutions. It is long past time
    for Congress to take a serious look at all solutions that will
    help American families to afford the medications they depend
    on. I look forward to further bipartisan discussion on what
    that broad range of policy solutions may look like.
        I want to thank each of our witnesses for being here. I
    look forward to learning more about your role in the drug
    supply chain and how we can improve access to drugs for
    patients in the future.
        Thank you.

        Mr. Lujan. Thank you, Mr. Pallone, and Mr. Chairman, thank
    you for this important hearing.
        There is so much going on in the health care arena right
    now--CHIP, community health centers, National Health Services
    Corps, special diabetes program, Medicare extenders, Puerto
    Rico's Medicaid program--items that all need attention and need
    it now.
        With all these priorities competing for attention, it would
    be easy to lose sight of which should be our guiding star--
    finding ways to balance innovation and affordability.
        We depend on different approaches to give us more time with
    the ones we love, whether it is a brother who lives with
    diabetes or a mother with a new cancer diagnosis. Our lives
    have been improved by many tools including pharmaceutical
    therapies. To realize the promise of these innovations, we must
    ensure patients can access the cures that manufacturers spend
    so much energy and effort developing. It doesn't help to hold
    out hope for a cure if there is no hope that regular people can
    afford it.
        It is unrealistic to think the answer to making
    prescription drugs affordable for everyone is ending the 340B
    program or allowing for off-label communication.
        We must all look holistically at what affordable accessible
    health care means. I am also real interested, Mr. Chairman--on
    a bit of a sidebar here--because we have everyone in the room
    to work with you and make sure that we are pushing pain
    management treatments that are nonaddictive.
        This is critically important. We have a huge problem facing
    our country and we need to work together to get that done. We
    also need serious treatments from everyone here to make sure
    that we are addressing the cravings that come from opioids and
    alcohol.
        Simply having medications that make someone sick if they
    use is not going to stop the craving and not going to stop use.
        I am hopeful this is the first of many hearings examining
    how we ensure affordable accessible prescription drugs and I
    look forward to working with everyone here on real solutions.
        Thank you, Mr. Chairman.
        Mr. Burgess. Chair thanks the gentleman. Gentleman yields
    back.
        This will conclude member opening statements and the chair
    would remind members that pursuant to committee rules, all
    members' opening statements will be made part of the record.
        And once again, we do want to thank our witnesses for being
    here today, taking time to testify before the subcommittee.
    Each witness is going to have an opportunity to give a three-
    minute opening statement and that will be followed by questions
    from members.
        So today, in order, we are going to hear from Lori Reilly,
    the Executive Vice President for Policy, Research, and
    Membership at the Pharmaceutical Research and Manufacturers
    Association of America; Tom DiLenge, President, Advocacy, Law,
    and Public Policy, Biotechnology Innovation Organization; Chip
    Davis, President and CEO for the Association for Accessible
    Medicines; Elizabeth Gallenagh, Senior Vice President,
    Government Affairs and General Counsel, Health Care
    Distribution Alliance; Mark Merritt, President and CEO for the
    Pharmaceutical Care Management Association; Matt Eyles, the
    Senior Executive Vice President and Chief Operating Officer for
    Policy and Regulatory Affairs at America's Health Insurance
    Plans; Tom Nickels, the Executive Vice President for Government
    Relations and Public Policy for the American Hospital
    Association; Gerald Harmon, M.D., Chairman of the Board of
    Trustees of the American Medical Association; Douglas Hoey, the
    CEO of the National Community Pharmacists Association; and
    David Mitchell, the Founder and President of Patients for
    Affordable Drugs.
        We do appreciate you all being here this morning. Ms.
    Reilly, you are now recognized for 3 minutes to give a summary
    of your opening statement.

    STATEMENTS OF LORI REILLY, EXECUTIVE VICE PRESIDENT FOR POLICY,
         RESEARCH, AND MEMBERSHIP, PHARMACEUTICAL RESEARCH AND
      MANUFACTURERS OF AMERICA; TOM DILENGE, PRESIDENT, ADVOCACY,
    LAW, AND PUBLIC POLICY, BIOTECHNOLOGY INNOVATION ORGANIZATION;
       CHIP DAVIS, PRESIDENT AND CEO, ASSOCIATION FOR ACCESSIBLE
        MEDICINES; ELIZABETH GALLENAGH, SENIOR VICE PRESIDENT,
         GOVERNMENTAL AFFAIRS AND GENERAL COUNSEL, HEALTHCARE
        DISTRIBUTION ALLIANCE; MARK MERRITT, PRESIDENT AND CEO,
    PHARMACEUTICAL CARE MANAGEMENT ASSOCIATION; MATT EYLES, SENIOR
    EXECUTIVE VICE PRESIDENT AND CHIEF OPERATING OFFICER FOR POLICY
     AND REGULATORY AFFAIRS, AMERICA'S HEALTH INSURANCE PLANS; TOM
    NICKELS, EXECUTIVE VICE PRESIDENT FOR GOVERNMENT RELATIONS AND
     PUBLIC POLICY, AMERICAN HOSPITAL ASSOCIATION; GERALD HARMON,
     M.D., CHAIR, BOARD OF TRUSTEES, AMERICAN MEDICAL ASSOCIATION;
         B. DOUGLAS HOEY, CEO, NATIONAL COMMUNITY PHARMACISTS
     ASSOCIATION; DAVID MITCHELL, FOUNDER AND PRESIDENT, PATIENTS
                          FOR AFFORDABLE DRUGS

                        STATEMENT OF LORI REILLY

        Ms. Reilly. Thank you, Chairman Burgess, Chairman Walden,
    and Ranking Members Green and Pallone.
        My name is Lori Reilly and I am the Executive Vice
    President for Policy and Research at PhRMA and it is my
    pleasure to be here today.
        Over the past 20 years, more than 500 new medicines have
    been approved to come to market to treat some our nation's most
    challenging and costly conditions. In the midst of this
    progress, prescription drug medicine growth is growing slowly.
    Just last week, CMS released new data to show that prescription
    drug spending in 2016 grew at 1.3 percent. That was lower than
    any other category of spending. To put that into context,
    hospital spending growth grew at three and a half times that
    amount. In the last 7 out of 10 years, prescription drug
    spending growth has been below national spending growth.
        Today, medicines consume about 14 percent of the health
    care dollar, and many assume, when they see that number, that
    all, or substantially all, of that flows back to the brand name
    manufacturers. However, less than half of that, or 47 percent,
    is attributable to brand name drug spending. The remainder, 23
    percent, goes to generic firms and 31 percent goes to the
    supply chain.
        Going forward over the next decade, medicines are projected
    to remain 14 percent of the health care dollar, and many
    question how is that possible knowing all of the new
    innovations that are coming to market in the coming years. And
    there are a few reasons for that, the first being that over
    $100 billion worth of medicines will be going off-patent over
    the next five years and that will put cost pressure as new
    generics and biosimilars enter the marketplace. The second is
    the fact that there is significant cost constraint in the
    prescription drug market as three large pharmacy benefit
    managers buy on behalf of over 70 percent of all prescriptions
    in this country.
        These PBMs exert significant cost pressure to keep prices
    and spending in check. One of the ways they do that is by
    extracting significant discounts and rebates from
    pharmaceutical manufacturers. In fact, discounters and rebates
    increased 40 percent over the last 4 years and now total over
    $100 billion a year. Unfortunately, oftentimes those discounts
    and rebates are captured by intermediaries and don't make their
    way back to patients. This problem has become more acute over
    time as we've seen a dramatic increase in the number of
    patients that today have a deductible for their medicine.
        So take, for example, a patient who takes an insulin
    product with a list price of $400 and that medicine carries a
    discount of about 65 percent. A patient with a deductible today
    goes to the pharmacy counter and will be asked to pay $400 for
    that medicine despite the fact that the insurance company is
    paying nothing while earning $239 on every sale. Given the
    rapid rise in deductibles, this must change. Insurance
    companies and PBMs must be pushing these discounts and rebates
    back to patients to lower their out-of-pocket spending.
        With that, my time is up and I look forward to questions
    today. Thank you.
        [The prepared statement of Ms. Reilly follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Mr. Burgess. Chair thanks the gentlelady.
        The chair recognizes Mr. DiLenge for 3 minutes for your
    opening statement, please.

                        STATEMENT OF TOM DILENGE

        Mr. DiLenge. Thank you, Mr. Chairman, Ranking Member Green,
    Mr. Walden, Ranking Member Pallone. Thank you for the
    opportunity to testify today about how to sustain the
    biomedical innovation that is bringing home and cures to the
    patients who need them the most.
        I am Tom DiLenge. I am Vice President for Advocacy, Law,
    and Public Policy. While BIO represents the entire biomedical
    ecosystem--universities, startups, investors, large drug
    companies--the vast majority of our members--about 80 percent--
    are small companies with no marketed products and no profits.
    They rely heavily on outside investors and partners to fund the
    cutting-edge research that they do, and it is these small
    companies that are leading 70 percent of the nearly 6,000
    clinical trials that are underway today.
        Another key fact--almost 60 percent of all new medicines
    are innovated right here in America, more than the rest of the
    world combined. We lead because America has a public policy
    environment that incentivizes the investment and innovation and
    this committee, on a bipartisan basis, has led the way on that
    for decades. This is critical because, while NIH funds really
    important research, it is the private sector that spends $150
    billion every year in applied R&D to bring products from
    research to the marketplace.
        This investment provides more than 1.7 million American
    jobs and we are growing jobs at twice the rate of the national
    average. More importantly, we are having an awe-inspiring
    record of public health accomplishment, transforming HIV/AIDS
    from a death sentence to a manageable condition, increasing
    cancer survival in children to 83 percent today, and hundreds
    of other new medicines for once-debilitating diseases.
        We are saving millions of lives. We are saving trillions of
    dollars in the process. We are making discoveries that were
    once unimaginable--immuno-oncology, in which we activate the
    body's own immune system to attack cancer--gene therapy, which
    we can repair defective genes or use the patient's own cells to
    make a medicine tailored for that patient.
        Precision and personalized medicine is here. Thus, to
    understand the pricing dynamics of our market, it is important
    to consider a couple of facts. Ninety percent of clinical
    programs fail. Ninety-two percent of our companies are
    unprofitable. Ten to 15 years and $2.6 billion, the average
    time and cost to bring a medicine through approval, that number
    has doubled since 2003, and nearly 90 percent of prescriptions
    today in America are for cheap generic copies of once-branded
    drugs. Thus, it is the revenues from the 10 percent of
    successful clinical programs that have to be sufficient to
    incentivize this entire wonderful innovation ecosystem.
        We have repeatedly seen biotech investment jeopardized by
    the spectre of government price setting. The small companies
    are the proverbial canaries in the coal mine when it comes to
    that.
        We also recognize that patients, even those with insurance,
    cannot afford many of these lifesaving miracles. We share this
    commitment to solving the problem. BIO has joined the coalition
    with a lot of people at the table and others--insurers, PBMs,
    patient groups--to come up with market-based ways to lower drug
    costs. We'd love to work with this committee on doing that.
        Reward volume, reward value, not volume, inject more
    competition, empower patients. So with Congress' continued
    support, we are going to put more Americans to work, we are
    going to lower health care costs, and we are going to heal the
    world in the process.
        Thank you, and I am happy to answer any questions you have.
        [The prepared statement of Mr. DiLenge follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Mr. Burgess. The chair thanks the gentleman.
        Mr. Davis, you're recognized for 3 minutes for an opening
    statement, please. And your microphone.

                        STATEMENT OF CHIP DAVIS

        Mr. Davis. Sorry about that.
        Good morning, Chairman Burgess, Ranking Member Green,
    Chairman Walden, and Ranking Member Pallone, members of the
    subcommittee. Thank you for the invitation and opportunity to
    testify today.
        As stated, my name is Chip Davis. I am the President and
    CEO of the Association for Accessible Medicines. We are the
    leading trade association for manufacturers of FDA-approved
    generic and biosimilar medicines. Our members manufacture more
    than 61 billion doses of medication at over 150 facilities here
    in the United States on an annual basis.
        As you know, Americans across the political spectrum are
    calling for action to lower the cost of prescription drugs,
    making it a foremost health priority, which is why we are all
    here today. Despite a lot of well-intentioned rhetoric, over
    the last year the problem of high drug prices by and large
    continues unabated.
        Last month, the nominee for secretary of health and human
    services, Alex Azar, said that drug prices are too high and
    must be lowered. FDA Commissioner Scott Gottlieb recently
    characterized drug costs as a public health concern.
        Congress now has the opportunity to take meaningful action
    to lower the cost of prescription drugs. Over 30 years ago,
    through Hatch-Waxman, Congress sought to strike a careful
    balance between encouraging innovation in drug development,
    which we all support, and accelerating access to lower cost
    generic alternatives for patients.
        Unfortunately, the patient access side of Hatch-Waxman is
    absolutely unequivocally in jeopardy as we speak. This is due
    to a combination of factors, including a failure of policy to
    keep pace with a changing pharmaceutical market, a growing
    market and balance between generic buyers and sellers, and an
    increase in anti-competitive business practices deployed by
    certain brand companies who have been increasing these
    activities so much in recent years that recently Commissioner
    Gottlieb counseled the industry last month, and I am quoting,
    ``to end the shenanigans,'' during his formal remarks at an FTC
    hearing.
        The generic industry operates in a rapidly changing often-
    commoditized marketplace with significant and unique pressures
    that distinguish it from the monopolized brands sector. As a
    result, generics continue to experience accelerated price
    deflation. In fact, it is ironic in many ways that at a time
    when the overall costs of prescription drugs is such a high
    profile issue that generic medicines are currently experiencing
    an unprecedented degree of price deflation, which impacts the
    national health estimate figures that were mentioned
    previously. In fact, according to IQVIA, which is formerly
    Quintiles IMS, for 16 consecutive months generic drugs prices
    have declined.
        Our members operate in a consolidated market where three
    large buying consortiums of wholesalers and retail pharmacies
    now control 90 percent of the retail generic market. Portfolio
    decisions related to what medicines they will continue to
    manufacture, announcing pending closures of manufacturing
    facilities, and significant anticipated job layoffs in the
    generic sector are all things that we are currently
    experiencing.
        Should the market not evolve itself and should Congress
    fail to take action, these trends will continue, threatening
    uninterrupted patient access to the needed generic medicines.
    When generics and biosimilars are available, competition
    increases and patients benefit from access to safe and
    affordable treatment options.
        We have provided this committee with recommendations that
    Congress could take today to increase competition and increase
    patient access.
        I thank you again for the opportunity to testify and look
    forward to your questions today.
        Thank you.
        [The prepared statement of Mr. Davis follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Mr. Burgess. The chair thanks the gentleman.
        Ms. Gallenagh, you're recognized for 3 minutes, please, to
    summarize your opening statement.

                    STATEMENT OF ELIZABETH GALLENAGH

        Ms. Gallenagh. Good morning, Chairman Burgess, Ranking
    Member Green, Chairman Walden, and Ranking Member Pallone and
    members of the subcommittee.
        Thank you for the chance to participate in today's hearing.
    Health Care Distribution Alliance represents 35 primary
    pharmaceutical distributors, the vital link between the
    nation's pharmaceutical manufacturers and more than 200,000
    pharmacies, hospitals, and other providers nationwide. Their
    expertise streamlines the supply chain to ensure safety and
    efficiency while achieving cost savings for our nation's health
    care system.
        Without HDA members, pharmacies and providers would have to
    carry weeks of inventory and undertake the time consuming
    process of placing daily individual orders with every
    manufacturer. By working with full line distributors,
    pharmacies can maintain just-in-time inventories, saving them
    the expense and staff necessary to carry extensive inventories
    or manage large storage facilities.
        While our members are logistics experts, pharmaceutical
    distribution has evolved over the last decade. This is no
    longer an industry focused solely on moving products from point
    A to point B. In exchange for a variety of distribution and
    logistics services that primary distributors provide to
    manufacturers, they charge bona fide service fees. These fees,
    which are not passed on to the customer, represent a fair
    market value for itemized services actually performed on behalf
    of the manufacturer that the manufacturer would have to perform
    otherwise for themselves.
        Our industry is a very high volume yet low profit margin
    industry with the industry margin just over 1 percent on
    average in 2016. Moreover, in a recent 2017 study, the Berkeley
    Research Group concluded the pharmaceutical wholesale
    distributor profit on overall branded drug costs was just under
    1 percent.
        Traditional pharmaceutical wholesale distributors purchase
    pharmaceuticals from manufacturers based on the wholesale
    acquisition cost, or WAC--a publicly available figure reported
    for each product by the manufacturer. WAC represents the
    manufacturer's list price and does not include rebates, prompt
    payment, or other adjustments in price resulting from
    downstream or proprietary negotiation. Manufacturers set the
    WAC prices for their products and distributors are not privy to
    how that pricing decisions are made.
        Primary distributors typically sell branded drugs to
    downstream customers based on those WACs established solely by
    those manufacturers. Distributors might also sell generic drugs
    to downstream customers based on WACs or they may be based in
    part on response to the market, which includes competing
    generic drugs. In other words, wholesale distributors do not
    control the price of pharmaceuticals, but rather the price of
    pharmaceuticals is dictated by list prices determined by their
    manufacturers and other market forces including the WACs of
    generic drugs that compete with given generic drug products.
        HDA distributor members add value within the supply chain
    and have minimal impact on the overall cost of drugs.
    Ultimately, the services provided by our members result in
    benefits to patients and consumers and have made the U.S.
    pharmaceutical supply chain one of the safest and most
    efficient in the world.
        Thank you. I would be happy to answer any question.
        [The prepared statement of Ms. Gallenagh follows:]
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        Mr. Burgess. The chair thanks the gentlelady.
        The chair recognizes Mr. Merritt for 3 minutes. Summarize
    your opening statement, please.

                       STATEMENT OF MARK MERRITT

        Mr. Merritt. Thank you, Mr. Chairman, and members of the
    committee.
        Pharmacy benefit managers are the industry that employers
    and others hire to negotiate discounts and reduce prescription
    drug costs.
        We see too many reasons why drug pricing has become a focal
    point in recent years. First, as drug makers shift from making
    blockbuster drugs like Lipitor, which cost maybe $3 a day, to
    making much more expensive products like Sovaldi--a great
    product, but it costs $1,000 a day. Second, in the face of
    rising medical costs, more health plans are raising deductibles
    in order to keep premiums as low as possible. This means for
    the first time some patients who had grown accustomed to paying
    $2,500 for a $500 drug are now seeing how expensive some of
    these drugs really are.
        It's important to note that while the subject of today's
    hearing--the drug supply chain--is important and worthy to be
    discussed, it has nothing to do with why drug companies raise
    prices. As always, pricing power and pricing decisions in any
    industry are driven by supply and demand and competition, not
    supply chains.
        Prices are set exclusively by drug companies with zero
    input from anybody else in the supply chain including PBMs.
    Further, supply chains are a routine part of how consumers
    access products in the marketplace today. Every industry uses
    them. They are not unique to health care or prescription drugs.
        In the simplest terms, the prescription drug marketplace is
    like any other--a market of sellers and buyers. Drug makers are
    the sellers and, like all sellers, set prices according to
    whatever they think the market will bear. Likewise, buyers, who
    we represent, want to pay as little as possible. These are the
    employers, unions, health plans, and government programs that
    hire PBMs to negotiate rebates, discounts, and other price
    concessions from drug makers and drug stores. These savings are
    used to reduce premiums, cost sharing, and other expenses. And
    some drug makers have tried to blame their own pricing
    decisions on the supply chain but this makes little sense. For
    example, Mylan used this excuse when they raised EpiPen prices
    400 percent at a time when supply chain costs were relatively
    flat. Sovaldi had a launch price of $84,000 even though it
    involved no rebates at all.
        Some of the highest prices are in Medicare Part B, as in
    boy, where payments are set by the Federal Government without
    negotiations from PBMs or rebates. In any case, almost half of
    the RFPs large employers use when hiring PBMs now require PBMs
    to pass through 100 percent of the rebates and about 90 percent
    of rebates are passed through overall in the marketplace.
        While PBMs are proud that, according to CMS, drug trend
    only grew 1 percent last year despite rising list prices, we
    welcome manufacturers to offer alternatives to rebates as a way
    to get discounts. Payers--our clients--just want the lowest net
    cost wherever they can get them.
        Thank you for having me here today and I look forward to
    answering any questions you may have.
        [The prepared statement of Mr. Merritt follows:]
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        Mr. Burgess. The chair thanks the gentleman.
        Mr. Eyles, you are recognized for 3 minutes to summarize
    your opening statement, please.

                        STATEMENT OF MATT EYLES

        Mr. Eyles. Good morning, Mr. Chairman, members of the
    subcommittee. I am Matt Eyles, Chief Operating Officer of
    America's Health Insurance Plans, the national association
    whose members provide coverage for health care.
        I appreciate the opportunity to testify on behalf of our
    members this morning and my testimony focuses really on three
    topics. First, the consequences of out of control drug prices,
    both excessive launch prices and supersized price increases,
    and the impact they have on consumers and the factors pointing
    to a broken pharmaceutical market. Second, any discussion of
    drug prices and the supply chain must begin with the list
    price, set solely by drugs companies, and which act as the
    starting point for plans and PBMs to negotiate lower prices for
    consumers. Third, AHIP's policy solutions to promote more
    affordable drug prices.
        Out of control prices are the result of drug companies
    taking advantage of a market skewed in their favor. Too often,
    this skewed market has granted economic power to drug companies
    through price-dictating monopolies. For example, with no
    generic competitors, the list price of popular insulin
    increased almost 300 percent since 2007, while the CPI rose
    only about 15 percent.
        If you remember one message this morning, it is that the
    entire pricing process is driven off the list price of a
    branded drug, solely determined by the drug company, not anyone
    else, and the end result is everyone pays more.
        AHIP's members negotiate with providers and drug
    manufacturers to cover high-quality treatments and services at
    the most affordable prices. Looking at the drug supply chain,
    we must keep two points in mind. First, health insurers offer
    comprehensive coverage under the pharmacy benefit for
    prescriptions delivered through retail pharmacies. This
    represents about 70 percent of drug spending. Second, plans
    provide coverage under the medical benefit for physician-
    administered drugs delivered in outpatient and inpatient
    settings. This covers about 30 percent of spending.
        Our discussion today focuses largely on that first bucket
    covered under the pharmacy benefit but plans provide coverage
    for both types and therefore have a unique perspective into the
    broader drug market. A 2017 AHIP analysis found that 22 cents
    of every dollar spent on insurance premiums goes toward
    prescription drugs. This is a conservative estimate by
    excluding hospital spending on drugs.
        But here's the bottom line.: The 22 percent outpaces
    spending on physicians, inpatient hospital, and outpatient
    hospital services. So when drug prices go up, insurance
    premiums go up, and that's an economic reality.
        For the committee's consideration, we included
    recommendations in our written statement with three categories
    of policy solutions--first, delivering real competition through
    generics and biosimilars; second, ensuring open and honest
    pricing with greater transparency into how drug prices are set
    and when prices increase excessively; and third, delivering
    value to patients by expanding efforts to link drug prices to
    clinical value and outcomes.
        Thank you for the opportunity this morning. We look forward
    to working with the committee to find solutions to affordable
    medications.
        [The prepared statement of Mr. Eyles follows:]
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        Mr. Burgess. Thank you, Mr. Eyles.
        Mr. Nickels, you're recognized for 3 minutes, please, to
    summarize your opening statement.

                        STATEMENT OF TOM NICKELS

        Mr. Nickels. Mr. Chairman, my name is Tom Nickels. I am
    Executive Vice President of the American Hospitals Association.
    I appreciate the opportunity to be here today on behalf of
    the----
        Mr. Walden. Your mic's not on.
        Mr. Nickels. Thank you very much--our 5,000 hospital and
    health system members. I would like to briefly address three
    issues: the drug supply chain, drug pricing, and the 340B
    program.
        America's hospitals rely on innovative drug therapies to
    save lives every day. Modern pharmaceuticals play a critical
    role in getting patients healthy and helping them maintain that
    health.
        The drug supply chain is, as Chairman Walden said, complex,
    with the number of steps between the development and delivery
    of a drug. Hospitals primarily intersect with the drug supply
    chain in their role as purchasers and dispensers of
    pharmaceuticals. At the beginning of the chain, our academic
    medical center members play a leading role in both the
    development and testing of new drug therapies. Studies show
    that these efforts discover drugs that have a
    disproportionately important clinical effect in therapies that
    can be used for widespread public health concerns. Further down
    the supply chain all hospitals are major purchasers of drugs
    used in clinical settings.
        Hospitals work with manufacturers and group purchasing
    organizations to negotiate the best prices for the drugs they
    use and reduce administrative expenses. Most hospitals do
    retain some direct contracting with drug manufacturers
    primarily for branded therapies for which there is no
    competition. Once a hospital acquires a drug, it manages its
    supply in hospital-based pharmacies who work with prescribing
    clinicians to develop and manage the formulary, following
    standards that take into account evidence-based clinical,
    ethical, legal, and other factors.
        Pharmacists also manage the dispensing of medications to
    the appropriate clinical staff who then deliver the drug to the
    patient. In terms of pricing, spending on pharmaceuticals, as
    has been noted, has increased dramatically over the last
    several years and the primary driver is higher prices. We see
    both higher launch prices for new drugs and increases in prices
    for existing drugs. Limited competition and drug shortages have
    also facilitated this growth.
        Whether GPO or a hospital is negotiating, the starting
    price, as has been pointed out, is the price set by the
    manufacturer. The ability of the GPO or hospital to obtain a
    discount off the price largely has to do with volume and
    whether and how much competition exists. In instances where no
    competition exists such as for many of the new high-cost
    specialty drugs, large discounts are not available.
        The burden of these high prices falls on all purchasers
    including patients and the providers who treat them. For
    example, hospitals frequently see patients show up in the
    emergency department or return for follow-up care sicker than
    when they left because they were unable to afford their drugs.
        Hospitals as drug purchasers also face significant resource
    constraints as spending on drugs increase. Hospitals must make
    tradeoffs between investments in staff, technology, and
    facilities upgrade and paying more for drugs.
        Lastly, I want to mention the 340B program which permits
    safety net hospitals to care for communities with a high number
    of low-income and uninsured to stretch scarce federal resources
    as far as possible, reaching more eligible patients and
    providing more comprehensive services.
        The 340B program enables these hospitals to serve their
    communities by reinvesting savings from reduced drug prices
    into programs that benefit vulnerable patients at no additional
    cost.
        Thank you very much for the opportunity to testify.
        [The prepared statement of Mr. Nickels follows:]
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        Mr. Burgess. Thank you, Mr. Nickels.
        Dr. Harmon, you're recognized for 3 minutes to summarize
    your opening statement, please.

                       STATEMENT OF GERALD HARMON

        Dr. Harmon. Thank you, Chairman Burgess, Ranking Member
    Green, distinguished members of the subcommittee.
        I am Gerry Harmon. I am a practising family physician from
    Parleys Island, South Carolina, and Chairman of the AMA Board
    of Trustees.
        I think we can all agree that our goal is to ensure
    patients have access to the right medication at the right time.
    I want to speak to the physician's role of prescribing the most
    appropriate treatment and the challenges my patients and I
    face.
        Affordability in price can indeed be a major barrier, but
    so are the various administrative hoops that we have to jump
    through when prescribing medications. Such hoops includes
    things such as prior authorizations, frequently changing drug
    formularies, step therapy, nonstandardized forms, all put in
    place by insurance companies in an attempt to manage costs.
        These barriers usually delay treatment for my patients and,
    clearly, take time away from patient care. As an example, in
    the few days I've been away from my practice on a trip such as
    today, I received an email from a long-time patient who has
    recently changed his insurance coverage. His blood pressure
    medicine that he's been stable on for years now is not on the
    new formulary under his new plan and he's down to his last 30
    days of therapy. I am going to have to call his pharmacy
    benefit managers--PBM, request a form and a fax number, fill
    out the form with some data points and fax it back.
        Eventually, I hope to get some ideas from the insurance
    company and/or the PBM about what types of different
    medications I might consider or steps I might follow in order
    to prescribe my patient's medicine. I cannot do this in a
    standard form or electronically via email. My patient,
    meanwhile, is at risk for running out of medications or
    changing to a less effective therapy. Clearly, that's going to
    endanger his health. He could end up going to the emergency
    room or having a serious illness such as a heart attack or a
    stroke, which adds enormous cost to the entire health care
    system.
        Such efforts to maintain cost and value in such an
    otherwise stable patient are, clearly, misdirected. In another
    venue, doctors who administer biologic medications to treat
    certain cancer, rheumatoid arthritis patients face even more
    costs and challenges than a primary care doctor like myself.
        Small community practices in particular are at a
    disadvantage relative to hospitals and large practices when it
    comes to requiring biological medications for special patients.
    Patients usually have to pay a high co-pay for medicine. We've
    alluded to that in other testimony. It could cost tens of
    thousands of dollars and the co-pay can be as high as 20 or 30
    percent, and that's a bunch of money to my patient population.
        When the patients cannot afford the co-pay, the physicians,
    who must pay for the medicines up front, cannot manage the
    debt, and the patients are referred to treated in the hospitals
    or outpatient settings that are much more expensive. And these
    are just some of the challenges doctors face when helping
    patients navigate medicines.
        What could help physicians like myself? We've offered some
    opportunities for improvement in our written testimony. There
    are so many opportunities. We can discuss them almost ad
    infinitum.
        In closing, I would like to thank you. AMA looks forward to
    working with you on this issue.
        Thank you.
        [The prepared statement of Dr. Harmon follows:]
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        Mr. Burgess. Thank you, Dr. Harmon.
        Mr. Hoey, you're recognized for 3 minutes, please, to
    summarize your opening statement.

                      STATEMENT OF B. DOUGLAS HOEY

        Mr. Hoey. Thank you, Chairman Burgess, and Ranking Member
    Green and members of the subcommittee for conducting this
    hearing and for the invitation to testify.
        I am Douglas Hoey, CEO of the National Community
    Pharmacists Association. NCPA represents America's community
    pharmacists including the owners of 22,000 independent
    community pharmacies.
        More than any industry segment, independent pharmacists are
    in underserved rural and urban areas. Local pharmacists are the
    medication experts on the health care team and, importantly, to
    consumers nationwide. These health care professionals are
    easily accessible.
        Pharmacists increase health care quality and decrease its
    costs by optimizing safe and effective medication use. Over the
    past few years, CMS has been testing new payment and care
    models across hundreds of community pharmacists and to date,
    nearly 300,000 patients have been enrolled. Early findings
    suggest high patient satisfaction, improved outcomes, and
    reduced overall health care spending with reductions of greater
    than $1000 a year for those patients who received high clinical
    intervention. To achieve that future promise, however, systemic
    barriers must be overcome. We believe intermediary parties,
    pharmacy benefit manager middlemen, are increasing pricing
    complexity and contributing to higher prescription drug costs.
        Since their inception, PBMs have morphed from claims
    adjudicators into little known and largely unregulated
    corporations, and despite their immense market influence, PBMs
    are not subject to industry-wide regulation nor do they have an
    obligation to always put their clients' interests above their
    own. Opaque PBM practices that require increased transparency
    including PBM-retained rebates and spread pricing, generic drug
    reimbursement schemes and pharmacy direct and indirect
    remuneration, or DIR, fees.
        And I will expand on our members' current number-one
    concern, which are DIR fees. Now, these fees are assessed on
    pharmacies months after a prescription is filled. CMS has
    identified concerns from the rapid growth in DIR fees including
    higher beneficiary costs, accelerating patients into the donut
    hole, and the shifting of liability for Part B costs from plan
    sponsors to CMS.
        In the recently released Medicare proposed rule, CMS
    explicitly states they are considering requiring all price
    concessions from pharmacies to be reflected at the point of
    sale.
        NCPA strongly supports this approach. CMS estimates this
    would result in significant patient savings at the pharmacy
    counter, as well as overall savings over a 10-year period.
        In conclusion, it makes financial sense for Congress to
    demand increased true transparency into the prescription drug
    marketplace for all taxpayer-funded prescription drugs, and to
    fully utilize the expertise of the community pharmacist to
    identify potential savings.
        Thank you.
        [The prepared statement of Mr. Hoey follows:]
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        Mr. Guthrie [presiding]. Thank you. The gentleman's time
    has expired and I recognize Mr. Mitchell for 3 minutes for your
    opening statement.

                      STATEMENT OF DAVID MITCHELL

        Mr. Mitchell. Thank you.
        Chairman Burgess, Ranking Member Green, Chairman Walden,
    members of the committee, I am honored to be here today.
        I am David Mitchell and I am founder of Patients for
    Affordable Drugs. We are bipartisan. We focus on policies to
    lower prescription drug prices. We don't accept funding from
    any organizations that profit from the development or
    distribution of prescription drugs.
        More importantly for today, I have an incurable blood
    cancer called multiple myeloma and prescription drugs are
    keeping me alive, literally. Right now, my treatment is 5 hours
    of infusions, carry a price tag of $450,000 this year. I am
    very grateful to the science and research communities for these
    drugs, and because my disease is incurable, it finds its way
    around drugs. It mutates. I need innovation of new drugs if I
    am going to stay alive. This is not theoretical for me. It's
    literally life and death.
        But my experience has taught me one irrefutable fact, and
    that is that drugs don't work if people can't afford them.
    Since our launch in February, we've built a community of almost
    20,000 Americans from every state. Patients tell us terrible
    stories of skipping doses, cutting pills in half, even
    declaring bankruptcy, because of the price of their drugs.
    They're scared, they're angry, and they need help.
        I am going to highlight a few policy solutions for the drug
    supply chain. First, however, it is critical to note that
    prices set by drug corporations with government-granted
    monopolies are at the headwaters of the pricing problem.
        When retail prices set by drug corporations go up, all the
    players in the system make more money--drug manufacturer, PBMs,
    doctors, hospitals. The people hurt are patients, consumers,
    taxpayers, and employers who foot the bill.
        But the drug supply chain downstream is also a big part of
    the problem. Here's a patient perspective on some elements.
    One, we should allow Medicare to directly negotiate lower
    prices for patients. Every other developed country in the world
    does this. We should, too.
        We need increased transparency throughout the supply chain.
    Three pharmacy benefit managers control almost 80 percent of
    the market and negotiate in secret, leaving consumers,
    taxpayers, and policymakers in the dark.
        Co-pay coupons and patient assistant programs are phony
    charities. They are designed to do one thing. That is keep
    prices high. They are not charity. They are marketing.
    According to City Research, for every $1 million spent on
    charitable donations, drug corporations reap as much as $21
    million in return. We should lower drug prices and make co-pay
    coupons unnecessary.
        Finally, we have to ensure that patients pay based on
    rebated, not list, prices and that patients with insurance
    don't pay more than they would if they paid cash.
        Gag clauses should be outlawed. I am extremely encouraged
    that members on both sides of the aisle are here today focusing
    on drug pricing because, in my experience, the most enduring
    legislative solutions have come with bipartisan action.
        Thank you.
        [The prepared statement of Mr. Mitchell follows:]
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        Mr. Burgess. Thank you, Mr. Mitchell, and I want to thank
    the entire panel for their testimony and we will move into the
    question/answer portion of the hearing.
        We'd like to recognize the gentleman from Oregon, Mr.
    Walden, chairman of the full committee, 5 minutes for
    questions, please.
        Mr. Walden. I want to thank the chairman very much and,
    again, I want to thank all the witnesses today. You have helped
    us scratch the surface, get a better understanding from the
    start to the finish--from the molecular development to the
    patient who's on a lifesaving drug.
        And, obviously, you have also outlined for us differences
    of opinion about how we achieve more affordable health care and
    not just--we are looking at this, by the way, not just at the
    drug chain but across the entire industry of health care. And
    it is a big one, it is an expensive one, and I know when I go
    home to Oregon it is on top of everybody's minds. They may
    complain about their insurance premium or this, that, or the
    other thing.
        But at the end of the day, they all want to know why--you
    name it in health care--why it costs what it does or they want
    to know what it costs, because of lack of transparency. You
    don't even know. There are all these schemes and things and I
    think we are all trying to get to the bottom of it and my goal
    is to have an informed process, beginning today, that lets you
    all make your case.
        And I would just be curious, as you all have heard each
    other talk, and we finished with Mr. Mitchell, who I've met
    with before in my office, and sorry for what you're going
    through, obviously, but you make a very compelling case.
        You make some pretty strong statements about what needs to
    be changed and I would like to go to the other end because some
    of those are targeted at the pharmaceutical companies and see
    if we can get a response from Ms. Reilly on what Mr. Mitchell
    said and how we should be guided in this, and if others want to
    weigh in along the way that would be good as well.
        Ms. Reilly. Well, thank you for the question, and I think a
    lot of what I heard out of David's mouth are things that we do
    agree with.
        For example, today, as I talked about and others talked
    about, our companies do provide robust discounts and rebates to
    pharmacy benefit managers and insurers, and unlike almost any
    other part of the health care system, those rebates and
    discounts aren't passed back to the patients.
        If a patient with a deductible today ends up in the
    hospital before they reach their deductible, the price they pay
    is a negotiated price that that insurance company has
    negotiated on their behalf. It seems strange that if a patient
    instead needs a pharmaceutical before they reach their
    deductible, that they're asked to pay a full unnegotiated price
    for the medicine and don't get the benefit of that discount and
    actually earn money on every transaction. That doesn't seem
    right to me and I think that does need to change.
        CMS just, earlier this year, posted their new Part D rule.
    In it, they put a request for information out about the
    potential for passing through discounts and rebates in the
    Medicare Part D program. We actually think that's a good first
    step. Today, the evidence suggests by CMS that PBMs prefer
    medicines with high list prices and high rebates because for
    those products they can use those rebate dollars to keep their
    premiums low and they also put people into catastrophic quicker
    and passing through----
        Mr. Walden. Right. So I want to give them a chance to
    respond to that because I assume they will want to.
        So let's go to the insurance plans. You have heard what Ms.
    Reilly said about consumers paying the full freight here and
    not being covered by insurance and no negotiation. Is that
    accurate? Is there something we should do about that?
        Mr. Eyles. So thank you, Chairman Walden, for the
    opportunity. What I would say is health plans negotiate on
    behalf of their members and consumers every single day across
    all parts of the supply chain, whether it be providers or drug
    manufacturers.
        To put this into context, I think you probably heard some
    of the statistics thrown around that 90 percent of the
    prescriptions are generic that are filled in this country. So
    that means about 10 percent are filled through retail--that are
    brands. Not all of those brands offer rebates. There's a large
    number of brands that don't offer rebates. So really we are
    trying to focus on a much smaller problem when the bigger
    problem really comes back to the price.
        Using Ms. Reilly's example earlier of insulin of $400 a
    vial, a decade ago that vial was only about $90. Right now, if
    prices of insulin increased only by the consumer price index
    rather than much, much higher rates, we'd only be paying about
    $100 per vial, all right, if you're just following inflation.
    We wouldn't be having this discussion about rebates----
        Mr. Walden. So----
        Mr. Eyles [continuing]. If it didn't start with the price.
        Mr. Walden. So who can tell me why that insulin is the
    price it is today?
        Ms. Reilly. I would say, Chairman Walden, the net price of
    insulins have not changed all that significantly. What has
    changed is the levels of discounts and rebates that are being
    demanded in part because it is an extremely competitive market.
        As I mentioned before, insurance companies, PBMs, in the
    Part D program, for example, they like high list prices that
    come with high rebates because they can then use those rebates
    to keep their premiums low, attract patients to their health
    care plan. Unfortunately, what the problem is is they're not
    sharing those rebates and discounts back with patients as they
    do if a patient ends up in the hospital or uses a physician and
    that's what needs to change.
        Mr. Walden. All right. My time has expired. We didn't get
    to the PBM's view of this. I hope we do, coming forward,
    because this is the debate. Because at home the constituents
    say why is insulin $400 when it used to be a hundred dollars or
    whatever the number is, And that's repeated time again, whether
    it is EpiPen or whatever. We can't answer that either because I
    am not sure there is a good answer.
        So with that, Mr. Chairman, I've exhausted my time and I,
    again, appreciate your willingness to have this hearing and
    yield back.
        Mr. Burgess. Chair thanks the gentleman. Gentleman does
    yield back.
        The chair recognizes the gentleman from Texas, Mr. Green, 5
    minutes for questions, please.
        Mr. Green. Thank you, Mr. Chairman.
        A Harvard study found that there are more than three-
    quarters of the public believe that name brand prescription
    drugs are too high and an issue primarily driven by price
    increases in the absence of additional competition. Biologics
    represent the majority of these high-priced drugs representing
    7 out of the 10 highest grossing pharmaceutical products in
    2015.
        A landmark 2014 Rand study also estimated that biosimilars
    could save as much as $40 billion through 2024 in the United
    States alone, and we have another study from IMS Health opening
    markets to biosimilar competition health care systems could
    realize savings of more than 10 billion euros in the E.U. alone
    between 2016 and 2020. The cumulative savings over the next 5
    years in the E.U. and the United States would be 49 billion in
    euros.
        Mr. Davis, Mr. Merritt, do you agree that we should support
    policies to encourage a workable pathway for biosimilars as we
    in Congress do encourage bringing these product online and
    encouraging uptake by physicians and plans for their patients?
    Mr. Davis first.
        Mr. Davis. Congressman, thank you for your question.
        The short answer is yes, we represent biosimilar
    manufacturers today in addition to generic manufacturers, and
    as you stated, biosimilars hold the potential for so much
    promise in terms of increasing access and realizing savings
    because they will provide competition to the increasingly
    costly degree of specialized medicine and personalized medicine
    moving forward.
        There's a couple challenges with respect to making sure
    that we realize the full potential of biosimilars here in the
    U.S. market. One is getting them to market, which is why we
    need to create some Fast Generics Act pass so that our members
    can actually gain access to the samples to do the
    pharmacovigilance to apply to the FDA to get biosimilars to the
    market. And then the second thing we have to look at, and we
    have to be candid about this, is right now there are eight
    biosimilars that have been approved by the FDA. There are only
    three on the market. The other five are tied up in endless
    litigation.
        So if we ultimately want to--we have a lot of catching up
    to do in terms of you mentioned the E.U. They are light years
    ahead of us in terms of utilization, access, and savings on
    biosimilars.
        We have the opportunity from a policy perspective to catch
    up. The Federal Government started scoring savings for
    biosimilars in 2014 fiscal year. The first one wasn't on the
    market until September of 2015. So we have more work to do
    there.
        Mr. Green. Mr. Merritt.
        Mr. Merritt. And I would agree with what Chip said.
    Biologics are the future. Specialty products are the future and
    they're very expensive. They're very great products, as David
    Mitchell mentioned.
        But right now, they're often unaffordable and the key is
    competition. Biologics already have 12 years of exclusivity.
    We'd like that to be down to seven so we can get competition
    started faster.
        We'd like these drugs to have the same name the way
    generics do with brand drugs on the regular market and a host
    of other things because without competition, you're not going
    to have savings and if you have more and more brand protection
    for every little minute change you make and if litigation ties
    these up for years and years, for a month, a couple of months,
    a year of being tied up in litigation can cost consumers
    billions of dollars. And so we are very aligned with the
    generics on this.
        Mr. Green. Mr. Chairman, I believe that our government's
    approach to approving and integrating biosimilars in our health
    system would impact overall potential for competition and
    access to more affordable life changing drugs for patients.
    Let's hope we can continue to support this developing market so
    that patients can realize the value and benefit of such
    treatments.
        Mr. Eyles, the complexity of the drug supply chain is hard
    to overstate as evidenced by all 10 of our witnesses this
    morning. They've been in the growing chorus calling for greater
    transparency in the drug supply chain.
        Some states have already taken action. California recently
    enacted legislation that would require reporting of certain
    price hikes and legislation that would be introduced in both
    the House and the Senate--that has been introduced would create
    a similar federal requirement.
        What we've already seen is some good actors taking
    meaningful steps to increase transparency. For example, Sanofi
    and Janssen have agreed to disclose their drug price increases
    each year. Sanofi also announced it would put limits on how
    much it will increase drug prices. But as you note in your
    testimony that more could be done to encourage open and
    straightforward price setting and highlight the need for
    disclosure of intended launch price.
        Could you discuss further why the disclosure of intended
    launch price would be helpful to insurers and how you believe
    such a disclosure be operationalized?
        Mr. Eyles. Thank you, Ranking Member Green.
        Yes, we've been very supportive of greater transparency
    into really both when it comes to launch prices and price
    increases.
        While we are not supportive of controlling prices, we think
    it is important to have more information out there in the
    public domain about exactly how prices are set. Right now,
    pharmaceutical prices are set in the black box.
        When a new product gets launched with a price of $475,000
    no one really understands how that got set.
        Mr. Green. Well----
        Mr. Eyles. We think ahead of time, having additional
    visibility into how prices get determined by the manufacturer
    and then price increases over time, particularly those on
    higher cost drugs and those that exceed certain thresholds,
    it'll be important to understand other parts of the health care
    system have oversight and controls on them.
        For example, insurers have to report all of the inputs into
    their rates before they get approved. We are not looking to
    have specific approval of drug prices but we do think it is
    important to have greater transparency and greater dialogue
    around how are prices being set up front.
        Mr. Green. Well, Mr. Chairman, thank you. I know I am over
    time.
        But transparency always works and, like you said, it works
    in other parts of the health care delivery system. So thank you
    for the time.
        Mr. Burgess. Gentleman yields back. Chair thanks the
    gentleman. The chair recognizes the gentleman from Kentucky,
    Mr. Guthrie, vice chairman of the Health Subcommittee. 5
    minutes for your questions, please.
        Mr. Guthrie. Thank you very much. Thanks for everybody
    being here today, and it is really a great day to start this
    process. I was invited not long ago to the White House with the
    majority leader and we met with the President. I want to tell
    you, we walked away with the President wanting action on this
    issue. He's very focused on it. I think this is the beginning
    of a process that I hope will lead to an action as we move
    forward.
        I have some prepared questions but I will get back to what
    the chairman said. I don't think we ever got a really good
    answer.
        If insulin is a competitive product and it was $90 10 years
    ago and it should be $100 if you just went through the standard
    inflation, why is it $400? It's got to be somewhere between
    here and here it has increased in price and maybe, Mr. Merritt,
    you'd like to address that.
        Mr. Merritt. Yes. And this happens with a lot of drugs, but
    you see it a lot in insulin is there are insulin products but
    they have new methods of administration--actually some better
    methods of administration and that creates a whole new patent
    protection for these products.
        And so that is how the prices go up and, again, on a very
    basic point, drug makers can charge whatever they want for a
    product. That's not saying a price is right or wrong but it has
    nothing to do with anybody at this table except for the drug
    manufacturers.
        All that we can do is get the biggest rebates possible, the
    biggest discounts possible, pass it on to the plans and
    employers and have them use it to reduce premiums, cost
    sharing, or whatever each plan wants to do.
        But just the fact that we don't control the prices, that
    they have patent protection with minor changes in the products,
    again, making the products better, that's what gives them that
    pricing power.
        Mr. Guthrie. So the insulin--so Ms. Reilly, that would--so
    innovation has come from PhRMA. Therefore, you have invested
    the research dollars so you're recapturing those resources
    dollars, therefore it is four times what it was?
        Ms. Reilly. Well, Mark is correct that there have been
    significant advancements in insulin. We now have long-acting
    insulins. We have an insulin that's injectable with pens and
    other things.
        But, again, I would say the list price of the medicine is
    not what the manufacturer retains, and in the case of the
    insulin marketplace, there are multiple competing products.
        What manufacturers have retained over the last 5 years has
    been stable or declining and part of the reason for that is we
    do have PBMs that are buying these medicines that, again, CMS,
    MedPAC, and others have demonstrated that what they prefer is a
    high list price and a high rebate.
        That lowers the net price considerably. The rebates on
    average in the insulin market space are 65 percent.
        Mr. Guthrie. Well, who sets the list price then? For what
    the PBMs have to charge, who sets the list price?
        Ms. Reilly. Well, and I want to respond to something that
    both Mark and Matt said with regard to the list price. The list
    price is not set in a vacuum.
        Our companies have to engage with PBMs and insurance
    companies every day in determining the list price and their
    preferences, quite honestly, matter significantly. And they
    matter to the extent that if they want a high list price with a
    high rebate and they're telling a company when they control a
    hundred million lives, an individual one, that is their
    preference if that product is to get on formulary.
        Commonly, PBMs pick and choose amongst insulins and they
    say to a company, if you don't give me the price I want, you're
    off my formulary. And if you are buying on behalf of a hundred
    million Americans, more than countries like France and Germany,
    the leverage they exert is significant.
        Mr. Guthrie. So would you argue your market price is the
    list price less rebate? You know that going in----
        Ms. Reilly. Yes. Yes.
        Mr. Guthrie [continuing]. Therefore, you have to set a
    higher list price to get the market price that you think you
    need to cover your--same way with biologics?
        Ms. Reilly. Just to stay flat. Yes.
        Mr. Guthrie. To stay flat.
        Mr. Merritt. If I could just jump in for a second, it would
    be an anti-trust violation for those discussions to ever
    happen. Those discussions don't happen. Manufacturers set the
    price according to however they want to move their products,
    whatever they think they need to do. PBMs have zero input into
    that. Health plans have zero input into that.
        Of course, we get the biggest rebates that we can, but
    remember, this is a chicken and egg thing. If the price goes
    up, we are going to get a bigger rebate because our clients,
    Matt's companies and others are going to demand us to get
    bigger and bigger discounts. But the----
        Ms. Reilly. I would argue----
        Mr. Merritt. No, I am not done yet. But the list prices are
    the list prices, and that is a drug maker thing. It has nothing
    to do with----
        Mr. Guthrie. Well, let me----
        Mr. Bucshon. Mr. Chairman, I--Mr. Chairman----
        Mr. Guthrie. Not--let me----
        Mr. Bucshon. He interrupted her testimony.
        Mr. Guthrie. I am going to let you finish your thought.
    Then----
        Mr. Merritt. Yes. That's what I am saying. It's just a
    basic thing. I think sometimes you can try to over complicate
    the whole issue of supply chain.
        Supply chain is just how you distribute products. Every
    industry uses them. They're not exotic. They all use rebates.
        Mr. Guthrie. I got about 40 seconds. Yes, let me go back
    to----
        Ms. Reilly. I would say you have to ask the question that
    if our revenue is flat or declining in the space of insulin and
    the list price is increasing? It's benefiting everyone that's
    paid off of the list price including the PBMs and the health
    plans.
        Mr. Guthrie. So the argument the rebate doesn't go to the
    consumer?
        Ms. Reilly. No, it does not get passed----
        Mr. Guthrie. Do you have an answer for that, Mr. Merritt?
        Mr. Merritt. It does. It goes to the client who may use it
    to reduce the cost of that particular drug--the cost sharing,
    or more commonly it is used to reduce overall.
        Mr. Guthrie. I guess I will have Administrator Eyles and
    AHIP. So the rebate does go to the consumer?
        Mr. Eyles. They go to people who purchase health insurance
    coverage. Yes, they go to everyone. That's right. So when you
    look at filings that insurance companies have to file with
    every state department of insurance, there are specific lines
    dedicated to pharmaceutical rebates and when rates get approved
    those rebates are taken into account. There are different----
        Ms. Reilly. I would argue that's a perversity of insurance.
        Mr. Guthrie. Time is expired. I wish I had more time with
    that but----
        Ms. Reilly. Right. The purpose of insurance is for healthy
    to subsidize the sick. We are evolving to a system where the
    sick are subsidizing the healthy through rebates.
        Mr. Burgess. Gentleman yields back his time. Chair thanks
    the gentleman.
        The chair recognizes the gentleman from New Jersey 5
    minutes for questions, please.
        Mr. Pallone. Thank you, Mr. Chairman.
        I have long believed that one critical component of the
    successful drug supply chain is a robust generic manufacturing
    presence and market.
        Generics can continue to play a role in fostering increased
    competition and affordable access to medications, which is why
    I've continuously worked to provide generics with a level
    playing field and supported increased assistance and incentives
    including most recently through the FDA Reauthorization Act as
    a way to encourage a strong generic presence in our
    pharmaceutical market.
        So I wanted to ask Mr. Davis a couple questions. In your
    testimony you noted that generics operate under a very
    different business model than brand drug manufacturers.
        Can you further discuss how the business model for generic
    drugs is different than brand drugs and the different
    considerations generic drug manufacturers take into account
    when making product development decisions?
        Mr. Davis. Thank you, Ranking Member Pallone, and thank you
    for your leadership on ensuring a level playing field. I am
    happy to address that.
        The debate that you just heard between the branded industry
    and the PBMs and the insurers on rebates as a percentage of
    list price and discounts are for 11 percent of all
    prescriptions in the United States.
        It is not the generic business model. So if there is one
    thing I leave this committee with today it is to think of
    generics differently than the way you think about policy that
    impacts the branded industry.
        We are a commoditized, not monopolized industry. As a
    result of that, the way the supply chain actually leverages
    driving prices down to where we are in 16 consecutive months of
    price deflation is by combining their resources and leveraging
    their purchasing ability where there are now three wholesaler
    retail pharmacy consortiums that are controlling 90 percent of
    the generic supply chain.
        So you have three suppliers who are driving the prices down
    lower than they have ever been before in the generic
    marketplace and as a result of that they are moving
    increasingly toward what are called single-sourcing contracts
    meaning they want to partner or contract with one generic
    company to fill a majority of their portfolio of purchasing
    needs.
        As a result of that, what we have seen is, quite frankly,
    an unsustainable supply chain for generics moving forward, if
    in fact we can ensure that there is robust competition on the
    buyer side in addition to the seller side.
        In 2000, there were approximately 200 wholesalers on the
    market. Today, there are three that control 90 percent of the
    supply chain. The buyer side is three.
        We are still 20 to 30 competitive generic manufacturers all
    competing for that business, and economics will dictate over
    time that you will see more consolidation on our side in an
    effort to level out that negotiating table.
        Mr. Pallone. All right. I want to ask two more questions.
        You talked about how generic manufacturers operated in this
    commodity style market as a result of the multiple
    manufacturers marketing the same product.
        But do you want to explain a little better the role that
    plays in bringing the generic drug to market?
        Mr. Davis. Happy to do so. You have----
        Mr. Pallone. And then I've got one more question.
        Mr. Davis. Sure. You have a situation, Congressman, where
    the ability for a generic manufacturer, when you actually get
    to what's called commoditized pricing in the generic
    marketplace, a decade ago it took eight, nine, or ten generic
    competitors to get to 80 to 85 percent off the reference for
    the originator price.
        You get there now as soon as three, four, or five generic
    entrants, which is why the FDA commissioner has prioritized not
    just the first generic application at FDA but the first,
    second, and third.
        Our companies have to make decisions in a commoditized
    market that has varying price fluctuation upward and downward
    about what the sustainability is of the competitive market in
    any therapeutic area. So that's a significant factor in
    determining if they go to market once they get approved and if
    they stay on the market once they are approved.
        Mr. Pallone. All right. Then lastly, let me just ask
    briefly about the rebates. We've heard quite a bit of debate
    about the appropriateness or value of rebates in the drug
    supply chain.
        So what role, if any, do rebates play in the negotiations a
    generic drug manufacturer undertakes with payers and how does
    reimbursement traditionally work for generic drugs?
         Mr. Davis. Thank you for that. It's an important
    distinction. As I said, for 89 percent of the prescriptions in
    the U.S. that are generic, the traditional rebate model by and
    large does not apply.
        Generic companies are reimbursed in many ways based upon
    two things: their ability to meet that wholesaler demand with
    the three who control 90 percent of the market.
        By saying can you meet our volume requests and are you
    willing to meet the price that we are actually going to tell
    you we are going to pay for that product--let's take generic
    Crestor, for example, rosuvastatin--and if you don't--and if
    you're not willing to offer it at 10 cents a capsule, one of
    your 19, 20, or 21 other competitors that are also marketing
    that will, and we will cut you out.
        So it is really about volume and ability to keep your price
    as low as possible. So it is an example of the market actually
    working.
        Mr. Pallone. All right. Thanks a lot, Mr. Davis.
        Mr. Burgess. Gentleman yields back. The chair thanks the
    gentleman.
        The chair recognizes the gentlelady from Tennessee, Mrs.
    Blackburn, 5 minutes for questions, please.
        Mrs. Blackburn. Thank you, Mr. Chairman.
        I appreciate that, and I appreciate the discussion that we
    are having here this morning on this issue. I will say I am a
    little surprised. There's a lot of finger pointing that is
    going around.
        But I will tell you all, I think there is more than enough
    blame to go around for what we see transpiring in the
    marketplace and with the high cost.
        And listening to you all, I will tell you there is
    absolutely--it confirms to me why so many of my patients--my
    constituents will say as a patient who takes something
    regularly, they have tried to find other options in the
    marketplace--programs like GoodRX or I know there are several
    others--because they are very frustrated.
        And Mr. Mitchell, I appreciate the concerns that you bring
    to bear as a patient and someone who is using something. This
    is an issue that we need to address, and we need your best
    efforts in solving this.
        So I am going to focus on not things in the past, but as we
    move forward. And let's put our attention there. And for each
    of you on the panel--and we are going to start with Ms. Reilly
    and work all the way down--what change would you like to see in
    the marketplace or what change in law should we make to make
    certain that, as Chairman Walden said, we are focused on
    access, delivery, and the cost of these pharmaceuticals to
    patients.
        Now, you are only going to have about 30 seconds. So Mr.
    Merritt, listen--make that good and concise for me. OK. Ms.
    Reilly, you are on. Let's go right down the panel.
        Ms. Reilly. Great. I would say two things. The first, as I
    mentioned before, passing through those robust discounts and
    rebates that totalled over $100 billion last year back to
    patients. That would lower patient drug costs immediately.
        The second, which is more of a mid- to longer-term option,
    is moving our system towards one where-which moves towards a
    value-based system away from volume. Let's reward companies
    that deliver medicines that are delivering the outcomes that
    patients and payers want.
        Mrs. Blackburn. Thank you.
        Mr. DiLenge. Thank you.
        I mentioned at the outset that we are part of a coalition
    with insurers, PBMs, and others, and one of the ideas is in
    fact exactly what you were talking about in terms of patient
    information.
        We need to empower patients. Right now, they do not have
    good information about their choices. They don't know about
    their formularies. Their formularies are constantly changing
    throughout the year.
        Their prices are changing, their co-pays, their co-shares.
    If they had more access to good information they'd be able to
    find cheaper medicine.
        Mrs. Blackburn. OK. Time's up.
        Mr. Davis. Congresswoman, thank you.
        There are three things that we would recommend. The first
    is to repeal the misguided Medicaid penalty on generic drugs.
    It was passed in the fall of 2015 as part of the balanced
    budget agreement.
        It actually punishes generic manufacturers in the
    circumstances where they don't take a price increase, and
    serves as a disincentive.
        Pass the CREATES Act, as I mentioned earlier, and include
    biosimilars in the coverage gap for Part D to ensure a robust
    biosimilars market, moving forward.
        Ms. Gallenagh. Thank you.
        As wholesalers, we don't actually take positions on
    transparency or on pricing issues. But I would say that our
    members would support anything that examines greater
    competition in the marketplace and better access for patients.
        Mrs. Blackburn. OK.
        Mr. Merritt. I agree with a couple things that were said
    before. Value-based contracting would be great. The patent
    reforms that Chip and the generics industry have talked about,
    and also something that we haven't talked about and may not
    come up today but electronic prescribing.
        We'd like doctors to be able to look at the formularies
    before they prescribe the drugs so patients aren't surprised at
    the pharmacy as they can choose the least expensive option
    available.
        Mr. Eyles. Solutions that bring more competition through
    generics and biosimilars. That's the first thing. That's very
    important.
        The second is greater price transparency, both about how
    prices get set and how prices are increased, and we'd agree
    that it's important to also move towards value-based pricing
    and outcomes-based pricing.
        Mr. Nickels. I would agree with a number of the things that
    have been said already--greater competition, greater
    transparency. I would agree on the CREATES Act as a piece of
    legislation that should move forward and, of course, as I
    mentioned in my statement, protecting the 340B program.
        Dr. Harmon. I would tell you that not only is Mr. Mitchell
    the formal patient representative. All of us in the room are
    either patients or caregivers for patients. So we all wear that
    same appellation.
        As a provider, as a physician, what I would like to see is
    transparency. It's been alluded to. That's not just a buzzword.
    It needs to be a reality and I need to eliminate these
    administrative hassles that interfere with delivering care for
    my patients. Thanks.
        Mr. Hoey. I have three suggestions. One would be the
    transparency with spread pricing. That's what the pharmacy has
    paid and what the employer is charged, which are two different
    things. The employers charged more. The second would be
    pharmacy DIRs at the point of sale or prohibiting pharmacy DIRs
    altogether, and then the third would be eliminating the
    conflicts of interest that exist between a price giver and a
    price taker.
        So they're giving prices but they're also taking a price,
    and there is an immense conflict of interest. Thank you.
        Mr. Mitchell. I would focus on promoting competition and
    making Hatch-Waxman work as intended. That means no more pay-
    for-delay. There's a bipartisan bill to do that now.
        The CREATES Act is an incredibly important bipartisan bill.
    It would save more than $3 billion. That is important. But all
    elements of patent abuse that extend patents beyond what you
    intend with our laws should be addressed to promote competition
    because competition lowers prices.
        Mrs. Blackburn. You all did a great job staying under the
    time limit. I thank you all.
        And as I yield back, I will just say listen to what you
    said. Transparency, competition--basically, focusing on the
    patient and those are worthy goals.
        I thank you for the hearing and I yield back.
        Mr. Burgess. Gentlelady yields back. Chair thanks the
    gentlelady. Chair yields to the gentlelady, Ms. Matsui from
    California, 5 minutes for questions, please.
        Ms. Matsui. Thank you, Mr. Chairman.
        High drug prices are really at the top of the mind of our
    constituents and we've seen recent examples of extreme bad
    actors raising prices purely for profit motives.
        Congress does need to review and better understand drug
    pricing to ensure that we are incentivizing research and
    innovation and development of new drug treatments and cures
    without creating loopholes that can be taken advantage of.
        Drug pricing is particularly complicated because it is not
    transparent to the public and because drug companies often end
    up with monopolies, which we all know can drive up costs. We
    need an approach that focuses on the patient and the cost to
    the health care system, which will be tethered by ensuring that
    there is sufficient competition in the market place.
        Where there is more than one option for a drug or
    treatment, costs tend to be driven down. As we move toward
    precision medicine, we move away from multiple treatment
    options per person.
        So this is something we will only have to grapple with more
    and more. I know we talked about this. Let me follow up here.
        Ms. Reilly, when drug companies set the initial list price
    for the drug from which all of the components of the price
    follow, do manufacturers also publish or make available how
    they determine the list price?
        Ms. Reilly. Well, companies--and to be honest, as PhRMA we
    don't engage with our companies in terms of how they price
    their products. We can't for anti-trust reasons.
        However, many companies have talked about their
    philosophies with regards to how they price their product and
    they look at a number of factors.
        They look at the prevalence of the disease. They look at
    existing treatments that are already in the market.
        Ms. Matsui. How about the research and development costs
    that the company has done?
        Ms. Reilly. Research and development is a cost of doing
    business that, obviously, has to be recouped. But companies
    really are focusing on the value that a given medicine is
    bringing to market and the list price that we come up with is
    very much negotiated with the purchasers of the product.
        A PBM or insurance company does not have to cover our
    product. In fact, some proudly talk about the fact that they
    exclude certain products from formularies if they don't get the
    price that they want. So they're not done in a vacuum.
        Ms. Matsui. All right. Let me switch here.
        Dr. Harmon, when a doctor prescribes a drug, how often do
    they know how much it will cost a patient?
        Dr. Harmon. Representative Matsui, they really only know if
    they do it a lot, because if I de novo prescribe a drug I have
    no idea. You heard it from some of the other panelists.
        Increase transparency on drug pricing and availability and
    formulary would greatly enhance my ability to adequately and
    accurately prescribe the right treatment for the right patient
    at the right time.
        Ms. Matsui. So when doctors are familiar with certain drugs
    that they prescribe, they know to recommend to their patient if
    they have two generics that do the same job as a named drug.
        Do you tend to use this price information in a systemic way
    or anecdotally from what they hear from the patients?
        Dr. Harmon. Systemically. I try to be an evidence-based
    prescriber. So I deal with my medical literature and up-to-date
    treatments that are made available to me. I make that decision,
    Congresswoman Matsui. But also 99 percent of the time I write
    on my prescription blank or I sent the electronic prescription
    substitution authorized.
        Ms. Matsui. OK.
        Dr. Harmon. Generics are available. Rarely do I prescribe
    the brand name. The only exception is if I know that their
    insurance plan ahead of time will authorize the brand and
    actually have a better affordability to the patient than a
    similarly priced generic.
        Ms. Matsui. OK. Thank you.
        I want to ensure that we continue to encourage innovation
    and development of new cures and the ability to profit as part
    of that when you are in such a risky business.
        But I think the profit has gotten way out of control in
    many cases. I want to make sure the potential for profit is
    truly incentivizing innovation, not just lining investors'
    pockets.
        Mr. DiLenge. What are examples of biologic companies that
    are innovating but also keeping prices low?
        Mr. DiLenge. I think the vast majority are, and so we've
    seen, particularly over the last couple years but we've seen
    incredible market competition in biologics, not necessarily by
    biosimilars.
        I agree with Chip on some of his comments there. But among
    branded biologics there is intense competition. In fact, the
    time to entry for the second biologic in a class has dropped
    dramatically.
        And so what you are seeing is a lot of great competition
    and the second and third products are coming in usually cheaper
    than the first.
        Ms. Matsui. OK.
        Mr. DiLenge. So we are seeing a lot of good competitive
    market dynamics in biologics.
        Ms. Matsui. Well, I would say so, but I think when you
    increase more competition and eliminate the monopolies, because
    there are still some loopholes and ways for players along the
    chain to take advantage of this system with our without
    competition.
        So do you see--I guess Mr. Mitchell--do you see policy
    solutions that encourage innovation but close loopholes?
        Mr. Mitchell. Can you pose that question again, ma'am? I
    didn't hear it.
        Ms. Matsui. OK. Do you see policy solutions that encourage
    innovations but close loopholes?
        Mr. Mitchell. I think, most importantly, that we want to
    incentivize companies to invent new drugs and not invest time
    and money to milk money out of old drugs, and that's why I
    place the emphasis in what I said to the lady from Tennessee on
    closing patent loopholes----
        Ms. Matsui. Right.
        Mr. Mitchell [continuing]. That allow them to get more time
    beyond that which you intend under Hatch-Waxman instead of
    focusing their attention on developing new drugs, making more
    innovation.
        Ms. Matsui. All right. Thank you very much.
        Mr. DiLenge. Ms. Matsui, if I just may respond real quick,
    I think it's important to emphasize that the time to market for
    generics has stayed the same for two decades.
        So the idea that there is all this patent evergreening and
    that innovators are getting all these new patents and pushing
    out the time for generics the data just doesn't support that.
    Thank you.
        Ms. Matsui. OK. Thank you. I yield back.
         Mr. Burgess. Gentlelady yields back. Chair thanks the
    gentlelady.
        The chair recognizes the gentleman from Texas, Mr. Barton,
    5 minutes for questions, please.
        Mr. Barton. Thank you, Mr. Chairman and Ranking Member
    Green, for holding this hearing. We have established the number
    of witnesses we can have on one panel because there is no more
    room.
        [Laughter.]
        So we know that the number now is 10. This committee has
    jurisdiction over quite a bit of the U.S. economy.
        The three most complicated issues we deal with in terms of
    pricing are the price of gasoline--when it's up everybody's mad
    at us, the price of prescription drugs, which we are talking
    about today, and the price of cable TV. And I may be using a
    misnomer for cable TV. It may not be cable TV anymore.
        But of those three, the one that is most complicated and
    the most byzantine pricing mechanism is drugs. I take six
    prescription drugs every day.
        I had a heart attack 6 years ago and I have high blood
    pressure and so I take six drugs. I couldn't tell you what
    those drugs cost. My insurance company pays it. I pay a little
    bit of a deductible so I know what my deductible is when I get
    them filled every three months. I get a 90-day supply.
        Some of them are Plavix or Plavix, Lisinopril, Lipitor.
    Those are some of the name brands, and I think everything I am
    taking now is a generic. I don't believe I use any of the name
    brands.
        So it's good to have this hearing. I hope we learn
    something from it. It would be nice if we could come up with a
    simplified system for drug pricing and perhaps this hearing
    will begin that.
        My specific questions are going to deal with the pricing of
    biosimilars. Now, Congresswoman Eshoo and I worked together
    several years ago to get a biosimilar title in what's now
    called the Affordable Care Act and there is just--it's been one
    rocky ride trying to get biosimilars to the marketplace.
        And recently Congresswoman Eshoo and I led a letter that 48
    other members signed asking them to have a separate code at CMS
    for biosimilars.
        Mr. Davis, you represent both the generic drug companies
    and the biosimilar drug companies. You mentioned in your
    written testimony that biosimilars are more complicated,
    difficult to develop than traditional drugs. Could you expand
    on that briefly, please?
        Mr. Davis. Sure, Congressman. Thank you for the question.
        Biosimilars are a subset of biologics. So the reverse
    engineering process associated with biosimilars is heavily
    science weighted and much more expensive over time.
        So development programs for biosimilars can cost $150
    million to $400 million in advance of filing the application.
    So what we need to recognize is that there are similarities in
    terms of the value that competition from biosimilars will
    present to traditional biologics in the market once they get
    there that is akin to the traditional small molecule versus
    generic competition that we've seen for years in the branded
    side.
        At the same time, we do need to recognize that they are a
    different class of drug and as a result of that, through the
    leadership of you, Congresswoman Eshoo, and others, be able to
    have a pathway established here in the U.S. as part of the
    Affordable Care Act through BPCIA.
        That pathway, as was suggested earlier, has not gone as
    smoothly as possible and there are several policy reasons why
    we are where we are, not the least of which was the potential
    to have different J codes for the originator product and all of
    the competitors in a separate one at CMS.
        Because of the leadership of this committee, CMS has
    announced a plan change to that as of January 1. So thank you
    for that as well.
        Another solution that would increase the uptick in interest
    on the part of our members to make the investments they need to
    bring biosimilars to market will be making sure that
    biosimilars are treated like biologics in the Part D coverage
    gap.
        So it's actually our members asking to be held to the 50
    percent discount to make sure that the value that biosimilars
    from a pricing perspective doesn't get lost as people go
    through the Part D program.
        Mr. Barton. Mr. DiLenge, as Mr. Davis just said, CMS has
    announced that they're going to reverse their earlier policy
    and assign a separate HCPCS code for each biosimilar rather
    than have a single payment rate.
        Do you believe that this promotes a more vibrant and
    sustainable market for biosimilars and hopefully over time
    reduces prices?
        Mr. DiLenge. Absolutely. We need to be able to incentivize
    for the reasons that Mr. Davis said. You need to really
    incentivize the biosimilar marketplace differently than you
    would a traditional generic marketplace.
        And so while you have all the generics in the same code and
    that works for that marketplace, it does not work for
    biosimilars. It won't spur the investment.
        I talked earlier today about the investment that's required
    for all types of innovation but biological innovation in
    particular is very, very expensive and you need to have the
    right incentives, and the Federal Government, the way they
    code--it sounds really arcane, coding, but it actually does
    impact what investors think about going into markets.
        Mr. Barton. OK. Thank you, Mr. Chairman.
        Mr. Burgess. Gentleman yields back. Chair thanks the
    gentleman.
        Chair recognizes the gentleman from Oregon, Dr. Schrader, 5
    minutes for your questions, please.
        Mr. Schrader. Thank you, Mr. Chairman. Very good hearing.
    Probably should have a follow-up, given the breadth of the
    group in front of us here.
        At the outset, I am not someone that blames the
    pharmaceutical industry or the supply chain for the problems we
    are seeing. This is just an outgrowth of industry developments
    and the innovation that's out there, as pointed out, a lot of
    the starts on these innovative drugs fail--90 percent failure
    rate.
        That's not generally a good business model. But these guys
    do it because they care about the marketplace and there,
    hopefully, is a profit to be made at some point in time. I
    would remind everybody that pharmaceuticals are not the highest
    cost in our health care system. But at the same time, they are
    one of the fastest rising costs and my guess is they will
    continue to increase in cost because of the tremendous
    excitement and innovation in precision medicine. It's
    wonderful.
        As a little old country veterinarian that I had to do and I
    now look at as almost a barbaric kind of way are going to be so
    refined that people will not have some of the great side
    effects that we see today in the marketplace.
        But having said that, we are also stewards of the taxpayer
    dollar and as things get expensive and we have this wonderful
    opportunity in this country and hearing everybody talk about
    innovation that's now occurring in particular in this country
    that's great.
        But we have to be able to afford things, and therefore we
    have to ask some tough questions and hopefully work on how do
    we all together make this medication at least slightly more
    affordable to the taxpayer and, frankly, to folks in the
    individual marketplace also.
        So having said that, Mr. Davis, can you talk to me a little
    bit about the REMS issue and restrictive access abuse--that
    sort of thing. Why, in particular, do we need an effective
    enforcement mechanism to address that?
        Mr. Davis. Congressman, thank you for the question and I
    would be remiss if I didn't start by thanking you for your
    leadership on this issue as well as Congressman Welch.
        It's important because--let me start with--REMS was created
    in 2007 as part of the reauthorization for the prescription
    drug user fee program then, and REMS, in terms of ensuring
    patient safety is a very important program.
        The original statute--the authorizing statute--also said
    that REM should not be used for the unintended consequences of
    delaying competition from generics.
        The challenge we have is that's exactly what, in many
    instances, it is being used for and the reason that there is no
    remedy for it is because there is no sufficient enforcement
    mechanism in the authorizing legislation from 10 years ago, and
    there have been constant efforts on the part of generic
    manufacturers in 2012 as part of the first generic user fee
    agreement that coincided with the reauthorization of the PDUFA.
        They came very close. There was a provision in the Senate
    version that actually would have remedied this issue. It's 5
    years later and it still exists. And if you want a robust
    biosimilars market and you want to make sure that competition
    gets to market sooner rather than later, claiming patient
    safety issues that have never been documented after the FDA
    certifies generic manufacturers will appropriately handle the
    samples they need to do the pharmacovigilance is just an excuse
    to prolong monopolies beyond their intended effect.
        Mr. Schrader. All right.
        Mr. Merritt, talking about PBMs, I remember a day 20 years
    ago when they were the godsend, if you will, to reducing drug
    prices and having someone knowledgeable deal with the panoply
    of drugs that are out there and getting it.
        I would like to think that still exists, obviously, or
    people wouldn't be using you. There is a supply and demand. The
    reason they use PBMs is because they think they're getting
    value.
        Some insurers had moved away from that a little bit here
    very recently and everyone talks nowadays about this black box,
    and given the fact that you guys have to talk about some of the
    rebates when you are reporting to Part D and CMS.
        Is there a way to inject some transparency in what you do
    without giving away proprietary information in the private
    insurance market?
        Mr. Merritt. Yes. That's a great question.
        Yes, Medicare Part D is a great example because consumers
    have transparency. They choose their plans. They can see what
    the premiums are, what the cost sharing is, what the drug
    selection is of every plan, which is why you have 90 percent
    satisfaction with Medicare Part D.
        I agree with something Dr. Harmon said. It would be nice if
    there was that transparency in the doctor's office so people
    weren't surprised--the physician, the pharmacist, and the
    patient--as to what a drug actually costs a patient because
    Lori is correct, the cost sharing is different for different
    plans because different plans have different goals and
    different populations.
        So if there was electronic prescribing and doctors and
    patients seeing what the actual out-of-pocket costs were in the
    doctor's office I think that would really help.
        Mr. Schrader. Very good. Well, I've got a ton of questions
    probably like everybody else here and I appreciate all the
    participants on the panel.
        I guess, Mr. Chairman, it'd be nice maybe to have a work
    group at some point in time, work with all our participants,
    the patient groups also, about what are some of the best
    solutions because I don't think there is a silver bullet here
    that's going to require everyone to get in the boat together
    and figure out how do we make sure we still have the most
    vibrant innovative pharmaceutical market in the world that is
    increasingly doing amazing things, from my perspective.
        Thank you, Mr. Chairman. Yield back.
        Mr. Burgess. Chair thanks the gentleman. Gentleman yields
    back.
        Chair recognizes the gentleman from Illinois, Mr. Shimkus,
    5 minutes for questions, please.
        Mr. Shimkus. Thank you, Mr. Chairman.
        This is a great panel. Appreciate you all being here. I
    would recommend that we break it down. There's too many--
    because I think all of us want to talk to each one of you.
        I know you can all come and visit with us but to have that
    interaction. Some of you are going to get lost in the shuffle
    and we apologize for that.
        I've spent a lot of time in this health care arena on
    orphan drugs, on antibiotic resistance. So and I, like some of
    my colleagues, understand the 90 percent failure rate,
    understand the R&D.
        We want to make sure there is a return. We are the
    innovators in the world but we just have to be careful.
        And then we've got these--how do you provide lifesaving
    drugs to a small population that you can't get a return just
    from selling that drug to that individual. So that's all part
    of this debate.
        The antibiotic thing, which Gene Green and I have worked
    on, we are floating tradeable vouchers somehow, having the
    company get some way to get a return on that so that they can
    have a ready-made supply of something which you, hopefully,
    don't have to use. Can you imagine asking a company to have
    something on the shelf that you hope you don't use?
        So that's why you all are there for the right reason,
    trying to make the system work. I really do appreciate it.
        This transparency debate is also key. It gets us frustrated
    and you just talk about drug prices in a hospital setting, but
    the hospital has a federal mandate called EMTALA--emergency
    room. Anybody can go.
        High cost--how do they balance that versus an outpatient
    clinic that doesn't have that mandate of that service? I think
    you always win with being transparent and then you help educate
    the consumer, and then the consumers say, well, that's why I
    have to pay a little bit more because, shoot, the hospital's
    paying for this emergency room access, which they have to do.
        So health care is a most challenging and frustrating
    payment process that we have and many years I tried to stay off
    this committee because I didn't want to deal with it. They kept
    throwing me back on so I am stuck with it.
        [Laughter.]
        But I really want to talk to one provision too that I hear.
    I want to go to the local pharmacist. I think one provision
    that just really gripes me is this clawback issue.
        So here's what happens. Doctor gives a prescription to a
    patient. A patient goes to a pharmacist. They pay the
    transaction or the insurance, and then months later tell me
    what happens. It's hard to believe.
        Mr. Hoey. You're leading right up to it, Congressman,
    exactly to the punch line. So months later, the money that the
    pharmacy collected from the consumer is taken back by the
    insurance plan, or the PBM.
        So for----
        Mr. Shimkus. And the drug probably has already been
    consumed.
        Mr. Hoey. Hopefully it's worked and that patient is doing
    fantastic on it. But the payment is still in play.
        So the pharmacy basically is forced to act like a mule to
    take the money from the patient and then that money is clawed
    back from the pharmacy to the health plan or the PBM.
        Mr. Shimkus. Can someone tell me why? Can someone defend
    that practice? Do you really want to try?
        Mr. Merritt. No. No, we don't defend the practice. It's an
    outlier behavior. It's something that is outlier behavior in
    the industry and we understand frustrations on that. And to the
    degree it exists, it exists rarely and hopefully more rarely in
    the future.
        Mr. Shimkus. Well, when our local pharmacists come to see
    us, especially the community-owned small ones, they show us.
    They show us the bill.
        They show us the receipt, so I hope that people are
    listening to the hearing and saying, we got to fix this.
    Because it's just not right to offer a service, pay the cost
    and then for someone else later on to say, oh, you got to give
    us money back because whatever parameter. It's not truth in
    advertising.
        It's not truth in billing, and I am tired of it. I really
    am--and I hope it gets fixed.
        With that, Mr. Chairman, I am going to yield back before I
    get more angry.
        [Laughter.]
        Mr. Burgess. The chair thanks the gentleman. The chair
    would remind the gentleman that he was the ranking member of
    this subcommittee when we were in the minority and I was down
    on the first row. So he's got a lot of time in service here.
        [Laughter.]
        Chair recognizes the gentlelady from Colorado, Ms. DeGette,
    5 minutes for questions, please.
        Ms. DeGette. Thank you, Mr. Chairman.
        Over the last 6 months, as many of the these panelists
    know, I've been working with Congressman Tom Reed, who is my
    co-chair of the Diabetes Caucus on what's going on with insulin
    prices around drug pricing.
        And what we've learned across the whole drug chain is that
    there is a lack of transparency, which we've been talking about
    a lot in the hearing today, and we've also learned that there
    is a lot of finger pointing, which we've also seen in this
    panel today.
        It's kind of good. It's frustrating to have 11 witnesses
    but you hear all of that. And so I want to kind of focus on
    this issue of the complex web of financial and contractual
    relationships between the players here with the idea that maybe
    we can get to some more transparency and the ultimate goal
    being to help the patients.
        Ms. Reilly, I heard you talking about your view of how the
    market is working in your opening statement and I agreed with
    almost everything you were saying but you left one thing out
    and the thing you left out is why the price of insulin is $400
    to begin with.
        Now, I know there are a lot of different delivery systems.
    There's a lot of different kinds of insulin. We've moved away
    from the animal insulin. We don't have a generic yet, although
    that's coming soon, et cetera, et cetera. But some would say
    it's not just the other players. PhRMA has a role in this, too.
        So I want to ask you and two other witnesses a very simple
    question as we go forward, and that is this. Will PhRMA, AHIP,
    and PCMA each agree to work with your member companies to share
    information with us about your contract with other supply chain
    players including sharing specific examples of contract terms?
        Obviously, I don't want to undermine confidentiality. But
    until we know what the contract terms are it's really hard for
    us to get that transparency.
        Yes or no, Ms. Reilly.
        Ms. Reilly. Well, we as----
        Ms. DeGette. Yes or no would work.
        Ms. Reilly. I don't have access to those contracts,
    Congresswoman.
        Ms. DeGette. Can you work with your members to try to get
    us that information?
        Ms. Reilly. You could probably work independently with
    them. As a trade association, we cannot be privy to
    confidential information.
        Ms. DeGette. You're not going to help.
        OK. Mr. Merritt, can you help us with that?
        Ms. Reilly. It's a violation of anti-trust.
        Mr. Merritt. Yes. Yes.
        Ms. DeGette. OK. And Mr. Eyles, can you help us with that?
        Mr. Eyles. Yes.
        Ms. DeGette. OK.
        Now, I was listening with great interest to Mr. Guthrie's
    questions about the PBMs and I want to ask you a couple of
    questions, Mr. Merritt, about this because I heard you say that
    the rebates always go back to the consumers.
        But I know from my investigation they don't always go back
    to the consumers in the form of lower drug prices. Isn't that
    correct? Yes or no.
        Mr. Merritt. Well, yes in the sense that----
        Ms. DeGette. Thank you.
        Mr. Merritt. No, but we give the rebates to the plans and
    then they sometimes----
        Ms. DeGette. Right. But they don't always go back in the
    form of lower drug prices.
        And so I want to ask you sometimes the PBMs actually make
    money off of the rebates paid by the pharmaceutical companies.
    Is that correct?
        Mr. Merritt. That totally depends on the client. The
    client----
        Ms. DeGette. But it could happen, right?
        Mr. Merritt. If the client wants that to be that way.
        Ms. DeGette. Yes. That answer is yes.
        Now, my understanding is that some of your member clients
    pass some but not always all of the rebates onto their
    insurance or employer clients. Is that correct?
        Mr. Merritt. It's determined by the insurer but----
        Ms. DeGette. Right. That's correct. Some do, some don't.
        Mr. Merritt. A hundred percent of the big employers
    requires 100 percent pass-through of those rebates.
        Ms. DeGette. But not everybody, right? Not everybody?
        Mr. Merritt. Probably because they don't want to.
        Ms. DeGette. Right. Yes. OK.
        Is it true that PBMs sometimes make money off
    administration fees paid by pharmaceutical companies that are
    separate from rebates?
        Mr. Merritt. There are different fee agreements and there
    are different ways that we have to work----
        Ms. DeGette. And so the answer to that is yes, too, isn't
    it? I am sorry?
        Mr. Merritt. Yes.
        Ms. DeGette. Thank you.
        Now, do your member companies sometimes include price
    protection clauses intended to insulate PBMs from drug price
    increases in your contracts with pharmaceutical companies?
        Mr. Merritt. They're intended to insulate our clients from
    price increases.
        Ms. DeGette. And so that answer is yes, right?
        Mr. Merritt. Well, our clients. So I guess it would be that
    was there to insulate our clients from price increases. They
    want those there.
        Ms. DeGette. OK. Member companies sometimes include price
    protection clauses intended to insulate PBMs from price
    increases in contracts in pharmaceutical companies--yes or no?
        Mr. Merritt. I guess it would be no.
        Ms. DeGette. OK. Do these price protection clauses
    sometimes allow your member companies to make additional money
    through clawbacks when a drug's price increases?
        Mr. Merritt. I am not aware of that in the clawbacks.
        Ms. DeGette. Yes. So if a drug price increases they can get
    clawbacks. Ms. Reilly, you were nodding.
        Mr. Merritt. Oh, I see.
        Ms. Reilly. Well, I was--yes, I actually have a document
    right here and it states Express Scripts has more than 90
    percent of brand manufacturer contracts include price
    protections.
        Ms. DeGette. Can I get a copy of that?
        Ms. Reilly. Absolutely.
        Ms. DeGette. And Mr. Chairman, I would like to put that
    into the record.
        Mr. Burgess. Without objection, so ordered.
        [The information appears at the conclusion of the hearing.]
        Ms. DeGette. OK. Mr. Chairman, as you can imagine I have
    many more questions and I apologize for making you answer yes
    or no. We have 5 minutes.
        I am going to submit these to the witnesses and I thought
    the idea that Mr. Schrader had to have a task force is an
    excellent idea.
        Thank you. I yield back.
        Mr. Burgess. Chair thanks the gentlelady. The gentlelady
    yields back.
        The chair recognizes the gentleman from Ohio, Mr. Latta, 5
    minutes for questions, please.
        Mr. Latta. Well, thank you very much, Mr. Chairman, and to
    our panel, thanks very much for being here today. It's been a
    very, very interesting discussion we've been having this
    morning.
        Several years ago, I sponsored the legislation on track-
    and-trace, from making sure that we don't have adulterated
    counterfeit drugs entering the market. So this has been a
    really fascinating hearing that we've been having today.
        And I am also working on legislation right now to modernize
    and reform the FDA's OTC monograph system. I would like to talk
    a little bit more about that to see how we examine ways to
    modernize the regulatory infrastructure of prescription drugs.
        As members, I believe we should always be looking for
    avenues to reduce burdensome regulation, foster innovation,
    spur competition, and provide certainty for consumers and
    businesses.
        And as we go forward, how can Congress help modernize the
    regulatory infrastructure at the FDA in order to bring these
    new medicines to market in a quicker manner? Because we had the
    hearing earlier this fall that was really fascinating to see
    how long it's been going back to 1972 when you are looking at
    45 years.
        So Ms. Reilly, if I could ask you, what can we do as
    members as we look at legislation to help modernize this
    infrastructure at the FDA?
        Ms. Reilly. That's a great question, and I would
    congratulate this committee on recent passage of the
    Prescription Drug User Fee Act, PDUFA and GDUFA as well,
    because that's a significant step forward in terms of
    modernizing the agency. I also think Commissioner Gottlieb has
    done a number of things on his initiative to move this in the
    right direction.
        There are a handful of areas that I think still need
    further work. Combination products--EpiPen has come up on a
    number of comments here before and I think more needs to be
    done to ensure that when we have combination products, be it
    auto injector products like EpiPen that you have got two
    different parts of the agency that need to work more closely
    together so that we can spur competition, get those products to
    market sooner.
        I think innovative clinical trial design is another area.
    As was mentioned before, the medicines that are coming to
    market are very different than the medicines that came 20 years
    ago. And so we need to modernize clinical trial design and the
    regulatory tools that are used to review those products as
    well.
        And then I would say we need to continue to advance
    prescription-focused drug development. Having the patient at
    the center through the process of the Food and Drug
    Administration is vitally important but ensuring that patients
    I also heard as reimbursement decisions and coverage decisions
    are equally as important.
        Mr. Latta. Thank you.
        Mr. DiLenge or--and Mr. Davis, would either of you like to
    comment on ways in which the FDA modernization or increased
    generics on the market would also help benefit our consumers
    and the patients out there?
        Mr. Davis. Congressman, thank you for the question.
        Yes, and then first I would second the recommendations that
    Ms. Reilly made. I think relative to the generic market, again,
    the leadership of this committee to pass the user fee agreement
    for the generics, we are only in. really, at the beginning of
    our sixth year of the user fee program with the FDA. The brands
    had a 20-year head start in many ways.
        So that system is much more refined. I think there is a
    shared both commitment and responsibility between our sector
    and the agency to make sure that we are driving as much
    effectiveness and efficiency through the generic and biosimilar
    approval processes.
        A simple example is first cycle approvals for generic
    applications historically have been very, very low--abysmally
    low. Under the leadership of Dr. Gottlieb, that has already
    begun to change.
        Mr. Latta. Let me ask you this. Why has this been so, you
    know, dismal in the past? What has caused that?
        Mr. Davis. Quite frankly, I think if you look back I would
    certainly say on behalf of our members through the first GDUFA
    implementation the first 5 years engagement between the FDA and
    the industry in the first couple of years as the Office of
    Generic Drugs probably could have been more robust and mutually
    productive.
        By the time the FDA started having goals--associated
    timeline goals associated with approving ANDAs, they were well
    on their way to have already built OGD.
        The aggressive timelines in GDUFA II--8 months for a
    priority review, 10 months for a standard ANDA--will go a long
    way towards enhancing competition, getting ANDAs approved and
    then getting that competition out to the market.
        Mr. Latta. Mr. DiLenge, would you like to comment?
        Mr. DiLenge. I would just completely agree with that. You
    know, we've learned a lot on the innovator side about how you
    improve first cycle approvals by the FDA. That is critical to
    getting even more brand-to-brand competition in the
    marketplace.
        We are doing that now on the innovator side. The generic
    industry, I think, can learn a lot from what we went through
    over the last 20-plus years of GDUFA and really learn with the
    new GDUFA how they can interact with the agency in a better way
    to get more generic drugs through the process quicker on the
    first tray.
        Mr. Latta. Thank you very much, Mr. Chairman. My time is
    about to expire and I yield back.
        Mr. Walden. Would the gentleman yield?
        Mr. Davis. If I could just add one follow-on comment?
        Mr. Latta. Go ahead.
        Mr. Davis. It's critically important for us to get more
    ANDAs approved earlier. Then we also need to make sure that
    there is a market where those holding those licenses will go to
    the market and not be tied up in endless delay through patent
    filings, extensions, evergreenings, and product topping as
    well.
        Where Tom and I would disagree is that is increasingly a
    significant issue that's keeping generics and biosimilars from
    the market.
        Mr. DiLenge. And we do respectfully disagree with that.
    There is really no data to show that.
        Mr. Latta. Thank you. And now, Mr. Chairman, my time has
    expired and I do yield back.
        Mr. Burgess. Your time expired a long time ago. But I do
    need to recognize the chairman for an informational message.
        The chairman is recognized.
        Mr. Walden. Thank you, and with the indulgence the
    committee, I know a couple of members have asked about we need
    to have a work group. We need to have some sort of rump group
    to address this issue.
        Consider yourself on it if you are on the Health
    Subcommittee. That is the job of this committee. That is the
    job of other subcommittees that are looking at other things.
    The O&I Subcommittee is looking at 340B issues, about to issue
    a report.
        But this is where we are going to do regular order right
    here on the Health Subcommittee to look at the issues that you
    all are helping us get a better handle on, and I think there
    may be an opportunity to come back after the 1st of the year
    and continue this discussion.
        It, I am sure, isn't the most fun thing for all of you to
    be at the same table together but it sure helps us, have you
    each go back and forth and tell us your points of view.
        And so I appreciate the committee's indulgence. But the
    notion we are going to have a splinter group go off and do
    something, put a nail in that one because this is the splinter
    group.
        This is the Health Subcommittee. This is the Energy and
    Commerce Committee and we are going to go through regular order
    to get the answers that will work for consumers.
        With that, I yield back, Mr. Chairman.
        Mr. Burgess. I thank the chairman for the observation. This
    is indeed the smoke-filled room.
        The chair recognizes the gentlelady from California, Ms.
    Eshoo, 5 minutes for questions, please.
        Ms. Eshoo. Thank you, Mr. Chairman, and I want to thank
    Chairman Walden for the comments that he just made because it's
    important that the work not only begin here but that the
    Members are responsible for shaping a policy around what we are
    discussing, which is so important.
        I want to thank all the witnesses, all ten of you. Because
    I've listened to most--just about every--well, everything since
    we began, it's a good exercise to just sit still and to listen
    to the questions that are asked and the answers that are given.
        Here are my observations. Number one, and I am proud of
    this--the United States of America and its genius has produced
    lifesaving drugs not only for people in the United States but
    for people around the world.
        So the research, the development that comes out of both the
    biotechnology industry, the pharmaceutical industry are really
    very, very important and I am proud of the work that I've done
    over the years to help advance that.
        I am a firm believer in it. The other observation I have is
    if we were starting from scratch and you all designed the
    system that you are here to talk about today, it really sounds
    like a Rube Goldberg plan, I have to tell you.
        And I don't blame any one of you. You have told your story.
    You're sticking to your story. But the fact of the matter is is
    that it's not working well at all and it's not healthy to have
    the antipathy in the country against you.
        It's a very unhealthy thing. It really is, because on the
    one hand, people need the drugs. We had members speak to their
    own conditions and what they need to take.
        So this is crying out for reform. This is crying out for
    reform. And I think what I would just put you all on notice
    on--about is that we are going to reform. We need to reform. We
    have to answer to our constituents.
        We have to answer for what the costs are in the system that
    we oversee. The Federal Government is the major player and
    payer in the United States of America when it comes to health
    care.
        So there is going to have to be some give and take on these
    issues. Mr. Davis, I just want to say something about REMS.
    Yes, it put into place in 2007 and it was put into place to
    protect patients. You know that.
        Now, the FDA is the one that identifies the issues that
    need to be identified relative to safety and it's why we have
    REMS. One of the drugs that comes to mind is sodium oxybate,
    commonly called the rape drug.
        So you said some things about REMS that I don't think are
    really accurate because the safety relative to these drugs that
    are very, very dangerous if they get into the wrong hands--that
    we all need to gather around that. That's a must.
        That's not a Republican issue, a Democratic issue. It's
    there for a very good reason because those drugs, as I said, if
    they fall into the wrong hands it's dangerous.
        I want to thank pharmacists. I have to tell you, in my
    community in California and Silicon Valley it's very difficult
    to find a small druggist anymore. They're gone. They're gone.
    They're gone. It's all the big guys now.
        And I am not saying that they may not be doing a good job
    for people to get their prescription drugs. But I can't name
    one small druggist anymore, including a cousin of mine that was
    in the business his entire adult life.
        So that says something about money because money is part of
    the business, and I think that that's a real loss in my
    communities and I guess communities in different parts of the
    country.
        And to our friend at the end of the table, I think that you
    are a walking advertisement for the good things we did in the
    ACA because you would not be covered for anything in terms of
    what you are going through were it not for the reforms of the
    insurance industry that we took on in order for you to be
    covered and at least have peace of mind that you have coverage
    and that the lifetime limit caps were lifted as well because of
    the horrendous costs that pile up very quickly when you are
    dealing with what you are dealing with and I wish you well.
        I really wish you well, and thank you for bringing together
    people on a bipartisan basis. We need you to work with us and
    congratulations on not being dependent on the money of anyone
    that's involved in the industry because it then actually, I
    think, diminishes or brings questions to the effort.
        So thank you to all of you and those are my observations.
    But I think that they more than hint at the work that we need
    to do because this is--if there were a chart that was brought
    into the hearing room today, starting with the top--research,
    development, and then where it goes and who's involved at every
    level--it would outdo Johnny Carson's roadmap that he used to
    point to.
        So thank you, Mr. Chairman, and I look forward to being a
    part of the solution at this committee relative to the cost of
    drugs in our country.
        Mr. Burgess. Gentlelady yields back. Chair thanks the
    gentlelady.
        The chair recognizes the gentleman from New Jersey, Mr.
    Lance, 5 minutes for your questions, please.
         Mr. Lance. Thank you very much, Mr. Chairman, and my
    thanks to the panel.
        Ms. Reilly, CMS recently announced in a proposed Part D
    rule that it wants to require Part D sponsors to pass through a
    portion of manufacturer rebates and pharmacy price concessions
    at the point of sale.
        What is the ideal way in which you think this should
    function?
        Ms. Reilly. Well, thank you for the question and I think it
    is important and this is an important step I think that CMS is
    asking for information on this very issue.
        I think when Part D was originally designed the notion was
    just that, that the discounts and rebates that are negotiated--
    and they are significant in Part D--they're larger than in the
    commercial marketplace--find their way back to patients at the
    point of sale.
        Today, those dollars are used by health plans and not
    disagreeing with keeping premiums low as an important goal. We
    believe, however, in work that we've done that not only could
    discounts and rebates get passed back to patients, that we
    could do it in a way that actually saves the government money--
    upwards of $20 billion over 10 years if we are able to pass
    those discounts back to patients because it will delay the time
    in which a patient enters the catastrophic phase of the benefit
    where the government picks up a large share of the cost and it
    will also lower the amount that the government is paying for
    low-income subsidies.
        I think the proposal that was put forth in the CMS request
    needs some fine tuning. They talk about pass-through of
    discounts through a class of medicines.
        We think it actually would work better if it was done on an
    individual product basis because, quite honestly, companies are
    not all that interested in providing greater rebates if they're
    going to be enhancing their competitors.
        Confidentiality is important, I think, to make this work.
    But I would argue this is a good step forward and could be
    transformational into changing some of the misaligned
    incentives that exist in the system today that, again, as CMS
    has previously noted, encourages insurers to pick drugs with
    high list prices and high rebates.
        We want them competing on delivering drugs that provide the
    best value at the lowest net price and this is a good step in
    that direction.
        Mr. Lance. Would anyone else on the panel like to comment?
    Yes, sir.
        Mr. Merritt. You do see some point of sale rebates
    happening in the commercial market where you have the whole
    health plan want to say, hey, look, we will raise premiums
    slightly in order to do that.
        We are seeing that happen there. In Medicare it's difficult
    because CMS has noted this would raise cost to taxpayers by
    about $80 billion and would increase premiums for patients. And
    the reason that happens is because Part D reimburses plans
    based on the premiums, and if the premiums go up so does the
    cost to the government.
        And so I think when you think about point-of-sale costs you
    shouldn't think about it in terms of reducing costs overall. It
    doesn't reduce costs overall.
        It just shifts costs to taxpayers if it's done wrong in
    Medicare and from healthy people to sicker people who need the
    medications and that's a policy decision as to how CMS wants to
    approve it--look at it.
        One thing CMS said is if they do approach this, they want
    to do it in a cost-neutral way. I think that's the thing that
    we are working on right now is trying to figure out how that
    would even happen.
        Mr. Lance. Thank you.
        Yes, sir.
        Mr. Hoey. Congressman, we would say that the rebates allow
    for shell games to be played and because of the rebates those
    are often an unreliable--we do support pass through to the
    point of sale.
        However, we believe that it enables shell games if it's not
    properly monitored and already we are starting to see rebates
    being relabeled.
        So what was a rebate yesterday is no longer a rebate. It's
    an administrative fee. It's some different category so it
    doesn't fall into that rebate bucket.
        So there is a lot of shapeshifting going on that further
    complicates the pricing of the product.
        Mr. Lance. And whose responsibility should it be to make
    sure that that does not continue to occur? Does that require a
    statutory change or purely a change from the executive branch,
    in your judgment?
        Mr. Hoey. I think it would require a statutory change for
    that to happen. I do not think that the--that CMS--I can't
    speak for them, of course, but I don't know that they would say
    they have the regulatory authority to really police that.
        Mr. Lance. Mr. Mitchell, you wanted to comment?
        Mr. Mitchell. Yes, Congressman, if I may, please.
        I just want to bring it back to the patient impact of those
    out-of-pockets paid on retail rather than rebate. The 12
    highest out-of-pocket costs for drugs on Medicare Part D
    annually range from $4,400 a year to almost $12,000 a year.
        This really hurts people whose median income is around
    $26,000 a year. We need to fix something in the system and the
    proposal from the Trump administration to allow the point-of-
    sale price paid by patients to be based on rebate if not retail
    is a good step in the right direction.
        It will move some money around unless you change benefit
    design. But we think the tradeoff is great to help people who
    are bearing the greatest burden and spread it a little more,
    even though it may have a slight premium impact.
        Mr. Lance. Well, thank you. I got through one of five
    questions and I am already over time.
        I yield back. Thank you.
        Mr. Burgess. Chair thanks the gentleman.
        The chair recognizes the gentlelady from Illinois, Ms.
    Schakowsky, for 5 minutes for questions, please.
        Ms. Schakowsky. Thank you for holding this hearing today,
    Mr. Chairman.
        I think it's long overdue that this subcommittee and
    committee work on skyrocketing drug prices.
        AARP reported that in 2015 the average drug price was
    $13,000 per drug for a year's supply and that's almost a
    quarter of the median U.S. household and four-fifths of the
    average Social Security benefit.
        Now, of course, not all of that money is out-of-pocket
    costs. But somebody ends up paying.
        Mr. Eyles, I want to ask you a question. Does the insurance
    industry have meaningful input into the list price?
        Mr. Eyles. No. We don't have any input into the list price.
        Ms. Schakowsky. And does the insurance industry have any
    information about what the various factors that go into it
    including how much spending goes to research and development?
        Mr. Eyles. No, that's not reported.
        Ms. Schakowsky. So let's take Sovaldi for a minute. Gilead
    bought Sovaldi for about $11 billion, investing zero dollars in
    R&D, and made about $11 billion in year one by jacking up the
    list price to $84,000 per treatment--per cure, really.
        We learned this from Dr. Gerry Anderson, professor of
    public health at Johns Hopkins University. Dr. Burgess hosted
    him at a round table. And according to a Senate investigation,
    we found out that Sovaldi's business model was to reach about
    20 percent of the people with Hep C. There's one out of five
    people who might be able to afford it, and that includes people
    on Medicare. If their co-payment would be $5,000 they probably
    couldn't afford it. And the rest of the people, well, too bad.
        We talked a bit about insulin. Mr. Eyles mentioned the
    decade increase. What I had was about 300 percent including the
    percent--including the period, by the way, that Alex Azar, who
    is now nominated to head HHS, was at Eli Lilly. And we know the
    names of people who died because they could not afford to get
    the insulin they needed.
        So this business model, this idea that we can just jack up
    prices past what people can afford, I wondered if our consumer
    could speak to that for just a minute.
        Mr. Mitchell. Well, it's not just insulin. Insulin prices
    have gone up 300 percent over the past 10 years and it's
    because we have an oligopoly that controls the price of
    insulin. They move their prices in lockstep and they increase
    prices because they can.
        But you should also look at other drugs like multiple
    sclerosis drugs.
        They have increased 500 percent in price from 2004 to 2017,
    and when PhRMA says actually, our treatments are lowering cost
    of care, in 2004 the drugs accounted for 50 percent of
    treatment costs for multiple sclerosis but in 2017 they account
    for 75 percent of treatment costs.
        The drug I was on for 5 years called Revlimid, made by a
    company called Celgene, increased its price this year by 20
    percent. This is a drug that was invented in the 1950s and
    which is being kept off of generic is preventing a generic.
        Ms. Schakowsky. Excuse me, so is your point that there was
    no additional research and development. The price just went up?
        Mr. Mitchell. The price just went up. That's all.
        Thank you, Congresswoman.
        Ms. Schakowsky. Thank you. I appreciate that.
        I want to get to the issue of rebates. Pharmaceutical
    companies talk on TV during these ads that are ubiquitous--if
    you can't afford your drug come to us and maybe we can help you
    and my office, we take advantage of that.
        But I wanted to ask, really, yes or no, Ms. Reilly, do drug
    companies get a tax break for those rebates?
        Ms. Reilly. For the donations, yes.
        Ms. Schakowsky. For the donations. So if you set a list
    price that is up here and then you have a rebate to make it
    cheaper for some, is it the difference between the list price
    and the rebate that is considered a donation?
        Ms. Reilly. I would have to get back to you on that. I am
    not sure how that----
        Ms. Schakowsky. But it could be as much as $100 billion
    because that's what you were saying was about the donation. You
    said $100 billion.
        Ms. Reilly. No, no, no.
        Those aren't donations. A hundred billion dollars are the
    rebates that our companies provide in terms of discounts for
    insured patients, right. That's totally separate from patient
    assistance programs that help patients that lack insurance.
    That's a totally different issue.
        Ms. Schakowsky. How much is that money and--well, I am over
    time. I would like to know how much goes into those programs
    and----
        Ms. Reilly. I would be happy to----
        Ms. Schakowsky [continuing]. How much of a tax break
    companies get for lowering the price.
        I yield back.
        Mr. Burgess. Gentlelady yields back. Chair thanks the
    gentlelady.
        Chair recognizes the gentleman from Virginia, Mr. Griffith,
    5 minutes for your questions, please.
        Mr. Griffith. Thank you all for being here. I have to tell
    you, though, you all have raised my blood pressure today.
    Everybody is saying that this is the problem and that's the
    problem and the bottom line is we have our working group, as
    the chairman said, which is going to be this subcommittee.
        I believe you all need a working group. Because if you all
    don't solve this we are going to come in and come up with an
    answer and it may not be an answer that you end up liking.
        Now, one of the things I've heard today that I do like is
    transparency, and I understand Mr. Mitchell needs the
    manufacturers of the drugs, biologicals, whatever--needs a
    consumer patient advocate, needs the insurance companies out
    there--we all need that.
        We need our doctors. We appreciate that. Love my
    pharmacists. As you all know, I really think they're front line
    folks for health care and most people, at least in districts
    like mine that are mostly rural, they've known their pharmacist
    for years. They trust their pharmacist. They want their
    pharmacist's input, and we appreciate that.
        But here's the question. Without transparency, Mr. Merritt,
    I can't figure out for the life of me why the insurance
    companies can't deal directly with the manufacturers and the
    pharmacists and what value is it that you are adding?
        Because what we've got is a big black box, and we dump the
    drugs in and we got people pointing fingers. And I am not going
    to ask you because that's a question we are going to have to
    answer another day. I only have 3 and a half minutes left.
    That'll take hours.
        But what I am seeing and what the public sees is we've got
    this big black box called a PBM. They're saying they have to
    raise their prices so they can then give you a bigger discount
    and sometimes Mr. Eyles and the insurance companies like that
    and sometimes you like it and sometimes you get rebates back
    and sometimes you take money from the pharmacists back after
    they've already filled the prescription, or the insurance
    company does.
        But it all comes back. For the life of me, if we don't get
    some transparency in there--and there must be something you are
    adding to the system and I look forward to you telling me after
    the meeting in a written form what that is.
        But I think we have to have some transparency so the
    average citizen in the United States understands why it is that
    you all are up here pointing fingers at one another and it
    comes back in big part to what's going on inside that big black
    box called the PBMs.
        Now, that being said, on the clawback, as I call it, or DIR
    fees, as you know, Mr. Hoey, I have a bill in along with my
    friend, Mr. Congressman Welch, and we've introduced a
    bipartisan bill that would put an end to this retroactive
    collection fees from pharmacies.
        And it's interesting because we heard Mr. Merritt earlier
    say that's an outlier. But when I hear from pharmacists in
    Pennington Gap and in Pulaski and in Salem and in all the small
    towns in my rural district with 29 jurisdictions that they're
    having a problem with this, I think it must be the big boys and
    all of my small pharmacies are the outliers who are getting hit
    by this. Has that been your experience?
        Mr. Hoey. DIR fees are prevalent across every pharmacy that
    we know of that does business with Medicare Part D, which is
    every pharmacy. So DIR----
        Mr. Griffith. So it's not an outlier, from your
    perspective?
        Mr. Hoey. No. The consumer co-pay clawbacks, I would not
    call them an outlier. Those are really one PBM that's doing the
    most damage there.
        But DIRs is across the board. It's suffocating independent
    pharmacies and it leads to some of the consequences that the
    congresswoman from California alluded to.
        Mr. Griffith. And it's interesting because they apparently
    do this analysis on Part D. I've been reading through the CMS
    rule analysis and at one point they say, our analysis of Part D
    plan payment and cost data indicates that in recent years,, DIR
    amounts Part D sponsors--that would be the insurance
    companies--and their PBMs actually received have consistently
    exceeded bid projected amounts and in another part of that
    analysis it says that that means it goes to their profit line.
        Mr. Mitchell and the consumers out there aren't seeing all
    that in those savings. That's going to profit. Does that happen
    a lot, Mr. Hoey?
        Mr. Hoey. Oh, absolutely. So the DIR fees--I think the CMS
    analysis from January show that DIR--over $80 billion have been
    paid in DIR fees over the last 6 years. And so where those DIR
    fees are going, some of them may be going to lower premiums.
    Maybe----
        Mr. Griffith. And I suspect some of them are going to lower
    premiums.
        Mr. Hoey. But some of it may not be going to that.
        Mr. Griffith. But here's the problem that the American
    public sees and if I've heard about it I know others have and
    those may ask questions about it as well and that is I've heard
    stories--and they're anecdotal and people don't want me to use
    their names and so forth--where they've gone to their
    pharmacist.
        The pharmacist has told them this is how much it's going to
    cost and as I think it was Mr. Mitchell testified people are
    cutting their drugs in half or not taking all their doses
    they're supposed to, and the pharmacist will say, well, if you
    pay cash and don't use your insurance you can actually get it
    cheaper.
        Because of all the finger-pointing going on down on this
    end of the table as to who's made the prices go up, you are
    actually better off to deal outside the system and just buy it
    for cash. Have you found that to be true?
        Mr. Hoey. That is correct in some cases, and the pharmacies
    that do that are taking their business life in their own hands.
        Mr. Griffith. I understand that. That's why I can't talk
    about it.
        Mr. Hoey. Yes, sir.
        Mr. Griffith. Can't talk about it much. So here's the
    bottom line, folks. If that doesn't say that there is something
    stinking in Denmark, nothing else does.
        We are going to have to work on it and that's why you see
    Democrats and Republicans upset today.
        I yield back.
        Mr. Guthrie [presiding]. Gentleman yields back.
        The chair recognizes Mr. Sarbanes from Maryland for 5
    minutes for questions.
        Mr. Sarbanes. Thank you, Mr. Chairman. Thank the panel.
        I want to thank in particular Mr. Hoey for your testimony
    and for the work of the association. I agree with just about
    everything that my colleague just finished saying and I hope,
    as many members have emphasized today, that the message is
    getting through that on a bipartisan basis we are kind of
    reaching the end of our tether.
        And a lot of it just has to do with trying to catch smoke
    when it comes to how this pricing works. We have the whole
    chain represented here, I gather, and I listened to all your
    testimony as I was navigating the traffic coming in from
    Baltimore this morning.
        So I did listen carefully, and I guess, Mr. Hoey, I would
    be interested--anybody else who wants to volunteer--but
    transparency is a word we hear over and over and over again.
        What are the two or three things--not to set you up in
    direct opposition with Mr. Merritt but what are the two or
    three things in terms of more transparency on the part of the
    PBMs that you would predict the PBMs would scream the most
    about if those provisions were put in place?
        Mr. Hoey. We've talked about some of them as far as the
    rebates. That would certainly----
        Mr. Sarbanes. Yes.
        Mr. Hoey [continuing]. Cause, I think, a great deal of
    consternation. I think also there--on the generic side--and
    Chip mentioned earlier that 90 percent of the prescriptions are
    generic and there are very few rebates for those 90 percent.
    However, they're sort of a de facto rebate that the PBM
    industry has created.
        One of those is through the consumer co-pay clawbacks that
    we talked about. As we indicated, it's not every PBM that does
    that but it's about a third of the market. The second is on the
    MAC prices. So a MAC price is on the generic side and what the
    PBM does is they set a ceiling for that generic price. That
    ceiling can vary from pharmacy to pharmacy, from day to day,
    from hour to hour. So the pharmacy actually has no idea what
    it's going to be paid for a generic product at any time.
        In fact, when the consumer walks in for a prescription, the
    consumer often doesn't know what they're going to pay for that
    generic price, for that generic prescription, the pharmacist
    has no idea, and really, the only entity with the perfect
    information is in the middle and that's the PBM.
        And until the PBM tells the pharmacy what to charge the
    consumer, the pharmacy has no idea what they're going to be
    paid and then what to charge the consumer. And furthermore,
    with DIR prices now, not only does the pharmacy not know until
    it processes that prescription, but it still doesn't know until
    months later when more money is clawed back from it.
        So those practices make it almost impossible to run a small
    business and to predict cash flow, to invest in capital, and to
    hire employees.
        Mr. Sarbanes. I appreciate it. I can't help but see an
    analogy when we talk about how the prices can change from hour
    to hour and, frankly, as the PBMs would say that their role is
    critical and satisfying on demand need for drugs and the more I
    listen to it the more it sounds much like the discussion we
    have of the purchase and pricing of electricity.
        We've been doing a lot of hearings in this committee on
    electricity--modernizing the grid, how purchasing of
    electricity has these middle operators that have to assemble
    the resource and then sell it up the line and so forth.
        So that, to me, is a powerful analogy and, frankly, where
    it gets my head, just to send a shudder through the panel here
    today, is to the idea of regulation approaching a kind of
    utility regulation when you come--when it comes to drugs, which
    are needed by just about every American at some point in their
    life. This is something that traffics in the public space when
    you look at it that way.
        So this is where I come from, and somebody on the
    Republican side said that if the drug supply chain can't be
    improved then we may start out in a place that you don't like.
        But that's where my head is, and with that I yield back.
        Mr. Burgess [presiding]. Gentleman yields back. The chair
    thanks the gentleman.
        Chair recognizes the gentleman from Florida, Mr. Bilirakis,
    5 minutes for questions.
        Mr. Bilirakis. Thank you, Mr. Chairman. I appreciate it.
    Thanks for holding this hearing and I thank the panel as well.
        Quite a few of my constituents bring this up to me when I
    am home on the weekends--what about the importation of drugs
    from Canada? Are they safe? Is it an idea that has merit?
        Why don't we start with Ms. Reilly, please.
        Ms. Reilly. I think there is, unfortunately, a misnomer
    that importing drugs from places like Canada--our belief is
    that oftentimes, particularly when people go on the internet
    and they think they're buying a drug from Canada it often is
    not coming from Canada.
        In fact, in the past when the FDA did its investigation and
    ordered drugs from so-called Canadian internet pharmacies found
    that over 80 percent of them were coming from countries all
    over the world and many of those were not the medicines that
    they purported to be.
        Is it fair to say that if I walked into a Canadian drug
    store today to purchase a medicine would it be safe? Yes, it
    would.
        But the Canadian market is 10 percent of the U.S. market
    and has repeatedly said that they don't intend nor will be
    responsible for supplying the U.S. drug market.
        The idea of importation raises significant concerns from a
    safety perspective. We've heard from every FDA commissioner,
    both administrations going back for over 20 years.
        Trying to guarantee the safety of medicines that are coming
    in from all over the world is near impossible and would
    jeopardize a supply system today that has been remarkably safe
    for Americans.
        Mr. Bilirakis. How about Mr. DiLenge? Do you want to
    comment on that?
        Mr. DiLenge. Yes. First of all, I agree, obviously, with
    everything that Lori said but let me add another dimension to
    this, which is by importing what are you importing? You're
    importing basically price controls on American intellectual
    property that other governments have imposed through their
    negotiations of drug prices.
        They don't negotiate the foreign governments. They impose
    prices because they're single purchasers, and what they are
    doing is, because I talked about it earlier, that vast majority
    of innovation is occurring in the United States.
        They are basically imposing price controls on American
    intellectual property. It should be investigated as an unfair
    trading practice--and we encourage that the Trump
    administration is trying to look at this, finally, as a trading
    practice problem.
        Mr. Bilirakis. Anyone want to weigh in? Maybe there is an
    opposing view.
        Mr. Davis. Congressman, I would just add from the generic
    perspective, and I respect and agree with the safety concerns
    that both Republican and Democratic administrations have found
    through the FDA commissioners, there is a practical effect with
    respect to generics.
        Because we have a more robust market-based competitive
    environment for generics here in the U.S., generics cost less
    in the U.S. than they do in Canada as a market basket. So it
    begs the question why would you be importing something that's
    more expensive there?
        Mr. Bilirakis. OK. Thank you. I will move on to the next
    question.
        Mr. Merritt and Mr. Hoey, CMS recently published their 700-
    page proposed rule for Medicare Part D for calendar year 2019.
    One component was their proposed implementation of the drug
    management program for at-risk beneficiaries from the
    Comprehensive Addiction Recovery Act of 2016--and that was my
    provision.
        This drug management program, or lock-in, as we call it, is
    used in Medicare--of course, Medicaid programs and private
    insurance currently.
        Have you had a chance to review the regulations and what
    are your thoughts on CMS's proposed implementation? We'll start
    off with Mr. Hoey.
        Mr. Hoey. Yes, Congressman, we have had a chance to take a
    look at that and overall we support the way the Part D lock-in
    program is structured.
        We would contrast that on the Medicaid program the
    prescriber and the pharmacy that the patient is locked into is
    chosen by the beneficiary and that's not the situation with
    Medicare. In the Medicare plan it would be assigned by the
    plan. So we are concerned about that freedom of choice from the
    consumer.
        Also, with the Medicaid plan it's administered by the
    state, and the Medicare program it would be administered,
    again, by the plan. So we are concerned about that.
        And lastly, we would be concerned by--since the Medicare
    plan is administering it, any situation where the patient would
    be locked into a plan that also owns pharmacies or they're
    locked into their own mail order pharmacies.
        Mr. Bilirakis. OK. Fair enough.
        Mr. Merritt.
        Mr. Merritt. Sure. The key with protecting at-risk patients
    is to make sure that they're going to one doctor and one
    pharmacy and those two medical professionals are communicating.
        The challenge in the past has been doctor shopping and
    other addiction-related behaviors in which people are dying.
    It's a real epidemic.
        The challenge we see at our first look at this is there are
    too many processes where you can't simply work with a
    particular pharmacy in a local area to a beneficiary and that
    they have 6 months essentially to work the system and not be at
    any particular pharmacy and we think for the at-risk patients--
    not for all patients, not for all drugs--but for at-risk
    patients on things like opioids, that's a recipe for disaster.
        In 6 months people can literally lose their lives, and the
    whole goal of this program, I think, is patient safety and I
    think that's what the president has been talking about, too. We
    do appreciate your leadership on this, though.
        Mr. Bilirakis. Sure. Absolutely. Thank you. I look forward
    to working with you in the future and get it right because if
    we are not safe nothing else matters as far as that is
    concerned.
        Well, I don't have any more time, unfortunately.
        Mr. Burgess. Gentleman's time has expired.
        Mr. Bilirakis. Does anyone want to add something----
        Mr. Burgess. No. The gentleman's time has expired.
        Mr. Bilirakis. All right. All right. All right.
        [Laughter.]
        Mr. Burgess. The chair recognizes the gentleman from
    Missouri, Mr. Long, 5 minutes for questions, please.
        Mr. Long. Ahead of Peter? OK. I didn't realize that.
        Thank you all for being----
        Mr. Burgess. I thank the gentleman for pointing that out.
    But Mr. Welch is not on the subcommittee. Do I have that
    correct? And as a consequence, we will hear from subcommittee
    members first.
        So you are recognized for 5 minutes.
        Mr. Long. I appreciate it. Thank you. Now that I have one
    minute left----
        [Laughter.]
        In 1966 there was a movie, ``Ten Little Indians'' and when
    I look at our ten witnesses here today, all these folks were
    invited to a luxury mountaintop resort where they started
    getting knocked off one by one from an unseen source. Nobody
    knew if it was one of them or who did it.
        So I am thinking that if we had you all go off for the
    weekend and come back, whichever one of you comes back next
    week you'd have the perfect response to all of this and we
    could get this deal settled.
        But it's like Morgan said, everybody's blood pressure gets
    raised on this. But if you think that we are the ones to come
    up with a solution, I hope that we can figure out something
    between then and now.
        Let's see. Mr. Merritt, I am given to understand that
    Express Scripts--one of your members or your members is the
    only or one of the only PBMs that have implemented a
    comprehensive opioid solution.
        I myself have three friends that I grew up with that have
    all lost children within the last few years to this opioid
    crisis and to combat the devastating impact of opioid abuse,
    which includes, according to this, a 7-day fill, enhanced
    fraud, waste, and abuse prevention with providers and
    pharmacies as well as disposal bags for medication waste.
        Can you tell us a little bit more about this program and
    when your other member companies will be initiating similar
    programs?
        Mr. Merritt. Well, let me talk about it as an industry as a
    whole, and I do really appreciate those moves by Express
    Scripts.
        I think what we see is that we are able to identify or the
    PBMs are able to identify people who are at risk. You can look
    at people who try to get the same scripts filled at multiple
    pharmacies, have gone to the same doctor to try to get multiple
    prescriptions.
        You can track drug stores that have unusual dispensing
    patterns or--which aren't many but they do exist--and then
    providers or physicians who have unusual practices of
    prescribing and with that information you can identify at-risk
    people.
        It really is important to do the most important thing with
    any addiction is to limit the supply and have monitoring, as we
    were just talking about with Congressman Bilirakis, of medical
    professionals.
        And, again, this is not for regular people who don't have a
    problem. This is for at-risk people on particular drugs.
    Express Scripts has done a lot on that regard. We do see that
    happening in the industry more.
        We are supporting electronic prescribing legislation right
    now, which would require these drugs to be electronically
    prescribed by physicians to a certain pharmacy so that safety
    could be improved. But, you know, we do see our industry taking
    a lot of good strides in this.
        Mr. Long. In my state of Missouri we don't have a drug
    registry. We are, I think, the only state that doesn't have it.
    Our governor has tried to implement that but it hasn't really
    gotten off the ground.
        We are down in the southwest--at least my district,
    southwest corner of the state joining Arkansas, Oklahoma, and
    Kansas, and the doctors that work the late shift on Friday
    night and Saturday night in these ERs, folks will come up from
    Arkansas, Kansas, over from Oklahoma--we are very close to all
    those states--and their Dr. White is always retired. Dr. White
    retired in Arkansas and I really need my opioids.
        So they'll come in and they'll want to get their
    prescription filled. Well, guess what? That doctor has got two
    choices. He can fill that prescription or, according to
    Obamacare where you have to rate your physicians, the doctor
    can say, I am not going to fill this prescription for this guy.
        I know that he's addicted to it and he needs help but he
    doesn't need me to prescribe this. So he doesn't fill it then
    the guy rates him down on his rating and then he's no longer
    able to--so it's a huge problem.
        So anything that you can share that you can help us with in
    that regard. Like I said, being the only state that doesn't
    have the registry it's--and being right down in the corner
    where you get three other states that all do and all the folks
    come in on the weekends, Friday, Saturday night, fill up the ER
    begging these doctors for their opioids.
        Ms. Reilly, real quickly, some call for government
    negotiation in Part D, framing the issue as if there is no
    competition in the marketplace or negotiation happening now
    when nothing could be further from the truth.
        Can you tell us about the current role in negotiating the
    Part D program and how that's been responsible for bringing
    down prescription drug costs?
        Ms. Reilly. Absolutely. I think Part D has been the model
    of success with regards to competition. Today, as I mentioned
    before, those three large pharmacy benefit managers, they buy
    on behalf of 70 percent of all prescriptions in this country
    and they move their market leverage whether they're buying on
    behalf of Medicare beneficiaries are those in the commercial
    market to put additional cost pressure. They've done it in such
    a way where we've had high beneficiary satisfaction. Costs of
    the program are half of what they were expected to be when
    Medicare Part D passed and premiums have been low. In fact,
    there was an amendment offered in this very committee to try
    and set premiums at a price of around $50. That's never even
    gone into effect. We've never had an average premium that high.
    I think that speaks to the testament of the private market
    where there is a significant amount of competition.
        We talked earlier today--I think the evolution of the Part
    D program is to ensure that that robust competition and those
    rebates that are collected get passed back to the beneficiary
    to lower patient out-of-pocket costs.
        Mr. Long. OK. Thank you.
        And Mr. Chairman, I don't have any time but if I did I
    would yield it back.
        Mr. Burgess. Chair thanks the gentleman. Gentleman yields
    back.
        We have been in this hearing a long time and my goal is to
    proceed without taking a break because then we will have votes
    on the floor in a little while and they'll want to have to then
    delay things.
        But if anyone does need to take a quick break if you will
    just do so quietly and then join us back and I think the
    committee would understand.
        So with that, I will recognize Mr. Bucshon of Indiana 5
    minutes for questions, please.
        Mr. Bucshon. Thank you, Mr. Chairman.
        Mr. Nickels, you seem kind of lonely there. No one has
    asked you any questions so I figure I might as well do that.
        [Laughter.]
        Mr. Nickels. Thank you.
        Mr. Bucshon. Yes. You mentioned 340B. It's a program that I
    support. I have a lot of rural hospitals that really depend on
    it.
        But I am concerned about the dramatic expansion of the
    program since the Affordable Care Act, and I want to make sure
    that the program is being used for its original intent.
        And in that vein, I want to first remind everyone what the
    definition of a grantee is so that we know what the question
    is. Grantee eligible for 340B include black lung clinics,
    comprehensive hemophilia diagnostic treatment centers,
    federally qualified health centers, Native Hawaiian health
    centers, Ryan White HIV/AIDS program grantees, et cetera. You
    understand what grantees means.
        So what I would say is in the interest of making sure that
    the program is being used for its original intent, would you be
    supportive of reporting requirements for hospitals similar to
    what 340B grantees are required to support, such as providing
    the number and percentage of individuals who are dispensed or
    administered 340B drugs disaggregated by insurance status, and
    the aggregate amount of reimbursement received for drugs
    purchased under 340B and/or provide contracts that would verify
    that a hospital meets the legal criteria for 340B eligibility?
        Mr. Nickels. Thank you very much for the question, and to
    your point, 340B is a very important program to your hospitals,
    to rural hospitals throughout the country.
        It's worth noting that the expansion of the 340B program,
    which occurred in 2010, did expand largely to rural hospitals,
    to children's hospitals, and to cancer hospitals. So the
    dramatic increase has been because of the additional----
        Mr. Bucshon. Fair enough. Approximately half the hospitals
    in America are participating at this point, right?
        Mr. Nickels. Right. Right. Right. Many of which----
        Mr. Bucshon. Which means half the hospitals in America must
    be in rural areas.
        Mr. Nickels. Well, actually almost half are in rural areas.
    That's correct.
        Mr. Bucshon. Yes. OK.
        Mr. Nickels. But also remember that cancer hospitals,
    children's hospitals, and then DSH hospitals also qualify for
    the program. So it's more than just rural.
        Mr. Bucshon. So the question is, it seems to me if
    grantees, the ones I described, have--and it's complicated, I
    understand that--have requirements to justify their
    participation in 340B that it would only seem fair that pretty
    much every participant in the program should be able to show
    that they're benefiting low-income citizens, hospitals that
    can't buy expensive cancer medicine.
        And so the question stands. Do you all support that type of
    a change? Because right now, as you probably know, in the law
    it doesn't really prescribe that you have to justify where the
    money that you save is going and the reality is, in order to
    make sure, from our standpoint, that the program is being
    utilized properly we need that information.
        Mr. Nickels. Right. So you are correct. The eligibility for
    the program is in statute and not based on anything else. So
    there is subsets of my membership those are the ones who
    qualify.
        Having said that, we think they should all continue to
    qualify, but I do agree that further transparency in terms of
    where the dollars go is something we are certainly willing to
    discuss with the committee. We've been discussing it with HRSA
    for many years.
        Mr. Bucshon. Right. That's the point--you are discussing it
    for many years but we are not getting to an end point. So the
    question is it's yes or no. You support transparency and this
    type of thing or you don't.
        I understand the strategy if you don't support it is to
    draw this out for--until we give up and decide not to try to
    change the law. It's an up or down question to me.
        I am all about transparency. I was a heart surgeon before.
    I asked my hospital that I worked at once, hey, what's the
    actual cost to do--a patient comes in, goes to the cath lab,
    gets a cath, goes to the OR, I do a three-vessel bypass
    surgery, what's the cost, and they said, well, we can't tell
    you that. And, honestly, they probably couldn't, necessarily.
        So I am all about transparency. If the consumer knows, if
    the public knows, what's wrong with that?
        Mr. Nickels. Right. No, I would say we are certainly in
    favor of increased transparency, but not in favor of changing
    the statutory qualifications for the program that would result
    in rural hospitals being thrown off the program.
        Mr. Bucshon. Well, that's not what we are trying to
    accomplish.
        Mr. Nickels. But if you want to talk about transparency----
        Mr. Bucshon. It's the hospitals in rich suburban areas that
    are participating, that are buying up medical practices outside
    of their urban area and then adding all of those practices of
    the 340B program that I am concerned about.
        Mr. Nickels. Right. And, again, those hospitals though
    still do have to qualify for the program based on the
    definition.
        Mr. Bucshon. OK. Fair enough.
        Mr. Nickels. But I do want to answer your question, which
    is yes, we are willing to discuss transparency and try to work
    on that with you.
        Mr. Bucshon. All right. Fair enough.
        I yield back.
        Mr. Nickels. Thank you.
        Mr. Burgess. Chair thanks the gentleman. Gentleman yields
    back.
        Chair recognizes the gentleman from North Carolina, Mr.
    Hudson, 5 minutes for questions, please.
        Mr. Hudson. Thank you, Chairman Burgess and Ranking Member
    Green, for holding this important hearing today. Thank you for
    all the witnesses. I know we've been here a long time. I've
    gone to the bathroom four times. I haven't seen you all get up.
    So congratulations on your fortitude.
        [Laughter.]
        But I do really appreciate this discussion. I had hoped
    that today we could start peeling back the onion a little bit
    on this complex issue of the drug supply chain and really start
    the process of finding solutions and I think we've really taken
    a really good step in the right direction. I think there has
    been some great discussion back and forth. I know it is a
    challenge to have ten folks at one table.
        But I think the ability to have this exchange has been
    really helpful, certainly for me, and I am excited to continue
    to work on this, Mr. Chairman.
        I would pose this first question maybe to the whole panel
    and whoever is interested in jumping in. But as more and more
    patients gravitate toward this issue that's been discussed
    several times today about people moving toward low-premium
    high-deductible plans, due to the high cost of insurance plans
    available today. Patients need to be educated on how to best
    utilize these plans.
        Numerous studies have come out recently that show patients
    are not engaged in normal shopping behaviors such as discussing
    cost of service, comparing cost and quality services, or
    negotiating the price of services. Because patients are
    responsible for the full cost of their health care before they
    meet their deductible, expensive treatments during the
    deductible period can result in patients not adhering to their
    treatments, resulting in worse outcomes.
        My question to whoever would like to answer this is what
    are you doing to educate patients on the tools available to
    them to lower their out-of-pocket costs specifically as it
    relates to drug treatments before they meet their deductible.
        So, I don't know--Mr. Eyles, I am sure you want to----
        Mr. Eyles. Sure, Congressman. Thanks for the question
    because it's a really important one, particularly how we engage
    patients and then consumers so that they have the information
    that they need.
        And our members are committed to developing the tools. Most
    of them have very robust web-based tools so that people can go
    on, understand whether their physician is in network or not,
    what the differences are between formularies, co-payments, what
    qualifies for being covered before the deductible.
        So at least for most individuals preventive services are
    covered before the deductible with no cost sharing so that
    people can go and get their annual physicals and understand
    what's available to them.
        One of the challenges that we have, for example, with high
    deductible plans that are paired with a health savings
    account--and, again, our members are very supportive of that--
    are some limitations on the ability to cover services that
    would be defined as preventive ahead of time. So we think there
    are some important modifications that we could make to HSAs to
    improve them, make them better.
        But our members are committed to having very robust tools
    so that people understand cost, quality, and the status of
    their providers.
        Ms. Reilly. I would just also add, and I would agree with
    Matt's comment about the need for a clarification in the IRS
    guidance to ensure that to the extent employers and others what
    to be able to offer a high-deductible plan with a health
    savings account that they can offer preventative services,
    things like diabetes medicines before the deductible.
        I think the other important piece is we know from all of
    the literature that patients pick a plan based on premium
    price, and the lower the premium the higher the likelihood they
    gravitate towards those plans.
        What they don't often realize is by signing up for a low-
    premium plan they're signing up for a plan with a deductible
    that may be as high as $5,000 and that they will be responsible
    for all of the costs until they hit that point.
        One of the things that we pushed the previous
    administration on is to develop an out-of-pocket calculator
    similar to what exists in Medicare Part D where an individual
    can enter the information what drugs am I on, what physician do
    I use, so that they can get a real-life calculation in terms of
    what their costs are going to be depending on the plan that
    they pick.
        We don't really have that yet today for the exchange plans
    and I do fear that oftentimes people end up buying plans which
    are not in their best interest, that aren't going to cover the
    medicines they need, where their doctor is not in-network, and
    that's a problem and needs to be improved, and transparency
    that allows patients to make better choices should absolutely
    be paramount.
        Mr. Hudson. Mr. Hoey, did you want to jump in or anybody
    else?
        Mr. Mitchell. I would just add those are both good ideas. I
    had a patient contact me over the weekend who's taking an
    expensive subcutaneous drug for her cancer. The price went up
    $1,400.
        She said, I can't get anyone to explain to me why. I don't
    know who raised my price--my doctor, my insurer, the drug
    company. All of what Ms. Reilly just said needs to be done but
    there needs to be a way for patients to get their questions
    answered.
        It could be online. It could be on the phone. But the
    system is impenetrable for us and somehow something that
    approximates what happens in other industries where customer
    service is important needs to manifest itself on drug pricing.
        Mr. Hudson. Anybody else want to jump in?
        Mr. Hoey. As far as at the counter that's one area where
    pharmacists--we are sort of a rare breed in that we know the
    cost of the drug in some cases. We don't know when we are going
    to get paid but we know the cost of the drug and we know the
    therapeutic effectiveness of it.
        So we can often help the patient, kind of guide them
    through, especially when they're hitting prior authorizations
    that Dr. Harmon mentioned or some of the other hurdles that
    they hit at the counter. We can sometimes help them with that,
    especially in those high-deductible plans.
        Mr. Burgess. The gentleman's time has expired.
        Mr. Hudson. Guess I should have paid better attention, Mr.
    Chairman. I apologize.
        Thank you for the answers.
        Mr. Burgess. Well, the only reason I interrupt is the
    gentleman from Georgia, who has been very, very patient, and
    the gentleman from Georgia is recognized for 5 minutes for
    questions.
        Mr. Carter. Thank you, Mr. Chairman, and thank all of you
    for being here today.
        Mr. Merritt, I will start with you. Quite often,
    pharmacists are complaining about the fact that they're being
    threatened for mailing or delivering drugs by the PBMs because
    the PBMs own their own mail order pharmacies.
        As you well know, pharmacies get contracts from PBMs unless
    it's a closed network and they can either accept that contract
    and the terms of that contract or they can't.
        If they accept it, then they can service the patient. If
    they don't, then they can't service the patient and that's what
    they're left with.
        Just a yes a no answer, if you will, Mr. Merritt--do you
    agree that pharmacists should be able to tell patients that if
    they pay cash for a medication they can get it cheaper? Yes or
    no.
        Mr. Merritt. Yes.
        Mr. Carter. You do agree with that? Then why is it that
    these contracts that I referred to earlier have gag clauses in
    it where it says that if the pharmacist indeed lets the patient
    know that if they pay cash it'll be cheaper, that they could be
    kicked out of this contract and that contract can be
    terminated?
        Why is that? Can you explain that to me? If indeed, as you
    have said earlier, you are in favor of transparency, why are
    the gag clauses in there? Can you explain that to me?
        Mr. Merritt. I don't know, and we as an industry don't
    defend that practice at all. So, we want people to pay the
    lesser of and in fact almost all the plans work together. The
    PBMs work together with what's called lesser of logic so that
    automatically the person will pay the less.
        Mr. Carter. Then why are the gag clauses in there? Why are
    they in there if you truly want to take care of the patient, if
    you truly want them to get their medication why is the
    pharmacist running the risk of being kicked out of the plan if
    they offer this information to the patient?
        Mr. Hoey, do you ever get any of your members complaining
    of this?
        Mr. Hoey. All the time. Our members are intimidated and
    most of the time will refuse to go on the record because of
    basically a business death penalty if they're caught talking to
    media, talking too much.
        Mr. Carter. Mr. Merritt, during the years 2010 through 2015
    CMS has said that DIR growth and rebate growth has grown 22
    percent per year whereas the Part D gross drug costs have only
    increased 12 percent.
        Can you explain why that difference is there? Why the DIR
    has grown 22 percent but the Part D drug costs have only grown
    12 percent? Is there a reason for that?
        Mr. Merritt. Well, DIR--direct and indirect remuneration--
    is an important discounting tool in Medicare Part D. The
    federal----
        Mr. Carter. Can you explain why that difference exists? If
    the Part D costs have only increased 12 percent, why have the
    DIR fees increased 22 percent?
        Mr. Merritt. Remember that--sure, and I understand. The
    PBMs--we get the discounts where we can. We pass them back to
    the plans and the plans use them as they see fit.
        Sometimes usually they want to reduce premiums. They want
    to reduce overall cost sharing. It depends on their individual
    strategy.
        Mr. Carter. And how far do these clawbacks of these DIR
    fees go? Are you aware? How far back do they go? Because I can
    tell you that my wife's pharmacy in March got a bill for
    $10,337 that went back not 5 months but 5 years.
        Now, let me ask you about that. Those DIR fees, did you
    credit the government or the consumer with that? Did you go
    back those 5 years and credit the government? Because what
    happens is this.
        We got a Part D program that has, as you well know and
    everyone on this panel well knows, has a doughnut hole in it.
    Mr. Mitchell, I am sure you are in this. I am sure you have
    Medicare. You pay so much until you get in that doughnut hole,
    then you have to start paying for it. That means that everyone
    out here who buys drugs has to start paying for it if you are
    on Medicare. And when you charge those higher prices--the list
    prices we've been referring to it as--that pushes people into
    the doughnut hole even more.
        Now, listen. It gets even better, folks. What happens next
    is that when you get pushed out of the doughnut hole, guess who
    starts paying for it then? The taxpayer. All of us. We get to
    share in it.
        My question to you, Mr. Merritt, are you sharing that? Are
    you sharing that with CMS to let them know, hey, you need to
    credit them back with this? Are you?
        Mr. Merritt. Yes. CMS is aware of the DIR. They see all
    this information and they've been very clear----
        Mr. Carter. So when my wife's pharmacy got hit for the
    $10,337, this PBM went back and credited CMS with that and went
    back to the patient and said, oh, you shouldn't have been in
    the doughnut hole that quickly--we are going to go back and
    reimburse you that? So I just want to know because she's going
    to ask me tonight about that $10,337.
        I mentioned it was $10,337 because that's how much it was,
    and Mr. Hoey, have you had any other of your members who have
    experienced these type of things?
        Mr. Hoey. Both on the retroactive. We had a call this week
    from a member in the Midwest who went back 5 years, six figures
    on DIRs. Had another one just this year, also in the Midwest,
    one pharmacy taken back over $100,000 in DIRs from, really,
    three different plans.
        Mr. Carter. OK. The last thing I will say is this. All of
    you said we need more transparency and I will tell you, Mr.
    Merritt, I pulled out your mission statement earlier today and
    it says pharmacy benefit managers reduce prescription drug
    costs and improve convenience and safety for consumers. Reduce
    prescription drug costs.
        Mr. Merritt. Right.
        Mr. Carter. How is that working out for everybody? If it
    were working out we wouldn't be here now. If it were working
    out then we wouldn't have had a 1,553 percent increase in
    prescription drug costs since PBMs started--1,553 percent
    increase.
        Mr. Merritt. CMS said the growth was 1 percent last year.
        Mr. Carter. Mr. Merritt, transparency is the key. The most
    immediate, the most significant impact that we can have on drug
    prices is to have transparency.
        Thank you, Mr. Chairman, and I yield back.
        Mr. Burgess. Chair thanks the gentleman.
        Chair recognizes the gentleman from Vermont. Not on this
    subcommittee but we welcome you today and you are recognized
    for 5 minutes for questions.
        Mr. Welch. Thank you very much and thank you for having
    this hearing. I thank the panel. It's very helpful.
        First of all, this hearing is not about the value of the
    pharmaceutical industry. They create life-saving and pain-
    relieving drugs. It is not about trying to stifle innovation.
    Everyone on this panel wants to support that.
        It is about the lack of restraint and the pricing power
    that the pharma industry has that is resulting in immense
    heartache for families, and you can create a life-extending
    pain-relieving drug. But if you kill taxpayers with the price
    then it's not accessible.
        So I want to talk a bit about that. First of all, my
    colleagues have talked about transparency. That's essential.
    The opaqueness of the market works for the benefit of the folks
    pricing it.
        Ms. Gallenagh, you said at the very beginning that the
    whole chain down the line starts with the list price, correct?
    And I think a number of people on the panel agreed with that.
    The pharma companies establish the list price, correct?
        Ms. Gallenagh. Yes.
        Mr. Welch. They have no restraints on what they can do?
        Ms. Gallenagh. I would say that the constraint is only our
    negotiation which, again, our net price is not what we earn,
    right, the list price.
        Mr. Welch. Let me ask you this. Just get some things
    established here.
        When a company creates a product it gets a patent, correct?
        Ms. Gallenagh. Correct.
        Mr. Welch. And it gets a period of exclusivity.
        Ms. Gallenagh. Correct.
        Mr. Welch. It has a monopoly over that product for a period
    of time?
        Ms. Gallenagh. It can sell that particular product. It
    doesn't prohibit competing products that have the same effect,
    for example.
        Mr. Welch. That particular product----
        Ms. Gallenagh. But we see significant competition well
    before patent----
        Mr. Welch. Do you have a problem answering the question?
        Ms. Gallenagh. No, I am just trying to clarify.
        Mr. Welch. That product for which you got a patent is
    something over which you control the price, correct?
        Ms. Gallenagh. We control the price in negotiation with the
    purchaser of the product. Correct.
        Mr. Welch. And the price that you set is based upon meeting
    obligations to shareholders in a return on profit, correct?
        Ms. Gallenagh. It is based on a number of factors--the
    value the medicine provides and the like, yes.
        Mr. Welch. Is it the case that at the end of that patent
    period that it is something given by public policy as incentive
    for doing the research any of your member companies have used
    legal maneuvers to extend that period of original exclusivity
    in the patent?
        Ms. Gallenagh. It's impossible to extend the length of a
    particular patent. The current system works this way as a
    result of Hatch-Waxman.
        Mr. Welch. Hold on a second. Have you ever heard the term
    evergreening?
        Ms. Gallenagh. I have heard the term evergreening. Of
    course.
        Mr. Welch. And evergreening is extending the life of the
    control. Is that correct?
        Ms. Gallenagh. No. Evergreening the----
        Mr. Welch. Has a company in your organizational group, ever
    paid another company in return for not bringing their competing
    product to the market?
        Ms. Gallenagh. Companies have entered into what's known as
    a patent settlement wherein a generic company is trying to
    enter the market before the expiry of a patent.
        Mr. Welch. According to you?
        Ms. Gallenagh. Excuse me?
        Mr. Welch. According to your company. If you pay somebody
    off not to bring their competing product to market, then you
    enjoy----
        Ms. Gallenagh. The generic company----
        Mr. Welch. --the pricing power of that exclusivity perk.
        Ms. Gallenagh. The generic company is trying to bring a
    product to market prior to the patent expiring. There is----
        Mr. Welch. Isn't there an argument over whether the patent
    period is a set period in time.
        Ms. Gallenagh. Absolutely.
        Mr. Welch. Exactly. So----
        Ms. Gallenagh. And it cannot be extended beyond that.
        Mr. Welch. It doesn't take a genius to figure out when that
    period is up. It's called looking at a calendar, right?
        Ms. Gallenagh. Correct. But drug----
        Mr. Welch. OK. So are you familiar with a recent effort by
    Allergan where they took their products and paid the Mohawk
    Indian tribe to take, ``ownership,'' as I understand it, as a
    way of having better defenses against competition?
        Ms. Gallenagh. Yes, I am familiar with that and they used
    that through a process called inter partes review.
        Mr. Welch. Can you give me any other example in the entire
    economy of the United States where the owner of a valuable
    intellectual property would pay someone else to take ownership
    of that product?
        Ms. Gallenagh. That has been used in other--universities
    have used that, yes. It has happened.
        Mr. Welch. And give me a specific example.
        Ms. Gallenagh. I can get back to you on it. But I know
    there are universities that have----
        Mr. Welch. You don't have a specific example now?
        Ms. Gallenagh. I will get back to you. I know it exists.
        Mr. Welch. Is there anyone here who can justify a practice
    where a seller of a product, like a pharmacy, after selling it,
    5 months, 6 months, or a year later has to rebate under a DIR?
    Can anyone justify that? Anyone--business model would it work
    with that situation?
        Ms. Gallenagh. If I understand your question, if you are
    asking whether discounts and rebates are common in industries
    then I would say absolutely. It is very common for industries
    to discount and rebate their products. That's not uncommon.
        Mr. Welch. All right. So the situation that you've been
    describing your company could work with if that happened to the
    pharmacy or if that happened to pharma?
        Ms. Gallenagh. Different issue than what's happening in the
    pharmacy. Absolutely.
        Mr. Welch. So you justify what's happening to pharmacists?
        Ms. Gallenagh. No, I don't justify what's happening in the
    pharmacy. Absolutely not.
        Mr. Welch. All right. Sir, please.
        Mr. Davis. Congressman, I just wanted to add for a
    clarifying point around the patents, you are right, and to the
    point that was made, a finite period of time as to when an
    individual patent is supposed to end.
        There is no such limitation on the number of patents filed
    on a product to extend its monopoly beyond the main ingredient
    patent that was originally filed and the best example of that
    is Humira, which generates the most revenue of any product in
    the U.S. and in the world at $16 billion per year.
        In the 3 years leading up to the main ingredient expiry on
    that drug, that manufacture filed 50 new patents on that
    product. So even if they were ultimately struck down, that
    company continues to enjoy a monopoly while litigation ensues
    and that is why it is so important to maintain the IPR process
    in addition to the court process that we have in federal court.
        Mr. Welch. Yield back. Thank you.
        Mr. Burgess. Gentleman's time has expired. Chair thanks the
    gentleman.
        And I think we've been through the entire subcommittee with
    the exception of your chairman so I am going to recognize
    myself 5 minutes for questions, and I may not take all 5
    minutes because most of the information has been put out in
    front of the public today.
        I want to underscore what Mr. Griffith's line of
    questioning started with and the recent publication from the
    National Academy of Sciences on ``Making Medicines Affordable:
    A National Imperative,'' in the preface of that report, which
    is lengthy, but in the preface they make the statement that
    public concern has reached a tipping point, and they go on to
    cite several examples that may have caused that tipping point
    to have been reached.
        But going further, they say those examples have had a
    sufficient impact on the health of citizens such as to attract
    sustained public attention and concern.
        A September 2017 survey of adult American priorities for
    Congress through the end of the current year found lowering
    prescription drug prices to be the highest ranked above minimum
    wage, reducing the deficit, rebuilding the nation's
    infrastructure, reducing taxes, or any other of the six items
    considered.
        So Mr. Griffith's point well taken and this has been a very
    informative panel. I want to thank all of you and I know there
    have been some differences of opinion. We expected that. In
    fact, we welcome that.
        Mr. Griffith's admonitions that there may be solutions that
    you--you are smarter about this stuff than we are by a lot and
    you may have solutions that you can arrive at, not necessarily
    individually but in collaboration.
        And I would just submit to you that those solutions may
    well be better than anything we or a federal agency can impose.
    But I guess the other side of that is if we are not moving
    towards some solutions to this problem then there likely will
    be some type of action, perhaps not by this subcommittee this
    year, perhaps not by this subcommittee next year, but there
    will be action taken--whether it be by agency or legislatively.
        Now, Mr. DiLenge, I am going to switch gears a little bit.
    I do want to ask you because some of your written testimony is
    actually fascinating--Mr. Nickels, in his testimony, gave us a
    list of several medications that were very high in price and
    one of them was Keytruda and a drug that was developed for
    malignant melanoma, and the United States president who was
    president when I was in medical school--Jimmy Carter--publicly
    disclosed in July of 2015 that he had metastatic melanoma to
    his liver and his brain. And, of course, I thought the next
    story in that sequence was a state funeral.
        However, a year later, he's speaking at the Democratic
    Convention. A year ago or a little bit less than a year ago he
    was at President Trump's inauguration. It is a fantastic
    story--that when Jimmy Carter was elected president I was in
    medical school. That story would not have happened.
        Can you speak to that?
        Mr. DiLenge. Yes. It's just one example of so many
    incredible miracles. There's no other word for what happened
    with Jimmy Carter.
        Mr. Burgess. It's a gift. It's a gift.
        Mr. DiLenge. It's a miracle, and that is what the hard men
    and women who worked in our companies, and again, let me remind
    you all these are mostly start-up companies.
        They are trying to raise capital every day. I will give you
    one quick story of one of our companies right on the cusp of
    success--started in 2002, has raised $4 billion in public and
    private investment and partnerships with larger companies.
        It spent about $2.5 billion so far in R&D. It is hoping to
    get its first approval of a dramatically important drug next
    year from the FDA, and that's after 15 years, OK, of every day
    working. They've had setbacks. They've had to reduce their
    staffs because it's been hard to raise capital throughout that
    whole time period.
        This is the reality of what this body does. When it makes
    public policy it is directly impacting the investment decisions
    that are being made in companies like this one every day--can
    we afford to get that capital, to advance that R&D, to get to
    the next Keytruda. That's exactly what is at stake here.
        Mr. Burgess. And I don't want people to become discouraged
    from hearing this from the information that we've gotten in
    this hearing. I am optimistic.
        There have been people in my office just very recently, one
    with a potential gene therapy for a specific type of blindness
    and one with a therapy for hemophilia. Hemophilia, for crying
    out loud.
        This was never something that I thought when I was in
    training that day we would ever see and it will have a profound
    impact on Mr. Eyles' business because of the ramifications. And
    these individuals also were talking about how do we prepare
    the--whether it's CMS or private insurance--how do we prepare
    the payers for what is in development because, again, I
    consider it a gift to humanity that they are providing.
        Yes, there is going to be cost associated with that, with
    one of these therapies that we're talking about it was a one-
    time therapy so a lot of research and development costs will
    have to be recouped on that one injection or one treatment--
    whatever it is.
        Mr. DiLenge. And I can I just add that, our industry has
    been criticized over the years for basically wanting people to
    be addicted to drugs, right, that we just want chronic
    conditions and we don't ever want to cure people, we just want
    to keep them on drugs for the rest of their life.
        These new biotech miracles are actually going to cure
    people and a lot of them is maybe one-time injections of gene
    therapy. And that is why when you look at the pricing of those
    it's going to be shocking. Let's be honest about that. But the
    value that they deliver is far beyond those prices.
        Mr. Burgess. And some of us have urged to allow the things
    that are in development--to allow discussions with CMS and
    payers before the FDA approval just because of the----
        Mr. DiLenge. Thank you for your work on that, sir.
        Mr. Burgess. Because it is so important.
        And Mr. Merritt, you mentioned something in your response
    to a question. I found it intriguing. I've been a big advocate
    of physician drug monitoring programs or prescription drug
    monitoring programs, I guess I should say, the PDMPs. I know
    it's another layer we put on your life, Dr. Harmon. Apologize
    about that.
        But it is useful to know if someone is getting multiple
    prescriptions. But then you alluded to that with the data that
    you have available you can know who is at risk even before they
    might be identified as a risk to themselves or family or their
    physician.
        So that's pretty powerful information, and I don't know if
    there is a way for you to share with the person who is
    providing the care.
        But I hope we can find a way that your claims data or
    whatever we would call it can actually have a profound
    beneficial impact on what has become a national crisis.
        So, perhaps we will enter into more discussions about that.
    But that was an intriguing thought that you gave us today and I
    appreciate that.
        So once again, thanks everyone, for being here.
        Mr. Green, did you have any concluding thoughts?
        Mr. Green. No, Mr. Chairman.
        Mr. Burgess. Anything else to add for the record?
        I want to thank all of you for your testimony and remind
    members that there are--oh, wait.
        I need to submit statements for the following for the
    record: the American Pharmacists Association, Senior Care
    Pharmacy Coalition, Coalition for Affordable Prescription
    Drugs, National Multiple Sclerosis Society, Express Scripts,
    Alliance for Transplants and Affordable Prescriptions.
        [The information fappears at the conclusion of the
    hearing.]
        Mr. Burgess. Pursuant to committee rules, I remind members
    they have 10 business days to submit additional questions for
    the record. I ask the witnesses to submit those responses
    within 10 business days of the receipt of those questions.
        Without objection, the subcommittee is adjourned.
        [Whereupon, at 1:15 p.m., the committee was adjourned.]
        [Material submitted for inclusion in the record follows:]
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