[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:]
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    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:]
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    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:]
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    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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