    [Senate Hearing 116-267]
    [From the U.S. Government Publishing Office]

                                                           S. Hrg. 116-267

                           DRUG PRICING IN AMERICA:
                       A PRESCRIPTION FOR CHANGE, PART I

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

                                    HEARING

                                   BEFORE THE

                              COMMITTEE ON FINANCE
                              UNITED STATES SENATE

                         ONE HUNDRED SIXTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                JANUARY 29, 2019

                                   __________

    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

                Printed for the use of the Committee on Finance

                                    __________

                        U.S. GOVERNMENT PUBLISHING OFFICE
    22-966 PDF                  WASHINGTON : 2020

    --------------------------------------------------------------------------------------

                              COMMITTEE ON FINANCE

                         CHUCK GRASSLEY, Iowa, Chairman

    MIKE CRAPO, Idaho                    RON WYDEN, Oregon
    PAT ROBERTS, Kansas                  DEBBIE STABENOW, Michigan
    MICHAEL B. ENZI, Wyoming             MARIA CANTWELL, Washington
    JOHN CORNYN, Texas                   ROBERT MENENDEZ, New Jersey
    JOHN THUNE, South Dakota             THOMAS R. CARPER, Delaware
    RICHARD BURR, North Carolina         BENJAMIN L. CARDIN, Maryland
    JOHNNY ISAKSON, Georgia              SHERROD BROWN, Ohio
    ROB PORTMAN, Ohio                    MICHAEL F. BENNET, Colorado
    PATRICK J. TOOMEY, Pennsylvania      ROBERT P. CASEY, Jr., Pennsylvania
    TIM SCOTT, South Carolina            MARK R. WARNER, Virginia
    BILL CASSIDY, Louisiana              SHELDON WHITEHOUSE, Rhode Island
    JAMES LANKFORD, Oklahoma             MAGGIE HASSAN, New Hampshire
    STEVE DAINES, Montana                CATHERINE CORTEZ MASTO, Nevada
    TODD YOUNG, Indiana

                 Kolan Davis, Staff Director and Chief Counsel

                  Joshua Sheinkman, Democratic Staff Director

                                      (ii)

                                C O N T E N T S

                                  ----------

                               OPENING STATEMENTS

                                                                       Page
    Grassley, Hon. Chuck, a U.S. Senator from Iowa, chairman,
      Committee on Finance...........................................     1
    Wyden, Hon. Ron, a U.S. Senator from Oregon......................     3
    Young, Hon. Todd, a U.S. Senator from Indiana....................     5

                                   WITNESSES

    Sego, Kathy, mother of a child with insulin-dependent diabetes,
      Madison, IN....................................................     6
    Holtz-Eakin, Douglas, Ph.D., president, American Action Forum,
      Washington, DC.................................................     8
    Miller, Mark, Ph.D., executive vice president of health care,
      Laura and John Arnold Foundation, Houston, TX..................     9
    Bach, Peter B., M.D., director, Center for Health Policy and
      Outcomes, Memorial Sloan Kettering Cancer Center, New York, NY.    11

                   ALPHABETICAL LISTING AND APPENDIX MATERIAL

    Bach, Peter B., M.D.:
        Testimony....................................................    11
        Prepared statement...........................................    51
    Grassley, Hon. Chuck:
        Opening statement............................................     1
        Prepared statement...........................................    61
    Holtz-Eakin, Douglas, Ph.D.:
        Testimony....................................................     8
        Prepared statement...........................................    62
    Miller, Mark, Ph.D.:
        Testimony....................................................     9
        Prepared statement...........................................    69
    Portman, Hon. Rob:
        Prepared statement...........................................    78
    Sego, Kathy:
        Testimony....................................................     6
        Prepared statement...........................................    76
    Thune, Hon. John:
        Prepared statement...........................................    78
    Wyden, Hon. Ron:
        Opening statement............................................     3
        Prepared statement...........................................    78
    Young, Hon. Todd:
        Opening statement............................................     5

                                 Communications

    American College of Physicians...................................    81
    American Society of Clinical Oncology............................    87
    America's Health Insurance Plans (AHIP)..........................    94
    Association for Accessible Medicines.............................    98
    Association of American Physicians and Surgeons, Inc.............   101
    Campaign for Sustainable Rx Pricing (CSRxP)......................   110
    Center for Fiscal Equity.........................................   118
    Coalition for Affordable Prescription Drugs......................   119
    Cutler, Bruce....................................................   120
    DuBourdieu, David J..............................................   120
    Healthcare Leadership Council....................................   121
    Mikesell, Hannah J...............................................   122
    National Retiree Legislative Network.............................   123
    PharmacyChecker.com, LLC.........................................   129
    Premier, Inc.....................................................   142
    Public Citizen...................................................   143
    Raffle, Debra L..................................................   144
    Ruwart, Mary J., Ph.D............................................   145
    Schaefer, Jerry I................................................   150

                           DRUG PRICING IN AMERICA:
                       A PRESCRIPTION FOR CHANGE, PART I

                                  ----------

                           TUESDAY, JANUARY 29, 2019

                                           U.S. Senate,
                                          Committee on Finance,
                                                        Washington, DC.
        The hearing was convened, pursuant to notice, at 10:15
    a.m., in room SD-215, Dirksen Senate Office Building, Hon.
    Chuck Grassley (chairman of the committee) presiding.
        Present: Senators Crapo, Roberts, Enzi, Cornyn, Thune,
    Burr, Isakson, Portman, Toomey, Scott, Cassidy, Lankford,
    Daines, Young, Wyden, Stabenow, Cantwell, Menendez, Carper,
    Cardin, Casey, Hassan, and Cortez Masto.
        Also present: Republican staff: Jeffrey Wrase, Deputy Staff
    Director and Chief Economist; Brett Baker, Health Policy
    Advisor; Maddie Davidson, Professional Staff Member; Evelyn
    Fortier, General Counsel for Health and Special Projects;
    Stuart Portman, Health Policy Advisor; and Karen Summar, Chief
    Health Policy Advisor. Democratic staff: Joshua Sheinkman,
    Staff Director; Sal Christ, APSA Fellow; Anne Dwyer, Health
    Counsel; Peter Gartrell, Investigator; Matt Kazan, Health
    Policy Advisor; and Kristen Lunde, Winston Fellow.

     OPENING STATEMENT OF HON. CHUCK GRASSLEY, A U.S. SENATOR FROM
                  IOWA, CHAIRMAN, COMMITTEE ON FINANCE

        The Chairman. The Senate Finance Committee will convene for
    this hearing.
        Welcome, everybody, to a very important hearing. I would
    like to say a few words before I make my opening statement
    about returning here as chairman after the last time in 2007--
    12 years ago--when I last sat in this chair. We got a lot done.
    Nearly all of it was bipartisan. I am very eager to pick up
    where we left off. It may be a bit harder to get bipartisan
    work done these days, but I hope that we can prove naysayers
    wrong.
        It is also an honor to lead this committee alongside
    Ranking Member Wyden. We have worked very closely over the
    years on things in this committee, but also lots of things
    outside of this committee, particularly his and my belief of
    encouraging wrongdoing in government to be reported through
    whistleblowers. And he and I have a caucus of a few members,
    bipartisan, called the Whistleblower Caucus.
        I hope to work with all of you on this committee in good
    faith. We will surely have disagreements with each other at
    times, but I hope that we use this Congress as an opportunity
    to improve the lives of our constituents. I know that that is
    what motivates everyone here, whether you are Republican or
    Democrat. In fact, last Congress I introduced a bipartisan
    health-care bill, separate bills with each Democratic member of
    this committee, and I hope to do that again as chairman.
        So with that opening, I want to go to welcoming our
    witnesses and thank them for the hard work that they have to do
    to prepare for answering our questions. The information they
    will share will help inform the committee as it addresses the
    issue of high prescription drug prices.
        Millions of Americans woke up this morning and started the
    day with their dose of prescription medications, including this
    Senator. For so many of our loved ones who have diabetes, high
    blood pressure, cystic fibrosis, epilepsy, and many other
    chronic health conditions, prescription drugs are a basic
    necessity of life. We need to continue to have a strong
    research engine to develop new treatments, but we must also
    have a discussion about the affordability of these drugs.
        Today you will hear many numbers describing the costs of
    those drugs. Those numbers are impressive, but the stories I
    have heard from patients, doctors, and pharmacists in Iowa have
    really gotten my attention. I have heard stories from doctors
    and pharmacists about skyrocketing prices of commonly used
    generic drugs. Usually generics are a way to keep costs
    reasonable.
        I have also heard from seniors who have seen their
    prescriptions increase month after month for no apparent
    reason. And I have heard stories about people reducing their
    life-saving medicines like insulin to save money. This is
    unacceptable, and I intend to specifically get to the bottom of
    the insulin price increase. But other drugs are creating
    problems as well. That is why tackling high prescription drug
    costs is one of Senator Wyden's and my first priorities on this
    committee.
        The reasons for these high prices are complex. I plan to
    hold a series of hearings in order to identify and address
    these reasons. We will look at all aspects of the prescription
    drug market and make changes where necessary.
        So where do we start? So many of you have heard me talk
    about transparency and bringing accountability. So it is not
    very defined when you use that word ``transparency,'' but I
    think it starts with transparency. When it comes to drug
    prices, you should not need a Ph.D. in economics to understand
    how much your prescription costs. I believe it starts with
    putting the list price of a drug on television ads as one
    example. I am confident in the ability of Americans to use such
    information to make their best decision.
        Drug advertisers want to tell consumers all the benefits of
    a drug. They are required to tell you about the side effects.
    But they do not seem to be very gung ho to share how much the
    drug costs. The President's blueprint to lower drug prices
    includes a provision to include list price on TV. The
    administration has a proposed rule to do just that.
        Senator Durbin and I, in a bipartisan way, have been vocal
    in our support of this proposal. I look forward to the rule
    being finalized.
        Senator Wyden and I introduced the Right Rebate Act last
    week. When enacted, this bill will close a loophole that
    allowed the manufacturers of EpiPen to rip off taxpayers and
    consumers for as much as $1.2 billion dollars.
        Speaking of transparency, I want to express my displeasure
    at the lack of cooperation from the pharmaceutical
    manufacturers very recently when they were invited here. This
    committee has a long history of working in a bipartisan manner
    to solve difficult problems for the American people. So when
    Senator Wyden and I invited several pharmaceutical companies to
    come and discuss their ideas to address high drug prices, I was
    extremely disappointed when only two companies agreed to do
    that. The companies that declined said that they would be very
    happy to have discussions with us in private, but not in
    public. One company said testifying would be a problem because
    of language barriers. I thought we all spoke English.
        So that is not what I mean when I talk about transparency.
        [The prepared statement of Chairman Grassley appears in the
    appendix.]
        The Chairman. Senator Wyden?

                 OPENING STATEMENT OF HON. RON WYDEN,
                       A U.S. SENATOR FROM OREGON

        Senator Wyden. Thank you very much, Mr. Chairman.
        As you noted, Mr. Chairman, I have very much appreciated
    the chance to work with you on health-care issues in the past,
    including fighting pharmaceutical price gouging and exposing
    rip-offs by unscrupulous health-care providers. In my view,
    there is a big opportunity in this Congress to find common
    ground on holding down health-care costs.
        Now, this is our first hearing, and I also would like to
    just welcome our new members--I know you have as well--Senator
    Hassan and Senator Cortez Masto on our side, Senators Lankford,
    Daines, and Young on the Republican side. I am looking forward
    to working with them. And, Mr. Chairman, I would also note with
    the dais creeping further and further into the audience, you
    and I may have to consider putting up stadium seating here in
    this room.
        Now the chairman noted that we invited the heads of several
    of the largest drug companies to testify. And obviously they
    are not exactly tripping over themselves to answer our
    questions. That ought to tell you something. Even the big
    tobacco companies were willing to come to Congress and testify,
    and they made a product that kills people. They all lied to me,
    but at least they showed up, and the drug makers are going to
    have to show up as well.
        As the chairman noted, this is not a one-off. This is the
    first in a series of hearings we are going to hold. So nobody
    is going away. And even if it means using our powers as the
    chairman noted, on a bipartisan basis, to compel the drug
    company CEOs to show up, they are going to come before this
    committee.
        The crisis of prescription drugs threatens too many lives
    and bankrupts too many people for the Congress to tolerate
    ducking and weaving by the companies. According to a recent
    report, millions of Americans have skipped doses or declined to
    fill prescriptions because of their costs. That is intolerable.
        Just look at the price of insulin, particularly for type 1
    diabetes. Insulin has been saving lives for nearly a century.
    There have been some improvements, but the real breakthrough
    came back in the 1920s. There has been no recent ``aha'' moment
    in a lab to explain why the list price of Eli Lilly's main
    insulin drug Humalog went from $21 a vial in 1996 to the
    current list price of $275. That is a 13-fold increase. Humalog
    is not 13 times as effective as it used to be. A vial does not
    last 13 times longer than it did in 1996.
        Other manufacturers have hiked prices as well. But the
    problem is not just diabetes. The incredible strain that drug
    costs put on patients in my State and across the country is in
    plain view. Thousands and thousands of people at any given
    moment are turning to fundraising websites and even asking
    complete strangers to help them cover the cost of their
    medicine.
        Colleagues, it is grotesque. The price-hiking drug makers
    have turned American patients into beggars.
        Now, the chairman and I have a lot of history on this. We
    recently investigated the drug maker Gilead on its pricing of
    the hepatitis C drug Sovaldi, which clocked in at $1,000 a pill
    wholesale according to our bipartisan investigation, and it was
    based, colleagues, on the company's own documents. The price
    was not about recovering research and development costs. It was
    not based on the previous standard of care. The company charged
    a list price of $1,000 a pill because they knew they could get
    away with it. And the figure would set a pricing platform, a
    benchmark to be surpassed by successor drugs.
        So there is no shortage of evidence about what the problems
    are. The companies have unchecked power to set prices on their
    own, and often it is to meet Wall Street's expectations rather
    than meet demand in the market.
        I am going to close by briefly--as the chairman did--
    touching on several policy challenges. I am especially troubled
    by health-care middlemen who skim off enormous sums of money
    when there is scant evidence that the patients get a better
    deal. That sure looks like the case with the pharmacy benefit
    managers, PBMs. They are supposed to negotiate better deals,
    but it sure seems like they take a big cut and inflate the
    prices. The three biggest PBMs are among the 25 largest
    companies in America. So I have appreciated what the chairman
    has said on this, and we need to pull back the curtain on what
    is really going on with these pharmacy benefit managers and see
    who benefits. It does not look to me like it is families or
    taxpayers.
        A word, finally, about Medicare Part D--the chairman was a
    lead author of the bill that created the Medicare prescription
    drug benefit in 2003. While it was not the bill that I would
    have written, I supported that bill because it was a first step
    to help the seniors pay for their medicine. But colleagues, the
    pharmaceutical industry looks a lot different than it did back
    then.
        Today we are going to hear from our witnesses that the
    structure of Part D encourages the manufacturers to set list
    prices sky-high. We will hear that private Part D plans are
    incentivized to push these high-priced drugs on seniors. That
    cannot happen any longer.
        More than a decade of evidence shows that Medicare Part D
    plans often do not do a good enough job negotiating prices
    downward. So I believe Medicare ought to be able to use its
    bargaining power of 43 million seniors to get a better deal for
    the patients and the taxpayers.
        The astronomical list price of sole-source drugs, in
    particular, is a major strain on patients. And with respect to
    the sole-source drugs, private plans have not been able to
    correct that problem.
        So we need to look at these issues. We ought to recognize
    also that profits, drug company profits, are often dependent on
    taxpayer-funded research. I have deep reservations about this
    whole notion that drug companies can privatize all the gains
    from this research after socializing the costs of the research.
        So, Mr. Chairman, I look forward to working with you. I
    hope that the administration will join us in this effort. So
    far, they have been pretty light on details. But as you said,
    the committee has a real opportunity to take action this year.
    We have a history of bipartisanship and big ideas.
        So what I would like to do, Mr. Chairman, is work with you
    and all our colleagues on both sides of the aisle so our work
    on this issue lives up to the tradition of the Finance
    Committee at its best.
        Thank you.
        [The prepared statement of Senator Wyden appears in the
    appendix.]
        The Chairman. I appreciate your opening remarks and your
    cooperation on setting up this hearing and as we work forward.
        You were right from the standpoint--I did not recognize the
    new members of this committee. And so I have the opportunity of
    welcoming three new Republicans and I believe two new Democrats
    to the committee. So welcome--and he named all of you, so I
    will not bother to mispronounce your names. [Laughter.]
        Let us start with Senator Young. I was told that you would
    take the pleasure of introducing your constituent, our first
    witness, Ms. Sego.

                 OPENING STATEMENT OF HON. TODD YOUNG,
                      A U.S. SENATOR FROM INDIANA

        Senator Young. Well, thank you. Mr. Chairman, Mr. Ranking
    Member, it is a pleasure to be a member of this committee, and
    I am honored to begin my time on this committee by introducing
    Kathy Sego.
        Kathy is a loving mother from Indiana who has agreed to
    give her personal story on how her family has been affected by
    high drug costs. Kathy has a 22-year-old son, Hunter, whom I
    have had the opportunity to meet. And Hunter has type 1
    diabetes.
        Hunter was not aware of the actual price that his mother
    and father were paying for his insulin until he attended
    college. And after entering College, Hunter realized that the
    price of insulin--a drug that he had been dependent upon his
    whole life--cost $487 a vial.
        Now that translates to roughly $2,000 a month. And Hunter,
    being a young humble man and not wanting to burden his family,
    began rationing his insulin in order to save money. This ended
    up making Hunter very sick, of course. Coaches and professors
    at his college started to notice Hunter's sickness, and
    eventually Kathy had to constantly monitor her son in order to
    make sure he was taking his correct amount of medication. As a
    parent, I want to make sure families like the Segos do not have
    to worry about their children rationing out drugs because costs
    are too high.
        I am glad to say that Hunter is doing much better now, and
    he is on track to graduate DePaul University this spring. Both
    Kathy and Hunter have been volunteering for the American
    Diabetes Association for over a decade now, and I applaud their
    advocacy on behalf of the diabetes community and the great
    State of Indiana.
        I hope that Kathy's testimony today will inspire others and
    help bring about needed change to the high costs of life-saving
    drugs. So please join me in welcoming Kathy here today.
        I yield back.
        The Chairman. And we welcome you, Ms. Sego.
        Now, I am going to introduce Dr. Douglas Holtz-Eakin, who
    currently serves as president of the American Action Forum. The
    doctor has previously served as Chief Economist of the
    President's Council of Economic Advisers. Dr. Holtz-Eakin also
    served as Director of the Congressional Budget Office. He
    earned a bachelor's degree from Denison University and his
    Ph.D. from Princeton University.
        We welcome you once again. You are pretty much a regular
    here at testifying on Capitol Hill.
        Next is Dr. Mark Miller. Dr. Miller currently serves as
    vice president of health care at the Laura and John Arnold
    Foundation. He previously served as Executive Director, MedPAC.
    Dr. Miller also served at the Congressional Budget Office,
    where he was Assistant Director of the Health and Human
    Services Division. Dr. Miller has previously served as Deputy
    Director of Health Plans at CMS. He was Chief of the Health
    Financing branch of the Office of Management and Budget, and he
    has a Ph.D. in public policy analysis, State University of New
    York.
        We welcome you, Dr. Miller.
        Our final witness, Dr. Peter Bach, currently serves as
    director of the Center for Health Policy and Outcomes, Memorial
    Sloan-
    Kettering Cancer Center. Dr. Bach focuses on health-care
    policy, particularly as it relates to Medicare. Dr. Bach's work
    in lung cancer screening has led to the development of several
    lung cancer screening guidelines. Dr. Bach has also served as
    Senior Advisor for Cancer Policy at the Centers for Medicare
    and Medicaid. Dr. Bach earned his bachelor's degree at Harvard
    and his medical degree at the University of Minnesota.
        We thank all of you for joining us. We will start with Ms.
    Sego.
        And remember, if you have a statement longer than 5
    minutes, or any longer statement you have, it will be just
    automatically put in the record for all of you. And I generally
    do not stop somebody just exactly at 5 minutes, but try to wrap
    up as soon as you can after the 5-minute light comes on.

        STATEMENT OF KATHY SEGO, MOTHER OF A CHILD WITH INSULIN-
                    DEPENDENT DIABETES, MADISON, IN

        Ms. Sego. Good morning. Thank you, Chairman Grassley,
    Ranking Member Wyden, Senator Young, and distinguished members
    of the Senate Finance Committee, for inviting me to testify
    before you today. My name is Kathy Sego. I am a choir teacher
    from Indiana, and my husband and I have two children. Our son
    Hunter has type 1 diabetes.
        For millions of Americans with diabetes--including my son--
    and all individuals with type 1 diabetes, access to insulin is
    literally a matter of life and death. My son Hunter thrives as
    a student and college football player at DePaul University.
        On the surface, you would never know that he lives with a
    chronic disease. Hunter was diagnosed with type 1 diabetes on
    August 23, 2004, 1 month before his eighth birthday. On that
    date our lives changed forever, and ever since we have been
    advocates and volunteers with the American Diabetes Association
    fighting to make sure Hunter and all people with diabetes can
    stay healthy and have the same rights as people without
    diabetes.
        Four years ago when Hunter was starting college, he offered
    to go to the pharmacy to pick up his insulin. I thought, ``My
    son is growing up,'' but for Hunter growing up means
    understanding the cost of diabetes. The cost that day was
    $1,700. Hunter panicked. We have insurance. One month's insulin
    could not possibly be that expensive. But it was.
        What happened next brings me to tears. My energetic,
    athletic, and positive son was not himself. He seemed
    depressed. His grades were dropping. He looked labored on the
    football field.
        I found out Hunter had decided to purchase one vial of
    insulin instead of the four vials he needed for the month.
    Unbeknownst to my husband and myself, Hunter was rationing his
    insulin. This means he stopped eating to avoid taking insulin.
    With one-quarter of the insulin, he could eat less than once a
    day, and he was trying to give his all on the field. He was
    also starving and making himself sick.
        In response, he started eating and not dosing with the
    necessary insulin to allow oxygen to feed his organs, muscles,
    and brain cells. He began accumulating ketones, known as
    ketoacidosis. He lost 20 pounds in 2 weeks. The combination of
    ketones and lack of oxygen could have ended with him in the
    morgue.
        Thankfully, Hunter is okay today. But insulin rationing can
    lead to devastating, even deadly complications, which I never
    want my son to experience. I am heartbroken to know that my son
    felt he was a financial burden to us. Money over life is not
    the choice we want him to make.
        In everything my family does, we think first of the cost of
    Hunter's insulin. We do not eat out. I do not turn on the heat
    in our home. I play a risky game with my utility bills,
    strategizing how long I can go before paying the past-due fees.
    Our electricity was turned off because I needed to purchase the
    medicine that keeps my son alive. Almost every dollar I make
    goes towards health expenses.
        It is not like this everywhere. We hosted an exchange
    student from Hungary, and her family flew us to their home for
    a visit. We went to the pharmacy for insulin. It cost $10. The
    same vial of insulin that cost us $487 out of pocket cost $10
    in Hungary. I wanted to stockpile it. I wanted to buy every
    vial, but I could not.
        My son is about to graduate college. And when that happens,
    it will be one of the proudest moments of my life. However,
    unlike other parents, that moment fills me with dread. Hunter's
    life choices are contingent on his ability to pay for his
    medicine to keep him alive.
        Hunter has these worries too. He wonders can he pay for an
    apartment, utility bills, his student loans. Will he be able to
    have a social life, take a girl out on a date?
        It comes down to this: Hunter needs insulin to live. But
    should that need for insulin keep him from living?
        Our family is not alone in this struggle. More than 7
    million Americans use insulin, and more than 400,000 have
    signed the American Diabetes Association petition calling for
    action to make insulin more affordable for all. I am here today
    on the behalf of each of those families to ask for your help.
    We do not want a handout or a free ride. We want to keep those
    7 million alive without having to do what my son thought was
    his only option.
        The three scientists who discovered insulin sold the patent
    for $1 each to ensure affordable insulin for all who needed it.
    Nearly 100 years later, it is my most desperate wish that we
    make that vision come true.
        Again, thank you for the opportunity to testify before the
    committee today. And this is my son, Hunter.
        The Chairman. Thank you.
        [The prepared statement of Ms. Sego appears in the
    appendix.]
        The Chairman. Dr. Holtz-Eakin?

     STATEMENT OF DOUGLAS HOLTZ-EAKIN, Ph.D., PRESIDENT, AMERICAN
                      ACTION FORUM, WASHINGTON, DC

        Dr. Holtz-Eakin. Chairman Grassley, Ranking Member Wyden,
    and members of the committee, I am honored to be invited on a
    bipartisan basis to discuss this important issue today. You
    have my written statement. Let me make a few points in the
    introduction, and then I look forward to your questions.
        The first point is that the demand for prescription drugs
    is high and rising. Over half of Americans take drugs. The
    population is aging and will have more chronic diseases. Forty
    percent of Americans have a chronic disease--60 percent have
    one, 40 percent have two or more.
        And so we are seeing an additional need for those
    therapies. We have substituted drugs for other kinds of medical
    therapies over time. Scientific advances have allowed new
    things to be treated with drugs. So there is an enormous amount
    of demand for drugs.
        The supply of drugs is a costly undertaking. It costs about
    $3 billion to develop a new drug. Only one of every 1,000 drug
    formulas actually enters clinical testing, and only 8 percent
    of those are ultimately approved by the FDA. The time from
    start to finish is about 15 years.
        This combination of supply and demand is an economic recipe
    for high and rising prices. And we need to monitor carefully
    the effective functioning of those markets to see how well they
    are doing.
        Diagnosis of problems, I think, is complicated by
    intermixing different concepts. People talk about and
    interchange the list price of a drug, the stated price of the
    manufacturer, with the net price of the drug, which is a net of
    any rebates received, which is different in turn from the out-
    of-pocket price that someone like Kathy might face when they go
    to the drug counter.
        A lot of people focus on spending. And spending has grown
    about 5 percent per year for drugs in recent years. But total
    drug spending is only about 10 percent of national health
    expenditure, the same as it was in 1960. And per capita
    spending has only gone up at a rate of about 1 percent.
        And so in thinking about policies, I would urge this
    committee to identify very clearly the problem that they care
    about and look at those things which can improve the
    performance of those markets. Most of those ultimately will
    come down to, can we improve the supply of prescription drugs?
    Can you lower the costs, shorten the time to test and put drugs
    on the market? Can you reduce barriers to entry that perhaps
    could be erected by incumbents in the market? That would be
    central. How can you increase the number of both branded and
    generic drugs? There is nothing better than having more than
    one drug on the market to reduce prices. The poster child for
    this is the introduction of competitors to Sovaldi, the drug
    that was mentioned at the outset.
        We need to look at the incentives provided by programs like
    Medicare and Medicaid for effective competition. And we need to
    make sure that when we get competition, it is reducing overall
    costs and not simply shifting those costs around in the system.
        In looking at the data, it seems to me that what jumps out
    is not a problem with all drug prices, but instead very
    particular prices, both of which have come up in the opening
    remarks by the chairman and the ranking member. We have some
    very isolated instances of costs associated with off-patent
    sole-source drugs, and in those circumstances, it appears that
    firms are able to take advantage of their market power and
    raise the prices of drugs sharply. This strikes me as a
    fundamentally anti-competitive act that ought to be
    investigated and remedied.
        The second place where we see things happening is in the
    specialty drugs, which is oncology drugs right now. These are
    expensive drugs with small populations to treat. There are
    going to be more, not fewer of these kinds of drugs in the
    future, and I think coming to terms with effective strategies
    on specialty drugs would be another place where the committee
    would provide a lot of value in this discussion.
        So my testimony contains lots and lots of different aspects
    that have been suggested to address drug prices. I would be
    happy to talk about those, and I look forward to your
    questions.
        The Chairman. Thank you.
        [The prepared statement of Dr. Holtz-Eakin appears in the
    appendix.]
        The Chairman. Dr. Miller?

     STATEMENT OF MARK MILLER, Ph.D., EXECUTIVE VICE PRESIDENT OF
       HEALTH CARE, LAURA AND JOHN ARNOLD FOUNDATION, HOUSTON, TX

        Dr. Miller. Chairman Grassley, Ranking Member Wyden,
    distinguished members of the committee, I am Mark Miller,
    executive vice president of health care at the Arnold
    Foundation, and I appreciate you asking us here to testify.
        The Arnold Foundation is dedicated to reforming
    dysfunctional markets and programs to assure a better return on
    investment for the people they serve and the people who pay for
    those programs. We work to develop evidence and ideas to
    improve public policy in the areas of health care, pensions,
    education, and criminal justice--just to name a few. We
    strongly believe in markets, but we also believe in evidence-
    based intervention when markets fail. Our health objective is
    to lower costs and increase value for businesses, for
    governments, and for patients. We focus broadly on these
    problems: excessive hospital and physician prices, excessive
    drug prices and spending, reducing inappropriate and unsafe
    utilization, and finding better ways to care for complex
    patients.
        Today you asked us to discuss possible solutions to control
    drug spending in Medicare and Medicaid. In all instances, the
    objective is to protect innovation, but lower the cost for the
    taxpayer and the patient.
        Turning to Medicare Part D, consistent with MedPAC
    recommendations and proposals included in the last two
    administrations' budgets, we would suggest that the committee
    consider a series of reforms to Medicare Part D's payment
    structure to increase pressure on the plans to more
    aggressively negotiate drug prices--for example, by requiring
    the plans to pick up 80 percent rather than 15 percent of
    catastrophic drug costs. Concurrently, this policy would
    include enhanced beneficiary protections when they reach the
    catastrophic cap.
        We suggest considering that you increase the transparency
    of, and examine the rules around, sharing rebates and other
    fees between the Medicare program and the plans to maximize
    taxpayer savings. More ambitiously, you could consider whether
    the rebate compensation model should be changed altogether to a
    fee-based model.
        You should consider changing the ``sunshine'' legislation
    to report contributions to patient groups. Where there is no
    competition and PBMs have little leverage to negotiate lower
    prices, you should consider new tools such as reference
    pricing, paying for the clinical value of the drug, or binding
    arbitration. Authorizing the Medicare program to leverage its
    marketing power would allow it to address situations where
    manufacturers have set excessive prices in the absence of
    competition. These drugs could then return to the usual Part D
    negotiation process once competitors enter the market.
        Turning to Part B, you should consider replacing the
    percentage reimbursement model with a flat-fee model to
    eliminate the incentive to prescribe higher-cost drugs. Other
    options include creating an inflation rebate and empowering
    physicians to form their own purchasing groups to negotiate
    prices. Finally, you could consider lowering the payment
    benchmark altogether in Part B by using an international price
    index like the one proposed recently by the administration.
        Turning to Medicaid, you could legislatively and
    administratively support State innovation such as Louisiana's
    subscription model for hep C drugs and New York State's
    spending cap and negotiation model. At the Federal level, you
    could allow CMS to have greater authority to assure that drug
    manufacturers don't misclassify drugs in order to avoid paying
    higher rebates, and you could increase the statutory cap on the
    brand rebates in order to capture more taxpayer savings.
        One final area of ideas, Mr. Chairman: from your previous
    work, you know we need to curb the anti-competitive behaviors
    of manufacturers and inject competition back into the
    marketplace. Manufacturers benefit from taxpayer-funded NIH
    research and from
    government-granted monopolies, and naturally they devote
    resources to protecting those monopolies. Those monopolies were
    granted by the government, and the government's responsibility
    is to intervene on behalf of taxpayers when the market fails.
        Although outside the committee's jurisdiction, a
    comprehensive legislative package would include policies such
    as CREATES and ``pay for delay.'' They are equally important to
    controlling expenditures in Medicare and Medicaid and would
    also control expenditures in the commercial sector.
        In closing, there are additional ideas in the testimony,
    but most importantly the Arnold Foundation and its grantees
    stand ready to engage with you and your staff to talk about
    these and any other ideas that you would like to bring to the
    table. Any change will entail difficult trade-offs between
    manufacturers, PBMs, taxpayers, and patients, and stiff
    resistance from the status quo. Sticking with the status quo is
    always an option, but we know what it will produce: anti-
    competitive behaviors, high prices, and higher spending for
    Medicare and Medicaid.
        I appreciate your attention and leadership on these issues.
    I look forward to your questions.
        The Chairman. Thank you, Dr. Miller.
        [The prepared statement of Dr. Miller appears in the
    appendix.]
        The Chairman. Now, Dr. Bach?

     STATEMENT OF PETER B. BACH, M.D., DIRECTOR, CENTER FOR HEALTH
     POLICY AND OUTCOMES, MEMORIAL SLOAN KETTERING CANCER CENTER,
                              NEW YORK, NY

        Dr. Bach. Thank you very much. Chairman Grassley, Ranking
    Member Wyden, and members of the Senate Finance Committee,
    thank you for the opportunity to share my views on
    pharmaceutical pricing.
        My name is Peter Bach. I am a physician at Memorial Sloan
    Kettering Cancer Center in New York, where I lead the drug
    pricing lab, which is funded by the Laura and John Arnold
    Foundation, Kaiser Permanente, as well as my institution. My
    views are my own. I should note I have received fees from
    pharmaceutical and diagnostics corporations, PBMs, insurers,
    and trade associations, all of which are listed in detail in my
    testimony.
        An organizing theme of the pharmaceutical supply chain is
    that all participants benefit as both drug prices and total
    spending rise. Pharmaceutical corporations seek to profit
    through high prices, but other supply chain participants should
    serve as a countervailing force, although they often do not.
        As just one example, physicians and hospitals make a
    percentage of Part B drug prices under ``buy and bill.'' The
    literature is consistent that this incentive increases
    prescribing of more expensive drugs--340B hospital prescribing
    shows a similar pattern.
        One step we should take is to delink the provider's bottom
    line from the pharmaceutical corporations' pricing by, for
    instance, changing the percentage-based markup on Part B drugs
    to a flat fee. Another example is, we could claw back Medicare
    funds expended on discarded leftover Part B drugs.
        Inserting more price competition within the Medicare
    program would also be a good step. I recently outlined ways in
    which Medicare, for example, could create price competition
    between CAR-T therapies, applying approaches such as
    competitive acquisition, or bundling of payments.
        As for Part D, my team worked with The Wall Street Journal
    recently and showed that plans may in fact be strategically
    bidding in a manner that increases their profitability while
    shifting costs onto the Federal reinsurance portion of the
    benefit. At this point, I would argue that plans should take on
    the risk currently borne by Medicare for individual level
    reinsurance. And we should explore rebates at point of sale so
    patients can have full benefit of planned negotiated price
    concessions.
        In another example, Mark Trusheim from MIT, Senator
    Cassidy, and I recently proposed a payment model that we
    nicknamed Netflix, which aims to solve the affordability
    problem of expensive hepatitis C therapies. Our subscription
    model would have State purchasing coalition's pay a flat fee
    over time in exchange for an unlimited supply of treatments.
        Now, some concerns. Value-based pricing has been proposed
    for new branded drugs that have no competition. The notion is
    to undo the vicious cycle of rising prices tied to unaffordable
    co-payments, instead setting a drug's price based on its
    benefits while mandating favorable formulary placement with low
    out-of-pocket costs. This constructive and viable idea is
    different from the outcomes contracts pharmaceutical
    corporations are promoting, even though they call them value-
    based. To be clear, refunds when a drug does not work will not
    guarantee prices are linked to the benefits received when it
    does work.
        Long-term financing for new treatments, many of which are
    one-time, should be viewed cautiously as well. We cannot solve
    the affordability problem by pushing costs into future years.
    That will not make the costs go away. When companies say we
    need to change the payment system to afford their new high-
    priced treatments, this framing is entirely backwards. Prices
    for monopoly goods such as these are determined by the market
    in which they are sold, not the other way around. Asking you to
    recast the market to pay more is, of course, in the
    pharmaceutical corporation's interest. But that does not mean
    it is good policy.
        Please realize that these drugs do not inherently cost $1
    million any more than they inherently cost $1. So how should
    you figure out if you need to find a way to pay these enormous
    sums, these millions of dollars that companies say they
    deserve? I would focus on the impact on future innovation and
    encourage you to remember that we have already seen a large
    number of amazing one-time treatments come to market. And we
    hear many more are just over the horizon, and that is, of
    course, happening under our current payment system.
        Likewise, we have seen multi-billion-dollar valuations for
    companies making these therapies, also under our current
    system. In other words, our current payment system appears to
    be providing the incentive to develop these amazing treatments.
    I would not rush to solve a problem I am not certain we have. I
    would especially avoid a solution that carries only one
    promise, which is that it will increase how much we spend on
    drugs overall.
        Thank you for the opportunity to share my views. I look
    forward to answering any questions you may have.
        [The prepared statement of Dr. Bach appears in the
    appendix.]
        The Chairman. Before I start asking questions, I would like
    to inform members of how I, kind of, handle question time,
    generally 5 minute rounds. The order of Judiciary was one
    Republican, one Democrat, but I guess the practice of this
    committee is first come, first served, except at the fall of
    the gavel. It would be by seniority at the fall of the gavel.
    Otherwise, you can have two or three Democrats ask questions,
    or it could be the opposite for Republicans. So I get the list
    from the clerk on that, and I will go by that list.
        Then I usually will--if you start your last question before
    the 5 minutes has run out, I will let you complete your
    question. Hopefully you do not take advantage of making a
    speech with 1 second left to go when you start your question.
    And I hope that you would not encourage a long answer if you
    ask a question with 1 second left. But whatever you get started
    before the red light comes on, complete your question.
        And I am willing to listen to anybody who disagrees with
    what I said. Not now--let us talk privately. But if you want me
    to consider handling it a different way, then please discuss
    that with me.
        So I am going to start my 5 minutes with Ms. Sego. A very
    simple question: you already referred to--I think I heard you
    say in your opening comments that you went to another country
    to get some product, and it was much cheaper. So we hear so
    much about people going to Mexico or ordering drugs online.
    Have you considered Mexico or online?
        Ms. Sego. Yes, but we cannot afford to travel to Mexico or
    to Canada, or even back to Hungary, so I would--that is why I
    am here. I am hoping that all of us can come together and
    create a solution of how we can get the same pricing here in
    the greatest country.
        The Chairman. Okay. Thank you.
        I will now go to each of our three economists. I have
    consistently said that we need to address high costs of drugs.
    And still we have to consider preserving innovation.
        You have each shared a number of ideas for lowering drug
    costs in your testimony, but I would ask you to explain what
    you would consider the one best way to lower the cost of drugs
    while still realizing the novel treatments we have. So we will
    just go from left to right here.
        Dr. Holtz-Eakin?
        Dr. Holtz-Eakin. So I think the first thing to do is to
    stop having policies that push up drug prices. And one that
    jumps to mind is the 340B program, which is in need of
    desperate reform.
        It was a well-intentioned program intended to provide drugs
    at lower cost to needy patients. It is not well-targeted on
    those patients right now. It is leading to higher drug costs,
    and I would encourage the committee to take a close look at
    reforming the 340B program.
        The Chairman. Okay.
        Dr. Miller?
        Dr. Miller. The first thing is that I think that you have
    headroom between the prices that are being charged and paid and
    how much is being spent on R&D. And I think research that Peter
    Bach has done shows that there is a fair amount of headroom.
        And so I think you can go after prices and go after
    spending and not immediately threaten innovation. But you
    should always keep that in your mind. It is an important
    concern.
        If you are forcing me to say just a few things--which is
    very problematic for me, I might add--I would say restructure
    the Part D benefit so that you are maximizing the PBMs
    incentive to negotiate their prices. And then for Medicare--I
    am focusing only on D, because you are making me do it--is then
    go outside, and for those sets of drugs that are extremely
    expensive and do not have competition, consider things like
    reference pricing or binding arbitration while there are no
    competitors for those drugs. And then bring them back into the
    negotiation once you have competitors.
        The Chairman. Okay.
        And Dr. Bach?
        Dr. Bach. So, a couple things. One is, as I mentioned, the
    notion of value-based pricing. Taking new branded drugs that
    have no competition and finding their prices based on the
    benefits they provide to patients is a much better way to align
    the incentives in the market for innovation than we currently
    have. The basic notion of markets is, we should pay more for
    things that matter more or help more. And the current system
    has little alignment on that.
        The other is--well, that deals with launch prices. We
    should make more efforts to have time-certain expiration of
    monopolies amongst branded drugs, and the discussions of
    generics and biosimilars are versions of that. But we have a
    number of policy approaches that could end the monopoly period
    directly and require companies to sell at marginal cost, plus a
    profit at the end of that exclusivity period. And that would
    free up a lot of money to pay for new drugs.
        The Chairman. Okay.
        This question is for Dr. Miller, but also if Dr. Holtz-
    Eakin has anything to add, or anything different from it. What
    do you see, Dr. Miller, as the key issues in the Medicaid drug
    rebate program? What challenges do you see in achieving the
    program's twin purpose of making sure Medicaid patients have
    access to the medicines they need while at the same time
    ensuring States get the best price available?
        Dr. Miller. So I think the two things that I would say are,
    first, I think there are changes you can make to the rebate
    structure where you can capture more savings for the taxpayer.
    Right now, once you hit a particular cut point, the
    manufacturer's price, the manufacturer can continue to raise
    their price and not pay anything more in rebates. And you could
    make incremental changes and capture more for the taxpayer.
        But the second thing which was, sort of, the second half of
    your question, there are innovative models being thought
    through in the States, such as the ones that have already been
    mentioned here today. And setting up clear administrative or
    legislative pathways for the States to pursue those, I think,
    would also help. And I could give some specific examples to
    your staff or to others.
        The Chairman. Do you have anything to add, Dr. Holtz-Eakin?
        Dr. Holtz-Eakin. Keeping in mind your admonition to be
    brief, I would say three things. First, it has long been
    established that having the Medicaid best price diminishes the
    incentives for vigorous competition among firms. And CBO has
    noted this for a long time. I would worry about that, the very
    program.
        The second is that the increase in the rebates, along with
    some other things in the Affordable Care Act, added about $100
    billion to drug makers costs over the past several years. That
    has to show up in prices at some point. We should be cognizant
    that this is not free. It is a trade-off. When you do these
    rebates, they show up elsewhere in the system.
        And then the third is this issue of capping the rebate at
    100 percent of the drug's price. There has been some discussion
    of relaxing that cap. I, at least, would be concerned that that
    would be counterproductive, that if you raise that cap and
    actually impose a tax of more than 100 percent of the drug's
    price to the program, all you will get is an incentive for
    higher launch prices and lower inflation. And that is
    counterproductive. We do not need higher launch prices.
        The Chairman. Senator Wyden?
        And I think I will step out just a minute, but I will be
    back before you finish.
        Senator Wyden. Thank you, Mr. Chairman.
        Ms. Sego, I heard you say that every decision in your
    household starts with whether you are going to be able to
    afford your insulin. I think you heard me say it is up 13-fold
    since 1996.
        Insulin drugs are certainly not 13 times more effective.
    This is going on because manufacturers have been taking
    advantage of families like yours, and nobody has been willing
    to take them on. That is going to end today. And I just so
    appreciate your being here.
        Ms. Sego. Thank you.
        Senator Wyden. Dr. Miller, let me start with you, and you
    are a big expert in the field. Let us talk about Medicare Part
    D. There are almost 43 million seniors on this program. I was
    one who voted for it. I still have the scars on my back from
    that. And now, clearly, reform is needed.
        So I want to see if I can put in English what is going on,
    because you have touched on it. Medicare Part D is now set up
    in a way that if the prices of drugs are high, manufacturers
    and insurance companies win and seniors lose. For most drugs
    purchased through Part D, the Part D plan, or sometimes the
    drug manufacturer, pays a large portion of the cost of the
    drug. But when a senior on Part D spends a lot on medicine, the
    government--not the plan or the manufacturer--pays most of the
    bill.
        It does not take a rocket scientist to see that that is a
    prescription for these powerful companies to take advantage of
    the situation. Is that the heart, in your view, of what we
    ought to be looking at as we try to make sure that in the
    future, Part D does not encourage these high prices?
        Dr. Miller. Fundamentally, yes.
        Senator Wyden. All right; I am going to quit while I am
    ahead.
        Let me--and, Dr. Holtz-Eakin, you touched on this as well,
    and I appreciated your thoughtful comments as well.
        So let me then turn, if I could, to the issue of Medicare
    negotiations, because every one of us goes to a town meeting,
    and people say, ``Hey, why is Medicare not negotiating? There
    are 40 million seniors. Why aren't we using their bargaining
    power?''
        So private Part D plans negotiate with drug makers, as I
    just touched on, and you accepted the reason why it is going to
    be so important on a bipartisan basis that we work on Part D to
    take away the incentives for higher prices.
        It seems to me that if you are talking about sole-source
    drugs with no competition, I do not see how Part D as
    structured today is going to protect the senior and the
    taxpayer. So if you would, tell me a little bit about Part D,
    particularly as it relates to those drugs. And I gather those
    can be cancer drugs and other drugs that are pretty important
    to people.
        Please?
        Dr. Miller. One thing I would say is, what will go back and
    forth in this debate is, why is the government going to be able
    to negotiate a better price than a PBM? Okay, and so, just to
    kind of take you through that a little bit, what I am about to
    say is predicated on your first set of comments, which is: have
    you restructured the benefits so that you are extracting
    maximum negotiation from the PBM for drugs that have
    competition? Because even for drugs that have competition,
    sometimes the prices are still going up.
        So first, you reform the structure in order to get the PBMs
    to operate as efficiently as possible. Then the thinking is,
    there are sets of drugs, just like you said, D was never really
    designed to deal with, because there is no competition and the
    PBM does not have an opportunity to leverage.
        And there are a couple things I would point out there. Back
    to Peter's point--I mentioned it as well, but Peter was on it
    more completely. You could begin to try to price those drugs
    using a value-based approach to it.
        Senator Wyden. Sole-source drugs.
        Dr. Miller. That is right. And I would even add further it
    is expensive sole-source drugs, like a drug that when the
    beneficiary gets it, they are going to hit the catastrophic cap
    and the government is going to be paying 80 percent of it.
        You could narrow the range of drugs that you are focused on
    and say, it is not everything that starts to be affected this
    way but drugs that do not have competition and are very
    expensive.
        Senator Wyden. We are going to want to ask you more about
    this, and I know in talking with the chairman that he is aware,
    in particular--I voted for Part D. It was not what I would have
    written, but clearly now--whether it is the incentives in Part
    D that jack up the prices, or the sole-source drugs that you
    have said have not really been the subject of kind of the
    classic notion of bargaining under Part D--we ought to be
    looking on a bipartisan basis at trying to make some reforms.
        So we are going to be talking to all three of you experts,
    with the goal being at the end of the day, Ms. Sego, that you
    and families from sea to shining sea see that the days are over
    when these big companies get a pass, because I think that is
    the heart of the problem. And the chairman and I saw that in
    our Sovaldi investigation and a variety of others.
        So thank you, Mr. Chairman.
        The Chairman. Senator Stabenow?
        Senator Stabenow. Thank you very much, Mr. Chairman. And
    welcome to the chairmanship. I look forward to working with
    you. We have worked on many different committees together and
    issues together, and so I am looking forward to good work from
    this committee.
        And welcome to all of our witnesses today. First, Ms. Sego,
    if I could just talk with you a moment about your situation,
    which I wish was rare--and it is not rare. We hear about it all
    the time. In fact, the price of insulin has nearly tripled over
    the last 15 years, even though it was developed 100 years ago.
        Ms. Sego. Correct.
        Senator Stabenow. So a very similar situation occurred with
    a mom from Minnesota who spoke at a hearing that I had
    organized about this--a forum actually--Nicole Smith-Holt from
    Richfield, MN, and a State employee, a mother of four. Her son
    Alec--similar situation--but he was diagnosed with type 1
    diabetes at age 24.
        And when he turned 26, unfortunately, his insurance lapsed.
    And so when he went in to pick up his supplies, he was told the
    copay was $1,300. And he did what your son did, which was to
    ration his insulin. And unfortunately, he had a different
    outcome. He died.
        Ms. Sego. Yes.
        Senator Stabenow. And unfortunately, that is also not a
    rare occurrence. And I will never forget Nicole and her
    powerful words for the executives at Eli Lilly who oversaw
    these outrageous price increases and what she said to them.
        So the drug company execs were invited today. They are not
    here, but if they were here, what would you say to them?
        Ms. Sego. As a mother, I would probably say to them, ``I
    hope you know that there are people who are going without their
    medication. And because they are going without their
    medication, they are at risk of dying. And how can you be okay
    with that?''
        I do not know how any person would be okay with knowing
    that the medication is priced so high that you have to make a
    decision about life or death. Do you pay for your bills? Do you
    buy food? That should never be a decision that a person needs
    to make. And unfortunately, it is.
        So I would ask them what is their goal, and how are we
    going to come together at the table and create change?
        Senator Stabenow. Thank you.
        Dr. Bach, you have data that shows that the top 15
    pharmaceutical companies sell internationally at 40 percent of
    the price they sell in the U.S. And I can say directly, coming
    from Michigan--where you can go 10 minutes across an
    international bridge and drop your cost by 40 percent--that we
    have Eli Lilly Canada on one side of the bridge and Eli Lilly
    USA on the other side of the bridge, and Eli Lilly USA would
    say that what is sold in Canada is not safe. Now I am assuming
    they do not mean their own company.
        But at this point, Mr. Chairman, I want you to know that I
    continue to be strongly supportive of safe FDA-approved drugs
    being reimported from Canada, and continue to want to work with
    you on this, because we have one way to create a different kind
    of competition, and we have trade on everything else, but we
    close the border on safe FDA-approved prescription drugs on
    both sides of the border. So I am very concerned. I think that
    would be one way to create some change.
        Also just--I see I am about out of time. I have many
    questions, but I am going to instead just do a couple of
    statements.
        First, Dr. Holtz-Eakin, I just want to go on record. I do
    not want to debate you, but I do not agree that 340B is the
    primary reason for higher prices. So we can have that debate
    another time. I think there are a whole lot of other reasons,
    and that is not the primary reason.
        And the other thing that I would say is that, when we look
    at whether or not negotiation under Medicare makes sense or
    not, we know it works in the VA. The VA negotiates on behalf of
    all of the veterans in America. And they pay about 40 percent
    less, which I am glad they do, but that certainly is another
    kind of model.
        And finally, I would just say--and, Dr. Bach, if you want
    to comment on this--on value-based pricing, I support value-
    based purchasing. And in fact, the University of Michigan has
    been a leader in that, and I have promoted that and got that
    into the Affordable Care Act.
        But if we are saying that if a drug has more value, it
    should be higher priced because it has more value, that is the
    problem, right? When somebody really needs it because otherwise
    they will lose their life, they should pay more as a result of
    that? I do not see how that, from a public policy standpoint or
    a health-care standpoint, makes sense.
        Dr. Bach. Thank you for your question regarding that. The
    notion is not that the patient should pay more, and the work at
    the University of Michigan on value-based insurance design
    points to that directly. The notion is that the pharmaceutical
    company should capture a higher price if their drugs work
    better relative to drugs that work less well.
        But under value-based pricing, the central idea is that if
    the prices are linked to the benefits, then patient co-payment
    should be low, and therefore there should be access to high-
    quality drugs. Now, we cannot just make more money. So what
    this really is is a reallocation away from some drugs whose
    prices do not make any sense at all. They are vastly too high
    for the thin benefits they provide, which should free up money
    to pay for drugs that work well.
        Senator Stabenow. Yes, and I understand exactly what you
    are saying. What happens right now in the real world is that,
    if somebody needs it more, the price is higher.
        The Chairman. Senator Enzi?
        Senator Enzi. Thank you, Mr. Chairman.
        I want to thank the panel for all of the information in
    their testimony as well as what they have provided here.
        Ms. Sego, I am going to give you the name of my main
    diabetes advisor who has a son who has diabetes. He is in his
    20s now, but he found a way to work through a foundation to
    import insulin for a number of people at lower costs. And I
    think that you work through a foundation so that it would be
    legal. And I will share that with you.
        Ms. Sego. Thank you.
        Senator Enzi. Getting to a question: Dr. Miller, there has
    been a lot of interest lately in moving away from rebates and
    towards some form of up-front discounting and value-based
    payments. However, it might require some sort of a
    retrospective price concession that could be made on the basis
    of clinical outcomes.
        If we did move more towards up-front discounting, how could
    value-based payments still be a part of that system?
        Dr. Miller. I may not understand the question, but if you
    were to have a value-based price that was the price that was
    established or negotiated, whichever context we're talking
    about, whether we are talking about the commercial sector or in
    the public sector--I am not quite sure where--then that price
    would be the price that would carry through the supply chain,
    as opposed to right now where you have a list price, then a
    rebate price, and then a back-end adjustment.
        But I think the idea is that you would establish the price
    up front in your scenario on a value, and that value would
    carry through the supply chain--if I follow your question,
    which I may.
        Senator Enzi. I think so.
        Dr. Miller. Okay.
        Senator Enzi. Thank you.
        Dr. Bach, Medicare beneficiaries reach the catastrophic
    phase of their Part D benefit this year when they reach $5,100
    dollars in true out-of-pocket costs. True out-of-pocket costs
    include expenses like the annual initial deductible, and co-
    payments or coinsurance, but also include the 70-percent
    rebates that manufacturers are required to provide during the
    coverage gap.
        Mathematically, higher list prices mean that the
    beneficiaries reach the catastrophic phase faster because the
    percentage-based rebates and coinsurance that are paid by
    manufacturers and beneficiaries add up more quickly. Can you
    talk about how this affects the share of the drug spending that
    is covered by beneficiaries and Medicare, compared to plans and
    manufacturers?
        Dr. Bach. Yes, thank you for summarizing that. The
    interplay is complex, but the core notion and the core
    challenge with D is that, exactly as you said, the way the
    beneficiary moves through the phases of the benefit from
    deductible all the way to catastrophic indexes off of the list
    price of the drug, which is what the beneficiary routinely pays
    at the pharmacy and deductibles as a share of coinsurance.
        And because pharmaceutical firms can raise their list
    prices and make up for them with rebates to the plans, this
    allows the plans working in concert with the pharmaceutical
    companies to push patients more quickly into the catastrophic
    phase where Medicare provides 80 cents on the dollar with no
    risk corridor or gain-
    sharing or anything. We are about 12 years into this program;
    the risk corridors and particularly the reinsurance were put in
    place so that plans would have confidence when they cautiously
    stepped into D to provide it in 2006.
        They have now mastered the structure. So we should probably
    put that tail-end risk back on them, either as MedPAC
    recommended at the 80-percent level, or I would propose
    probably just putting that risk on top of them at this point,
    because they have clearly figured out how to bid in a way where
    they end up gain-sharing with excess profits on the risk
    corridor and capturing additional reinsurance from the Federal
    Government on the back end.
        Senator Enzi. Thank you.
        Dr. Miller. May I say just one thing on that?
        Senator Enzi. Sure.
        Dr. Miller. So you were sort of saying how much of the
    impact--5 years ago those people hitting the catastrophic cap
    were about 40 percent of the spend. Now they are 58 percent
    spend; more people are hitting the cap. We are up to about, I
    think, 8-9 percent of beneficiaries at this point. And most of
    them--and Doug made this point--there are different experiences
    in D, and some of the patients are dealing with more expensive
    drugs, being driven into the catastrophic cap, and most of that
    is driven by the price of the drug. It is more expensive drugs.
        The Chairman. Before I call on Senator Menendez, I stated
    in my opening statement that we had invited pharmaceutical
    manufacturers to this hearing, and I also said that they
    declined, except for a couple small ones. I want to make clear
    that Senator Wyden and I expect to invite them again, and next
    time we will be more insistent of their coming.
        Senator Menendez?
        Senator Menendez. Thank you all for your testimony. Ms.
    Sego, thank you for sharing your family story. I think there
    are many families in our Nation in that regard.
        And I hope in the future, in addition to the industry, we
    can speak with administration officials, Mr. Chairman, about
    some of these proposals and look forward to hearing what they
    have to say.
        For Doctors Bach, Holtz-Eakin, and Miller, would you
    support a proposal to cap drug price increases in Medicare to
    CPI and not medical inflation?
        Dr. Holtz-Eakin. A blanket cap of that type, I think, might
    have some unexpected bad consequences. It gives an incentive
    for a very high introductory price, no inflation thereafter,
    but the problem is, prices are already too high. And so I would
    prefer mechanisms that actually got lower introductory prices
    and provided enough competition to keep prices from rising.
        Dr. Miller. And I would agree with that. As part of a
    solution, there might be something of an inflation cap. But if
    you are not dealing with the launch price problem--and that
    might involve things outside of Medicare, you know--the anti-
    competitive behavior that leads to the high launch prices, you
    would want to consider it in a broader context.
        I would not reject it out of hand. But as a single
    solution, to Doug's point, I agree: not on its own.
        Dr. Bach. I would say in the absence of--I agree on all the
    list price or the launch price points. In the absence of the
    company producing compelling new data that their drug is more
    effective, for example, I would think that we should not see
    price inflation. But I think we should be open to the
    possibility that a company--for example, for a new indication
    with greater effectiveness or a better regimen with less
    toxicity--should be able to price their drugs based on the
    benefits they provide.
        That is not happening currently whatsoever. So it would
    require a shift to that kind of approach.
        Senator Menendez. Well then, let me ask you, Dr. Bach,
    about drug coupons. Manufacturer coupons, many suggest, distort
    spending, and insurance companies are cracking down on how the
    coupons affect enrollees' deductibles and out-of-pocket
    maximums. Many companies tout patient assistance programs as a
    way they help with drug costs, but access in that regard is not
    universal.
        I have seen the commercials on TV where, at the end, a drug
    company says, if you can't afford your medications, they may be
    able to help you. And often they provide coupons to help
    patients afford their medications.
        It sounds great, but I wonder if patients really save with
    these coupons. Is there a way to improve transparency and track
    use so that we know what role these coupons play in the drug
    marketplace? Who is winning with these coupons, because I often
    think it's possible that companies are actually getting sales
    that they would not otherwise get. And at the end of the day,
    they are making more than they would but for the coupons.
        Dr. Bach. Thank you for your question.
        I can assure you we know who is winning, and it is the
    people who are printing the coupons. And the problem is that we
    should be acutely concerned that patients can afford drugs they
    need, as we have already talked about all morning.
        And so it is very difficult to be critical when coupons
    step in and make drugs instantly affordable. But the reality
    is, they are artificial price supports. And insurers tack on
    high co-payments and coinsurance and put in utilization
    management to try to counteract pharmaceutical corporations'
    desire to charge high prices. And that is the dynamic in the
    market.
        And what is challenging now is that patients are entirely
    caught in the middle of that. So when coupons are used, they
    are used specifically to undo what the insurers are trying to
    do to counteract the higher prices of drugs. It is a lose-lose
    situation in the long run, but it is--like I said--very
    difficult to say we should not have coupons because we have to
    be concerned about the patient in front of us.
        Senator Menendez. One final question, Dr. Miller, on
    generic price collusion. There are reports generic companies
    work together to split the U.S. into territories and not
    compete against each other. I was a co-sponsor of the
    chairman's CREATES Act last Congress, and I plan to support the
    legislation again in this Congress.
        So I am concerned by the growing reports of anti-
    competitive behavior by generic manufacturers. What can be done
    to prevent the alleged anticompetitive practices that drive up
    prices for everyone?
        Dr. Miller. And I also think that this practice is not
    exclusive to the generic drug market. I mean, the practices
    that you are talking about--dividing markets up--that happens
    in the brand-name sector as well.
        So what you want to do is be able--and many people have
    already commented on this. You want to open pathways so that
    other competitors get in, create the ``pay-for-delay,'' which
    is also focused on these anti-competitive practices, and these
    agreements are a step in that direction.
        Senator Menendez. Thank you, Mr. Chairman.
        Dr. Miller. Could I say one thing on the coupons?
    Everything stands that he said. There are other things that you
    could do. Say, if you enter with a coupon for the patient, you
    do not drop the patient off when they hit their catastrophic
    cap. You have to keep paying once they hit the catastrophic
    cap. In other words, if you are in, you are in. You support
    that patient. You could also change the tax treatment of that
    coupon and say, if you are really into this, then do it out of
    your revenues, not a tax-subsidized revenue.
        Senator Menendez. Thank you.
        The Chairman. Senator Cardin?
        Senator Cardin. Well, thank you, Mr. Chairman, and I
    welcome your leadership on this committee.
        The Chairman. Thank you.
        Senator Cardin. And welcome to our five new members. And
    let me thank all of our witnesses for our first hearing. Drug
    pricing is certainly one of the top challenges we have in this
    Congress.
        Ms. Sego, again, many of us very much appreciate you
    putting a face on the issue. We hear the numbers, but it is
    important to see that each one of those numbers is a family
    that is struggling because of our inability to get proper
    control over drug pricing here in America.
        So I want to just try to simplify this a little bit. I
    really appreciate the nuances that have been mentioned here
    about our programs and how pharmaceutical companies can
    manipulate pricing in order to take advantage of our current
    system, and I certainly recognize that there could be
    unintended consequences to whatever we would do here. And we
    certainly want to make sure that we maintain access to the
    latest drugs here in America.
        But for drugs that are competitive, I am having a hard time
    understanding why we would not want to put in competitive
    pricing here in America, as other countries have by
    formularies, and have the largest possible purchasing power. I
    know we are restricted here on Medicare, but if you take all
    government purchases, it gives you the largest market share in
    the world, I believe.
        And therefore, for drugs that are competitive, we should be
    able to negotiate rather competitive international pricing,
    rather than having to go to Canada to buy discounted drugs. And
    I very much support what Senator Menendez and others have said
    about anti-competitive activities. We have to fight them
    aggressively and make sure that there are not steps being taken
    to compromise competition.
        In regards to those drugs that are not competitive, and
    that is the high-cost drugs, I fully understand that. I get
    that. I want to make sure they are available. But we should
    have some way of having either mandatory arbitration or value-
    based pricing in order to be able to get a handle on these
    drugs as they come into market. And remember, one day they will
    be competitive, and if we have a competitive model in place for
    competitive drugs, their costs will come down sooner, rather
    than later, as under the current structure we have in this
    country.
        Now, I will start with Dr. Miller and anyone else who wants
    to comment. Does this make sense? Would this bring down
    pricing?
        Dr. Miller. I mean, I think--okay. A couple of things. When
    your question started with competitive drugs, you said: ``Why
    doesn't the government broadly negotiate or intervene there?''
    You could take that path, but you also have to think about the
    administrative burden and complexity of negotiating the range
    of drugs that are out there with competition and ask yourself
    whether having a private intermediary might be a more efficient
    way to get there.
        Senator Cardin. I am not wedded to the government doing it.
    I do not mind an intermediary, but let them have the full
    complement.
        Dr. Miller. I mean, some people talk about that. They have
    an agent on behalf of the government doing the negotiations.
        So you could do that, but you still have to think about the
    administrative complexity of how many drugs you are talking
    about negotiating. Definitely in my comments, I was pointing
    you towards, particularly in Medicare, the ones where there's
    little competition and saying that that may be a more
    manageable basket of drugs to think about with value-based
    pricing or a binding arbitration approach that the government
    could approach.
        This assumes that the negotiation inside D is working well,
    which it is not right at the moment. If that is not going to
    get fixed, I think then we do have to talk about the kinds of
    things you are talking about.
        Senator Cardin. Dr. Bach?
        Dr. Bach. If I can add to that--Mark talked about D. If I
    can talk about Part B drugs, the issues of competition I
    mentioned in my opening remarks, there are some in my
    testimony, for example, about CAR-T therapies. There are a
    couple of CAR-T therapies aimed at the same part of the cell
    for lymphoma that Medicare will not treat as competitive
    products, but it could.
        And Medicare has tools at its disposal to cause price
    competition between these products, although it might need some
    help, if you will, to have the authority in some cases, such as
    putting the drugs in the same billing code so that, as the
    manufacturers compete over price, the average price would be
    lowered.
        They have had this ability to use least-costly alternatives
    as well just so that product competition in the same disease
    area with the same mechanisms could have drugs competing, even
    if they do not fall into the classic multi-source product
    category.
        Senator Cardin. Dr. Holtz-Eakin?
        Dr. Holtz-Eakin. So let me reemphasize what I said at the
    outset, which is, I do not think you want to look for a one-
    size-fits-all solution. Not all drug prices are a problem.
    There are some that are. There are some off-patent, sole-source
    drugs that are priced exorbitantly. And I have been confused
    for a long time as to why the FTC does not go after these
    folks. I have asked the staff as to why the legal foundation is
    not there to really take on what I think is anti-competitive,
    abusive pricing. And I would encourage you to look into that.
        The second thing is, there are these very high price
    specialty drugs, and those are the hardest thing to think
    about. And in terms of Part D and Part B, I would just want to
    echo everything that has been said. The Part D program has been
    enormously successful, but it could be reformed not using any
    single lever, but broadly with the catastrophic maximum,
    realigning incentives for the PBMs to negotiate effectively,
    and getting everything you can out of that program. That is a
    good thing. And on Part B, certainly separate out the physician
    reimbursement from the drug price. That makes perfect sense.
        I would be nervous about, for example, the administration's
    proposal on the international price index for the following
    simple reason: if you look at the study they base this on, it
    is based on 27 drugs that are available in the U.S. Only 11 of
    those drugs are available in the rest of the countries.
        And so you get what you pay for. And one of the things we
    get in the United States is access to the best therapies. And
    what they are not getting in those other countries is access to
    all the best therapies, and I would be careful there.
        The Chairman. Senator Hassan?
        Senator Hassan. Well, thank you very much, Mr. Chairman.
    And I want to thank you and the ranking member for welcoming me
    to the committee. I am so pleased to be here, and I hope to
    work with you and Ranking Member Wyden and all the members of
    the committee on the full range of issues under the committee's
    jurisdiction, including on efforts to strengthen Medicare,
    Medicaid, and access to affordable, quality health care.
        Obviously, lowering prescription drug prices is a big part
    of this. So I am very pleased we are having this hearing, and I
    want to thank all the witnesses for being here today.
        To Ms. Sego in particular, I know from personal experience
    how difficult it is to talk about one's children in public,
    especially when they need particular medical care or help. So
    thank you for being willing to do that, because you are giving
    voice to an awful lot of people, and we really need to
    understand your experience and the experiences of people with
    chronic illness all around our country. So thank you for being
    willing to do that.
        Dr. Miller, I wanted to start with a question to you,
    really to follow up on something that you said in your
    testimony. We have seen a lot of bad actors gaming the system
    over the years, really to pad their pockets. There are
    countless ways drug companies take advantage of loopholes, and
    taxpayers end up footing the bill. I certainly saw that as a
    former Governor. I know how hard it can be on States,
    especially when it comes to Medicaid.
        One way drug makers play games is with the Medicaid rebate
    program and the way they calculate rebates for what are known
    as authorized generic drugs, generic versions of brand drugs
    that the brand manufacturer itself produces and sells which are
    typically less expensive than the brand drug. When this was
    first explained to me, it really made my head spin, and it
    still kind of does.
        Drug makers can take advantage of a loophole in the law
    that lets them include the less expensive authorized generics
    in the calculations of how much they need to provide in
    discounts for brand drugs under Medicaid. And oftentimes they
    do this by selling their authorized generics at a lower price
    to their own corporate subsidiaries. Including these authorized
    generics in the calculation then lowers the amount in discounts
    a manufacturer needs to provide to Medicaid, meaning that the
    government ultimately is not getting the full discounts they
    should from the manufacturers, and neither are taxpayers.
        MACPAC has unanimously recommended that Congress fix this
    loophole. Now I know, Dr. Miller, that your expertise tends to
    focus on the Medicare area, but I am interested to hear your
    thoughts here. Do you think it is important that we prevent
    manufacturers from gaming the system, including fixing this
    specific issue?
        Dr. Miller. I agree. Your head is spinning--mine is too on
    these behaviors.
        I do agree. I tried to address it in my testimony. It may
    not have come across clearly. But yes, that misclassification
    of drugs is something that should be addressed, and I believe
    there is draft legislation floating around.
        Senator Hassan. Right.
        Dr. Miller. And that should be a step that is taken.
        Senator Hassan. Well, I thank you for that response. And
    speaking of Medicaid rebates, I certainly know that the
    chairman and ranking member have both been champions of fixing
    this classification. So I will be pleased to work on
    legislation around this issue and look forward to the
    committee's work to get it over the finish line.
        Dr. Miller, I also share another priority on drug pricing
    and health-care costs more generally, that I know both the
    chairman and ranking member have also worked on, and that is
    the need for more transparency, and everybody has talked about
    that here today.
        Well, we know that transparency alone is inadequate to
    address high drug prices and other health-care costs. We know
    that it can certainly play an important role. For example, we
    know that drug companies pay billions of dollars to physicians.
    Data gathered because of the Physician Payment Sunshine Act
    shows that in 2016 alone, drug and device companies paid more
    than $8 billion to doctors. These payments are in gifts and
    meals and travel, and speaking fees.
        Dr. Miller, I would like to know what you think about these
    drug company payments and how they influence prescribing and
    ultimately how they might influence patients?
        Dr. Miller. So I think we are talking about the
    ``Sunshine'' or what is referred to as the ``Sunshine''
    legislation. Back in the day when I was the Executive Director
    at MedPAC, we strongly recommended that and endorsed it,
    developed the design behind it that we put in front of the
    Congress. So we think that there should be line of sight for
    drug and device companies, their contributions to physicians,
    and other actors in the system.
        The one thing I would draw your attention to is, payments
    to patient groups are not tracked as part of that and should be
    added.
        Senator Hassan. I thank you for that point, and I look
    forward to following up on it with you.
        Thank you, Mr. Chairman.
        The Chairman. Yes.
        Senator Isakson, Senator Cornyn returned, so I have to call
    on Senator Cornyn first here.
        Senator Cornyn. Can anybody on the panel explain to me why
    we have a general prohibition against kickbacks, call them
    rebates, under the Social Security Act, but we nevertheless
    allow them for prescription drug pricing? What is the sound
    public policy reason for excluding prescription drug pricing
    from the anti-kickback rule under Federal law?
        Dr. Holtz-Eakin. I cannot explain that and will not pretend
    to.
        Senator Cornyn. I thought I was the only one who did not
    understand the wisdom of that.
        Well obviously, it is not a transparent arrangement. And it
    does produce upward pressure on drug prices, and obviously the
    negotiations between the PBM and pharma in terms of actually
    what the net cost is are not transparent nor do they deliver to
    the consumer. Dr. Miller? Dr. Bach?
        Dr. Bach. It is delivered to the consumer indirectly
    through the reduction of the total cost of the benefit, but it
    is not delivered to the actual consumer using the drug. And
    that is a disassociation that is a problem, because it
    essentially reverses the structure of insurance, lowering the
    total cost for people who use it the least and raising the cost
    for people who use it the most relative to what would be the
    case if you allowed the rebate to be used at the point of sale,
    including all discounts.
        Senator Cornyn. So in Ms. Sego's situation, if the pharmacy
    benefit manager pays a certain price but then negotiates a
    kickback or a rebate, that is not delivered to Ms. Sego or to
    her son as a cost savings for the insulin she has to buy;
    correct?
        Dr. Holtz-Eakin. That is correct. And I want to emphasize
    something about that situation. If we had the negotiation be
    about the up-front price, instead of a high list price and a
    rebate, you just negotiate a lower price. That would be the
    price that Ms. Sego would face. And insurance companies would
    look at that and say, ``Okay, she is not paying as much as she
    used to. We are going to have to make up that money somewhere
    else,'' and they might raise premiums.
        That means that people who do not have extreme insulin drug
    costs would pay a little bit more in a premium every month, and
    people who have extremely devastating medical conditions and
    high health-care costs would get less cost. That is exactly
    what insurance is supposed to do.
        And so this rebate system is more than giving strange
    incentives on pricing. It is undercutting the purpose of
    insurance in general.
        Dr. Miller. Keeping in mind that if it transfers to the
    premium, it is possible that the premium goes up. But remember,
    that is how the insurance company is marketing its product to
    the public. And so there is downward pressure on that premium.
        Senator Cornyn. Well, explain this to me. I thought the
    reason why we granted patents in this country to develop new
    drugs and new things, the reason why we gave people exclusivity
    when it comes to selling it, was based on the sunk cost they
    put in research and development, so they could recoup that back
    in the generic drug space. Once that patent expires, then the
    benefit is no longer exclusive, and so that means that, for
    example, the blood pressure medication I take, I think I pay $9
    for a three-month supply. It is very inexpensive.
        But those same benefits do not flow in the case of
    biosimilars like insulin, so it strikes me as bizarre that 100
    years after insulin basically was started to be used to treat
    diabetes, we still have a system which guarantees an inflated
    price even though the cost of the research and development,
    which I thought was the rationale in the first place, is
    inapplicable.
        So what am I missing? Dr. Bach? Dr. Miller?
        Dr. Bach. I do not think you are missing anything. And I
    think the issue is, we provide the monopoly protection and the
    exclusivity as a way for companies that successfully innovate
    to recoup their risk--you know, risk-adjusted return, which
    includes the money they sunk into research and development. And
    it is supposed to be for a time-limited period.
        And what you have focused on is that, in the space of
    biologic drugs, that period, which is supposed to be 12 years,
    is not 12 years for these biologic drugs. They maintain their
    monopolies well after it. Most analysts expect that smaller-
    market biologic drugs with less than, let us say, a billion
    dollars a year in revenue, which is a lot of money, but still a
    smaller market, those drugs are very unlikely to face
    biosimilar competition ever.
        And so, if you believe in the structure that the party ends
    at the end of exclusivity, the monopoly pricing ends, that is
    the reward period, you may want to examine taking a more
    aggressive stance on the prices of biologics when that period
    ends or when the patent period ends, and directly intervening
    on that price. And that would reconstitute the reward structure
    we have for innovative medicines.
        I think if you wait for this biosimilar process to play
    out, you will be perpetually unsatisfied by what it achieves.
    Even for large market drugs, we will not see the kind of price
    declines we could if we drove those prices down to marginal
    costs, which is the goal of competition.
        Senator Cornyn. Thank you.
        The Chairman. Senator Isakson?
        Senator Isakson. Thank you very much, Mr. Chairman.
        Ms. Sego, I have a question for you. And congratulations on
    being a wonderful mother and willing to come here and testify
    and tell us your story. When you can put a face on a story, it
    helps more than any professional degree that Dr. Bach or anyone
    else has. Although, I am sure he is extremely talented, and I
    am going to find out in just a second.
        Ms. Sego, did you ever have the manufacturer of your
    insulin drugs for your son--did you ever qualify for any
    program because of income level to get a benefit?
        Ms. Sego. No. We kind of fall within this window; we make
    either $100 too much or $500 too much. So we do not fall into
    any programs and we cannot use the coupons, the rebates
    everyone seems to be talking about. We cannot use those because
    we have employer-based insurance.
        I have had one success with that, and we got $25 off the
    vial of insulin.
        Senator Isakson. I asked that question because, when I
    first got elected to Congress 20 years ago, one of the first
    calls I got for constituent help was to get some help to get
    insulin for somebody who could not afford to get it.
        Ms. Sego. Yes.
        Senator Isakson. And I did my research as a new member of
    Congress to try to find a way to solve the problem and found
    out there were companies offering insulin at a deeply
    discounted price if the people qualified for it based on need.
        Ms. Sego. Yes.
        Senator Isakson. And that still goes on, does it not?
    Pharmaceutical manufacturers still create some availability of
    drugs for people who have that need and cannot afford it? Is
    that true or is that not true? I do not know.
        Dr. Miller. I cannot speak specifically to insulin, but as
    a general proposition--and some of this was taken up in the
    coupon questions--yes. Drug companies provide coupons to help,
    and they also have patient assistance programs that they use to
    try to help.
        Senator Isakson. It makes sense that they ought to, because
    they have done it in the past, I know. And people like Ms. Sego
    ought to be able to benefit from that.
        Yes, sir?
        Dr. Miller. Well, but there is this trade-off that I think
    Peter went through fairly thoroughly, which is, it does help
    the patient at that moment, but it allows the drug company to
    maintain the high price, and then that price is kind of baked
    into the system more broadly.
        Senator Isakson. The next question I want to ask deals with
    an experience I had about 2 weeks ago. My gastroenterologist is
    not Dr. Cassidy, but Dr. Cassidy is at the dais here, so he can
    correct something that I say if it is not correct.
        But I have a hiatal hernia. I have had that problem for
    some time, and I have a gastroenterologist who treats it. When
    it flares up from time to time, I have to go to him, and
    recently that took place. He gave me a prescription and I
    cannot believe I cannot remember it, but it is a 40-milligram
    yellow and round tab capsule. And Dr. Cassidy will think of
    what that might be. It is omeprazole, or----
        Senator Cassidy. Nexium? Prilosec?
        Senator Isakson. Prilosec--no. Omeprazole. No, not Nexium.
    [Laughter.] Anyway, that is not the point. The point is this. I
    was leaving town the next day. I had an appointment with the
    doctor, a follow-up. And he gave me--he said, ``I need you to
    stay on this for 30 more days. I am going to give you a
    prescription for 30 days.''
        And I said, ``Well, I have to go out of town.'' And he
    said, ``Well, you can go by the drug store on the way home and
    they will get it, and we will call them.'' I said, ``Okay.''
        And so I gave them my cell phone number, because it was
    going to be about 30 minutes before I could come back by and
    pick up the written prescription. When I did he said, ``I
    cannot--your price is $309 for 90 days. That is all that your
    insurance coverage will allow it to be done.''
        I said, ``Well, that is crazy, because last time I think I
    paid $30 or $20 or something like that.'' He said, ``Well, it
    is a part of this negotiation stuff,'' and it was after January
    1st, so it all changed from last year's benefit program.
        In the end--what I wanted to make a point of is--he said,
    ``Well, there are lots of different things. Let me see what I
    can do,'' and this is the pharmacist.
        A half hour later, he called me back and said, ``Well, I
    got you $7.50 for 30 capsules. I got the $309 that you had
    before, and then there were 3 other offers in between those
    numbers.''
        And there are different reasons for them, but is there that
    much difference that goes on between the pharmaceutical
    manufacturers or the PBMs or whomever it is and the insurance
    company and the patient? Is that an odd example, or does that
    happen all the time? I just do not know.
        Dr. Bach. I think my various graduate degrees allow me to
    answer that question, and the----
        Senator Isakson. I would not know the right answer from the
    wrong, but I know it is a problem for me, and I want to try to
    find out what the answer is.
        Dr. Bach. No; I apologize for being light-hearted.
        Senator Isakson. No, that is good.
        Dr. Bach. The issue is highly complex, and it is not just
    with the pharmaceutical manufacturer. But there are many
    transactions behind the one that you just discussed, including
    that the pharmacy is buying medicine through different means.
    Some are reconciled through the pharmacy benefit managers,
    others are not.
        And so in one way, it is very pleasing to hear that you had
    the price transparency you did at the counter to have some
    options. But the reality is that it is not ideal that patients,
    many of whom are on many medications, have to deal with this
    very complicated shopping which makes buying an airline ticket
    seem simple.
        Senator Isakson. I respect that answer and I understand
    that answer, but I do think--my time is up. It is so
    complicated. I am not a really smart guy anyway. It is beyond
    me.
        And I know that for a lot of the people--the constituents I
    have--it is way beyond them, so complex. When we have these
    hearings, we talk about things we might do. When I go back the
    next night and try to remember what was said, I cannot remember
    what Doug said to beat myself--so it is mind boggling. We can
    simplify it in some ways and get the consumer involved.
        It seems like we would have more price pressure, favorable
    price pressure, than anything else. But I appreciate the time.
        Thank you, Mr. Chairman.
        The Chairman. Senator Cortez Masto?
        Senator Cortez Masto. Thank you, Chairman Grassley and
    Ranking Member Wyden. Thank you for the welcome. I also look
    forward to working with you and all of my colleagues and so
    appreciate the hearing today.
        So thank you to all of the panelists. This has been very,
    very informative.
        Let me--Dr. Bach, I have only got about 5 minutes. Let me
    talk to you a little bit about Medicare Part B.
        In 2014, the Obama administration proposed a demonstration
    project to test changes to Medicare Part B drug reimbursements
    in an effort to diminish incentives that drive doctors toward
    high-cost drugs. At the time, stakeholders--and many of my
    colleagues--expressed concerns that the proposal would
    negatively impact patients' access to critical therapies.
        This administration has made another attempt to test
    changes in Part B. That proposal has also been met with
    concerns about patient access. Both real and perceived threats
    to beneficiary access are one of the most fundamental
    challenges that we face in enacting meaningful policies to
    combat high drug costs.
        So, Dr. Bach, you have advocated for such models to move
    forward. What makes you confident that we can keep
    beneficiaries safe in the process, and are there guard rails or
    beneficiary protections that we should be considering?
        Dr. Bach. So, thank you for your question. There are two
    different proposals, the one that came in the Obama
    administration, and the more recent one. But let me say about
    Part B drugs that one of the core distortions is that
    physicians and hospitals are paid a percentage markup in
    reimbursement above the average cost of acquiring the drug.
        And that creates the reality that if you use an inexpensive
    drug, your markup or your profit is a smaller total number than
    a drug that is very expensive. And you could say these are
    small effects, but every study--and I have included links in my
    testimony to this--that has looked at this has shown that
    prescribers are, in fact, influenced by this and tend towards
    the more expensive drug.
        Now even that you could say might be okay if they are
    equivalent, but it creates actually a problem, because then the
    manufacturers have a way of building market share by raising
    their prices. So you have an upside-down system where, ideally,
    the users are incentivized to use lower-price products and pull
    down prices, and the sellers are always, of course, trying to
    raise prices. We now, instead, have alignment that will raise
    prices.
        What was proposed in the prior administration that is
    shared with the current proposal is that we should dispense
    with, or at least get a hybrid version of that markup, which is
    either a smaller percent, plus a flat--if you will--handling
    fee, or entirely go to a handling fee so that at least that
    proportional profit incentive disappears or is attenuated
    enough.
        In my testimony, I walk through why it actually makes sense
    to have a very small percentage markup having to do with
    financing and bad debt risk.
        What has also been proposed--and it was part 2 of the Obama
    proposal and is in this proposal--is the idea of actually
    pulling the ownership away for expensive drugs from the doctors
    and hospitals entirely so that a vendor, another party, would
    send drugs. When the doctor had got them, they could use them,
    but they would never own them. They would never bill for them.
    They would be completely separated from the economics.
        That is a very attractive idea. It was originally in the
    2003 Medicare Modernization Act under competitive acquisition.
    And what is appealing about it is that it would allow
    purchasing entities that were much bigger to negotiate
    aggressively.
        They could do sophisticated things like have indication-
    specific pricing. And they would allow doctors to do what they
    are best at, which is practice medicine, and not get involved
    in the finances of these often hundreds of thousands of dollars
    of drugs.
        Senator Cortez Masto. Okay.
        But is there some concern about patient access? That is
    what I was hearing. And I do not disagree with what you just
    said. I am concerned with patient access as well.
        Dr. Bach. I apologize. I managed to talk for 3 minutes
    without answering your question.
        Senator Cortez Masto. That is all right.
        Dr. Bach. The concerns about patient access are marched out
    every time there is an attempt to reform Part B and take away
    the proportional profit. We have some research on our website I
    can send you as well. We have examined the various claims, such
    as, if you decrease the proportional markup, doctors will leave
    Medicare or they will shift patients to the hospital outpatient
    department.
        Because of sequestration in 2013, I believe, we actually
    have a natural experiment. There was a shock to reimbursement.
    It fell by 2 percent, unanticipated. None of the concerns that
    were raised with doctors dropping from the program or shifting
    their patients to the outpatient department in hospitals or
    anything actually occurred. So I would be fairly confident now
    that we have that data to say that going to a more rational
    system is very unlikely to impede access.
        Senator Cortez Masto. Thank you.
        Dr. Miller. One thing very quickly.
        If you lower the price in many of the ways that Peter said,
    the beneficiary's co-payment goes down.
        Senator Cortez Masto. Okay. Thank you. Thank you, Mr.
    Chairman.
        The Chairman. Yes. Thank you.
        Senator Toomey?
        Senator Toomey. Thank you, Mr. Chairman.
        And thank you very much to the witnesses. This is a really,
    really important and useful conversation, certainly for me.
        I want to just briefly follow up on this discussion. We
    have had several iterations of this, and it seems to me on
    Medicare Part B, if we used the markup rather than the
    percentage approach we use now, if we had a mostly flat amount
    or an entirely flat amount, you could set that at a level that
    would be equivalent to what we pay now. And from a government
    accounting point of view, the score would be the same in terms
    of that direct payment, but having changed incentives,
    presumably over time, there would be a savings.
        Does anybody on the panel disagree with moving Part B drug
    reimbursements in the direction of a mostly flat fee?
        No? Well, I think that is an idea whose time may have come.
        I did want to also step back for a second, though, and make
    sure that we are all looking at this the same way, if that is
    possible. Specifically I am talking about the--it is
    indisputable that prescription drugs are enormously expensive
    and can be enormously problematic for many families. We heard a
    very compelling case from Ms. Sego.
        But when I have looked at this compared to other countries,
    it is not clear that this is a problem specific and unique to
    the United States. Let me just show you a couple of charts that
    I think are interesting.
        This is an illustration--this is from the OECD, and it is a
    chart that shows the percentage of overall health-care spending
    that is constituted by retail pharmaceuticals. And if you look
    at that, the United States is the red bar. We are actually
    towards the lower half compared to OECD countries. Gold
    countries are G7. The blue are OECD. And as you can see, most
    of these countries have a higher pharmaceutical spending rate
    relative to overall health-care spending. I was surprised to
    see this.
        There is another chart that I want to take a quick look at
    here. Because the more important fact for most of my
    constituents is, what is their out-of-pocket cost? And if you
    look at out-of-pocket spending, it is actually a similar story.
    This data comes right from the OECD website. As a percentage of
    overall health-care spending, the U.S. has the second lowest
    out-of-pocket spending among all OECD countries.
        There is no question we have very high spending, but it is
    much lower than most of the rest of the modern developed world,
    which just tells me that we must have enormously high costs
    across the board, right? We must have high hospital costs, we
    must have high physician costs; we have high costs everywhere.
        And as it happens, as a percentage of everything we are
    paying, the pharmaceutical problem is actually not as big as it
    is in most of the rest of the world. So just briefly, I do have
    another question. Does anybody--am I missing something? Do you
    disagree with this? Is there--Dr. Miller?
        Dr. Miller. I would qualify some of it. First of all, the
    statement of 10 percent or what you were looking at originally
    as a percentage of spend, if you use national health
    expenditures, which is what feeds into that OECD, I believe,
    then you are missing a significant portion of the spending that
    occurs in physicians' offices, and in hospitals and other
    settings. So it is only part of the total spend.
        Senator Toomey. Right. But the methodology, that is true
    for the U.S. and for the OECD countries.
        Dr. Miller. I would be careful about doing those cross
    comparisons. I am not expert enough to tell you that that is a
    comparable number. And then the other thing I would say is, you
    are looking at percentages--and I think you made this point at
    the end of your comment--that I would track on very carefully.
    Yes, but total spending--and it not just drugs. It is
    hospitals, physicians, everything else. We pay top dollar for
    everything in this country. You are definitely right on that
    point.
        Senator Toomey. Dr. Bach, did you----
        Dr. Bach. This is why I emphasized we do not have a broad-
    based drug pricing problem. There are places we have it. It is
    largely these inpatient Part D reimbursed drugs. Those are the
    things to focus on.
        Senator Toomey. Yes.
        Dr. Bach. I was just going to add, a better number for
    total pharmaceutical spending is about 14 percent of total
    health-care spending. That incorporates the numbers that Mark
    was just mentioning: inpatient and medical benefit drug. So it
    is 50-percent higher than on that chart.
        Senator Toomey. Right, but it might also be for the other
    OECD countries. That is my only point.
        So look, this is not to suggest that we do not have a
    problem here. But I think it is something we ought to be
    thinking about, especially if we are thinking about some
    radical change.
        Last point--I suppose I am not supposed to do this, Mr.
    Chairman, so I will leave it at that, but I would like to
    follow up with some of you on some Medicare Part D issues.
        Thank you, Mr. Chairman.
        The Chairman. Senator Lankford is next.
        Senator Lankford. Mr. Chairman, thank you. And for all of
    you here and the research you have done, and for what you have
    already done for your son and your family, I thank you for
    being a part of this dialogue today.
        Oklahoma is currently in the process of doing a values-
    based pricing model. And it is something we have experimented
    with, started that process, got the waiver to be able to do it,
    and we are to start reimbursing for drugs based on how well
    they work. And if they are not working, they get a lower cut on
    it.
        So it will be an interesting model. We will come back and
    try to give you more data, as I hope we can interact on this in
    the days ahead based on what we are doing in our State with the
    Medicaid program.
        Dr. Holtz-Eakin, you mentioned earlier about 340B being
    what you thought was a driver of an increase in cost overall,
    then did not have a chance to be able to fill in the gaps. Why?
    Why do you think the 340B is a perverse incentive there?
        Dr. Holtz-Eakin. Well, it has just grown enormously. And
    when you evaluate the program it should be, do the benefits of
    lower cost, do the discounts that are provided by drug
    companies in the 340B program, flow through to lower-income
    Americans who need the help?
        The answer is ``no.'' There is nothing about that that
    flows the benefits through. So you have this program which has
    large amounts of discounting, which is helpful to the hospitals
    and others who are benefiting from it, but it forces drug
    companies to raise prices elsewhere and feeds the general
    upward pressure in other parts of the sector. It is a classic
    example of how we are shifting costs around, not dealing with
    the underlying costs.
        Senator Lankford. Okay.
        Back to the previous comments we have had about rebates. If
    you are going to participate in the Medicaid program, you have
    to give a rebate. You have to give rebates as a part of that
    formulary.
        What is a better way to handle this, or for us, is it just
    a matter of stepping in and saying rebates were an experiment
    that has been done for decades and needs to go away?
        Dr. Holtz-Eakin. As I said in my other remarks, I think
    there is a real problem with the Medicaid best price
    formulation to begin with. It really does inhibit the
    incentives of firms to compete aggressively because, if they do
    that, they then have to pass that along to the Medicaid
    population as well.
        I think you do not think about the rebate in isolation. You
    have to think about what kind of competitive pressures you want
    to build into these systems. And we do not have good
    competition.
        Senator Lankford. But then you have to have a situation
    like what we have in Oklahoma where we compete--Medicaid
    actually competes to be able to get a drug discount. We do not
    do PBMs. Other States have PBMs for Medicaid. We do it as a
    State to be able to do that and be able to compete for a better
    price, and actually beat the price for a lot of PBMs.
        Dr. Holtz-Eakin. And if the State is willing to say ``no''
    to some, and ``yes'' to others, and not have to honor every
    drug on the market, then you can do that effectively. You can
    actually negotiate.
        Senator Lankford. Right.
        Thoughts from Dr. Miller on rebates?
        Dr. Miller. Yes, so I guess a couple things that I would
    say on the rebate as it relates to Medicaid, keeping in mind
    that this is a public program and a taxpayer dollar. I think
    the motivation in requiring a rebate from the manufacturer is
    to try to get a good spend on the taxpayer dollar.
        And the only thing I would say is, if you are going to
    abandon the rebate, which will double your costs as a budget
    expenditure, then you need to have a very aggressive structure
    to make sure that the prices coming into that program are not
    as high as they currently are. And I am not quite sure how to
    advise you on that.
        Senator Lankford. And we have talked a lot about how we
    actually get the rebates to the actual consumer who is most
    affected by them. And I think that is part of this long-term
    getting out of the Medicaid portion of it, getting over to the
    private side of it.
        Dr. Miller. Yes, that----
        Senator Lankford. That is a different issue. But this has
    become extremely complicated.
        Several of you have brought up--and several of us have
    brought up--this issue about a flat fee, basically, for doing a
    prescription rather than a percentage. That is currently in the
    Medicaid program right now for the pharmacist.
        The pharmacist does not get a higher amount based on the
    cost of the prescription. They get a flat fee as a pharmacist
    regardless of what the cost of the prescription is, just to do
    the dispensing.
        It seems odd that the physician is not in that same spot
    that the pharmacist is in, that somehow we think flat fees are
    okay with pharmacists, but flat fees are not okay for the
    person actually writing the script on it. Does that seem odd?
        Dr. Bach. I think we have all agreed that the physicians
    getting a percentage of the drug's price is not good policy.
        Senator Lankford. Okay.
        Dr. Miller, you made a comment in your written testimony as
    well trying to dispel this argument that the high cost of drugs
    is based on R&D. You made the statement that between 2013-2017,
    the five largest U.S.-based drug companies spent substantially
    more on marketing and administrative costs than on research and
    development.
        Dr. Miller. That is right.
        Senator Lankford. What do you include in the administrative
    cost there?
        Dr. Miller. I am not sure I can book this through for you
    right here. But we are talking about things like marketing
    costs, advertising costs. Those are included in the number that
    we were putting together.
        I can come back to you and give you the detail on what we
    put in. I just cannot do it off the top----
        Senator Lankford. Sure. That is fine.
        But are you trying to push back on the issue of everyone
    who says the drug cost going up is because of R&D actually is
    not comparable, because administrative costs and marketing
    costs are as high as their R&D costs?
        Dr. Miller. I am trying to say a couple things, and I
    appreciate the opportunity to spell it out.
        Senator Lankford. Sure.
        Dr. Miller. The first thing that I would say to you--and
    again, this draws on Peter's research--the revenues that come
    out of the United States exceed R&D revenues by something like
    70-75 percent, somewhere in that range. So the first point is,
    when people say R&D is driving these prices, there is a big
    disconnect in that.
        The second point we are trying to make with that is, we
    looked at specific companies and said, how does your R&D look
    relative to other expenditures in your company? And we found
    many companies in which they are spending much more on
    advertising, marketing, and other administrative expenses than
    they are on R&D.
        Senator Lankford. Okay. Thank you.
        The Chairman. Senator Thune?
        Senator Thune. Thank you, Mr. Chairman, for holding the
    hearing and all of you for being here today.
        This is an issue that we all hear about from folks back
    home. It is a front and top of mind issue for a lot of our
    constituents.
        The President has expressed his interest in tackling this
    issue, and I hope that we will have Senators on both sides of
    the aisle who are interested in finding solutions that promote
    competition, ensure access to needed medicines, and reduce
    costs for patients.
        Dr. Miller and Dr. Bach, you each referred to the
    possibility of shifting incentives in the current supply chain
    in such a way that patients recognize a greater benefit at the
    pharmacy counter. Would you elaborate a little bit further on
    how that could work and what implications there would be
    elsewhere in the supply chain? And maybe particularly too, how
    does it impact competition in Part D?
        Dr. Bach. Thank you for your question. The area that was
    being discussed was particularly that patients in Medicare Part
    D pay the price that is negotiated by the Part D plan. So let
    me explain what that is.
        As has been mentioned several times today, the majority of
    the price concession that Part D plans get from pharmaceutical
    manufacturers comes in the form of a rebate given back to the
    plan after the prescription is dispensed. But the way the
    beneficiary experiences the price is essentially list price. It
    is slightly different than that, but for argument's sake, it is
    a list price.
        So when they earn their deductible and they are paying
    every dollar of that price, if they are taking a drug that has,
    let us say, a 50-percent rebate, they are paying a dollar even
    though the plan has achieved a price of 50 cents.
        The notion of point-of-sale rebates is that instead, when
    the beneficiary comes to get their medicine, that 50 cents the
    plan is eventually going to get back is subtracted from the
    cost that the patient pays. Now the the issue is, that 50 cents
    has to go somewhere. And it will go back to the plan, which
    means it will go back to Medicare. And Medicare pays, you know,
    the majority of the Part D plan costs, about 75 percent or so.
        So it means shifting the burden of those costs. But as Doug
    mentioned, right now the system is structured--because of high
    list and high rebate prices--to push more than, if you will,
    the fair share of prices on to patients who take expensive
    drugs and take a lot of them. And they are paying more than
    that negotiated price. They are ending up paying more than the
    share that the program was originally designed to put upon
    them.
        And the beneficiaries, whose major expenditure is premiums,
    are each getting the savings as well as the taxpayers more
    generally. But from a proportional perspective, it is very
    expensive for the few who really need the benefit, and the
    savings to those who do not need it as much are really quite
    slight.
        Senator Thune. Anything to add, Dr. Miller?
        Dr. Miller. The only thing I would add is, you could turn
    this around in some of the ways all of us have mentioned, I
    believe, which is start with a discounted price, and then you
    do not have--because you are figuring out how to deal with this
    rebate and distribute it differently.
        The other way is to start with a discounted price as it
    moves through the supply chain, so that the person who faces
    that at the counter is paying that discount price, the PBM is
    working with the discount price, the program, the
    manufacturer--it is one discounted price throughout. It is not
    all this back-end action.
        Senator Thune. Yes, it seems like--what we are talking
    about, obviously, is just shifting around, redistributing where
    the costs in the whole system are. And I guess the question is,
    how does that actually lower drug prices to the consumer?
        I mean, it would for some, obviously. But you would be
    shifting it on the backs of others.
        Dr. Holtz-Eakin?
        Dr. Holtz-Eakin. In the Part D program, though, I think all
    of us have emphasized you could take the standard arrangement
    where there is a catastrophic maximum--and right now, above
    that, the taxpayer is on the hook for 80 percent of it. And the
    plan itself is on the hook for very little. You could change
    those incentives so they put the plans on the hook for those
    very high costs, and the contribution that the drug companies
    are currently making, which is in the coverage gap, put that in
    the catastrophic region. Now, both of those actors have
    incentives to keep the drug prices lower.
        And that would be a beneficial change that just in the
    moment would rearrange--and I am sympathetic to your
    observation you do not just want to rearrange costs, but it
    would improve the incentives over time. And that is a good
    idea.
        Senator Thune. That is how you lower it. Okay.
        I am running out of time here quickly. But very quickly,
    Dr. Miller, I would like to hear a little bit more about how
    the Foundation thinks that this concept of greater transparency
    in pricing and producing alternatives to older medicines that
    have become costly due to the lack of competition actually will
    work to disrupt the markets, and if there is anything we might
    be able to learn that is applicable to the broader drug pricing
    discussion.
        Dr. Miller. Well, so is this a transparency question, or is
    this a----
        Senator Thune. Yes; I mean, it is kind of what your
    organization is trying to do----
        Dr. Miller. Okay.
        Senator Thune [continuing]. The Arnold Foundation, along
    with other health systems that have committed to financial
    support, for example, Civica Rx, the not-for-profit generic
    drug company's focus on producing affordable generic
    medications that oftentimes are in short supply at hospitals.
        Dr. Miller. Okay. There could be a few things happening
    here. Let me hit a couple of them.
        So one is that, in terms of transparency, I think the way
    we think about it--and a couple of things have already been
    touched on, certainly keeping track of contributions to
    providers and to patients; we think that is relevant. We also
    think having greater line of sight on the part of the program,
    think of Part D in particular, of the fees and rebates in the
    supply chain and how those are allocated back to the
    government, is another place where you could have line of
    sight.
        But then the Civica Rx point was, we were trying to support
    a group of health systems to enter the--particularly, the
    shortage generic market, become a manufacturer in and of
    themselves and be able to sell to their members to overcome
    some of the shortage drugs in that particular place.
        And we saw that as disruptive to the generic market, where
    it had come down to a very few manufacturers, and prices were
    rising.
        Senator Thune. Thank you.
        Dr. Miller. That was some of it anyway.
        The Chairman. Senator Young?
        Senator Young. Thank you, Mr. Chairman.
        Once again, I want to acknowledge Ms. Sego. Thanks for your
    advocacy here today and for putting a real human face on this
    topic. It reminds us all why we are here. So thank you. You are
    doing the Hoosier State proud.
        Dr. Holtz-Eakin, in your testimony you discuss the drivers
    of drug spending. And one point of emphasis is the key factor
    of utilization, increasing utilization. And you note that
    Americans are getting older, we are living longer. Those are
    good things, but they can also lead to an increased burden of
    utilization, especially since so many of our elderly have
    chronic conditions.
        In fact, you note that, as of this year, 60 percent of the
    United States adult population had been diagnosed with at least
    one chronic health condition and 40 percent had two or more
    chronic conditions. Managing these conditions--you go on to
    emphasize--has been primarily done through the use of
    pharmaceuticals.
        So, since 75 percent of overall health-care spending can be
    attributed to treatment of chronic diseases, what strategies
    might be employed to address this upstream issue, this
    preventive issue? Obviously, increased public investment in
    research comes to mind, public education campaigns about the
    impacts of various social and environmental determinants of
    health. Are there other things that we are not doing as
    policymakers that you think we ought to be doing?
        Dr. Holtz-Eakin. So I think that the public education on
    the impact of lifestyle on the incidence of chronic disease is
    an important aspect of this. You can go further in some
    circumstances. We see employers do this who are in the
    employer-sponsored market, using carrots and sticks to have
    people stay on that adherence to medications once they are on
    them, have smoking cessation programs, other things like that,
    to avoid getting into that position. Some go as far as to do
    monitoring of fitness and other things to give you incentive.
        So there are a lot of things which, on various small
    scales, people have tried, and with some evidence of success. I
    do not think we have yet the definitive body of research
    knowledge to be able to tell you in any sort of honest way what
    could a Federal, State, or local government do on these sorts
    of social determinants of health that would be broadly
    effective over long periods of time.
        But that is certainly something that is important and on
    the agenda for learning more about.
        Senator Young. Right. Perhaps to lay a predicate for that,
    we should make sure there is an adequate financial incentive
    for people to go out and figure this out as well. Okay.
        Do you think a market incentive exists to crack this? The
    difficult challenge is, to the extent one can address, you
    know, drivers of increased utilization and the acquisition of
    chronic conditions--if you are incented to come up with new
    ways and grow a body of research around this, then we are going
    to save taxpayers a lot of money and improve the human
    condition substantially moving forward, right?
        Dr. Holtz-Eakin. So, I want to make sure I answer this
    carefully because----
        Senator Young. That is fine.
        Dr. Holtz-Eakin [continuing]. There are a bunch of
    different possibilities. One are things that--incentives--you
    could give me for the way I conduct my life, allow me to make
    myself healthier over the course of a lifetime. Those are
    certainly things where I think economists would believe that
    you can generate such incentives.
        Insurance companies, if for example, they had contracts
    over long periods of time as employers often do--they have
    employees for a long period of time--you have an incentive then
    to sort of do that.
        There is a second set of issues which are genuinely social
    in nature, and environmental in their character. And it is very
    difficult for an individual set of incentives to address those.
    Those require some sort of governmental intervention,
    collective intervention. The Arnold Foundation can figure it
    out, something like that.
        And then there is the third, which is the research
    enterprise. And I think we have lots and lots of evidence that
    the research world is healthy and investigating these things,
    and I do not think there is any additional need there.
        Senator Young. Please.
        Dr. Miller. Two quick things I would say.
        One, a lot of our payment systems in the public programs do
    not encourage thinking across medical, pharmaceutical, social
    types of services. And you could think of payment structures
    there that at least allow some more of that to happen.
        And the other thing is, and this is a little more
    philosophical, and I will be very short. This does raise this
    whole question of trade-offs in the environment like, do you
    want to put your spending here in drugs or would spending in a
    social context on some of the issues that you raised be a
    better investment for society?
        The Chairman. Senator Daines?
        Senator Daines. Thank you, Mr. Chairman, and thank you for
    your attention and commitment to this issue so important to
    Montanans and Americans across the country.
        I am very pleased that the first hearing of the 116th
    Congress is focused on examining prescription drug prices. I
    spent 13 years working for Procter and Gamble. That was once
    somewhat of a pharma company, and they got out of
    pharmaceuticals for a lot of different reasons.
        The high cost of prescription drugs is an issue that folks
    back in Montana call me about frequently and write to me about
    a lot. In fact, an elderly couple recently told me the cost of
    one of their medications that they rely on increased 300
    percent just over the last 2 years.
        Mr. Chairman, I look forward to working with you and
    members of this committee to find out how we can make sure the
    consumers can afford the medications that they depend on.
        I recently had the opportunity to meet with Secretary Azar
    and discuss President Trump's drug pricing blueprint. I am
    encouraged that this administration has put forth ideas and
    received stakeholder input on ways to lower costs for American
    patients. I do want to ensure, like I think every member of
    this committee does, that we protect access to critical
    medications and continue to support the innovation that we want
    to see to develop the next generation of new and life-saving
    medicines.
        Ms. Sego, thank you for being here as well. The stories
    help a lot to put a face and some background here to what
    sometimes can become very much of a ``boil the ocean'' kind of
    challenge we have here finding ways to lower the cost of
    prescription drugs.
        Dr. Holtz-Eakin, I want to come back to your testimony. I
    think you were asked what were the number-one priorities you
    would focus on here that might have the greatest impact on
    lowering drug costs that we can move forward with on a
    bipartisan basis.
        You mentioned the 340B reforms as one of those items.
        Dr. Holtz-Eakin. So I want to be clear. I do not think I
    want to say that it is going to be the biggest driver of costs
    or anything like that. But it is a program under your
    jurisdiction. It is not a program that is meeting its
    objectives, in my view, very well, and it tends to raise
    prices.
        So you ought to first start with things which are
    artificially raising prices, fix them, and then worry about
    what you can do to----
        Senator Daines. So if you are thinking of one or two things
    that are artificially raising prices, where would you tell this
    committee to look?
        Dr. Holtz-Eakin. I started with 340B. I am worried about
    the structure of the Medicaid best price provision and the
    things that have been--you know, 340B came about because of
    Medicaid best price. There used to be genuine charity on the
    part of pharmaceutical companies. They would give the drugs to
    hospitals for low-income individuals. Once you passed Medicaid
    best price, that best price is now zero if you make a
    charitable donation. Charitable donations dried up--unintended
    consequence.
        So now you created the 340B program. The 340B program is
    growing like mad, and it hardly looks like something that would
    be low-cost charity to deserving individuals. And so I worry
    about government programs with unintended consequences taking a
    situation where demand is growing, supply is expensive, and
    making it worse.
        So my suggestion first is in the spirit of, do not make it
    worse. And then try to do other things to make it better:
    reform the Part D program, do not pay physicians----
        Senator Daines. That sounded like, to Congress, do not make
    it worse. That is wisdom.
        Dr. Holtz-Eakin. It's what I do.
        Senator Daines. So Senator Angus King, he once said in one
    of our committee hearings on the resources side, he said
    oftentimes there is no such thing as a silver bullet, but it is
    silver buckshot. And the thing is, as we look at this
    situation, it is going to be a number of different items we can
    work on here, versus the one single thing.
        I was struck, Dr. Bach, in your written testimony here,
    that 1 percent of total prescriptions, specialty drugs, account
    for about 40 percent of the total spending. One percent is 40
    percent.
        So that tells me as we think about trying to solve this
    problem around--it cannot be some kind of a blanket approach.
    We have to take a look at specifics here.
        And I guess I am looking for direction in terms of what we
    tell this committee--what are the three or four, perhaps, drugs
    that are widely prescribed? Insulin is a great example here as
    one, perhaps, but what others are widely prescribed that we
    should look at, which should be case studies around what we can
    do here to put better policy forward at a lower cost?
        Dr. Bach. Yes; thank you for your question.
        What that statistic illustrates is exactly what you have
    just pointed out, that we do not want to go boil the ocean when
    we can use focused policy to deal with certain categories of
    drugs that are really driving spending and actually account for
    very few prescriptions relative to the rest, if you will.
        I do think diabetes and the medications for diabetes are
    not only a case study but a problem of substance in and of
    themselves, not only for Ms. Sego and for specific patients,
    but at a general spending level as well. And so I think it is a
    category large enough that it is worthy of specific solutions.
        I feel the same way about the treatments for hepatitis C,
    which is why I brought up earlier our subscription-based model
    that we nicknamed Netflix, because it is a condition worthy of
    a bespoke solution.
        But I do think this issue of single sole-source drugs
    having essentially no downward pressure on their prices--and
    for many of the things we listed, actually things within the
    system that drive up their list prices and increase market
    share as a result--is a good place to start.
        I want to say one other thing. I hesitate to disagree with
    Doug, so to be clear, he and I are in complete alignment that
    the 340B system is problematic on multiple fronts. My concern
    is how it distorts the commercial market. And because it
    increases the arbitrage for hospitals to buy physician
    practices, they then pass on their higher insurance rates that
    are negotiated onto those doctor's services, and that is
    inflationary on the commercial side.
        I do not believe--although I do not have an advanced degree
    in economics--that the bigger discounts given in 340B drive up
    drug prices outside of 340B. The profit maximization is local
    to them. It is true about Medicaid best price, but not 340B.
        The Chairman. Senator Cassidy?
        Senator Cassidy. Ms. Sego, I am a doctor. I took care of
    the uninsured for many years. Thanks for putting a human face
    on that which otherwise could be abstract.
        Ms. Sego. Thank you.
        Senator Cassidy. Secondly, rarely do I enjoy being the very
    last of a long series of questions, but I learned from all. So
    I appreciate that.
        Peter, great to work with you on the Netflix model. It is a
    silver buckshot. It is a piece of buckshot that hopefully will
    help.
        Several things; Dr. Holtz-Eakin, obviously you have a
    problem with the international reference pricing. I actually
    put that on my website about 8 months ago suggesting it, and I
    was amazed that the administration brought it up, because it
    seems so aggressive. So I am going to explore that a little bit
    with you.
        Peter Bach, just before he disagreed with you, made the
    point that the issue is sole-source drugs for which there is no
    competitor and there is no ability for the PBM to leverage a
    rebate. So what do we do about those? If it is that subgroup of
    international reference pricing for which there is a rich
    wealthy country which has it--and I accept the limitations that
    you point out. We also have Croatia, for example, Slovenia.
        But if we just took Italy, Germany, Great Britain, France,
    and Canada, why should we be paying so much more than just
    those countries for example? And if not, what is the
    alternative mechanism to lower the price?
        And by the way, secondly, I was intrigued by what Dr.
    Miller said, maybe baseball-style negotiation for those which
    are not also in other countries. But your thoughts, because I
    respect you so much, I would appreciate that.
        Dr. Holtz-Eakin. So I think you read the testimony very
    carefully, and so there are reservations about sort of how that
    actual index was constructed in the proposal and some of the
    countries we end up referencing against being much poorer and
    probably not good----
        Senator Cassidy. But if we just exclude those?
        Dr. Holtz-Eakin. If we did what you did--I hear you on
    that-- then you get to the second step of this, which is just a
    decision people are going to have to make, right?
        The target is to get prices 30 percent below where they are
    now. That is what the indication would be. And the data is
    that, of the 27 drugs they looked at, 11 of them, only 11, are
    available in all those countries.
        Senator Cassidy. But if we took out those 11--so we say for
    those 11, we shall apply. But for the others, we shall have a
    different mechanism. Again, I think baseball-style negotiation
    is intriguing. I have not--this is the first time I have heard
    about it.
        Dr. Holtz-Eakin. So I am not opposed. I actually think--let
    me back up and just say, I thought it was an interesting
    proposal. And I think the reflexive condemnation of it by some
    people on the grounds that it was intervening in the market and
    not free market and all that is a mistake. We do not have a
    free market that works really well in drugs. So let us look at
    different mechanisms.
        I am not a big fan of this one for some of these reasons. I
    do think there is a general problem in being concerned about
    access to medicines. The United States has a tradition and
    values access to the most recent therapies. These other
    countries have very different traditions, and there is not
    access.
        Senator Cassidy. On the other hand, we would still pay more
    than other countries.
        Dr. Holtz-Eakin. We are paying more than other countries,
    and we are footing the globe's bill for R&D. And that is not
    okay. I get that.
        Senator Cassidy. So let me just toss out something else to
    you all. A drug that really bugs me is Duexis. Okay, it is $40;
    if I went to the pharmacy, bought $40 worth of ibuprofen and a
    Pepcid, combined them, and then sold them for $2,400, which is
    what happens with Duexis--I do not know what share of that goes
    to the PBM, but I think that kind of exposes the problem with
    the rebate system, because it may be only $40 going to the
    pharmaceutical company, but we are paying $2,400 a month for
    $40 worth of drugs.
        Now to me, that particular drug seems to be drafting in on
    the protection we give for innovation. Now one thing that
    intrigues me is the Australian model, where there is some third
    party which does an assessment as to the relative value of a
    drug. If you want to pay more than that, you can, but you are
    only going to get compensated this much. You want to charge
    more, then the patient shall pay more--not to do that for the
    truly innovative, because, Dr. Miller, you pointed out we want
    to continue to incentivize the truly innovative, but for that
    which is just drafting in on regulations designed to promote
    innovation.
        Any thoughts about that idea?
        Dr. Holtz-Eakin. So I think this is out of the category of
    alternatives that people are interested in where you are
    actually going to reward on value, and there is little value in
    the combination of these two drugs. And so the issue becomes,
    how do you identify value and reimburse on it?
        There are these outcome-based models where the outcomes can
    be no better than $40 worth of drugs, or there are these others
    where you have third-party validators and identify value at the
    point of launch. Peter has mentioned some of those.
        Those are different alternative mechanisms that are worth
    thinking about in this space, because we do have to figure out
    what to do in those situations where there does not appear to
    be any value in there. There is not a lot of competition.
        Senator Cassidy. Gentlemen, any other thoughts? Actually,
    let me hold off on that, because I have just a second more to
    go.
        Now Senator Cornyn asked about why we have rebates. I read
    a nice article by Scott Gottlieb that once pointed out we have
    rebates because there was a lawsuit by independent pharmacies
    that suggested that the chains were getting a better deal, and
    so the way they worked around the lawsuit was to give rebates
    on the back end.
        But as I mentioned, there is no reason for a PBM which is
    getting a large rebate from the makers of Duexis not to carry
    Duexis, even though the value of Duexis is at best marginal
    relative to $40 worth of medicine.
        So let me ask you this, on the rebate issue: what if we
    limited rebates to 10 to 20 percent? And others will suggest we
    lose leverage on the part of the plans. So what if you limited
    the rebates to 10 or 20 percent, or pick a number, some
    percent, and the rebate could not be over that which would
    still give a margin for the plan to negotiate a lower price
    based upon volume? But it would not give this situation of
    insulin where we might have a drug which at net price to the
    manufacturer is still $100, for example, but the price to the
    patient is $400, and $300 is going into a rebate system.
        Dr. Holtz,-Eakin. So let us just focus on the issue. The
    issue is, is there value to having an entity, currently called
    a PBM, that collects covered lives and negotiates on their
    collective behalf to get better deals? Yes, and those entities
    have delivered a lot of value in the system.
        How do you reward them for that value? Well, the current
    system, with the after-the-fact rebates, rewards them for that
    value, but you could reward them in other ways. You could write
    them checks at the beginning of the year and say, ``Go
    negotiate. We have 900,000 people. Go negotiate.''
        Senator Cassidy. So you are suggesting we just outlaw them,
    but I just say----
        Dr. Holtz-Eakin. No, no. I am not outlawing the PBMs. I am
    saying----
        Senator Cassidy. I think PBMs have an important function.
        Dr. Holtz-Eakin. Yes.
        Senator Cassidy. But I will tell you, Mark McClellan, I
    think, has told me personally--if I can quote Mark--that
    rebates are important. And he would be reluctant to get rid of
    them.
        So what if we limit them?
        Dr. Miller. I mean, my reaction to the limiting is that you
    are moving more to a fee-based system, and you could have a
    performance-based fee. And to Doug's point, you are looking at
    overall spend and saying, here is your fee, but if you lower my
    overall spend by X, then you will get a bump up in your fee.
    But it is not tied to the specific distribution of individual
    drugs, and you get the kind of circumstances that you are
    speaking to.
        Sort of agreeing and just taking it a little bit to a
    different--and I am stopping.
        Senator Cassidy. I am sorry. We have one more person. The
    chairman has been forbearing.
        I apologize. Thank you, gentleman, very much. Thank you,
    ma'am.
        The Chairman. Senator Cantwell?
        Senator Cantwell. Thank you, Mr. Chairman. And I thank you
    and the witnesses for this hearing.
        I think there has been a lot of unpacking of issues here
    today, but I think we need to continue to do more unpacking.
        The Chairman. We are going to have more.
        Senator Cantwell. Good. I worked with you, Mr. Chairman, in
    2009 on provisions for PBMs to report confidential information
    to the Department of Justice, and they have been doing that.
    And so I do think that that holds some opportunities for us to
    continue to look at PBMs.
        Obviously, you play a key role in both of these committees.
    And I think that would be of interest.
        Although I do think, Dr. Holtz-Eakin, you brought up the
    larger picture, or at least I have read your testimony more
    closely; maybe the others did as well. But there are so many
    issues here. By that I mean, cause and effect even. Me,
    personally, I would take the PBM issue and put that more
    towards some other market functions.
        I think, Dr. Miller, you talked about Medicaid as that
    function of driving benefits. And in the State of New York,
    they have been able to do a basic health plan and also drive
    down costs to those individuals.
        So to me the issue is this larger point about capital
    formation, of how long it takes to develop a drug. Having
    worked in software, I can tell you, you build and ship
    something in 6 months. And here you have an industry that tries
    to build something over a longer period of time of getting
    capital, maybe for as many as 15 years.
        But it is these other organizations afterwards that are
    letting them try to recoup those costs and benefits at very
    high extremes. So to me, that is why we should look for more
    market functions that give as much of those benefits to the
    consumers with what I call a Costco model.
        Like, if you buy in bulk, if you are the Veterans
    Administration, or you are Medicaid, or you are something like
    the basic health plan, you should be able to get a discount by
    buying in bulk. Why should we not look at that as more of a
    market mechanism?
        Dr. Holtz-Eakin. For which program? I am sorry. I want to
    make sure I know where this is targeted.
        Senator Cantwell. Well----
        Dr. Holtz-Eakin. Because we have a lot of that now.
        I mean, certainly there is the Veterans Administration,
    many Medicaid programs where you can buy and not buy,
    importantly, some manufacturer's drugs and drive a good bargain
    as a result. And we have those incentives in the Part D program
    with the prescription drug plans. I think we agree we could
    strengthen them, but you want to do that.
        So I am not sure where else you would want to put that in.
        Senator Cantwell. Well, Medicare; you could do it more in
    health care, you could broaden the----
        Dr. Holtz-Eakin. Beyond drugs?
        Senator Cantwell. No. No, broaden the ability to negotiate.
    In this case, the State of New York and Minnesota are given the
    ability to negotiate on price. The State of Washington used to
    do a similar thing and thereby created an environment in which
    those kinds of discounts are given directly to the
    beneficiaries, as opposed to the PBMs that are in a business
    model of advantaging from that.
        Dr. Holtz-Eakin. So going back to the inception of the Part
    D program, when I was the CBO Director, there have been
    numerous inquiries from Congress on the capacity of the
    Secretary of HHS to negotiate on behalf of the prescription
    drug plans. And the basic answer has always been that that is
    going to offer very little in the way of savings, with the
    likely exception being perhaps some sole-source drugs,
    particularly new and innovative ones.
        And the reason for that has been the inability of Medicare
    to have a formulary, to actually say ``no, we are not going to
    let America's seniors have some drugs.'' And so, if you cannot
    bring that leverage to the negotiation, you do not have any
    particular advantage over our prescription drug plans.
        They have large numbers of seniors. If they combine and use
    the PBM, they have even greater covered lives, and they have
    formularies which can be used to drive preferred placement and
    thus, get discounts. And HHS does not have that.
        And it would be a sea change for the U.S. Government to
    decide to exclude access to some prescription drugs for its
    seniors.
        Dr. Miller. I just want to add something to that and
    disagree just a little bit here.
        I think a lot of people approach the negotiation question
    exactly that way, which is you have to say, ``I am going to
    offer this drug or I am not,'' and that is your negotiation
    leverage. And by and large, that is a very true statement, and
    that is a lot of what goes on inside PBMs in Part D, and in the
    commercial market all the time.
        But the thing I was trying to drive at is Medicare's
    posture could be, we do cover this drug. We want to reach a
    fair price for the beneficiary and the taxpayer, and try to
    work through either a value-based pricing strategy like Peter
    was saying, or a binding arbitration strategy might be a
    different way.
        But it is true that in the end, if the manufacturer says,
    ``I do not like this price,'' they could walk away as opposed
    to Medicare saying, ``I am not willing to cover it.'' But
    remember, the U.S. and the elderly are a gigantic market, and
    they get a lot of revenue out of that.
        And so that would be a bit of the game of chicken that
    would be----
        Senator Cantwell. I just think--Mr. Chairman, thank you. I
    know I am over my time, and I am pretty sure everybody wants to
    get to their next focus.
        I think we should be spending more time right on that
    question. And what are the tools by which government--I would
    look at these States that have been able to use this tool. Yes,
    they have had to make some hard decisions, and we should look
    at the success of how States have done that, because they are
    pretty big entities. And I am sure they have data where they
    have made some choices, and they probably have details on that.
        But I am more for us looking at that, and making sure that
    PBMs are not taking unfair advantage, because I just think
    these are the market forces that are going to drive the most
    savings into the cost, into the hands of consumers.
        And I think, Dr. Holtz-Eakin, you have done a really good
    job of painting in your testimony the other end of the picture.
    We have a bow wave of seniors coming at us. Okay, that bow wave
    is caused by the baby boomers retiring and people living
    longer.
        And we have to get better strategies. And so to me,
    drilling down on how some of these States have been able to
    peel back the layers of this and actually get those
    negotiations on price, on prescription drugs, could be a
    telling example of how you could--even if you just took some
    drugs and started that way at the Federal level--could give us
    some data and information.
        Thank you, Mr. Chairman.
        The Chairman. Senator Carper?
        Senator Carper. I would like to say we save the best for
    last, but that is probably not true. [Laughter.]
        My mom used to say, Mr. Chairman, the third time is a
    charm. This is the third time we have been here, and so you are
    worth coming back for three times.
        I just want to ask you to approach my responsibilities here
    as a recovering Governor of Delaware. And one of the things I
    did as Governor was, we won a lawsuit with 49 other States
    against the tobacco industry.
        Other States did different things with the money. We put
    the money, and still do, in a prescription assistance program
    for seniors. And later on, I had the opportunity here as a
    fairly new Senator to support the Medicare Part D program,
    which I thought then, and I still think, is a good idea and a
    good plan.
        We have a number of companies in our State that are in the
    pharmaceutical business. So I could come at this from a lot of
    different directions.
        What a wonderful panel, what a diverse panel with different
    ideas and good ideas. And what I want to ask each of you to do
    is, at the end of this hearing, to reflect on where you think
    there is consensus among you in ways that would give us some
    direction and guidance as we proceed in this field?
        And I am going to ask you, ma'am, if you would go first.
    Where do you think there is some consensus that actually might
    inform a path forward for us?
        Ms. Sego. Well, I think there have been a lot of great
    ideas, but as a mom and an educator, I am really going to rely
    on the expertise of the gentlemen beside me and mostly for the
    committee to come up with a plan that is viable for all of us
    who are living and trying to survive with the high cost of
    prescription drugs.
        Senator Carper. Fair enough. Thank you.
        We are delighted that you were able to come and share your
    story with us, your son's story with us. Thank you.
        Ms. Sego. Thank you.
        Dr. Holtz-Eakin. I think there have been----
        Senator Carper. Doctor, how are you?
        Dr. Holtz-Eakin. I am doing well, sir. How are you?
        Senator Carper. Good to see you.
        This guy has been before us many times, ma'am. He always
    wears different hats, but he has always had a pretty good hat
    to wear.
        Dr. Holtz-Eakin. Thank you, Senator.
        I think there are three places where there is broad
    agreement. One is that it would be valuable to reform the Part
    D program to maximize the incentives for sharp negotiations.
    That has come up in all the remarks.
        The second is that the current system of back-end rebates
    may not serve the beneficiary, the consumer, as well as an
    alternative set of economic arrangements that has the same
    math, but actually lowers the price at the counter. And that is
    worth thinking about.
        And then the third would be that a particularly vexing
    problem is figuring out the value of new specialty drugs and
    determining a way to reimburse on that value.
        Senator Carper. Okay. Good. Those are three good ones.
    Thank you.
        Dr. Miller?
        Dr. Miller. I agree on Part D benefit redesign that we have
    talked about. I think there is agreement on changing the
    percentage add-on in Part B.
        I think there is agreement to reexamine the rebate scheme.
    I think, even though we did not talk about it a lot, there is
    general agreement on going after the anti-competitive behaviors
    before the market launches.
        There is some agreement on certain parts of transparency,
    although I will just be a little careful in saying that and see
    if anybody objects. And even though I am kind of where Peter
    is, I think there is agreement on 340B, not as the top
    priority, but there are issues there that need to be addressed.
        I think where there is more disagreement is in the
    negotiation issues that Doug has raised.
        Senator Carper. All right; thank you.
        Dr. Bach?
        Dr. Bach. Well, this reflects our agreement. Everything I
    had written down has already now been said.
        Senator Carper. Do you want to say it again?
        Dr. Bach. Oh sure. That is right. That is the rule.
        Senator Carper. No, you do not have to do that.
        Okay, keep in mind there is more agreement here than I had
    even hoped for.
        The administration last year put forth a number of ideas
    about bringing down prescription drug prices for consumers, for
    taxpayers as well. And I described it as a lot of singles, some
    doubles, and maybe a triple or a home run or two. But I am told
    by my staff, by Lynn Sha, sitting right behind me, that so far
    no one has asked this question, so I am going to ask it to
    close, if I could.
        In your opinion, which administration proposals do you find
    the most promising, and why? And which proposals will not work
    or cause unintended consequences? So, which of the proposals do
    you find most promising and why? Which one would you say, nope,
    that is not going to work, has unintended consequences? Any
    thoughts?
        Dr. Holtz-Eakin. I think, given that there are 14 seconds
    left, I am going to get back to you in writing with that.
        Senator Carper. I think that would be fine. Yes, that would
    be good.
        Dr. Miller. And I had a list of the things that the
    administration did, and I cannot find it, but the couple things
    that I am remembering off the top of my head--I just want to
    say this carefully.
        I think we should examine the international price index
    issue. I think there are pros and cons, and I think there are
    things that have to be worked out, but we should look at it.
        The administration has raised some issues on protected
    classes in Part D. I think those ideas should be looked at.
        That is all I can think of off the top of my head.
        Senator Carper. All right. Thank you, sir.
        Dr. Bach, do you want to get the last word? You can give us
    a benediction.
        Dr. Bach. Okay.
        Two things. So the administration implemented ASP minus
    22.5 percent for the 340B hospitals. I believe that is either
    caught up in court or is not going to proceed now. But that is
    a fundamentally good idea, to take away the spread that the
    hospitals were earning from those drugs.
        The other is, with relation to the international price
    index, we may have some disagreement about the role of using
    negotiated prices that the companies have agreed to in other
    countries, but there is another element within this, which is
    the use of competitive acquisition or the third-party vendor
    for the distribution of the drugs that removes the economics
    from the doctors and hospitals, which I think is a
    fundamentally good stand-alone idea as well.
        I am hoping that they will at least propose the rule. It is
    only an announcement of a proposed rule at this point.
        Senator Carper. All right. Good; thanks.
        Mr. Chairman, thanks for giving me a chance to get the
    answers to that quick last question.
        And thanks to the panelists for being here, all of you, all
    four of you.
        The Chairman. Thank you.
        Before we have one last question from Senator Wyden,
    sometimes I forget to thank you folks who work so hard to get
    ready for this and participate in it. So I want to thank you.
    And then, any member of the committee, either members who have
    been here or members who were not here, have till Tuesday,
    February the 12th to submit questions for the record. And we
    would ask that the panel would respond as quickly as you can.
        With that, go ahead.
        Senator Wyden. Mr. Chairman, I am going to be very brief,
    but I also want to note as we wrap up this first hearing, I
    think you have pulled together, on both sides of the aisle
    today, a real opportunity for finding common ground, for
    Democrats and Republicans to fight price gouging. With respect
    to reforming Part D, there were a lot of ideas taken on the
    middlemen, the PBMs. So I want to thank you for it. I just have
    a quick question, and it is on something Dr. Miller's been
    talking about.
        But before we close, you and I have sat through a lot of
    health-care hearings over the last few years where we did not
    have this kind of opportunity for bipartisanship. So I think
    that is leaving it on a positive note.
        The Chairman. I agree with you because, in my work on the
    Judiciary Committee, I was able to sponsor or co-sponsor
    several bills with Democrats on that committee. And one of
    those bills even got out of committee, the CREATES Act, and I
    think we will pursue those two over there and do here what we
    can.
        Senator Wyden. Good. My quick question, Mr. Chairman.
        Dr. Miller, you have talked a little bit about scientific
    research. And of course the American taxpayer puts up billions
    of dollars in terms of funds for basic scientific research each
    year. And practically every member goes to a town hall meeting
    at home and someone says, ``Hey, we taxpayers are putting up
    all this money for the research, and then when it comes to
    Medicare and Medicaid, we cannot afford the medicines that we
    did a lot of the heavy lifting for.''
        So obviously, taxpayers do not want to be taken advantage
    of twice, and you have thought creatively about some ideas,
    some alternatives, to fund the development of new drugs so that
    tomorrow's cures are not being held hostage by drug
    manufacturers today.
        Can you just close and give us a little bit of your
    thinking on some of these alternative ideas?
        Dr. Miller. Yes. I appreciate you saying that I thought
    creatively about it. I think what is more accurate is that the
    Foundation has put some money out recently to bring smart
    people to the table to start thinking about this. And there are
    a couple of ways that they are starting to think about it, but
    we are very early on in this. Okay, if we fund a lot of basic
    science in NIH and then that turns into a monetized drug that
    is developed by a pharmaceutical company, let's revisit how
    that actually could come back to the taxpayer, whether there is
    some participation in the patent and a return in that
    particular case.
        There are ideas, like prize monies targeted to parts of the
    drug markets where the revenue model does not drive companies
    to look at those types of changes, like the next generation of
    antibiotics, where you are creating a drug that you do not want
    people to take in a sense.
        There are also targeted tax incentives that could be
    thought about that could also sort of draw out different kinds
    of innovation.
        We have work coming up on this. We have a couple of public
    forums that are going to pull people together to discuss it. I
    am not as deep as you characterize me. I appreciate it, but we
    are bringing people to the table who are.
        Senator Wyden. The chairman has been here a long time and
    been very patient. Why don't you just get us what you have for
    the record on this, because I am interested in looking at it.
        Thank you, Mr. Chairman.
        The Chairman. Thank you all. Adjourned.
        [Whereupon, at 12:55 p.m., the hearing was concluded.]

                                A P P E N D I X

                  Additional Material Submitted for the Record

                                  ----------

    Prepared Statement of Peter B. Bach, M.D., Director, Center for Health
          Policy and Outcomes, Memorial Sloan Kettering Cancer Center
        Chairman Grassley, Ranking Member Wyden, and members of the Senate
    Finance Committee, thank you for the opportunity to testify before you
    regarding the important and pressing topic of pharmaceutical prices and
    affordability. My name is Peter Bach. I am a physician at Memorial
    Sloan Kettering Cancer Center in New York where I lead the Drug Pricing
    Lab, which is funded by the Laura and John Arnold Foundation, Kaiser
    Permanente, and my institution. I have received speaking fees from
    pharmaceutical companies, PBMs, insurers, and trade associations. Each
    of these is listed at the bottom of this testimony.
                  overview of the pharmaceutical supply chain
        Although the lion's share of pharmaceutical product revenues goes
    to their manufacturers, the distribution and payment system for
    pharmaceuticals does capture a meaningful share of total spending,
    which was approximately $500 billion in 2018. Our group looked at the
    net retained revenues across the supply chain associated with all
    pharmaceutical sales based on a collection of different inputs and
    found that the pharmaceutical corporations capture around two-thirds of
    all dollars spent on drugs, seen below. It is worth noting that
    although PBMs are frequently blamed for capturing a large share of
    total spending in the form of rebates, in fact they capture around 5
    percent of total spending. We cannot tell from this analysis whether
    the net savings PBMs achieve through negotiation are greater than or
    less than this amount.\1\
    ---------------------------------------------------------------------------
        \1\ Yu N, Atteberry P, Bach PB. ``Spending on Prescription Drugs in
    the U.S.: Where Does All The Money Go?'' Health Affairs Blog. 2018 July
    31. doi: 10.1377/hblog20180726.670593. Accessed from https://
    www.healthaffairs.org/do/10.1377/hblog20180726.670593/full/.

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

    Inflationary Distortions in the Supply Chain
        I would like to review some of the inflationary distortions in the
    current system of pharmaceutical distribution and payment, in
    particular for specialty drugs, that now comprise 39.6 percent of
    spending even as they are fewer than 2 percent of total
    prescriptions.\2\, \3\, \4\ An organizing theme
    of the pharmaceutical supply chain is that all participants benefit as
    both drug prices and total spending rise. Pharmaceutical corporations
    logically seek to profit by charging high prices, but ideally the other
    parties in the supply chain would serve as a countervailing force to
    push prices down. They often do not. Rather, most of the participants
    in this system benefit over the long term from rising spending and
    prices. While in any particular period one participant or another may
    seek to lower costs, in general terms, all make a profit that is linked
    to the underlying cost of the drugs that they handle.
    ---------------------------------------------------------------------------
        \2\ IQVIA. Medicines Use and Spending in the U.S.: A Review of 2016
    and Outlook to 2021, IQVIA. Published 2017. Accessed at https://
    www.iqvia.com/institute/reports/medicines-use-and-spending-in-the-us-a-
    review-of-2016.
        \3\ Hirsch BR, Balu S, and Schulman KA. ``The Impact of Specialty
    Pharmaceuticals as Drivers of Health Care Costs,'' Health Affairs 2014;
    33(10), p. 1714-1720.
        \4\ IMS Institute for Healthcare Informatics (IMS Institute).
    Medicine use and shifting costs of healthcare: A review of the use of
    medicines in the United States in 2013, IMS Institute for Healthcare
    Informatics. Published 2014. Accessed from http://www.imshealth.com/
    cds/imshealth/Global/Content/Corporate/IMS%20Health%20Institute/
    Reports/Secure/IIHI_US_
    Use_of_Meds_for_2013.pdf.

        Pharmaceutical products are often marked up in percentage terms as
    they pass through the supply chain. This means that more expensive
    drugs on average bring larger profits. This pattern applies to
    wholesalers and pharmacies. It also applies to physicians and hospitals
    when they use expensive infused drugs covered by Medicare Part B. This
    is because the reimbursement formula for Part B drugs includes a markup
    over the average acquisition price of the drug. The formula is often
    referred to as ``ASP+6.'' Due to the percentage-based markup, profits
    are larger for those drugs that are more expensive. We recently
    reviewed studies that examine whether or not the profit potential for
    various Part B drugs influences prescribing; across the studies we
    examined, the conclusion was consistent that they do. On the margin
    physicians will prescribe the more profitable of drugs when there are
    options to choose from.\5\ Aaron Mitchell and colleagues published a
    review of this topic as well. That authors graded the quality of the
    literature along with summarizing its findings, and arrived at the same
    conclusion. Physicians systematically select more profitable drugs to
    prescribe when they are able to choose among clinically substitutable
    options.\6\
    ---------------------------------------------------------------------------
        \5\ Bach PB, Ohn J. ``Does the 6% in Medicare Part B drug
    reimbursement affect prescribing?'' Drug Pricing Lab. https://
    drugpricinglab.org/wp-content/uploads/2018/05/Part-B-Reimbursement-and-
    Prescribing.pdf. Published May 9, 2018. Accessed January 27, 2019.
        \6\ Mitchell AP, Rotter JS, Patel E, Richardson D, Wheeler SB,
    Basch E, Goldstein DA. ``Association Between Reimbursement Incentives
    and Physician Practice in Oncology: A Systematic Review.'' JAMA
    Oncology 2019 January 3rd [Epub ahead of print]. Accessed from https://
    jamanetwork.com/journals/jamaoncology/fullarticle/10.1001/
    jamaoncol.2018.6196.

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

        The phenomenon does not appear to be unique to physician offices.
    Preference for more expensive drugs has been observed in prescribing in
    hospital outpatient departments. The most dramatic example of this
    pattern was in a report from the GAO, that found a strong shift to more
    expensive drugs in hospitals after they entered the 340B drug discount
    program.\7\ There are not many analyses that compare the relative
    impact of these incentives on prescribing between physician offices and
    hospital outpatient departments. The effects could be of similar
    magnitude, but alternatively one might anticipate physician practices
    to be more susceptible to them given that physicians in offices are
    often owners or otherwise directly participate in profit sharing, while
    hospital based physicians do not. My team conducted an analysis that
    showed that among treatments in oncology that are not recommended and
    that involve expensive Part B drugs, the likelihood that these
    treatments were administered was higher in physician offices than
    hospital outpatient departments across all the clinical scenarios we
    examined, a finding that was robust to clinical severity risk
    adjustment.\8\
    ---------------------------------------------------------------------------
        \7\ U.S. Government Accountability Office. ``Drug Discount Program:
    Characteristics of Hospitals Participating and Not Participating in the
    340B Program.'' Washington, DC: Committee on Energy and Commerce. GAO-
    18-521R. Accessed from https://www.gao.gov/assets/700/692587.pdf.
        \8\ Lipitz-Snyderman A, Sima CS, Atoria CL, Elkin EB, Anderson C,
    Blinder V, Tsai CJ, Panageas KS, Bach PB. ``Physician-driven variation
    in nonrecommended services among older adults diagnosed with cancer.''
    JAMA Internal Medicine. 2016 October 1;176(10):1541-8.

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

    Possible Policy Options
        Subscription-based payment for HCV treatment (``Netflix model'').
    The subscription model for hepatitis C virus treatment that Mark
    Trusheim from MIT, Senator Bill Cassidy, and I nick-named ``Netflix''
    solves a problem specific to the hepatitis C market. The profit
    maximizing price for treatments is unaffordable for many State Medicaid
    programs and prison systems.\9\ The unique situation with hepatitis C
    infection is defined by a number of features. First, there are highly
    effective treatments that have prices far higher than most States can
    afford; second, HCV infection is essentially a one time problem that
    would be amenable to a single elimination effort that would decrease
    prevalence very sizably and thus reduce infection rates; the market for
    the products has seen discounting but also collapsing volumes of sales,
    and as a result the long run prospects for revenues generated by sales
    of these treatments in relatively poor States are not good and the
    expectation is that even over the next decade the number of infected
    individuals who will be treated will be low. That phenomenon can be
    seen here.
    ---------------------------------------------------------------------------
        \9\ Trusheim MR, Cassidy WM, Bach PB. ``Alternative State-Level
    Financing for Hepatitis C Treatment--The `Netflix Model.' '' JAMA.
    Published online October 29, 2018. doi:10.1001/jama.2018.15782.
    Accessed from https://jamanetwork.com/journals/jama/article-abstract/
    2712366.

    eTable. Example of Possible Projections of HCV Prevalence, 10-Year Treatment Rates, 10-Year Annual and Net Present Value of Gilead Pharmaceuticals Anti-
                                                                        HCV Regimen Sales
    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                       10-Year Projections
                                   -------------------------------------------------------------------------------------------------------------------------
                                                                        Gilead Pharmaceuticals' HCV Revenues by State (in the millions), $ c
         State            HCV           Anticipated    -----------------------------------------------------------------------------------------------------
                     Prevalence a    Treatment Overall   Net Present
                                       Under Current    Value, ($mm,  2018 e   2019    2020    2021    2022    2023    2024    2025    2026    2027    2028
                                     Model, No. (%) b   2019-2028) d
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    Arkansas                37,500          7,875 (21)            60      16      12      11      10       9       9       8       7       6       6       5

    Louisiana               73,000       17,247 (23.6)           130      34      27      24      21      20      19      17      15      14      12      11

    Oklahoma                94,200       16,811 (17.8)           126      33      27      23      21      19      19      17      15      13      12      11

    New Mexico              45,000        8,949 (19.9)            67      18      14      12      11      10      10       9       8       7       6       6

    Tennessee              122,500       32,665 (26.7)           244      64      52      45      41      38      37      33      29      26      23      21
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    Abbreviation: HCV, hepatitis C virus.
    a Data from Rosenberg et al. \10\ or State Department of Health figures if available.
    b Based on consensus estimates of HCV sales for both Gilead and AbbVie (including price declines and market share shifts).
    c Proportional revenues based on State's percentage of HCV prescriptions for HCB for 2017 and HCV prevalence as percent of U.S. prevalence.
    d Net Present Value of 10-year HCV revenue projections for Gilead (2019-2028, using an 8-percent rate); Net Present Value was calculated as follows: NPV
      = Annual Cash Flow/(1 + Interest)n.
    e Estimated annual HCV revenues for Gilead attributable to each State.

    eReference
    1. Rosenberg ES, Hall EW, Sullivan PS, Sanchez TH, Workowski KA, Ward JW, Holtzman D. ``Estimation of state-level prevalence of hepatitis C virus
      infection, U.S. States and the District of Columbia,'' 2010. Clinical Infectious Diseases 2017;64(11):1573-81. doi: 10.1093/cid/cox202.

        Under our proposal, a purchasing coalition within a State would run
    an auction to obtain a market-based price for flat subscription
    payments for a set number of years during which time the coalition
    would work with the winning manufacturer to eliminate HCV infection in
    the State. This idea has begun to take shape in several States, and in
    the past months two States--Louisiana and then Washington--posted
    solicitations for manufacturers to participate in a subscription-based
    payment model to treat HCV-infected
    residents.\10\,\11\,\12\
    ---------------------------------------------------------------------------
        \10\ Louisiana Department of Health. Request for information on
    subscription payment models. August 24, 2018. Accessed from http://
    www.ldh.la.gov/assets/docs/SPM_RFI.pdf.
        \11\ Washington State Health Care Authority. ``HCA issues request
    for proposals from drug manufacturers for hepatitis C treatment and
    services.'' January 23, 2019. Accessed from https://www.hca.wa.gov/
    about-hca/hca-issues-request-proposals-drug-manufacturers-hepatitis-c-
    treatment-and-services.
        \12\ State of Washington, Office of the Governor. ``Directive of
    the Governor: Eliminating Hepatitis C in Washington by 2030 through
    combined public health efforts and a new medication purchasing
    approach.'' September 28, 2018. Accessed from https://
    www.governor.wa.gov/sites/default/files/18-13%20-
    %20Hepatitis%20C%20Elimination.pdf.

        Reform Part D: My team recently worked with reporters at The Wall
    Street Journal and showed that Part D plans appear to be bidding in a
    strategic manner to increase their profitability while shifting costs
    onto the Federal reinsurance portion of the benefit. One solution to
    this problem is that at this point, a dozen years after the
    commencement of the program, plans could take over the risk (or at
    least the lion's share) that is currently borne by Medicare through
    individual level reinsurance. From the perspective that these
    protections were put in place at the time Part D launched to ease the
    transition and lessen the risk of plans entering this new market, our
    analysis suggests that the plans have matured to the point that they
    are not only comfortable with the program, but actually able to take
    advantage of the protections to increase their profitability. We should
    explore rebates at point of sale so patients can have full benefit of
    plan negotiated price concessions. This will ensure that when a plan
    selects a drug with a high list price and a large rebate, the
    beneficiary pays the net price after the rebate when they are paying
    coinsurance or in their deductible. A preliminary assessment from the
    CMS actuary suggested that adding point of sale rebates to Part D would
    increase total Medicare spending under current rules.\13\,
    \14\
    ---------------------------------------------------------------------------
        \13\ https://www.cms.gov/newsroom/fact-sheets/cms-proposes-policy-
    changes-and-updates-medicare-advantage-and-prescription-drug-benefit-
    program.
        \14\ Dusetzina SB, Conti RM, Yu NL, Bach PB. ``Association of
    Prescription Drug Price Rebates in Medicare Part D With Patient Out-of-
    Pocket and Federal Spending.'' JAMA Internal Medicine. May
    2017;177(8):1185-1188. doi:10.1001.jamainternmed.2017.1885.

        Insert competition where possible for high-priced therapies: In the
    category of high-priced therapies, Medicare currently has an open
    National Coverage Decision on CAR-T therapies, the expensive one-time
    treatments for various cancers. One option for Medicare would be to
    consider ways to use its coverage authority (particularly Coverage
    under Evidence Development) in conjunction with CMMI authority to test
    alternative payment approaches, with the objective of inserting price
    competition between CAR-T treatments. I outlined this approach recently
    in The New England Journal of Medicine.\15\ The agency should be
    seeking to create competition based on price when it has opportunities
    between products with similar effectiveness. The article included a
    decision matrix that CMS could use to consider its options based on its
    conclusions along several dimensions of its analysis.
    ---------------------------------------------------------------------------
        \15\ Bach PB. ``National Coverage Analysis of CAR-T Therapies--
    Policy, Evidence, and Payment.'' New England Journal of Medicine. 2018
    Aug 15; 379(15):1396-8. doi: 10.1056/NEJMp1807382. Accessed from
    https://www.nejm.org/doi/full/10.1056/NEJMp1807382.

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

        Recapture funds spent on discarded drugs: My team identified a
    pervasive problem in Medicare Part B, which was that it spends enormous
    sums on discarded leftover drug in vials. This problem primarily
    plagues those drugs that are dosed based on individual patients' body
    size, but these types of drugs are common in conditions such as
    cancer.\16\ The reason for this is that in many situations the vials
    containing drugs are ``single dose,'' meaning that once the vial is
    accessed, if there is more drug than is needed to treat the patient in
    it, the leftover is discarded. Medicare, under buy and bill, pays for
    all of the drug in the vial when any portion is administered. The
    article reporting these findings includes an interactive graphic
    displaying each of the drugs that we examined, seen here: https://
    www.bmj.com/content/352/bmj.i788. In 2017 Medicare instituted mandatory
    use of the JW modifier for portions of drug billed to Medicare that was
    in fact leftover and discarded as waste. Our understanding is that the
    OIG has investigated how much drug is coded as discarded and found it
    to be hundreds of millions in 2017. With this mandatory code now
    designating what part of each billed vial was discarded, CMS could,
    with appropriate authority, ``claw back'' from the manufacturer those
    funds expended on discarded drugs recorded as billed with the JW
    modifier.
    ---------------------------------------------------------------------------
        \16\ Bach PB, Conti RM, Muller RJ, Schnorr GC, Saltz LB.
    ``Overspending driven by oversized single dose vials of cancer drugs.''
    BMJ. 2016 February 29;352:i788. doi: 10.1136/bmj.i788. Accessed from
    https://www.bmj.com/content/352/bmj.i788.
    ---------------------------------------------------------------------------
    Move to Flat Fee Reimbursement for Part B Drugs
        As noted above, the proportional markup model for Part B drugs
    tends on the margin to favor the prescribing of more expensive drugs.
    This is problematic on two fronts. (1) It leads to higher program
    spending (and beneficiary out of pocket spending for those without
    secondary coverage). (2) It creates an environment where pharmaceutical
    corporations can actually increase market share in part by charging
    higher prices, the reverse pattern of a typical competitive market.
    Changing to a flat fee add-on above ASP is a more rational policy. This
    flat fee should be calibrated to the complexity of handling, storing,
    and preparing the product for administration, rather than having a
    markup that is based entirely on the cost of the underlying drug. A
    hybrid fee, with the majority being made up of the ``handling''
    component, and a small percentage markup, would be a reasonable middle
    ground. There is a plausible argument that two parts of the cost of
    drugs are related to their underlying cost. It costs more to finance
    the purchase of more expensive drugs, and when coinsurance is
    uncollected the amount lost is larger when the drug costs more.
             definitional issues related to ``value-based pricing''
        ``Value-based pricing'' has been proposed by a number of analysts
    for new branded drugs with no competition. Today we often end up with
    drugs priced at levels well beyond what their benefits justify. We then
    see payers attempt to counteract these high prices. Payers insert
    barriers to access including shifting costs to out of pocket, delaying
    access through utilization management, and generally thinning the
    quality of the insurance benefit for patients who most need insurance.
    This push-pull makes all parties worse off. The core notion of value-
    based pricing is that in exchange for drug prices being based on their
    measurable benefits, payers would provide favorable formulary placement
    and low out of pocket costs coverage for eligible patients. It is
    important to note that this approach is distinct from several other
    approaches that have been suggested which at times include the word
    ``value'' in their moniker. We recently reviewed these alternative
    approaches, the key table is included below.\17\
    ---------------------------------------------------------------------------
        \17\ Kaltenboeck A, Bach PB. ``Value-Based Pricing for Drugs:
    Themes and Variations.'' JAMA. 2018;319(21):2165-2166. doi:10.1001/
    jama.2018.4871. Accessed from https://jamanetwork.com/journals/jama/
    fullarticle/2680422.

        Outcomes-based contracts, which provide the payer with refunds when
    a drug does not work, is an example. This approach does not guarantee
    that prices are value-based, because it leaves untouched how much a
    drug costs when it does work. Most proposals and agreements in place
    with outcomes based arrangements have this basic flaw. One such example
    was outlined in the Annals of Internal Medicine,\18\ in which my
    colleagues and I wrote an editorial explaining that these outcomes
    arrangements may be an attempt to distract from the underlying question
    of how much a drug should cost when it does work.
    ---------------------------------------------------------------------------
        \18\ Mailankody S, Bach PB. ``Money-Back Guarantees for Expensive
    Drugs: Wolf's Clothing but a Sheep Underneath.'' Annals of Internal
    Medicine. 2018;168:888-889. doi: 10.7326/M18-0539.

        Long-term financing for one-time treatments should be viewed
    cautiously as well. This approach has been proposed by pharmaceutical
    corporations as a way to push through multi-million-dollar prices for
    their products, and embraced by some commercial payers as a means to
    help smooth expenditures and pass through costs into future premiums.
    It is important to note that we can't solve the affordability problem
    by pushing costs into future years. Financing does not reduce total
    spending, it just changes current obligations. It is also relevant to
    appreciate that, whether for student loans or home mortgages, long-term
    ---------------------------------------------------------------------------
    payment arrangements are inflationary.

         Table. Comparison of Value-Based Pricing and Adjacent Concepts
    ------------------------------------------------------------------------
                                                  Aligns
                                     Rests on   Price With
                                     Existing     Benefit
      Concept       Definition     Evidence of      and         Examples
                                      Benefit     Market
                                                   Entry
    ------------------------------------------------------------------------
    Value-based  Price of a drug   Yes          Yes         Pricing of
     pricing      set on the                                 dupilumab
                  magnitude of                               according to
                  its benefit                                ICER value-
                                                             based price

    Indication-  Drug price        Yes          Yes         Tisagenlecleucel
     specific     specific to                                sold at two
     pricing      each of its                                different
                  uses                                       prices for two
                                                             different
                                                             cancer
                                                             indications

    Outcomes-    Manufacturer      No           No          Amgen agreement
     based        refunds or                                 with Harvard
     contracts    rebates payer                              Pilgrim to
                  when an agreed-                            refund cost of
                  upon outcome is                            evolocumab for
                  unmet                                      treated
                                                             patients who
                                                             have a
                                                             myocardial
                                                             infarction
                                                             while taking
                                                             the drug

    Mortgage     Commits a payer   No           No          No known
     pricing      to pay for                                 examples
                  expensive
                  treatments over
                  time

    Value-based  A health benefit  Yes          No          Prime
     insurance    design that                                Therapeutics
     design       reduces out-of-                            program to
                  pocket expense                             reduce
                  for high-value                             copayment and
                  medial care and                            increase amount
                  treatments                                 dispensed for
                                                             insulins;
                                                             Pitney Bowes's
                                                             initiative to
                                                             reduce or
                                                             eliminate cost
                                                             sharing for
                                                             statins and
                                                             clopidogrel
    ------------------------------------------------------------------------
    Abbreviation: ICER, Institute for Clinical and Economic Review.

        Lastly, when companies say we need to change our payment system to
    afford their new high-priced treatments, they are framing the issue
    backwards. Prices for monopoly goods are dictated primarily by what
    payers are willing to pay for them, as the companies do not face
    traditional market competition that would put downward pressure on
    their prices. So, when companies call for long term financing to pay
    them for their treatments, they are inventing a means by which the
    market can pay them more than they would get without such a system. But
    in viewing this proposal, it is important to keep in mind that these
    drugs do not inherently cost $1 million or $2 million dollars. Rather,
    it is policy choices that will dictate what they cost, policy should
    not configure to what the corporations want them to cost.

        Other arguments advanced to justify mortgage type financing for one
    time treatments is that our system does not have a way to pay for
    cures. This seems like an odd assertion in that many types of one time
    curative treatments have been available for many years and are paid for
    without difficulty, including courses of antibiotics and radiotherapy
    of local cancer. The notion that one time treatments are special and
    thus need to be paid for at many multiples of other drugs is also
    problematic. In truth many new expensive drugs on the market are only
    taken for a short period by each person who receives them. New cancer
    drugs are a prime example. A single dose versus a handful of doses over
    a few weeks or months before the patient goes on to some other
    treatment seems more similar than different. In either case there is a
    brief period of payment for each unique patient where the drug
    corporation receives its reward for successful innovation. We can
    safely conclude that our system pays adequately for the latter
    scenario, as evidenced by the continued development of new treatments
    that meet this definition. In fact the current incentive system has led
    to the creation of a spectacular number of new cancer drugs that are
    rewarded in this type of treatment horizon.

        Lastly, I urge the committee to remember that the purpose of paying
    high prices for drugs when they are approved is to provide an incentive
    for companies to undertake the risks of trying to create new treatments
    that can help the sick. In this context, without any change in the
    payment system, we are already seeing a large number of spectacular one
    time treatments come to market. While companies logically will seek to
    loosen the payment system to accommodate even higher prices, please
    remember that the treatments they are discussing charging such high
    prices for actually emerged under current payment approaches. This
    would suggest that investors eyed the prospects under current payment
    rules as favorable enough to take the risks to develop them. Those
    investors have successfully earned their rewards for taking these
    risks, companies that specialize or solely focus on one-time treatments
    have achieved multi-billion-dollar valuations prior to having any
    marketed products in multiple cases. If anything, since the launch of
    these early ``one-time treatment'' companies, the technology and
    science of making gene therapies for instance has advanced
    considerably. New companies entering this domain will face lower risks
    and higher success rates. This would mean that if anything the rewards
    can be downsized while maintaining the current level of innovation.
    International Pricing
        A number of discussions have been undertaken around benchmarking
    U.S. prices to those in other western countries. In general terms,
    prices for most drugs are higher in the U.S., sometimes twice as high
    or even more. My research team has examined some claims with regards to
    this observation, including the oft-cited argument that U.S. taxpayers
    fund the world's research and development in the pharmaceutical sector.
    When we examined the claim, we looked at whether the additional
    revenues companies earned from higher prices charged to U.S. patients
    compared to if they charged prices similar to those in Europe. We then
    compared that spread with benchmark prices in several European
    countries. We found that typically a pharmaceutical corporation
    captured 1.7 times their global research and development spending from
    charging higher prices to U.S. patients, taxpayers, and insurers.\19\
    ---------------------------------------------------------------------------
        \19\ Yu N, Helms Z, Bach PB. ``R&D Costs for Pharmaceutical
    Companies Do Not Explain Elevated U.S. Drug Prices.'' Health Affairs.
    Published March 7, 2017. doi: 10.1377/hblog20170307.059036. Accessed
    from https://www.patientsforaffordabledrugs.org/2017/03/08/health-
    affairs-blog-rd-costs-for-pharmaceutical-companies-do-not-explain-
    elevated-us-drug-prices/.

               The 15 Pharmaceutical Companies Responsible for the World's 20 Top-Selling Products in 2015
    ----------------------------------------------------------------------------------------------------------------
                                                                                                           Revenues
                                                                                                          from U.S.
                                                                      U.S.                    Revenue     premium as
                                                   International    premium     U.S. sales   from U.S.    percent of
                       Company                       price/U.S.      price     (2015, $mm)    premium       global
                                                       price        percent                    ($mm)       research
                                                                                                             and
                                                                                                         development
    ----------------------------------------------------------------------------------------------------------------
    AbbVie                                                  48%           52%      $13,561       $7,092         166%
    ----------------------------------------------------------------------------------------------------------------
    Amgen                                                   43%           57%      $16,523       $9,355         239%
    ----------------------------------------------------------------------------------------------------------------
    AstraZeneca                                             36%           64%       $9,474       $6,078         101%
    ----------------------------------------------------------------------------------------------------------------
    Biogen                                                  25%           75%       $6,546       $4,934         245%
    ----------------------------------------------------------------------------------------------------------------
    Bristol-Myers Squibb                                    45%           55%       $8,188       $4,516          76%
    ----------------------------------------------------------------------------------------------------------------
    Celgene                                                 45%           55%       $5,525       $3,020         148%
    ----------------------------------------------------------------------------------------------------------------
    Roche (pharma division)                                 45%           55%      $17,782       $9,759         119%
    ----------------------------------------------------------------------------------------------------------------
    Gilead                                                  75%           25%      $21,200       $5,200         173%
    ----------------------------------------------------------------------------------------------------------------
    GlaxoSmithKline (ex consumer)                           48%           52%      $10,188       $5,300         114%
    ----------------------------------------------------------------------------------------------------------------
    JNJ (just pharma division)                              39%           61%      $18,300      $11,127         163%
    ----------------------------------------------------------------------------------------------------------------
    Merck                                                   39%           61%      $17,519      $10,649         159%
    ----------------------------------------------------------------------------------------------------------------
    Novartis                                                52%           48%      $18,079       $8,678          97%
    ----------------------------------------------------------------------------------------------------------------
    Pfizer (ex consumer)                                    21%           79%      $19,906      $15,735         219%
    ----------------------------------------------------------------------------------------------------------------
    Sanofi                                                  28%           72%      $12,625       $9,123         163%
    ----------------------------------------------------------------------------------------------------------------
    Teva (specialty meds)                                   22%           78%       $6,442       $5,018         263%
    ----------------------------------------------------------------------------------------------------------------
        Average                                             41%                                                 163%
    ----------------------------------------------------------------------------------------------------------------

        Thank you for the opportunity to share my views. I look forward to
    answering any questions you may have.
                Disclosures
        Full list of disclosures from last 3 years--
        Funding: Laura and John Arnold Foundation, Kaiser Permanente,
    Memorial Sloan Kettering Cancer Center institutional support.
        Speaking fees: American Society for Health-System Pharmacy, Gilead
    Pharmaceuticals, WebMD, Goldman Sachs, Defined Health, Vizient, Anthem,
    Excellus Health Plan, Hematology Oncology Pharmacy Association,
    Novartis Pharmaceuticals, Janssen Pharmaceuticals, Third Rock Ventures,
    JMP Securities, Genentech.
        Consulting fees: Foundation Medicine, Grail.

                                     ______

                  Prepared Statement of Hon. Chuck Grassley,
                            a U.S. Senator From Iowa
        I want to welcome the witnesses and thank them. The information
    they will share will help inform the committee as it addresses the
    issue of high prescription drug prices.

        Millions of Americans woke up this morning and started the day with
    their dose of prescription medication.

        For so many of our loved ones who have diabetes, high blood
    pressure, cystic fibrosis, epilepsy, or other chronic health
    conditions, prescription drugs are a basic necessity of life.

        We need to continue to have a strong research engine to develop new
    treatments, but we must also have a discussion about the affordability
    of these drugs.

        Today you will hear many numbers describing the costs of
    prescription drugs.

        Those numbers are impressive, but the stories I have heard from
    patients, doctors, and pharmacists in Iowa have really gotten my
    attention.

        I have heard stories from doctors and pharmacists about
    skyrocketing prices of commonly used generic drugs. Usually generics
    are a way to keep costs reasonable.

        I have also heard from seniors who have seen their prescriptions
    increase month after month for no apparent reason.

        And I have heard stories about people reducing their life-saving
    medicines, like insulin, to save money.

        This is unacceptable, and I intend to specifically get to the
    bottom of the insulin price problem.

        But other drugs are creating problems too. That is why tackling
    high prescription drug costs is one of my first priorities as chairman
    of the Senate Finance Committee.

        The reasons for these high prices are complex. I plan to hold a
    series of hearings in order to identify and address these reasons.

        We will look at all aspects of the prescription drug market and
    make changes where necessary.

        So, where do we start?

        I believe we should start with transparency.

        When it comes to drug prices, you should not need a Ph.D. in
    economics to understand how much your prescription costs.

        I believe it starts with putting the list price of a drug on
    television ads.

        I am confident in the ability of Americans to use this information
    to make the best decision for themselves.

        Drug advertisers want to tell consumers all of the benefits of the
    drugs.

        They are required to tell you about side effects.

        But they aren't as gung-ho to share how much the drugs cost.

        The President's blueprint to lower drug prices includes a provision
    to include the list price on TV ads. The administration has a proposed
    rule to do just that.

        Senator Durbin and I have been vocal in our support of this
    proposal.

        I look forward to the rule being finalized.

        Senator Wyden and I introduced the Right Rebate Act last week.

        When enacted, this bill will close the loophole that allowed the
    manufacturer of EpiPen to rip off taxpayers and consumers for as much
    as $1.27 billion.

        Speaking of transparency, I want to express my displeasure at the
    lack of cooperation from the pharmaceutical manufacturers recently.

        The Senate Finance Committee has a long history of working in a
    bipartisan manner to solve difficult problems for the American people.

        So, when Ranking Member Wyden and I invited several pharmaceutical
    companies to come and discuss their ideas to address high drug prices,
    I was extremely disappointed when only two companies agreed to do that.

        The companies that declined said they would discuss their ideas in
    private, but not in public.

        One company mentioned that testifying before the committee would
    create a language barrier problem.

        That is not what I mean when I talk about transparency.

        So, we will extend the opportunity again in the future, but we will
    be more insistent the next time.

        Today, however, I want to extend a welcome to the witnesses. I look
    forward to their testimony.

                                     ______

               Prepared Statement of Douglas Holtz-Eakin, Ph.D.,
                       President,* American Action Forum
    ---------------------------------------------------------------------------
        * The views expressed here are my own and not those of the American
    Action Forum. I thank Christopher Holt and Tara O'Neill Hayes for their
    assistance.
    ---------------------------------------------------------------------------
        Chairman Grassley, Ranking Member Wyden, and members of the
    committee, thank you for the opportunity to testify today on the matter
    of drug prices. I hope to make four basic points:

            1.  The term ``rising drug costs'' is riddled with ambiguity;
            list prices, net prices, out-of-pocket prices, development
            costs, and total spending on drugs have displayed very
            different patterns over time.

            2.  There is rising demand for pharmacological therapies driven
            by an aging population, chronic disease, and the development of
            specialty drugs.

            3.  In the face of rising demand, the only way to reduce prices
            is to increase supply and heighten competition.

            4.  In thinking about policy actions, it is important to
            recognize first existing policies that exacerbate price
            increases. In addition, many popular proposals are unlikely to
            be beneficial.

        Let me discuss these further.

                                  introduction
        Over the past several years the public's attention has increasingly
    been focused on the cost of health care, and specifically the
    contribution of prescription medications to those costs. With 55
    percent of the U.S. population using prescription drugs as of 2017,\1\
    expensive sticker prices on certain new medications, the pricing
    revelations at Turing Pharmaceuticals and other companies, and the
    EpiPen episode have fed these concerns and led policymakers to consider
    addressing drug prices through legislation and regulation.
    Policymakers, however, should first clearly identify the actual problem
    they're trying to address.
    ---------------------------------------------------------------------------
        \1\ https://www.consumerreports.org/media-room/press-releases/2017/
    08/consumer_reports_
    examines_do_americans_take_too_many_prescription_medications/.
    ---------------------------------------------------------------------------
                identifying the problem: patterns in drug costs
        There is little consensus in the term ``rising drug costs,'' making
    it difficult to determine if there is an actual policy problem, its
    size, or its scope. The first step in identifying whether there is a
    problem is to differentiate between prices, costs, and spending, which
    are related but not identical.

        For example, ``rising drug costs'' might refer to a narrow
    definition focused on the sales prices (or ``list price'') set by drug
    developers and manufacturers. Alternatively, the problem might not be
    with all drugs, but instead the high prices of some drugs. Finally, the
    problem may be the increasing cost of prescription drugs borne by
    individuals at the pharmacy counter, which has resulted from an
    increase in high-
    deductible health plans.

        Rising drug costs could also mean an increase in overall
    prescription drug expenditures, whether in dollar figures or as a
    percentage of National Health Expenditures (NHE). Because spending is a
    function of both price and quantity, this could result from increased
    utilization due to rising national reliance on prescription drugs or
    broader access to them.
    Pharmaceuticals as a Share of National Health Expenditures
        The first important fact to consider is that prescription drug
    spending as a percent of NHE has remained steady at about 10 percent
    since 2000, the same percentage it was in 1960. There was a dip in
    prescription drug spending as a share of NHE in the years between 1960
    and 1980, as advances in technology and expanded insurance coverage of
    hospital visits contributed to a shift in NHE towards hospital
    stays.\2\ In the 1980s, that trend began to reverse as new
    pharmaceuticals became widely available for the treatment of many of
    the most prevalent diseases in American society. The availability of
    advanced pharmacological treatments is highly correlated with reduced
    expenditures for hospitals and other health professionals.\3\ As
    pharmaceutical growth began to level out to roughly the same levels as
    the 1960s, so did other NHE categories.\4\ Viewed from this national
    perspective, there appears to be little support for a radical rise in
    drug spending in the data, although national averages can mask the
    variance among subpopulations and the most current NHE data is more
    than a year old.
    ---------------------------------------------------------------------------
        \2\ https://www.americanactionforum.org/research/understanding-
    pharmaceutical-drug-costs/.
        \3\ https://www.americanactionforum.org/research/understanding-
    pharmaceutical-drug-costs/.
        \4\ https://www.cms.gov/Research-Statistics-Data-and-Systems/
    Statistics-Trends-and-Reports/NationalHealthExpendData/index.html.
    ---------------------------------------------------------------------------
    Drivers of Drug Spending
        To the extent that drug expenditures are increasing or will begin
    to increase in the near future, a key factor is utilization. Annual
    growth in pharmaceutical spending in November 2018 was 5.1 percent,\5\
    but annual pharmaceutical price growth was only 0.6 percent.\6\ On a
    per capita basis, real net spending has grown by only 1 percent since
    2007 and actually declined by 2.2 percent in 2017.\7\
    ---------------------------------------------------------------------------
        \5\ https://altarum.org/sites/default/files/uploaded-publication-
    files/SHSS-Spending-Brief_
    January_2019.pdf.
        \6\ https://altarum.org/sites/default/files/uploaded-publication-
    files/SHSS-Price-Brief_
    December_2018.pdf.
        \7\ https://www.iqvia.com/institute/reports/medicine-use-and-
    spending-in-the-us-review-of-2017-outlook-to-2022.

        Still, Americans are getting older, living longer, and are
    increasingly burdened with chronic disease. As of this year, 60 percent
    of the United States' adult population had been diagnosed with at least
    one chronic health condition, and 40 percent had two or more chronic
    conditions.\8\ Managing these chronic conditions is an expensive
    proposition that relies primarily on medication. Eighty-six percent of
    all health-care spending is for patients with one or more chronic
    disease; 98 percent of Medicare and 83 percent of Medicaid spending
    goes towards providing care for the chronically ill.\9\,
    \10\ Specifically, over 75 percent of U.S. health-care spending goes
    towards treatment of chronic disease.\11\ As these trends continue, the
    financial burden of maintaining a high quality of life with chronic
    conditions will inevitably disproportionately increase the growth of
    pharmaceutical health care spending.
    ---------------------------------------------------------------------------
        \8\ https://www.cdc.gov/chronicdisease/resources/infographic/
    chronic-diseases.htm.
        \9\ http://www.partnershipforsolutions.org/DMS/files/
    chronicbook2004.pdf.
        \10\ http://www.ahrq.gov/sites/default/files/wysiwyg/professionals/
    prevention-chronic-care/decision/mcc/mccchartbook.pdf.
        \11\ https://www.chronicdisease.org/page/whyweneedph2imphc.
    ---------------------------------------------------------------------------
    Drivers of Drug Prices
        Developing new treatments is an expensive prospect in terms of both
    capital and time. A Tufts University study in 2016 found that the
    average cost for each drug successfully brought to the market is nearly
    $2.9 billion.\12\ Data from the Organisation for Economic Co-operation
    and Development also shows that the amount of spending per new drug
    approved has been growing for decades.\13\ It takes an average of 15
    years from the time a drug developer first begins testing a new formula
    until the Food and Drug Administration (FDA) approves it.\14\ Only 1 in
    1,000 drug formulas will ever enter pre-clinical testing, and of those,
    roughly 8 percent will ultimately receive FDA approval.\15\
    ---------------------------------------------------------------------------
        \12\ https://csdd.tufts.edu/csddnews/2018/3/9/march-2016-tufts-
    csdd-rd-cost-study.
        \13\ https://www.oecd-ilibrary.org/social-issues-migration-health/
    health-at-a-glance-2015/research-and-development-in-the-pharmaceutical-
    sector_health_glance-2015-70-en.
        \14\ http://www.fdareview.org/approval_process.shtml.
        \15\ http://www.fdareview.org/approval_process.shtml.

        Additionally, the last decade has seen a significant shift towards
    the use of ``specialty drugs.'' While there is no precise definition of
    a specialty drug, this term typically refers to drugs with at least one
    of the following characteristics: requires special handling, must be
    administered by a doctor, requires patient monitoring or
    follow-up care, is used to treat complex, chronic conditions.\16\ As a
    result, these drugs tend to be quite expensive. In fact, by 2016, about
    half of the top 80 most expensive drugs nationally were specialty
    drugs, and that number is increasing annually.\17\ In 2010, the United
    States spent just over $11.5 billion on the top 25 specialty drugs. By
    2017, net spending on specialty medicines reached $151 billion,
    accounting for 46.5 percent of all expenditures on medicines, despite
    accounting for just 2 percent of the volume.\18\ Because specialty
    drugs are often more expensive to develop and typically treat small
    patient populations with very specific and otherwise untreatable
    diseases, they tend to have higher prices. Over time, the cost of new
    specialty drugs per patient will likely continue to be higher as the
    target population for each new drug will grow smaller with the
    development of treatments for less common diseases.
    ---------------------------------------------------------------------------
        \16\ https://www.pcmanet.org/pcma-cardstack/what-is-a-specialty-
    drug/, https://cvshealth.com
    /thought-leadership/whats-special-about-specialty.
        \17\ https://www.cms.gov/Research-Statistics-Data-and-Systems/
    Statistics-Trends-and-Reports/Information-on-Prescription-Drugs/
    index.html.
        \18\ https://www.iqvia.com/institute/reports/medicine-use-and-
    spending-in-the-us-review-of-2017-outlook-to-2022.
    ---------------------------------------------------------------------------
    List Versus Net Prices
        An important aspect of the discussion is the difference between
    list price and net price. List prices for brand-name drugs, on average,
    have increased between 7 and 13.5 percent over the past 6 years, yet
    the average net price of these drugs has grown between 1.9 and 4.7
    percent, with the trend being downward sloping.\19\ In fact, price
    growth for prescription drugs over the course of 2018 was the lowest
    growth rate since 2013, and even dipped into negative territory between
    December 2017 and early 2018.\20\ So while the average list price of
    brand name drugs rose 35 percent between 2013 and 2017, average out-of-
    pocket (OOP) costs for those drugs remained unchanged at $30.33.\21\
    Similarly, generic list prices rose 7 percent during this time period,
    but patient OOP costs declined more than 9 percent as a result of
    discounts and rebates. The increasing difference between list and net
    price points to the growing use of discounts and rebates. Understanding
    the role of these incentives in price determination is an area worthy
    of careful consideration to ensure resources are being allocated as
    desired.
    ---------------------------------------------------------------------------
        \19\ https://www.iqvia.com/institute/reports/medicine-use-and-
    spending-in-the-us-review-of-2017-outlook-to-2022#reportcharts.
        \20\ https://altarum.org/sites/default/files/uploaded-publication-
    files/SHSS-Price-Brief_
    January_2019.pdf.
        \21\ https://www.iqvia.com/-/media/iqvia/pdfs/institute-reports/
    medicine-use-and-spending-in-the-us-a-review-of-2017-and-outlook-to-
    2022.pdf.
    ---------------------------------------------------------------------------
    Out-of-Pocket Prices
        From a patient perspective, many anecdotally report that OOP costs
    are climbing and the increased frequency of high-deductible health
    insurance plans is cited as the reason. But the data show that average
    patient OOP costs at the pharmacy counter have actually declined since
    2013. Nearly one-third of all medicines were available in 2017 for zero
    OOP costs, and 97.5 percent were available for $50 or less, with the
    average OOP cost equaling $8.69. Only 2.5 percent of prescriptions
    filled had a co-pay of more than $50. But for the small share of very
    costly drugs, the expense adds up fast: 3.4 million prescriptions (0.1
    percent of all prescriptions filled in 2017) had an OOP cost of more
    than $500, with an average cost of $1,502; total OOP expenditures for
    these drugs was $5.2 billion.\22\ It is likely also true that a number
    of prescriptions that would have cost at least that much were never
    filled because the patient simply could not afford it (or chose not to
    spend the money). The abandonment rate for brand-name drugs reached 21
    percent in 2017.\23\
    ---------------------------------------------------------------------------
        \22\ https://www.iqvia.com/-/media/iqvia/pdfs/institute-reports/
    medicine-use-and-spending-in-the-us-a-review-of-2017-and-outlook-to-
    2022.pdf.
        \23\ https://www.iqvia.com/-/media/iqvia/pdfs/institute-reports/
    medicine-use-and-spending-in-the-us-a-review-of-2017-and-outlook-to-
    2022.pdf.
    ---------------------------------------------------------------------------
                         a review of possible solutions
        Like the leading principle of the Hippocratic Oath, policymakers
    should ``first, do no harm.'' The myriad mandatory discount programs
    and industry taxes collectively result in higher list prices and cost-
    shifting to the private market as companies look for ways to offset the
    lost revenue. These programs don't reduce the cost of the drug; rather,
    they distort the health-care market (beyond just the prescription drug
    market) and force some to pay more so others can pay less.
    Medicaid Drug Rebate Program
        The Medicaid Drug Rebate Program (MDRP) requires drug manufacturers
    to pay a rebate for all drugs dispensed to Medicaid beneficiaries,
    ultimately ensuring Medicaid receives the best price for prescription
    drugs. As a consequence, because there was no exception for charitable
    donations of medicines, such donations ceased, and Congress responded
    by creating another program: the 340B drug discount program. 340B
    similarly requires drug manufacturers to provide their drugs at a
    statutorily determined discounted rate to all eligible entities for
    qualified patients (though, the program does not require those
    discounts be passed on to the patient receiving the medicine). The
    Affordable Care Act (ACA) both expanded the MDRP and increased by 53
    percent the mandatory rebate that drug manufacturers must provide for
    all Medicaid beneficiaries.\24\ Consequently, drug manufacturers paid
    an estimated $80 billion in rebates between 2011 and 2015.\25\ The
    average Medicaid rebate is now greater than 50 percent of a drug's
    cost. The ACA also dramatically expanded the 340B prescription drug
    discount program, and the value of drugs subject to the program's
    mandatory discount nearly doubled from $6.4 billion in 2011 to $12
    billion in 2015.\26\ Further, the ACA required drug manufacturers to
    begin rebating 50 percent of the price of all brand-name drugs provided
    in the Medicare Part D coverage gap. Between 2011 and 2016, these
    rebates cost the industry $24.6 billion.\27\ Finally, the ACA imposed a
    new tax on all manufacturers and importers of brand-name prescription
    drugs that cost the industry $14.1 billion over those 5 years.\28\ The
    ACA's provisions cost drug manufacturers more than $100 billion in just
    5 years. It should not be surprising that drug prices simultaneously
    increased.\29\
    ---------------------------------------------------------------------------
        \24\ https://www.medicaid.gov/medicaid/prescription-drugs/medicaid-
    drug-rebate-program/index.html.
        \25\ https://www.cms.gov/research-statistics-data-and-systems/
    statistics-trends-and-reports/nationalhealthexpenddata/
    nationalhealthaccountshistorical.html.
        \26\ https://www.drugchannels.net/2017/05/exclusive-340b-program-
    hits-162-billion.html.
        \27\ https://www.cms.gov/newsroom/press-releases/nearly-12-million-
    people-medicare-have-saved-over-26-billion-prescription-drugs-2010.
        \28\ https://www.irs.gov/affordable-care-act/annual-fee-on-branded-
    prescription-drug-manufacturers-and-importers.
        \29\ https://www.americanactionforum.org/insight/understanding-the-
    policies-that-influence-the-cost-of-drugs/.
    ---------------------------------------------------------------------------
    340B Drug Discount Program
        The 340B program is in dire need of reform. While the program was
    created to resolve an unintended consequence of the Medicaid Drug
    Rebate Program, it has created its own unintended consequences.\30\ The
    340B discount incentivizes hospitals to acquire physician practices.
    This consolidation reduces the number of community practices and
    consequently drives up the cost of care for all services at those
    facilities, relative to the cost of the same services provided in non-
    hospital-owned physician offices. Studies have shown that consolidation
    among hospitals and other health-care facilities leads to higher costs
    at hospitals, often by as much as 20 percent and sometimes by as much
    as 40 percent.\31\ Further, the program suffers from a lack of clear
    guidance and requirements regarding the use of savings generated. One
    change that could help ensure the program's discounts are passed on to
    the beneficiaries it is intended to serve is to reduce Medicare
    reimbursements for such drugs. The Centers for Medicare and Medicaid
    Services (CMS) implemented such a policy in 2018, through regulation,
    by changing the reimbursement for Part B drugs obtained through 340B
    from Average Sales Price (ASP) + 6 percent to ASP-K22.5 percent.\32\
    Congress could codify such a change by amending the ASP calculation to
    include discounts obtained through 340B. Congress should reform the
    340B program to restore its original intent, ensure program integrity,
    and eliminate the harmful market distortions caused by it. Without such
    reforms, the program is unsustainable and the rest of the health care
    market will continue to suffer.
    ---------------------------------------------------------------------------
        \30\ https://www.americanactionforum.org/research/
    340bmarketdistortions/.
        \31\ https://www.rwjf.org/content/dam/farm/reports/issue_briefs/
    2012/rwjf73261.
        \32\ https://www.americanactionforum.org/insight/cms-moves-toward-
    much-needed-340b-reforms/.
    ---------------------------------------------------------------------------
    Medicare Part D
        The Part D program is also in need of reform. Though the program
    has generally been quite successful, recent trends detailed here have
    highlighted the need for structural reforms. The current program
    structure--namely the minimal liability on plans for high-cost
    enrollees (particularly after the changes made by the Bipartisan Budget
    Agreement of 2018 \33\), the coverage gap discount program and the
    counting of those manufacturer rebates towards a beneficiary's True
    Out-of-Pocket (TROOP) calculation, and the existence and nature of the
    risk corridors--does not incentivize plans strongly enough to control
    the cost of high-cost drugs and even allows plans to shift more costs
    to the Federal Government beyond what was intended.\34\
    ---------------------------------------------------------------------------
        \33\ https://www.americanactionforum.org/research/examining-
    effects-recent-proposed-reforms-medicare-part-d/.
        \34\ https://www.americanactionforum.org/insight/evidence-for-
    structural-reform-part-d/.

        Medicare Part D reinsurance expenditures have grown rapidly for the
    Federal Government over the past several years, primarily because of a
    significant increase in both the number of beneficiaries reaching
    catastrophic coverage and the costs that each of them incur. This rapid
    growth has caused reinsurance expenditures to increase from less than
    one-third of the Federal Government's overall subsidy of the Part D
    program in 2007 to more than two-thirds of the subsidy in 2016.
    Further, a recent investigation by The Wall Street Journal found that
    plan sponsors have leveraged the program's risk corridors to contain
    their losses and increase their profits, resulting in $9.1 billion in
    extra subsidies.\35\
    ---------------------------------------------------------------------------
        \35\ https://www.americanactionforum.org/insight/evidence-for-
    structural-reform-part-d/.

        One way to realign incentives is a restructuring of the program's
    benefit design proposed in a recent American Action Forum study:
    increase insurer liability in the catastrophic phase to roughly 70
    percent while simultaneously reducing the government's liability to 20
    percent. Move the drug manufacturer rebate program from the coverage
    gap to the catastrophic phase to cover the remaining costs. These
    changes will significantly increase the incentive for both insurers and
    drug manufacturers to control costs. Further, provide beneficiaries
    with true financial protection by imposing an OOP cap. Plan sponsors
    and beneficiaries will also benefit from a simplified benefit structure
    since the coverage gap will be eliminated and beneficiary co-insurance
    will be held steady at 25 percent above the deductible until reaching
    the catastrophic threshold. Such reforms should encourage behavioral
    ---------------------------------------------------------------------------
    changes that reduce overall program costs for all stakeholders.

        There are a number of proposals that are frequently mentioned as
    ways to reduce drug prices. A bit of reflection suggests that none is
    likely to be successful, however.
    Government Negotiation
        Some have argued that the best way to reduce drug costs, in Part D
    or otherwise, is to allow government negotiation. Although government
    negotiation is expressly prohibited in Medicare Part D, the program is
    rich with price negotiations. In fact, the Part D plan sponsors
    negotiate directly with drug manufacturers, and this is a cornerstone
    of the program's success. Part D beneficiaries have access to 27
    different plans, on average, enabling individuals to choose a plan that
    is tailored to their needs.\36\
    ---------------------------------------------------------------------------
        \36\ https://www.kff.org/medicare/press-release/people-on-medicare-
    will-be-able-to-choose-among-24-medicare-advantage-plans-and-27-
    medicare-part-d-drug-plans-on-average-during-the-open-enrollment-
    period-for-2019-new-analyses-find/.

        Government negotiation of drug prices could only be effective if
    the government were willing and able to impose a drug formulary (like
    the Part D plan sponsors already do) and to restrict access to
    medicines for which the price is ``too high.''\37\ Doing so, however,
    would fundamentally change the Part D program. The government would
    have to impose a single formulary in order to leverage the negotiating
    power advocates claim it has, which would eliminate the key
    differentiator between plans. Suddenly, beneficiaries' choices would
    drop from 27 plans to 1. Beneficiaries would no longer be able to shop
    for the plan that's best for them; rather, they would have to simply
    hope the government was able to negotiate a good deal for the drug(s)
    they need.
    ---------------------------------------------------------------------------
        \37\ https://www.americanactionforum.org/insight/the-art-of-the-
    drug-deal/.
    ---------------------------------------------------------------------------
    Drug Re-importation
        Drug companies don't want their drugs sold for the lower prices
    available in other countries; of course they often sell at that low
    price because a low price is better than nothing. They will certainly
    not sell excess drugs to those countries to allow for a supply to be
    available for re-importation into the United States. And those
    countries, not having any excess supply, are going to provide the
    limited number of drugs they do have to their own people before they
    allow them to be sold back to the United States. Even if the United
    States were to allow drug re-importation, the economics make it very
    unlikely that it would have any impact on the availability of cheaper
    medicines in the United States. And that's saying nothing of safety
    concerns, which are legitimate.
    International Reference Pricing
        The Trump administration recently proposed establishing a
    demonstration program for drugs covered through Medicare Part B, under
    which reimbursement would be tied to an International Pricing Index
    (IPI). While the administration's objective to reduce the cost of drugs
    and increase Americans' access to necessary medicines is laudable, the
    solution that has been proposed here is not likely to achieve that
    objective, and in fact, could result in significant undesirable
    repercussions. The most likely consequences are restricted access to
    existing medicines and reduced innovation for future advancements and
    new medicines; cost-shifting to the private-sector insurance markets;
    an undermining of the administration's goal to move to value-based
    payments; and harm to U.S. trade objectives. That said, addressing the
    reality that the United States spends substantially more on
    pharmaceuticals, and supports the industry's ability to innovate more
    than similarly developed economies is worthy of policy experimentation.
    A key concern with this particular proposal is that it is unlikely to
    achieve the goals of reducing drug prices and maintaining patient
    access to innovative treatments.

        The 14 countries that CMS has proposed referencing in this IPI
    model, on average, have access to only 48 percent of the new drugs
    developed in the past 8 years, and it took an average of 16 months
    after their initial global launch for those drugs to become available
    in those 14 countries. The U.S., on the other hand, has gained access
    to 89 percent of new medicines within 3 months.\38\
    ---------------------------------------------------------------------------
        \38\ https://www.americanactionforum.org/comments-for-record/
    comments-to-cms-on-proposed-international-pricing-index-for-medicare-
    part-b-drugs/.

        Also of concern are the indirect effects and implications of
    adopting a reference pricing model. Of the 14 countries under
    consideration for this reference pricing model, 11 use reference
    pricing themselves to control their prices. Between four and six of
    these 11 countries reference each of the following countries in
    determining their own price: Cyprus, Hungary, Latvia, Lithuania,
    Poland, Romania, Slovakia, Slovenia, and Spain. By referencing the
    price of drugs in countries that reference the prices in other
    countries, we would indirectly be referencing the prices of those other
    countries. The average gross domestic product (GDP) per capita in these
    countries listed was $18,685 in 2017, while the GDP per capita in the
    United States was $59,532--more than three times greater. The estimated
    age-standardized mortality rate for all cancers in these countries is
    123.47, compared with a rate of 91 in the United States. The average
    life expectancy in these countries is nearly a year shorter than that
    of the United States. It is not appropriate for the United States to
    ---------------------------------------------------------------------------
    reference the prices paid in countries so different than ours.

        Adopting the non-market prices of other countries, and thus the
    punitive and authoritative policies used to obtain those prices, will
    likely also mean adopting for American patients similar levels of
    restricted access to new medicines as experienced in other countries.
    Worse yet, this demo may result in new medicines never being developed
    in the first place. Americans highly value their access to and choice
    of new treatment options. The reduced innovation that will likely occur
    as a consequence of the reduced manufacturer revenues that will result
    from this model will have significant ramifications. Further,
    referencing the prices paid for drugs in countries that do not
    adequately reflect the value of medicines is inconsistent with the
    administration's goal of adopting a value-based payment system.

        Finally, this model will undermine American trade policy which may
    have repercussions far beyond the pharmaceutical industry. The United
    States should instead work to strengthen intellectual property rights
    in other countries and fight compulsory licensing in trade agreements
    to end the coercive practices that allow countries to force
    manufacturers to provide their drug for less than it's worth; this is
    the only way to get other countries to pay more so that we may
    hopefully pay less without risking reduced innovation.

        There are, however some proposals that would be successful in
    reducing prices.
    Competition and Increased Supply
        History has proven the best way to reduce the price of a good for
    which there is growing demand is to increase its supply through
    competition. For drug pricing, that means bringing generics and
    biosimilars to market to compete with brand-name drugs.

        A now-classic example of this phenomenon is the hepatitis C
    treatment, Sovaldi, which contributed over $3 billion to 2014
    expenditures alone.\39\ While the drug was quite expensive, it is
    important to note two things. First, Sovaldi--and its eventual
    competitors--provided a cure for what had been up until that point a
    costly-to-
    manage chronic disease. Second, as competitors came into the market,
    the price of Sovaldi was cut in half. Where there is competition,
    prices come down.
    ---------------------------------------------------------------------------
        \39\ https://www.cms.gov/Research-Statistics-Data-and-Systems/
    Statistics-Trends-and-Reports/Information-on-Prescription-Drugs/
    index.html.

        The FDA is doing its part by approving a record number of generic
    drugs and biosimilars.\40\ But other barriers to unlocking robust
    market competition remain.
    ---------------------------------------------------------------------------
        \40\ https://www.fda.gov/NewsEvents/Newsroom/FDAInBrief/
    ucm625627.htm.
    ---------------------------------------------------------------------------
    Barriers to Entry
        Manufacturers of innovator drugs rightly and understandably want to
    protect their market share as long as possible. As discussed, bringing
    a drug to market is a rather risky and expensive endeavor, and
    investors need the promise of a formidable profit to be incentivized to
    make that investment. And there can be no generic without first having
    the expensive innovator drug. The needs of the investors to receive a
    return, however, must be balanced with the needs of the consumers and
    taxpayers in order for the market system to remain sustainable. There
    are obvious incentives for brand-name manufacturers to extend the
    length of their market exclusivity through various means. Congress can
    scrutinize the opportunity to create entry barriers, such as brand-name
    manufacturers allegedly abusing the REMS system and, if appropriate,
    legislate to help even more generics come to market quickly.\41\ (One
    such example is the CREATES Act.)
    ---------------------------------------------------------------------------
        \41\ https://www.biopharmadive.com/news/congress-creates-act-
    generic-branded-samples/543147/.
    ---------------------------------------------------------------------------
    Legal Enforcement of Competition Policy
        Another challenge is the case of single source generics. Often,
    once a generic drug has been on the market long enough, it acquires
    enough of the market share that the brand-name manufacturer stops
    producing its version of the drug. In many cases, the price reaches a
    low enough point that other generic competitors also exit the market,
    leaving a sole manufacturer. In some high-profile cases we see what
    amounts to abuse of monopoly power--that sole manufacturer taking
    advantage of its position and dramatically increasing its price once
    there is no more competition and consumers have no choice but to
    purchase the now high-priced drug. In these cases, it should be treated
    as the abuse that it is and prosecuted where appropriate.
                                   conclusion
        Fundamentally, there is no broad prescription-drug pricing crisis.
    Indeed, in most instances, things are working just fine. Rather what we
    face are more nuanced challenges, for example, the price of specialty
    drugs and biologics, which are expensive to develop and manufacture and
    frequently treat a limited population. In these instances, particularly
    with oncology drugs, it is important to make sure that the cost of the
    treatments correlates to the value. Remember that the goal is not low
    cost, it is high value. It is easy to have low-cost drugs; they,
    however, may not do much good. Conversely, it might make sense to spend
    more for a drug if its therapeutic benefits are high enough.

        While the U.S. market has long been an environment where
    manufacturers are willing to invest in necessary research and
    development in hopes of a financial return later, more and more
    government regulations and taxes are reducing that incentive. Programs
    such as the Medicaid Drug Rebate Program and the 340B drug discount
    program interfere with the market incentives and shift, rather than
    reduce, the high cost of drug development. A more effective solution to
    high prices is greater competition in the supply and greater financial
    incentives on behalf of the payers and manufacturers to keep costs and
    prices down.

                                     ______

     Prepared Statement of Mark Miller, Ph.D., Executive Vice President of
                 Health Care, Laura and John Arnold Foundation
        Chairman Grassley, Ranking Member Wyden, and distinguished members
    of the committee, my name is Mark Miller, and I am the executive vice
    president of health care at the Laura and John Arnold Foundation. Until
    recently, I was privileged to serve this committee and the Congress as
    a whole for 15 years as Executive Director of the Medicare Payment
    Advisory Commission (MedPAC) by providing analyses and delivery and
    payment recommendations. It is a pleasure to be back. I want to thank
    you for inviting me to testify today on policies designed to address
    the unsustainable prescription drug cost burdens on the Medicare and
    Medicaid programs, the populations these programs serve, and the
    taxpayers who finance them.

        The Arnold Foundation is dedicated to reforming dysfunctional
    programs and systems to ensure a better return on investment for the
    people they serve and those who finance them. To that end, we work to
    develop an array of evidence and ideas to improve public policy that
    can drive reform in the areas of health care, pensions, education, and
    criminal justice--areas we believe are not serving target populations
    or taxpayers well. The Arnold Foundation is drawn to issues
    characterized by a lack of evidence; dysfunctional markets;
    inefficiently run and/or under-resourced government programs; and by
    strong interests excessively driven to protect the status quo. We
    strongly believe in markets, but we also believe in evidence-based
    intervention when markets are failing and competition is lacking.
    Within health care, we have seen these market failures cause stress to
    patients and their families, to Federal and State governments, and to
    employers and taxpayers.

        Our objective in health care is to lower cost growth while
    maintaining and enhancing access to needed, high-quality care. Across
    the health-care system, we focus on opportunities to achieve more
    affordable care while securing better health outcomes. We focus on four
    areas where we see the greatest problems and opportunities. These four
    areas are (1) reducing hospital and physician prices and/or costs, (2)
    rationalizing drug prices and purchasing approaches, (3) identifying
    and avoiding low-value and/or unsafe care, and (4) improving the care
    for Americans with complex health conditions and needs.

        We know that the issue of health care is top of mind to Americans.
    Rising health spending in general is squeezing government, business,
    and household budgets. In fact, the most important issue for American
    voters in 2018 was health care, and within health care, one of voters'
    biggest priorities is lowering prescription drug prices and costs.\1\
    With respect to drugs, our ultimate goal is to strike a fair balance
    between the industry's incentive to innovate and the affordability of
    medications that improve, extend, and sometimes literally saves lives.
    ---------------------------------------------------------------------------
        \1\ https://www.kff.org/health-reform/poll-finding/kff-election-
    tracking-poll-health-care-in-the-2018-midterms/.

        We believe the science behind new medications is the best it has
    ever been. Diseases that in the recent past would be debilitating or
    life threatening can now be managed through medication. The predicted
    survival of a child born with cystic fibrosis has risen from 29 years
    in 1986 to 47 years in 2016.\2\ A 12-week regimen can now cure
    hepatitis C. Advanced therapies like CAR-T hold the potential to cure
    cancer in a single treatment, and there is a growing pipeline of gene
    therapies on the horizon that hold the promise of treating or curing a
    variety of once-deadly genetic conditions.
    ---------------------------------------------------------------------------
        \2\ https://www.cff.org/CF-Community-Blog/Posts/2017/Survival-
    Trending-Upward-but-What-Does-This-Really-Mean/.

        However, we have several concerns. First, these treatments are
    launching at increasingly unsustainable prices that are not justified
    by their research and development costs. Life-extending cystic fibrosis
    treatments cost nearly $300,000 a year.\3\ The cost of curing hepatitis
    C can be tens of thousands of dollars per treatment.\4\ CAR-T therapy
    can easily top $500,000 and several companies have discussed pricing
    gene therapies above $2 million dollars.\5\, \6\,
    \7\ Second, the pipeline is shifting to high-priced specialty drugs,
    which are expected to comprise nearly half of pharmacy industry
    revenues by 2022.\8\ Third, given the complexity of these drugs and the
    dysfunction in our current system, they will often face limited
    competition, which will keep prices high. These drugs only work if
    patients can afford to take them.
    ---------------------------------------------------------------------------
        \3\ https://www.statnews.com/pharmalot/2018/05/04/vertex-cystic-
    fibrosis-drug-prices/.
        \4\ https://www.gilead.com/news-and-press/company-statements/
    authorized-generics-for-hcv.
        \5\ https://www.washingtonpost.com/national/health-science/
    staggering-prices-slow-insurers-coverage-of-car-t-cancer-therapy/2018/
    07/17/ea7f150c-89a1-11e8-9d59-dccc2c0cabcf_story.html
    ?utm_term=.9a31adc7c1b8.
        \6\ https://www.wsj.com/articles/biotech-proposes-paying-for-
    pricey-drugs-by-installment-11546952520.
        \7\ https://www.reuters.com/article/novartis-gene-therapy/novartis-
    says-sma-gene-therapy-is-cost-effective-at-4-5-mln-per-patient-
    idUSFWN1XG0OD.
        \8\ http://drugchannelsinstitute.com/files/State-of-Specialty-
    Pharmacy-2018-Fein-Asembia.pdf.

        The Arnold Foundation funds research to address high drug prices in
    ---------------------------------------------------------------------------
    a few key areas:

              Identifying the drivers of innovation and developing
            alternative incentive structures that drive innovation;
              Encouraging competition by reforming our current patent and
            exclusivity system that grants monopolies to pharmaceutical
            companies for decades. This includes ending abuses such as pay-
            for-delay settlements, product hopping, patent thickets,
            evergreening, and other techniques intended to keep competitors
            off the market;
              Rethinking the way we pay for drugs to move away from high
            list prices and spread pricing and move towards alternative
            methods of payment including reference pricing, paying on the
            basis of the clinical value of a drug; and
              Increasing transparency throughout the drug delivery and
            payment system. This includes ensuring accountability to the
            public for launch prices and price increases; understanding how
            money flows from manufacturers to pharmacy benefit managers
            (PBMs) and supply chain middlemen; and clear reporting of
            payments by manufacturers to providers and patient groups.

        We believe America can remain at the vanguard of medical research
    and innovation while also ensuring the affordability of the fruits of
    this research.
                   the broken american pharmaceutical market
        In 2016, the United States spent $471 billion on prescription
    drugs.\9\ That number is expected to rise by nearly a quarter to $584
    billion by 2020.\10\ This expenditure must be taken in the larger
    context of spending in America. Federal debt held by the American
    public currently stands at about 77 percent of GDP and is expected to
    approach 100 percent by 2028.\11\ Spending on health care is about 18
    percent of GDP.\12\ Both of these numbers are expected to grow in the
    near future. In fact, the Congressional Budget Office projects that
    rising health-care costs, along with payments to service the Federal
    debt, are among the largest drivers of increasing Federal spending in
    the future.\13\ Budget tightening is being felt at the State level as
    well, and States are being asked to choose between health services and
    schools, roads, or public safety services.
    ---------------------------------------------------------------------------
        \9\ https://altarum.org/sites/all/libraries/documents/
    Projections_of_the_Prescription_Drug_
    Share_of_National_Health_Expenditures_June_2018.pdf.
        \10\ Ibid.
        \11\ https://www.cbo.gov/system/files?file=115th-congress-2017-
    2018/reports/53651-outlook.pdf.
        \12\ https://www.healthaffairs.org/doi/10.1377/hlthaff.2018.05085.
        \13\ https://www.cbo.gov/system/files?file=115th-congress-2017-
    2018/reports/53651-outlook.pdf.

        This spending growth is mirrored in Federal and State programs like
    Medicare and Medicaid. In Medicare Part D, total net spending on drugs
    was over $100 billion in 2016.\14\ From 2007 through 2016, reinsurance
    payments to Part D plans, which are financed largely by the taxpayer,
    rose at a rate of 17.7 percent per year.\15\ The program's costs to the
    taxpayer are rising faster than premiums paid into Part D.\16\
    ---------------------------------------------------------------------------
        \14\ The Laura and John Arnold Foundation's analysis using the
    Medicare Part D Prescription Drug Event Data and rebate information in
    the Medicare Trustees Report published June 2018.
        \15\ http://www.medpac.gov/docs/default-source/reports/
    mar18_medpac_ch14_sec.pdf.
        \16\ Ibid.

        Medicare Part B, which covers physician-administered drugs,
    experiences similar drug spending growth. Spending on Part B drugs
    neared $30 billion in 2016, which is nearly double the amount spent in
    2010.\17\ MedPAC notes that price is the largest factor contributing to
    the growth of Part B drug spending.\18\ Together, this is part of the
    reason that an average Medicare household will spend nearly 15 percent
    of their total spending on health care.\19\
    ---------------------------------------------------------------------------
        \17\ http://www.medpac.gov/docs/default-source/data-book/
    jun18_databooksec10_sec.pdf?sfvr
    sn=0.
        \18\ Ibid.
        \19\ https://www.kff.org/report-section/the-financial-burden-of-
    health-care-spending-larger-for-medicare-households-than-for-non-
    medicare-households-tables/.

        Medicaid programs are under pressure from rising drug costs as
    well. Spending on drugs grew nearly 50 percent over the 2011 to 2017
    period. In total, the Federal Government and States spent about $30
    billion on drugs in 2017 after rebates.\20\ This growth, driven by
    Medicaid expansion and high cost therapies like those that treat
    hepatitis C and cystic fibrosis, puts unnecessary pressure on taxpayers
    and has outstripped traditional pharmacy cost containment measures.
    ---------------------------------------------------------------------------
        \20\ https://www.macpac.gov/wp-content/uploads/2015/11/EXHIBIT-28.-
    Medicaid-Gross-Spending-and-Rebates-for-Drugs-by-Delivery-System-FY-
    2017.pdf.

        Ultimately, drug spending is placing an increasing burden on
    patients and taxpayers to cover the bill. About one in four Americans
    chose not to fill a prescription last year because of cost.\21\
    Specialty medications cost, on average, over $50,000 a year at retail
    prices and many people with employer sponsored insurance have to pay on
    average 27 percent of this amount, or nearly $14,000.\22\,
    \23\ This is particularly concerning considering that 40 percent of
    households would find it hard to produce $400 in an emergency.\24\
    ---------------------------------------------------------------------------
        \21\ https://www.kff.org/health-costs/poll-finding/kaiser-health-
    tracking-poll-august-2015/.
        \22\ http://files.kff.org/attachment/Report-Employer-Health-
    Benefits-Annual-Survey-2017.
        \23\ https://www.aarp.org/content/dam/aarp/ppi/2017/11/full-report-
    trends-in-retail-prices-of-specialty-prescription-drugs-widely-used-by-
    older-americans.pdf.
        \24\ https://www.federalreserve.gov/publications/2018-economic-
    well-being-of-us-households-in-2017-dealing-with-unexpected-
    expenses.htm.
    ---------------------------------------------------------------------------
    Government Granted Monopolies Drive-Up Prices
        Given these issues, it is not surprising that most Americans, their
    employers, and even the doctors who prescribe treatments believe our
    prescription drug market is broken. They cannot explain or understand
    why we pay as much as three times or more for the same drugs than
    patients in other developed nations.\25\
    ---------------------------------------------------------------------------
        \25\ https://www.scientificamerican.com/article/how-the-u-s-pays-3-
    times-more-for-drugs/.
    ---------------------------------------------------------------------------
                The Level of Research and Development Investments Do Not
                        Explain High Prices
        A common refrain from the drug industry is that high prices are
    necessary to drive innovative research and drug development and that
    making drugs is hard and risky and America subsidizes research for the
    rest of the world. In fact, revenues generated just from sales in
    America would fund 176 percent of the global pharmaceutical research
    and development budgets for these companies.\26\ Between 2013 and 2017,
    the five largest U.S.-based drug companies spent substantially more on
    marketing and administrative costs than on research and
    development.\27\ Rather than embodying the ideals of competition and
    choice, the American system, when examined closely, appears to be rife
    with market failures and perverse incentives.
    ---------------------------------------------------------------------------
        \26\ R&D Costs for Pharmaceutical Companies Do Not Explain Elevated
    U.S. Drug Prices, Health Affairs Blog, March 7, 2017. DOI: 10.1377/
    blog20170307.059036.
        \27\ Top 5 U.S.-based companies determined by market cap taken 11/
    12/2018 (JNJ, PFE, MRK, ABBV, AMGN). Annual research and development
    (R&D) and selling, marketing, and administrative (SG&A) spending
    reported in annual filings.
    ---------------------------------------------------------------------------
                Manufacturers Engage in Creative Ways to Block Competition
        Instead of encouraging research into the next generation of cures,
    firms with drugs approved by the Food and Drug Administration (FDA) are
    incentivized to hold on to their monopolies as long as possible and
    deploy as many anticompetitive tactics as possible to ensure generics
    or biosimilars are not available. The FDA and the United States patent
    system were designed to create a virtuous cycle: innovator companies
    are granted certain exclusivities through the FDA and United States
    Patent and Trademark Office for their work and when those exclusivities
    expire, cheaper alternatives like generic drugs or biosimilars become
    available. Ideally, this would, over time, ensure that there is
    budgetary room for future products, but this is not happening.

        Between 2005 and 2015, over 75 percent of drugs associated with new
    patents were for drugs already on the market.\28\ Of the roughly 100
    best-selling drugs, nearly 80 percent obtained an additional patent to
    extend their monopoly period at least once; nearly 50 percent extended
    it more than once.\29\ For the 12 top selling drugs in the United
    States, manufacturers filed, on average, 125 patent applications and
    were granted 71.\30\ For these same drugs, invoice prices have
    increased by 68 percent.\31\ Manufacturers also engage in pay-for-delay
    schemes, in which payment is made to generic firms to not compete with
    a product. Even in cases where the Federal Trade Commission fines a
    company for these tactics, the profits made from the delay may outstrip
    the fine, effectively incentivizing illegal behavior.\32\
    ---------------------------------------------------------------------------
        \28\ https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3061567.
        \29\ Ibid.
        \30\ http://www.i-mak.org/wp-content/uploads/2018/08/I-MAK-
    Overpatented-Overpriced-Report.pdf.
        \31\ Ibid.
        \32\ Robin Feldman and Evan Frondorf, Drug Wars: How Big Pharma
    Raises Prices and Keeps Generics Off the Market (Cambridge 2017).

        Pharmaceutical companies will often point out that, despite invoice
    and list prices increasing at an alarming rate, the net price paid for
    drugs has been increasing much more slowly. This begs a further
    question, why is the gulf between list and net prices widening? The
    answer may often lie in the pharmaceutical supply chain. The rebates
    paid off list price may end up with the PBMs and wholesalers within the
    supply chain. In exchange for these rebates, branded drugs are often
    given favorable treatment on formularies and are sometimes placed
    preferentially ahead of generic or biosimilar versions. In the end,
    patients often pay coinsurance based on the higher list price despite
    the discounts offered to these other players.
        policy options to lower drug spending and increase affordability
        It is encouraging that bipartisan support for legislative and
    regulatory fixes is growing. As evidenced by this hearing, Congress has
    heard the concerns of American families, businesses, and taxpayers and
    is interested in finding policy solutions that will balance innovation
    and affordability. Doing nothing is a policy decision, and it is a
    decision that we know will lead to ongoing patent abuse and market
    dysfunction; an opaque supply chain characterized by spread pricing;
    higher costs of doing business for employers; increasingly
    unsustainable public programs; and higher out-of-pocket expenditures
    for families.

        And while we recognize that the patent abuses and other
    anticompetitive behaviors mentioned above are beyond this committee's
    jurisdiction, they must be addressed in any comprehensive piece of
    legislation. If they are not, public programs like Medicare and
    Medicaid will continue to face higher drug prices and expenditures.

        During today's hearing, this testimony will largely focus on
    potential fixes to Medicare and Medicaid. Consistent with the mission
    of The Arnold Foundation, we offer an array of credible ideas for
    Congress to consider in crafting a solution to these problems. The
    status quo represents a series of choices and trade-offs that we
    believe are unfair to the taxpayer and the patient. Any new policy will
    also require choices and tradeoffs across patients, taxpayers, PBMs,
    and manufacturers. These tradeoffs demand careful consideration, but we
    feel that a balance can be found that more equitably benefits each of
    these groups.
    Medicare Part D
        The Medicare Part D program was designed with financial incentives
    to encourage plan and beneficiary participation to ensure its success.
    We now have a very robust program. About 44 million of the 60 million
    people with Medicare have prescription drug coverage under Medicare
    Part D and each beneficiary has, on average, 40 plan
    offerings.\33\, \34\
    ---------------------------------------------------------------------------
        \33\ http://www.medpac.gov/docs/default-source/default-document-
    library/status-report-on-part-d_jan-2019.pdf?sfvrsn=0.
        \34\ https://www.kff.org/medicare/issue-brief/medicare-part-d-a-
    first-look-at-prescription-drug-plans-in-2018/.
    ---------------------------------------------------------------------------
                Restructuring Part D to Improve Competitive Pricing
        The financial structure that seemed necessary in 2006 is now
    creating incentives that waste taxpayer money. Here are a few examples.
    (1) The Wall Street Journal recently reported that plans generated over
    $9.1 billion in profit since 2006 by overestimating their expected
    costs and capitalizing on the Federal payment structure of Part D.\35\
    (2) Part D is required to cover all drugs in six classes, which
    undercuts plan ability to negotiate rebates. These drugs comprised
    about 20 percent of Part D spending in 2015, but only 14 percent of
    prescriptions.\36\ (3) Experts believe the benefit structure encourages
    plans to prefer high cost drugs to move people into the catastrophic
    region where taxpayers pay 80 percent of the cost.\37\ As mentioned
    previously, reinsurance payments are growing rapidly. Medicare's
    reinsurance payments to plans are estimated to be seven times the
    amount they were in 2006, reaching $43 billion in 2019.\38\ There are
    over 3.6 million people in Medicare Part D who had drug spending above
    the catastrophic coverage threshold. Of the 3.6 million, 1.1 million
    did not receive a low-income subsidy. That number is more than double
    what is was in 2010.\39\
    ---------------------------------------------------------------------------
        \35\ https://www.wsj.com/articles/the-9-billion-upcharge-how-
    insurers-kept-extra-cash-from-medicare-11546617082.
        \36\ https://www.pewtrusts.org/en/research-and-analysis/fact-
    sheets/2018/03/policy-proposal-revising-medicares-protected-classes-
    policy.
        \37\ http://www.medpac.gov/-blog-/factors-increasing-part-d-
    spending-for-catastrophic-benefits/2017/06/08/factors-increasing-part-
    d-spending-for-catastrophic-benefits.
        \38\ https://www.kff.org/medicare/fact-sheet/an-overview-of-the-
    medicare-part-d-prescription-drug-benefit/.
        \39\ http://www.medpac.gov/docs/default-source/default-document-
    library/status-report-on-part-d_jan-2019.pdf?sfvrsn=0.

        MedPAC has recommended a set of policies that restructure Medicare
    Part D to give plans greater financial incentives and stronger tools to
    manage the benefit.\40\ Both recent republican and democratic
    administrations have proposed similar policies.\41\, \42\
    Taken together, the following proposals would reduce the amount that
    taxpayers pay to provide the Part D drug benefit to its 44 million
    beneficiaries. However, the proposals would also expose some
    beneficiaries to higher cost sharing. In turn, some consideration could
    be given to using some of the savings to help people with higher out-
    of-pocket costs.
    ---------------------------------------------------------------------------
        \40\ http://www.medpac.gov/docs/default-source/reports/chapter-6-
    improving-medicare-part-d-june-2016-report-.pdf.
        \41\ https://www.hhs.gov/about/budget/fy2017/budget-in-brief/cms/
    medicaid/index.html?
    language=es.
        \42\ Table S-6 https://www.whitehouse.gov/wp-content/uploads/2018/
    02/budget-fy2019.pdf.

    ---------------------------------------------------------------------------
    Benefit Structure

        1.  Transition Medicare's individual reinsurance subsidy from 80
    percent to 20 percent while maintaining Medicare's overall 74.5 percent
    subsidy of basic benefits.
        2.  Exclude manufacturers' discounts in the coverage gap from
    enrollees' true out-of-pocket spending.
        3.  Eliminate enrollee cost sharing above the out-of-pocket
    threshold.
        4.  Modify copayments for Medicare beneficiaries with incomes at or
    below 135 percent of poverty to encourage the use of generic drugs,
    preferred multisource drugs, or biosimilars when available in selected
    therapeutic classes.

    Plan Flexibility

        5.  Provide plans with additional leverage to lower prices paid for
    drugs by removing at least the antidepressant and immunosuppressant
    drug classes from protected status and by considering recent
    administrative proposals that give plans additional tools to manage the
    six protected classes.\43\ To protect the beneficiary, these policies
    must be coupled with expeditious, well-functioning exceptions and
    appeals processes.
    ---------------------------------------------------------------------------
        \43\ http://www.medpac.gov/docs/default-source/comment-letters/
    01162019_partd_4180_p_
    medpac_comment-letter_v2_sec.pdf?sfvrsn=0.
    ---------------------------------------------------------------------------
        6.  Streamline the process for formulary changes.
        7.  Require prescribers to provide supporting justifications with
    more clinical rigor when applying for exceptions.
        8.  Permit plan sponsors to use selected tools to manage specialty
    drug benefits while maintaining appropriate access to needed
    medications.

        In addition to the issues with Part D benefit design and plan
    flexibility, there are transactions such as rebates, pharmacy fees, and
    other forms of compensation that occur in the supply chain that pose
    several issues.

        Although rebates put downward pressure on premiums, they give plans
    incentives to steer beneficiaries to drugs with the highest rebates,
    which also tend to have high list prices. This leads to higher cost
    sharing for beneficiaries and could accelerate the rate at which a
    beneficiary reaches the catastrophic portion of the benefit, where
    taxpayers pick up 80 percent of the cost.

        There are several points for consideration. First, may we need to
    revisit how Part D's financing structure allocates rebates to the
    taxpayer versus the plan and fix any misalignments. Second, there are
    other forms of compensation that may not be shared with the program
    currently. We should be asking whether plans should be permitted to
    profit from them without the taxpayer directly benefiting. Third, if
    rebates are creating so many perverse incentives in the program, maybe
    we should consider moving the entire Part D benefit to one that is paid
    using claims plus a flat fee. This, perhaps, would be the best way to
    realign incentives in the program to encourage use of the most
    appropriate and lowest cost drugs.

        Even if the benefit structure were reformed, plans were given more
    flexibility, and rebate incentives were improved, Part D still has a
    problem. As mentioned earlier, specialty drugs are filling the pipeline
    and they tend to face little or no competition. The average net price
    per prescription of a brand-name specialty drug in Medicare Part D grew
    at an average annual rate of 22 percent from 2010 to 2015.\44\ While
    less than 1 percent of all Part D claims were for specialty drugs in
    2017, they comprised a quarter of Part D spending, up from 6 percent in
    2007.\45\
    ---------------------------------------------------------------------------
        \44\ https://www.cbo.gov/system/files/115th-congress-2017-2018/
    presentation/53929presen
    tation.pdf.
        \45\ http://www.medpac.gov/docs/default-source/default-document-
    library/status-report-on-part-d_jan-2019.pdf?sfvrsn=0.

        Part D is not well-equipped to address these types of drugs, in
    part because negotiations are disaggregated across plan sponsors. This
    disaggregation makes negotiating prices for high cost drugs with
    limited competition less efficient than if the program were able to
    negotiate on behalf of all beneficiaries. We need to think through
    creative solutions to address this issue to ensure the program's fiscal
    ---------------------------------------------------------------------------
    sustainability.

        There are two sets of policies that could address this issue:

            1.  Reference pricing. The program could use the following
            external prices when setting reimbursement rates for certain
            high cost drugs:
                a.  Prices paid by a subset of foreign countries similar to
            the idea proposed by the administration in its Part B
            demonstration.
                b.  Prices based on the clinical value of the drug to the
            patient.
                c.  Prices based on independently developed research and
            development costs for a given therapeutic class.
                d.  Prices paid for similar drugs with competition or other
            drugs within a similar therapeutic class.
            2.  Negotiation with binding arbitration. Before Medicare
            covers certain high-cost drugs, the Secretary of Health and
            Human Services and pharmaceutical manufacturers would negotiate
            a price. If the negotiations fail, a neutral arbitrator would
            set the price of a drug once presented with a full set of
            information from which to make the pricing decision. In order
            to drive more reasonable bids, the arbitration would be highly
            structured such as those used in baseball to negotiate a
            player's salary. The arbitrator would have to pick one of the
            bids.

              We recognize that there are a number of complex design issues
            that need to be worked through. As mentioned, this would be
            restricted to a small subset of drugs with limited competition
            so it is administratively feasible. The Secretary would have to
            appoint or create a neutral arbitrator with drug market
            expertise (e.g., experts associated with the American
            Arbitration Association). Additionally, the legal issues of
            having a third party present a decision to the Secretary would
            have to be addressed. This concept of program-level negotiation
            may be foreign, but it is important to keep in mind that the
            Department of Veterans Affairs engages in negotiation for drugs
            they purchase on behalf of their patients.

        You can combine these two ideas and have reference prices built
    into the negotiation and binding arbitration process in order to guide
    the bids that are offered.

        In both of these policies, once there are a sufficient number of
    competitors on the market, price negotiation would return to Part D's
    standard negotiation process.
                                medicare part b
        In Medicare Part B, drugs and biologics dispensed by physicians are
    reimbursed using a buy-and-bill system. Under this structure,
    physicians are paid for the price of a drug plus a set percent, which
    can encourage providers to use higher cost medications and thus bring
    in higher revenue.\46\ The types of drugs used in Part B can also
    complicate matters. These physician-administered products are often
    high-cost specialty drugs or biologics. Of the top 10 drugs by spending
    in Part B in 2016, nine were high-cost biologics, which typically face
    limited competition.\47\
    ---------------------------------------------------------------------------
        \46\ https://www.cms.gov/sites/drupal/files/2018-10/10-25-
    2018%20CMS-5528-ANPRM.PDF.
        \47\ The Laura and John Arnold Foundation's analysis of CMS Part B
    spending file.

        A number of payment reforms could move away from incentivizing the
    use of high cost drugs and instead encourage the use of the most
    clinically appropriate product, regardless of price, or the use of
    ---------------------------------------------------------------------------
    lower-cost alternatives.

            1.  Reduce or reform the average sales price (ASP) add-on
            payment for physician-administered drug reimbursement. This
            could either be calculated as a lower percentage add on (e.g.,
            from 6 percent to 3 percent) or as a flat add-on fee.
            2.  Require manufacturers to pay Medicare a rebate when their
            ASP growth exceeds and inflation benchmark. This type of
            inflation penalty is used to control price growth in Medicaid
            and would reduce both the prices paid for Part B drugs and the
            associated beneficiary cost sharing.
            3.  Require that Medicare use the same billing code for
            biosimilars and their reference biologic product. This would be
            similar to the way generic small molecule drugs are treated.
            Currently, biosimilars are reimbursed at their own ASP plus a
            percentage of the reference biologic's ASP. This provides no
            difference in margin for the administering provider and a weak
            incentive to use a biosimilar over the higher priced biologic.
            4.  Allow physicians to form purchasing groups and negotiate
            their own formularies for physician-administered drugs. This
            would mimic some of the cost-containment techniques already
            used in the Part D benefit and through private plans and would
            allow groups to leverage purchasing power and market forces to
            negotiate for lower prices.

        Recently, the administration introduced the International Price
    Index (IPI) Model, which benchmarks Medicare reimbursement for Part B
    drugs to an international reference price.\48\ We believe models like
    the IPI are worth examining. They have a chance to reduce costs for
    beneficiaries and taxpayers significantly while still ensuring access
    to critical medications.
    ---------------------------------------------------------------------------
        \48\ https://innovation.cms.gov/initiatives/ipi-model/.
    ---------------------------------------------------------------------------
                                    medicaid
        The Medicaid rebate program is very successful at driving down
    average prices paid by the program relative to other payers. However,
    States are still struggling to afford new, high-cost specialty drugs,
    where the rebate is less effective in lowering prices. Additionally,
    since States are essentially required to cover all drugs, they are not
    getting as good a price as they could if they had additional
    flexibility.

        States are working with the administration to address this issue
    creatively. Louisiana recently received approval from CMS to
    operationalize a ``Netflix'' subscription model to purchase hepatitis C
    medications and New York instituted a Medicaid drug spending
    cap.\49\, \50\ However, it is clear that more needs to be
    done both administratively and legislatively to provide States with
    additional flexibility to rein in spending.
    ---------------------------------------------------------------------------
        \49\ https://www.washingtonpost.com/health/2019/01/10/louisiana-
    adopts-netflix-model-pay-hepatitis-c-drugs/?utm_term=.c7a9553d49fd.
        \50\ https://www.health.ny.gov/health_care/medicaid/regulations/
    global_cap/docs/2018-09-17_medicaid_drug_cap.pdf.

            1.  Provide States Additional Flexibility to Manage the Drug
            Benefit. Currently, States do not have as many tools as the
            private sector to manage the Medicaid drug benefit. If a
            manufacturer participates in the Medicaid rebate program, a
            State must cover all of its drugs. States are permitted to use
            some utilization management tools like prior authorization and
            quantity limits. If States were given additional flexibility to
            exclude from coverage certain drugs, while maintaining access
            to the statutory rebate, States would be able to lower drug
            spending. This legislative change would ensure that States like
            Massachusetts and Arizona could pursue the more flexible
            benefit designs they proposed to CMS.\51\, \52\
            Obviously, any changes like this would have to be accompanied
            by a well-designed, rapid appeals process and access to off-
            formulary drugs when clinically indicated.
    ---------------------------------------------------------------------------
        \51\ https://www.mass.gov/files/documents/2018/04/26/masshealth-
    1115-waiver-hearing-slides.pdf.
        \52\ https://www.azahcccs.gov/shared/Downloads/News/
    FlexibilitiesLetterFinal_11172017.pdf.
    ---------------------------------------------------------------------------
            2.  Address Misclassified Drugs. Provide the Centers for
            Medicare and Medicaid Services the authority to ensure that
            manufacturers are appropriately classifying their drugs as
            brands or generics to ensure payment of the appropriate rebate
            amount to the Medicaid program.
            3.  Increase the Statutory Cap on the Brand Rebate. A unique
            feature of the Medicaid rebate program is that it has an
            inflation component. A manufacturer's rebate liability grows if
            it increases its average manufacturer price (AMP) more than
            inflation. This inflation-based rebate comprises over half of
            the average rebate owed on brand drugs.\53\ The rest comes from
            the basic rebate, which for most drugs is 23.1 percent of a
            drug's AMP or the best price given to certain other payers.
            Under current law, the total rebate amount owed to Medicaid on
            a brand drug is capped at 100 percent of its AMP. One important
            scenario is that once a drug's rebate reaches the cap, a
            manufacturer can continue to raise its AMP without paying
            additional rebate dollars to Medicaid. If the rebate cap were
            increased, States and the Federal Government would receive a
            larger rebate because of this price increase, making the
            penalty more reflective of excessive price growth. While this
            policy would generate savings to the Medicaid program, we
            recognize that it creates a scenario where some manufacturers
            would be paying Medicaid to cover their drugs. The cap could be
            raised by an incremental amount (e.g., 105 percent of AMP) to
            dampen the effect on manufacturers.
    ---------------------------------------------------------------------------
        \53\ https://www.macpac.gov/wp-content/uploads/2018/06/Improving-
    Operations-of-the-Medicaid-Drug-Rebate-Program.pdf.
    ---------------------------------------------------------------------------
            4.  Remove the Statutory Requirement That Manufacturers Blend
            the AMP of a Brand Drug With its Authorized Generic. Under
            current law, the calculation of AMP requires a manufacturer to
            average the price of its authorized generic product with its
            branded product. Because the authorized generic is typically
            much lower in price than its branded counterpart is, this
            lowers the AMP off which the brand rebate is a calculated.
            MACPAC proposed changing the calculation to exclude the
            authorized generic price from the calculation of a brand drug's
            AMP. This would lower the prices States and the Federal
            Government pay for certain brand-name drugs in the Medicaid
            program.\54\
    ---------------------------------------------------------------------------
        \54\ Ibid.
    ---------------------------------------------------------------------------
                                   conclusion
        Mr. Chairman, on behalf of The Arnold Foundation, I wish to
    sincerely commend the committee for its leadership in holding today's
    hearing and for remaining committed to addressing the challenge of
    ever-rising prescription drug costs and the burden it places on all
    Americans. Advances in science have given us the ability to manage and
    even cure diseases that had no treatment even a decade ago. Despite
    this, the American health-care system must find a way to properly
    balance scientific discovery and innovation with affordability to
    patients, employers, and taxpayers.

        We believe that the system can deliver affordable treatments while
    also encouraging the development of the next generation of treatments.
    All of the ideas we offered you today involve trade-offs. We stand
    ready to support your work and your commitment to find the best policy
    approaches to achieve this important balance. Mr. Chairman, Ranking
    Member Wyden, and members of the committee, thank you for having me
    testify on this important subject. I would be happy to answer any of
    your questions.

                                     ______

                 Prepared Statement of Kathy Sego, Mother of a
                     Child With Insulin-Dependent Diabetes
        Good morning. Thank you, Chairman Grassley, Ranking Member Wyden,
    and distinguished members of the Senate Finance Committee, for the
    opportunity to testify before you today. My name is Kathy Sego. I am a
    choir teacher from Indiana. My husband and I have two children. Our son
    Hunter has type 1 diabetes.

        More than 30 million Americans have diabetes and approximately 7.4
    million of them rely on insulin. For millions of people with diabetes--
    including my son, and all individuals with type 1 diabetes--access to
    insulin is literally a matter of life and death. There is no medication
    that can be substituted for insulin, and nobody should ever have to go
    without it due to prohibitive costs. An American Diabetes Association
    study estimates that diabetes costs a total of $327 billion a year, but
    for my family, the true cost cannot be calculated.

        My son Hunter thrives as a student and football player at DePauw
    University. On the surface, you would never know that he lives with a
    chronic disease. Hunter was diagnosed with type 1 diabetes on August
    23, 2004, 1 month before his seventh birthday. On that date, our lives
    changed. Ever since, I have been an advocate and volunteer with the
    American Diabetes Association, fighting to make sure Hunter and all
    people with diabetes can stay healthy and have the same rights as
    people without diabetes.

        Diabetes is an everyday struggle. Every meal, every snack, every
    workout must be calculated. Hunter checks his blood sugar 10 times a
    day and doses his insulin accordingly. Any misstep can cause dangerous
    health problems. For Hunter, and every person who relies on it, insulin
    is as important as water or oxygen. Imagine if the one thing you relied
    on to survive was nearly out of reach because it was too expensive.
    That, for us, is insulin.

        Four years ago, when Hunter was starting college, he offered to go
    to the pharmacy to pick up his insulin. I thought, my son is growing
    up. I was proud. But for Hunter, growing up means understanding the
    cost of diabetes. The cost that day was $1,700, and Hunter called me in
    a panic. We have insurance; it simply could not be that expensive. The
    price tag was accurate. What made it worse was--it was just for 1
    month.

        What happens next brings me to tears. My energetic, athletic, and
    positive son was not himself. He seemed depressed. His grades dropped.
    He looked labored on the football field. His professors and coaches
    noticed the change too.

        I found out that Hunter had decided to purchase one vial of insulin
    instead of the four vials he needed for the month. Unbeknownst to me
    and my husband, Hunter was rationing his insulin.

        Rationing meant he didn't eat in order to keep from having to give
    insulin that metabolizes food. So, armed with 25 percent of the amount
    of insulin, he averaged eating less than 1 time per day. Daily energy
    expenditure, for even a non-athlete, requires more fuel. But as Hunter
    was trying to give his all on the field, he essentially found himself
    starving and making himself sick. In response, he started eating, but
    not dosing with the necessary insulin to allow enough oxygen to feed
    his organs, muscles, and brain cells. All the while, he began
    accumulating ketones (known as keto-acidosis), which left him 20 pounds
    lighter in the course of only 2 weeks. The combination of ketones and
    lack of oxygen could have ended with him in the morgue.

        Thankfully for Hunter, we caught wind of this, and he is okay
    today. But insulin rationing can lead to devastating--even deadly--
    complications, which I never want my son to experience. I'm heartbroken
    to know that my son felt he was a financial burden to us. Money over
    life is not the choice I want him to make, and I agonize over the idea
    that this could happen again.

        In everything my family does, we think first of the cost of
    Hunter's insulin. It is the root of every decision we make. We don't
    eat out. I don't turn on the heat in our home. I play a risky game with
    my utility bills--strategizing how long I can stretch them out before
    paying the past due fees. Our electricity was turned off because I
    needed to purchase the medicine that keeps my son alive. Almost every
    dollar I make goes towards health expenses, yet the increasing cost of
    medicine and care keep us in an endless cycle of trying to find
    innovative ways to generate other sources of money to pay for it all.
    Both my husband and I work 80-plus hours a week.

        This doesn't have to be this way. It is not like this everywhere in
    the world. We hosted an exchange student from Hungary, and her family
    flew us to their home for a visit. We went to the pharmacy for insulin;
    it cost $10. The same vial of insulin that costs us $487 out of pocket
    in the U.S. cost $10 in Hungary. I wanted to stockpile it. I wanted to
    buy every vial, but they only allowed us to bring home a 1-month
    supply.

        My son is about to graduate college. When that happens, it will be
    one of the proudest moments of my life. However, unlike other parents,
    that moment also fills me with dread. Hunter's life choices are
    contingent on his ability to pay for the medicine that keeps him alive.

        Hunter has these worries too. He wonders--can he pay for an
    apartment? Utility bills? His student loans? Will he be able to have a
    social life? Take a girl on a date? The thing is, it really comes down
    to this: Hunter needs insulin to live, but should that need for insulin
    keep him from living?

        Our family is not alone in this struggle. More than 7 million
    Americans use insulin, and more than 400,000 have signed the American
    Diabetes Association's online petition calling for action to make
    insulin affordable for all who need it. I'm here today on behalf of
    every family that is impacted by this disease and by these costs to ask
    for your help in easing this burden. This is not a call for a handout
    or a way to allow those who live with diabetes to be given a free ride.
    We just want to keep those 7 million alive without having to do what my
    son thought was his only option to stay alive.

        The scientists who discovered insulin sold the patent to the
    University of Toronto for $1 each to ensure affordable insulin for all
    who needed it. Nearly 100 years later, it is my most desperate wish
    that we make their vision come true.

        Again, thank you for the opportunity to testify before the
    committee.

                                     ______

       Prepared Statement of Hon. John Thune, a U.S. Senator From South
             Dakota, and Hon. Rob Portman, a U.S. Senator From Ohio
        We appreciate the witnesses' testimony and insight into addressing
    high drug prices. The topic of 340B was raised throughout the hearing,
    and we would like to state for the record the importance of the program
    for hospitals in our States and the community benefits 340B enables
    them to provide. The total discounts from the program equate to about 1
    percent of all drug spending in the United States, and while a
    relatively small amount, the associated savings are important to
    meeting the needs of our communities.

                                     ______

                     Prepared Statement of Hon. Ron Wyden,
                           a U.S. Senator From Oregon
        Thank you, Senator Grassley. I've appreciated the chance to work
    with you on health-care issues in the past, including fighting
    pharmaceutical price-gouging and exposing ripoffs by unscrupulous
    health-care providers. In my view, there's a big opportunity in this
    Congress to find common ground on holding down health-care costs.

        Since this is the first hearing of this Congress, I also want to
    welcome our new committee members, Senators Hassan and Cortez-Masto on
    the Democratic side, and Senators Lankford, Daines, and Young on the
    Republican side. I'm looking forward to working with all our new
    members in the months ahead. And I'd note, with the dais creeping
    farther and farther into the audience, we may need to consider putting
    up stadium seating in here.

        As Chairman Grassley noted in his opening statement, the Finance
    Committee invited the heads of several of the largest drug companies to
    testify today. They weren't willing to come answer our questions about
    why their products cost so much. That ought to tell you something.

        A little history. Even the big tobacco CEOs were willing to come to
    Congress and testify, and they made a product that kills people. They
    all lied to me, but at least they showed up. The drugmakers won't even
    do that much.

        This hearing is not a one-off. This is the first in a series we
    will hold on this topic. So nobody is going away, and even if it means
    using our power to compel the drug company CEOs to show up, they will
    come before this committee.

        The crisis of prescription drug costs threatens too many lives and
    bankrupts too many people for the Congress to tolerate this ducking and
    weaving by the companies that caused it. According to a recent report,
    millions of Americans have skipped doses or declined to fill
    prescriptions because of their cost. That is intolerable.

        Look at the price of insulin. Particularly for type 1 diabetes,
    insulin has been saving lives for nearly a century. There have been
    some improvements in insulin treatments over the years, but the real
    breakthrough came in the 1920s. There has been no recent ``aha'' moment
    in a lab to explain why the list price of Eli Lilly's main insulin
    drug, Humalog, went from $21 a vial in 1996 to its current list price
    of $275. A 13-fold increase. Humalog isn't 13 times as effective as it
    used to be. A vial doesn't last thirteen times longer than it did in
    1996.

        Other insulin manufacturers have hiked prices as well. But the
    problem isn't just about diabetes. The incredible strain that drug
    costs put on patients in Oregon and across the country is in plain
    view.

        Thousands and thousands of people at any given moment are turning
    to fundraising websites and asking complete strangers for help covering
    the cost of their prescriptions. It is grotesque that price-hiking drug
    makers have turned American patients into beggars.

        Chairman Grassley and I recently investigated how the drugmaker
    Gilead came to price its hepatitis C drug Sovaldi at $1,000 a pill,
    wholesale. According to our investigation--based on the company's own
    documents and their employees' own words--setting that price was not
    about recovering R&D costs. It was not based on the previous standard
    of care. The company charged a list price of $1,000 per pill because
    they knew they could get away with it. And that figure would set a
    pricing platform--a benchmark to be surpassed by successor drugs.

        So there's no shortage of evidence about what the problems are.
    Drug makers have unchecked power to set prices on their own--power
    that's often used to meet Wall Street's expectations rather than meet
    demand in the market. The system prioritizes quarterly earnings over
    human lives.

        There are several policy challenges to tackle. I'm especially
    troubled by health-care middlemen who skim off enormous sums of money,
    when there's scant evidence they're getting patients a better deal.
    That sure looks like it's the case with pharmacy benefit managers.
    Called PBMs, they're supposed to negotiate better deals, but the
    reality is, they take a big cut and inflate list prices.

        The three biggest PBMs are among the 25 largest companies in
    America. So let's pull back the curtain on what's really going on and
    see who really benefits from this arrangement. Right now, it's pretty
    clear to me that it's not families or taxpayers.

        Finally, a word about Medicare Part D. Chairman Grassley was a lead
    author of the bill that created the Medicare prescription drug benefit
    in 2003. While it was not the bill I would have written, I supported
    that bill because it was a first step to help seniors pay for their
    prescriptions. The pharmaceutical industry looks a lot different now
    than it did back then. Today we will hear from our witnesses that the
    structure of Part D encourages drug manufacturers to set list prices
    sky-high. We'll hear that private Part D plans are incentivized to push
    these high-priced drugs onto seniors. That cannot happen any longer.

        More than a decade of evidence shows that private Medicare Part D
    plans often do not do a good enough job of negotiating drug prices
    downward. So I believe Medicare ought to be able to use the collective
    bargaining power of 43 million seniors to get better deals for patients
    and taxpayers. The astronomical list prices of sole-source drugs is a
    major strain on patients and health-care budgets, and private plans
    have proven unable to correct that problem. Let's also recognize that
    drug company profits are often dependent on taxpayer-funded research. I
    do not believe drug makers ought to be able to get away with
    privatizing all the gains after socializing the costs of that essential
    research.

        The administration has often talked about addressing drug prices,
    but what's been offered is too light on details and destined to come up
    short. To live up to the President's promises, the administration will
    need to work with both sides in the Congress to pass meaningful
    legislation that lowers prices.

        The Finance Committee has a real opportunity to take action this
    year. We have a long tradition of bipartisanship and big ideas. So
    let's make our work on lowering drug prices live up to that tradition.

                                     ______

                                 Communications

                                  ----------

                         American College of Physicians

                     25 Massachusetts Avenue, NW, Suite 700

                           Washington, DC 20001-7401

                           202-261-4500, 800-338-2746

                               www.acponline.org

    The American College of Physicians (ACP) would like to express our
    appreciation to the Senate Finance Committee for hosting a hearing on
    prescription drug pricing in America. ACP is the largest medical
    specialty organization and the second largest physician group in the
    United States. ACP members include 154,000 internal medicine physicians
    (internists), related subspecialists, and medical students. Internal
    medicine physicians are specialists who apply scientific knowledge and
    clinical expertise to the diagnosis, treatment, and compassionate care
    of adults across the spectrum from health to complex illness.

    We understand that this issue is a top priority for Chairman Grassley
    and Ranking Member Wyden and that the Committee plans a series of
    hearings concerning this issue. Our physicians see first-hand the
    choices that patients must make about their health when trying to
    budget between the cost of their medications and every-day living
    expenses. Dr. Nitin Damle, a practicing physician in Wakefield, RI, and
    the founding and managing partner of South County Internal Medicine,
    related the obstacles encountered by his patients in taking their
    medications in one day of his practice in his testimony to the Senate
    Judiciary Committee on June 21, 2016, that examined methods drug
    companies use to raise prices of medications.

          A 67-year-old patient with diabetes, hypertension and heart
    disease can no longer afford his medications, as he has fallen into the
    ``doughnut hole'' of drug coverage. He must take brand-name drugs due
    to lack of cheaper generic alternatives to control his diabetes and
    prevent another heart attack.

          A 40-year-old patient with asthma cannot afford his preventive
    and rescue inhalers because of the high cost and his high deductible
    plan. There are again no generic alternatives. His non-compliance with
    medication will lead to an asthma exacerbation that may lead to an
    emergency room visit and even admission to the hospital.

          A third patient with rheumatoid arthritis cannot afford the
    immune modulating medications that are the standard of care due to the
    cost of the brand name medication with no generic alternatives. The
    inability to treat early rheumatoid arthritis with these medications
    will lead to more serious joint problems including joint replacement
    surgery and other medical complications of the disease.

    These examples are just three of many that play out in physicians'
    offices day in and day out. Advances in medicine have been life-saving
    but they need to be affordable to society. Non compliance with
    medication regimens can lead to more serious health complications, more
    patients suffering from disease and more costs to society. The
    pharmaceutical industry needs a reasonable return on investment but
    there needs to be a balance between profits and the service they
    provide in treating and maintaining the health of our patients.

    We look forward to working with members of the Committee in a
    bipartisan fashion to develop policies to lower the cost of drugs for
    our patients and share our perspective as internal medicine physicians
    on how the rising cost of prescription drugs are making medications
    unaffordable for our patients. As the Committee examines solutions to
    lower the cost and price of prescription drugs, we urge Senators to
    consider the enactment of policies that will achieve the following
    objectives: promote competition in the pharmaceutical industry,
    increase transparency in the pricing and costs associated with the
    development of drugs, implement reforms to Medicare to lower out of
    pocket costs for seniors, and increase the value of drugs in the
    marketplace.

                          Drug Prices Continue to Rise

    According to a multitude of studies published over the last several
    years, drug companies dramatically and repeatedly continue to raise the
    price of their products to levels that are simply unaffordable to
    patients.

          A recent study found that between 2002 and 2013, the price of
    insulin increased dramatically, with the typical cost for patients
    increasing from approximately $40 a vial to $130. As a result,
    according to a published report on the new study ``a surprisingly large
    number of people with diabetes are using less insulin than prescribed
    because of the rising cost of the drug, putting themselves in danger of
    serious complications. Those are the findings of a small new study by
    researchers at Yale University, who found that at one clinic in New
    Haven, CT, one in four patients admitted to cutting back on insulin use
    because of cost.''

          A report by the Senate's Homeland Security and Governmental
    Affairs Committee found that ``The prices of many of the most popular
    brand-name drugs increased at nearly 10 times the cost of inflation
    from 2012 to 2017. Prices increased for every brand-name drug of the
    top 20 most-prescribed brand-name drugs for seniors in the last 5
    years. On average, prices for these drugs increased 12 percent every
    year for the last 5 years--approximately 10 times higher than the
    average annual rate of inflation. Twelve out of the 20 most commonly
    prescribed brand-name drugs for seniors had their prices increased by
    over 50 percent in the 5-year period. Six of the 20 had prices
    increases of over 100 percent. In one case, the weighted average
    wholesale acquisition cost for a single drug increased by 477 percent
    over a 5-year period.''

          Generic drugs, which usually are expected to offer a lower-
    priced competitive alternative to bioequivalent brand name drugs, are
    also experiencing price increases. A study in the October issue of
    Health Affairs shows that the portion of generic drugs that at least
    doubled in price, year-over-year, represents a small but growing share
    of the market: from 1 percent of all generic drugs in 2007 to 4.39
    percent in 2013. ``For consumers, this can mean soaring costs to
    purchase some drugs that are life-savers, sparking public outrage and
    leading many to question whether the market--which has historically
    functioned well--is still working.''\1\
    ---------------------------------------------------------------------------
        \1\ https://news.use.edu/149667/do-price-spikes-on-some-generic-
    drugs-indicate-problems-in-the-market/.

          According to an article published in the Journal of Internal
    General Medicine, between 2010 and 2015 300 off-patent drugs
    experienced price increases of 100 percent or more, and some drugs were
    sold at 5,500 percent higher than in previous years.\2\
    ---------------------------------------------------------------------------
        \2\ https://link.springer.com/article/10.1007/sl1606-018-4372-3.
    ---------------------------------------------------------------------------

    Promoting Competition to Lower Drug Prices

    As the Senate Finance Committee continues to examine ways to lower drug
    costs, we encourage the Committee to use its oversight and legislative
    authority to develop policies to promote competition for brand-name and
    generic drugs and biologics. ACP provides the following recommendations
    to the Senate Finance Committee to prevent a number of techniques that
    brand name drug companies use to block the approval of other drugs to
    compete with their products in the marketplace including: improving
    competition for single-source drugs, product hopping, ever greening,
    and pay for delay tactics.

          Improving competition for single-source drugs--Increasingly, the
    pharmaceutical marketplace is narrowing its focus to highly innovative,
    biologic, or specialty drugs for which there are few, if any,
    competitors, creating monopolies and limiting the cost-controlling
    power of competition. The focus on brand-name drugs and new biologics
    results in a greater desire for companies to protect the investments in
    these drugs and keeping them as profitable for as long as possible.

          Increase oversight of companies that engage in product-hopping
    or ever greening--In these practices, companies prevent generic
    competition from entering the market by making small adjustments to a
    drug with no real therapeutic value that grant the company longer
    patent protection, or they remove the drug from market, forcing
    patients to switch to a reformulated version of the same drug.

          Enforce restrictions against pay for delay practices--Pay-for-
    delay, also known as ``reverse payment settlement,'' is a patent
    settlement strategy in which a patent holder pays a generic
    manufacturer to keep a potential generic drug off the market for a
    certain period. The Congressional Budget Office estimated that enacting
    legislation restricting pay-for-delay settlements would cut the federal
    deficit by $4.8 billion over 10 years.

    Senators Grassley and Klobuchar have recently introduced legislation S.
    64, The Preserve Access to Affordable Generics and Biosimilars Act.
    This legislation would prohibit brand name drug companies from
    compensating generic drug companies to delay the entry of a generic
    drug into the market. ACP calls for robust oversight and enforcement of
    pay-for delay agreement in order to limit anti-competitive behaviors
    that keep lower cost alternative off the market and we appreciate that
    Senators have introduced legislation with the intent to address these
    harmful tactics.

    Improve Access to Generic Drugs

    Limited competition--even in the generic market--can also drive up the
    cost of a medication. The generic manufacturing market is becoming more
    consolidated, and progressively some generics are being manufactured by
    a single company or are disappearing from the market. Limited
    competition--in almost any sector--limits the cost-containing power of
    competition. When there is no competition, patients have little choice.
    For example, if there is only one costly name brand drug for the
    patient, they really only have two options--either pay for the drug or
    forgo treatment and risk escalating their condition. Even the generic
    market is not immune to this happening, single-source generics are more
    expensive than other generics; some health plans place these drugs in
    the preferred drug tier in absence of a competitor, resulting in higher
    costs to the patient.

    There have also been anti-competitive practices by a few manufacturers
    of brand name drugs to prevent or delay other companies from developing
    alternative lower-cost products. These few brand name manufacturers
    utilize the FDA's Risk Evaluation and Mitigation Strategies (REMS)
    process and its accompanying Elements to Assure Safe Use (ETASU)
    requirements in a manner that prevents development of lower-cost
    alternatives. In some instances, the REMS process and ETASU
    requirements have been used to deny availability of drug samples and
    participation in FDA safety protocols. Using the REMS process and ETASU
    requirements in this way by a few brand-name drug companies keeps
    lower-cost generics and biologicals off of the market, thereby
    decreasing patient access to lower-cost medications.

          ACP supports the passage of S. 340--the Creating and Restoring
    Equal Access to Equivalent Samples (CREATES) Act--This legislation was
    recently introduced in this Congress by Senators Leahy, Grassley, Lee,
    and Klobuchar. It attempts to stop brand name companies from misusing
    the REMS process and ETASU requirements by determining when the denial
    of adequate samples and impending participation in joint-safety
    protocol have occurred and creates a process a pathway for the lower-
    cost manufacturer to bring a cause of action in federal court for
    injunctive relief.

    As we mentioned earlier, Dr. Nitin Damle testified in support of this
    legislation at a Senate Judiciary Committee hearing regarding this bill
    in 2016. This legislation was introduced in the 115th Congress and
    approved by the Senate Judiciary Committee and In May of 2017, ACP also
    submitted a letter in support of this legislation.

    Develop a Process to Ensure Safe Reimportation of Drugs

    As the Senate Finance Committee continues to examine the causes of
    rising drug costs, we urge you to consider policies to develop a
    process to ensure the safe reimportation of drugs. The ACP continues to
    support consideration of the reimportation of drugs, especially sole-
    source generic drugs, provided that their safety can be reasonably
    assured by regulators, as part of larger efforts to control the cost of
    prescription drugs. The ACP believes it should be a closed system, with
    participating pharmacies and suppliers required to meet FDA standards;
    have a tightly controlled and documented supply chain; not include
    controlled substances, biologics, or products that are infused or
    injected; and include adequate resources for inspections of facilities
    and enforcement of U.S. requirements, among others. The ACP
    acknowledges that drug importation is not a long-term solution to the
    high price of prescription medication, and there are various safety
    concerns about the reimportation of prescription drugs. Yet, we
    continue to support a careful evaluation of how existing federal
    importation standards may be used to encourage the reimportation of
    drugs to the United States, and how existing technology and recent
    legislative initiatives may assist in safeguarding the supply chain
    against counterfeiting or contamination.

    Increase Transparency in the Marketplace

    For decades, pharmaceutical manufacturers have claimed that drug
    pricing is based on research and development cost and innovation and is
    well regulated by market forces. The spike in prices and increase in
    price for drugs already on the market have made many stakeholders wary,
    especially because many of these new therapies treat small populations
    and there are few data to support that overall health care costs are
    reduced. In 2018, a number of drug manufacturers announced they would
    not raise prices on drugs, noting the public concern about increasing
    drug prices. However, these decisions created a false sense of
    confidence that the issue was being addressed and in late 2018, most of
    companies reneged on these announcements and raised the prices of their
    products.

    We appreciate the efforts of the Senators Grassley and Wyden to
    increase transparency in the marketplace by inviting Chief Executive
    Officers of Pharmaceutical Companies to testify at the Senate Finance
    Committee in the next several weeks to examine why drug companies are
    increasing prices, and what steps can be taken to reduce them. This
    effort to increase transparency in the prescription drug marketplace is
    necessary for Congress and the Administration to have the data that
    they need to enact legislative and regulatory policies to lower the
    cost of prescription drugs. ACP urges the Committee to exercise its
    oversight authority to urge pharmaceutical companies to disclose:

          Actual material and production costs to regulators--Pricing
    methodologies for biomedical products are notoriously covert, and it is
    difficult to pinpoint to what extent a price reflects research,
    development, marketing, or administration costs.

          Research and development costs contributing to a drug's cost,
    including those drugs which were previously licensed by another
    company--Pharmaceutical companies are often publicly held and disclose
    information on their research and development marketing portfolios
    which has allowed outside analysts to review how, and how effectively,
    companies use their research and development budgets. The average
    amount that a company spends on research and development per drug may
    vary, depending on the number of drugs each company is developing and
    how many gain regulatory approval.

          Rigorous price transparency standards for drugs developed with
    taxpayer-funded research--Companies that use basic research funded
    through the government as part of the development of a drug should be
    held to a high standard of pricing scrutiny. The National Institutes of
    Health (NIH) have historically made the largest government investments
    in basic research and play a key role in spurring innovations and
    breakthroughs. Between 1988 and 2005, federal research funding
    contributed to 45 percent of all drugs approved by the FDA and 65
    percent of drugs that received priority review. Without this
    assistance, the cost of discovery, research, and development on the
    part of pharmaceutical companies may be prohibitive. At a minimum,
    pharmaceutical companies should disclose any grants, licensing
    agreements, or other investments by the federal government in the
    discovery, research, and development of the drug, in addition to
    material, production, and other research and development costs.

    ACP supported several bills in the last Congress to improve the
    disclosure of information from pharmaceutical companies concerning
    their research and development costs and information regarding price
    increases of their products. These bills include:

          The Drug Price Transparency in Communications Act--This
    legislation, offered by Senator Durbin, would require drug companies to
    disclose the Wholesale Acquisition Cost of an Rx in Direct-to-Consumer
    Advertising. We are pleased that a similar measure offered by Senator
    Durbin to support mandatory price disclosures in OTC ads, passed the
    Senate in the last Congress. ACP also applauds an announcement by the
    Department of Health and Human Services (HHS) to issue a new regulation
    requiring pharmaceutical companies to list prices of their prescription
    drugs in DTC advertisements.

          The Fair Accountability and Innovative Research (FAIR) Pricing
    Act--This legislation, offered by Senator Baldwin, would require
    manufacturers to disclose and provide more information about planned
    drug price increases, including research and development costs.

    Reforming Medicare to Lower the Cost of Prescription Drugs

    The Senate Finance Committee may have the greatest impact on lowering
    the cost of prescription drugs through its ability to conduct oversight
    over CMS and pass legislation to reform the Medicare Part Band D
    programs. ACP policies support a number of reforms to Medicare which
    will bring down the cost of prescription drugs for seniors.

    Allow Medicare Part D to Negotiate Drug Prices

    The ACP has a long-standing policy of advocating for the ability of
    Medicare Part D to negotiate drug prices and rebates directly with
    pharmaceutical manufacturers as a way to lower costs within the
    program. This idea has the bipartisan support of the American people
    and a 2018 poll conducted by the Kaiser Family Foundation showed that
    92 percent of the American people favor allowing the federal government
    to negotiate with drug companies to get a lower price on medications
    for people on Medicare.

    Although employer and self-insured plans are able to negotiate and use
    their bargaining power to lower the price of drugs, Medicare and
    Medicaid programs are directed by statutes that can impede their
    ability to obtain the best prices. Medicare Part D pays on average more
    than other federal health programs: 73 percent more than Medicaid and
    80 percent more than the Veterans Health Administration. We believe
    that seniors can get a better deal on their drug costs if Medicare were
    allowed to negotiate prices and we urge the Finance Committee to
    support the following legislation that would allow Medicare to
    negotiate drug prices.

          S. 62, The Empowering Medicare Seniors to Negotiate Drug Prices
    Act--This legislation, offered by Senator Amy Klobuchar (D-MN) will
    empower the Secretary of Health and Human Services to negotiate with
    pharmaceutical manufacturers the prices (including discounts, rebates,
    and other price concessions) that may be charged for prescription
    drugs. ACP submitted a letter of support for this legislation in the
    last Congress and we also intend to support this bill in the 116th
    Congress.

    Trump Administration Proposed Regulations to Reform Medicare to Lower
    Drug Costs

    President Trump has also been an outspoken advocate for lowering the
    prices of prescription drugs and has issued a series of proposals
    designed to accomplish this goal. In May of 2018, the Department of
    Health and Human Services (HHS) issued a blueprint to lower drug prices
    that identified four key strategies for reform including: improved
    competition, better negotiation, incentives for lower list prices,
    lower out-of-pocket costs. ACP issued a comment letter that shared our
    views concerning key elements of the blueprint, expressed our key
    recommendations to lower drug costs, and urged the HHS to use the
    rulemaking process to continue to seek input from stakeholders prior to
    the implementation of any policy.

    The President also seeks to issue a new regulation that would implement
    a new International Pricing Index payment model to lower drug costs for
    patients in the Medicare Part B program. The goal of this proposed rule
    would be to shift drug prices in the United States to more closely
    align them with prices in European countries that pay much less for the
    same drugs. Although ACP does not have direct policy on this pricing
    model, we did provide a comment letter to HHS that provides our views
    regarding a number of issues that should be considered before
    implementation of this rule.

    CMS has also announced proposed changes to Medicare Part D designed to
    lower prescription drug prices for beneficiaries. The proposed rule
    would seek to allow plans to exclude certain protected class drugs if
    the manufacturer raises the price of the drug at a rate greater than
    inflation or if the drug maker brings to market a new formulation of
    the drug without any meaningful change to original formulation of the
    drug, regardless of whether or not the original formulation remains on
    the market or not. Additionally, the proposal introduces prior
    authorization and step therapy to the protected classes in an attempt
    to introduce more competition.

    The administration also recently announced a new proposed rule that
    would attempt to lower out of pocket costs for patients using drugs
    with high prices and high rebates, particularly during the deductible
    or coinsurance phases of their benefits. This proposal aims to change
    perverse incentives in the system that allow drug companies to continue
    to increase the list prices of their drugs. The proposal would create a
    new safe harbor protecting discounts offered to patients when they
    purchase their drugs at the pharmacy. It would also create new safe
    harbor for fixed fee services arrangements between manufacturers and
    pharmacy benefit managers. We are currently reviewing this proposal to
    evaluate how it relates to ACP policy and will most likely submit a
    comment letter to CMS to share our ideas regarding this new proposal.

    Reforming Drug Formularies to Ensure Lower Costs for Patients

    When health plans are faced with rising cost associated with high drug
    prices, they often look to increased cost-sharing, utilization
    management, or tiered formularies that place all drugs of a certain
    class into the highest tier, putting patients at risk for not being
    able to access or afford the medications they need or adhere to drug
    regimens properly.

    Drug formularies divide prescription drugs into 4 or 5 tiers with
    varying levels of fixed prices (copayments) for all drugs in each tier,
    with the exception of the highest tier. The highest tier, typically the
    specialty tier, is subject to either the highest copayment or
    coinsurance in which the patient pays a percentage of the cost of the
    treatment. There has been a shift toward prescription drug plans with
    coinsurance in the top 2 tiers, typically the specialty tier and a non-
    preferred brand tier that has no restrictions on which drugs can be
    placed on the tier. This can lead to higher coinsurance rates than that
    of the specialty tier. Usually only the specialty tier has been subject
    to cost-sharing; all other tiers have copayments.

    ACP believes that payers that use tiered or restrictive formularies
    must ensure that patient cost sharing for specialty drugs are not set
    at a level that imposes a substantial economic barrier to enrollees
    obtaining needed medications, especially for enrollees with lower
    incomes. Health plans should operate in a way consistent with ACP
    policy on formularies and pharmacy benefit management.

    The ACP has a comprehensive policy on formulary benefit design
    including:

          ACP opposes any formulary that may operate to the detriment of
    patient care, such as those developed primarily to control costs.

          Decisions about which drugs are chosen for formulary inclusion
    should be based on the drug's effectiveness, safety, and ease of
    administration rather than solely based on cost.

          ACP recommends that pharmacy and therapeutic committees be
    representative of, and have the support of, the medical staffs that
    will utilize the formulary.

    Improve Value Within the Prescription Drug Market

    ACP supports research into novel approaches that would further value
    based decision making and encourages research into policies that would
    tie price innovations to clinical value. We urge the Finance Committee
    to consider the following options:

          Value Frameworks--With the great attention being paid to the
    price of drugs, determining how to assess the value of a drug, which
    patients may benefit the most from a certain drug, and the economic
    value of a drug has charged the conversation.

          Bundled Payments--The approach may encourage the use of older,
    lower-priced drugs before newer, more expensive treatments with similar
    benefit and in turn affect drug utilization. This shift to paying for
    value as opposed to the number of services provided mirrors other
    similar shifts toward an evidence- and value-based system of health
    care.

          Indication Specific Pricing--The variability of disease and how
    patients react to medications makes indication-specific pricing
    potentially beneficial for such diseases as cancer.

          Evidence-Based Benefit Designs--Innovative benefit designs can
    include incentives that vary by service, type of patient condition, or
    income. Evidence-based benefit design has also been advocated as a way
    to reduce health care costs and would be in line with the movement
    toward evidence-based medicine. Policies that encourage value-based
    benefit design can help consumers make educated choices about
    prescription drugs and keep costs low.

    Improve the Use of Comparative Effectiveness Research

    More and more, physicians, patients, and other stakeholders are
    questioning the value of drugs relative to their price. Many of the new
    specialty drugs coming to the market represent real breakthroughs and
    benefits for patients, and the market should encourage future
    innovation. Those innovations do not mean that all other drugs should
    also be priced at the same level. Independent organizations, such as
    the Institute for Clinical and Economic Review and the Patient-Centered
    Outcomes Research Institute (PCORI), develop and evaluate clinical
    effectiveness data compared with other treatments. For example, PCORI
    has funded millions of dollars in head-to-head CER that can inform
    physicians and help patients understand all therapeutic options
    available as they relate to existing therapies and encourage informed
    decision-making and patient involvement. Establishing an evidence base
    of clinical effectiveness data is the crux of transitioning to a health
    care system that pays for and rewards value. Not only do comparative
    effectiveness data inform value judgments they can also help physicians
    and patients understand all available options as they relate to
    existing therapies, encouraging informed decision making and
    involvement by patients in their health care choices. ACP policy
    supports CER to measure the effectiveness of health care services and
    clinical management strategies and that all health care payers,
    including Medicare and other government programs, should use both
    comparative effectiveness and cost effectiveness in the evaluation of a
    clinical intervention. However, cost should not be used as the sole
    criterion for evaluating a clinical intervention,

    However, by statute, PCORI is prohibited from using Quality Adjusted
    Life Years (QALYs), is a metric of cost-effectiveness research that
    takes into account the quantity and quality of life associated with a
    treatment and assigns an index number to that treatment, as ``a
    threshold to establish what type of health care is cost effective or
    recommended.'' QALYs are commonly used in cost-utility studies to
    determine the cost of a treatment per QALY and compare medical
    interventions; however, they have been criticized for lacking
    sensitivity to patient preferences or goals. Incorporating QALYs into
    cost effectiveness studies will help patients, physicians, and
    policymakers compare the cost and health benefits of treatments and
    facilitate a better understanding of the value of different treatments.
    Part of a patient's overall determination of value may include the cost
    effectiveness of the treatment along with the benefits or risks of a
    drug.

    Conclusion

    ACP commends the Finance Committee for conducting this hearing, and
    additional hearings in the coming weeks, on drug pricing in America and
    we look forward to working with you, the Administration, and other
    stakeholders to develop and implement solutions to ensure that every
    patient has access to the medications that they need at a cost that
    they can afford. Should you have any further questions, please contact
    Brian Buckley at bbuckley@acponline.org.

                                     ______

                     American Society of Clinical Oncology

                           2318 Mill Road, Suite 800

                              Alexandria, VA 22314

                                T: 571-483-1300

                                F: 571-366-9530

                                  www.asco.org

    January 29, 2019

    The Honorable Chuck Grassley
    Chair
    U.S. Senate
    Committee on Finance
    Washington, DC 20510

    The Honorable Ron Wyden
    Ranking Member
    U.S. Senate
    Committee on Finance
    Washington, DC 20510

    Dear Chairman Grassley and Ranking Member Wyden,

    The American Society of Clinical Oncology (ASCO) shares your concern
    about the rising cost of prescription drugs. We appreciate the
    committee's efforts to examine prescription drug pricing and
    considering solutions to lower costs for American patients.

    ASCO is the national organization representing more than 45,000
    physicians and other health care professionals specializing in cancer
    treatment, diagnosis, and prevention. We are committed to ensuring that
    evidence-based practices for the treatment of cancer are available to
    all Americans.

    As you begin the series of hearings with today's hearing, ``Drug
    Pricing in America: A Prescription for Change, Part I,'' ASCO offers
    for your review the ASCO Position Statement on Addressing the
    Affordability of Cancer Drugs and stands ready to work with you on real
    solutions that address the affordability of cancer drugs. Knowing that
    these conversations will be ongoing, we also welcome your consideration
    of the comments we have provided to the Centers for Medicare and
    Medicaid Services on a range of other issues including the potential
    relaunch of a Competitive Acquisition Program for Part B drugs, the
    340B Drug Pricing Program, and further allowances of step therapy and
    other utilization management tactics in Parts C and D.

    If you have questions on any issue involving the care of individuals
    with cancer or would like to be directed to ASCO's thoughts on a
    specific issue related to drug pricing, please contact Jennifer
    Brunelle at Jenniferbrunelle@asco.org.

    Sincerely,

    Monica M. Bertagnolli, M.D., FACS, FASCO
    President, American Society of Clinical Oncology

                                     ______

           American Society of Clinical Oncology Position Statement
                on Addressing the Affordability of Cancer Drugs

    Introduction

    The issue of drug price, particularly in the area of specialty
    pharmaceuticals, has emerged as a bipartisan concern with both Members
    of Congress and the Administration. Specialty medications typically
    include biological products that are often administered by injection or
    infusion, sometimes require special handling and administration, and
    are often substantially more expensive than the traditional small
    molecule drugs.\1\ Specialty medications accounted for 37% of drug
    spending in 2015, and projections are that they will account for 50% of
    all drug spending by 2018.\2\ Oncology drug pricing is expected to
    increase at a rate of more than 20% per year for the next several
    years.\3\ Healthcare expenditures--including drug costs--have become a
    major cause of personal bankruptcy, and ``financial toxicity'' has
    become a common term used to describe the financial distress that now
    often accompanies cancer treatment for patients.
    ---------------------------------------------------------------------------
        \1\ Gleason PP, et al. ``Health plan utilization and costs of
    specialty drugs within 4 chronic conditions.'' J Manag Care Pharm. 2013
    September;19(7):542-8: http://www.jmcp.org/doi/pdf/10.18553/
    jmcp.2013.19.7.542.
        \2\ The Express Scripts Lab. Express Scripts 2015 Drug Trend Report
    Executive Summary. March 2016. https://lab.express-scripts.com/lab/
    drug-trend-report.
        \3\ Ibid.

    Many policymakers consider this a uniquely American problem, as the
    U.S. healthcare marketplace has few tools to control cost effectively.
    Projections are that the United States will continue to have the
    largest per capita drug spending increase of any developed country in
    the world, while countries like Spain and France will experience per
    capita spending decreases.\4\
    ---------------------------------------------------------------------------
        \4\ IMS Institute for Health Informatics. Global Outlook for
    Medicines Through 2018. http://www.imshealth.com/en/thought-leadership/
    quintilesims-institute/reports/qlobal-outlook-for-medicines-through-
    2018.

    At the same time, the last decade has seen tremendous progress in
    development of new classes of drugs that have greatly improved outcomes
    for patients with certain cancers. Immune checkpoint inhibitors, for
    example, have improved the prognosis for many patients with once
    rapidly fatal cancers. The speed with which new therapies enter the
    U.S. drug market and become available to patients tends to be faster
    than in other countries.\5\ Nevertheless, one recent study revealed
    that only 19% of recently approved cancer drugs met ASCO's goals for
    producing clinically meaningful survival outcomes for patients, despite
    often entering the marketplace at extraordinarily high prices.\6\
    Balancing the need for continued innovation for our patients, equitable
    access to high quality care and unsustainable cost trends calls for
    bold but thoughtful action.
    ---------------------------------------------------------------------------
        \5\ Kanavos, P, et al. ``Higher U.S. Branded Drug Prices and
    Spending Compared to Other Countries May Stem Partly From Quick Uptake
    of New Drugs,'' Health Affairs, Vol. 32, pp. 753-761, 2013.
        \6\ Kumar H, Fojo T, Mailankody S. ``An Appraisal of Clinically
    Meaningful Outcomes Guidelines for Oncology Clinical Trials.'' JAMA
    Oncol. 2016;2(9):1238-1240.

    As the leading professional organization for physicians and oncology
    professionals caring for people with cancer, ASCO is deeply concerned
    about the effect rising drug prices have on individuals affected by
    cancer. We are a patient-centered professional society whose members
    deliver some of the most complex and expensive treatment regimens in
    health care during one of the most stressful healthcare episodes in
    most people's lives. Our members are expert in the technical benefits
    and risks of these drug regimens and treatment programs but we also
    witness the financial impact of cancer treatment on patients and
    ---------------------------------------------------------------------------
    families.

    ASCO is committed to supporting and promoting practical policy
    solutions that ensure patients with cancer have access to--and can
    afford--drugs vital to the treatment of their disease. We propose a
    number of modest ``experiments'' to determine if any model can help
    rein in drug costs without jeopardizing innovation or access to care.
    We join our colleagues from the American College of Physicians,\7\ the
    American Academy of Dermatology,\8\ the Council of Medical Specialty
    Societies \9\--of which ASCO is a member--and the Society of
    Gynecologic Oncology,\10\ who have all recently released positions on
    high drug prices and spending.
    ---------------------------------------------------------------------------
        \7\ Daniel H, for the Health and Public Policy Committee of the
    American College of Physicians. ``Stemming the Escalating Cost of
    Prescription Drugs: A Position Paper of the American College of
    Physicians.'' Ann Intern Med. 2016;165:50-52.
        \8\ Position Statement on Patient Access to Affordable Treatments,
    American Academy of Dermatology Association, 2015. https://www.aad.org/
    Forms/Policies/Uploads/PS/PS%20-%20
    Patient%20Access%20to%20Affordable%20Treatments.pdf.
        \9\ Council of Medical Specialty Societies. CMSS Principles for
    Increasing Access to Needed Medications by Patients, 2016. https://
    cmss.org/cmss-principles-for-increasing-access-to-needed-medications-
    by-patients/.
        \10\ Society for Gynecologic Oncology. Addressing the High Cost of
    Drugs for Oncology Patients. https://www.sgo.org/public-policy/
    addressing-the-high-cost-of-drugs-for-oncology-patients/.

    ASCO is firm in its position that any policy solutions to address the
    price of cancer drugs must promote access to care for patients,
    affordability of drugs vital to their treatment, and innovation in drug
    development. Regardless of the specific policy recommendations pursued,
    defining value must underpin the drug pricing debate. The principles
    ---------------------------------------------------------------------------
    below guided development of ASCO's position:

          Value-based solutions that are patient-centered and evidence-
    driven should inform drug prices in the United States.
          Oncology professionals should define optimal care and provide a
    framework to assess the comparative value of cancer treatment options
    from a clinical perspective.
          There should be a real and consistent relationship between the
    value of a given drug and its cost to patients.
          Physicians do not control the launch price of drugs. However,
    physicians do determine how drugs are used and are accountable for
    appropriate utilization.
          Cost-containment strategies should not limit the ability for
    patients to receive access to appropriate care, or for providers to
    prescribe such care.
          Cost-containment strategies should incentivize--not hamper--
    innovation that results in clinically meaningful improvements in
    patient outcomes.

    Within this statement, we review a number of solutions that
    policymakers have proposed as a means of addressing the soaring prices
    of specialty drugs. We provide ASCO's perspective on whether these
    proposals should be tested, primarily from the standpoint of impact on
    patient care. We use both the term ``drug pricing'' and ``drug
    spending'' throughout this statement. We refer to ``drug pricing'' as
    the unit cost of the drug; ``drug spending'' represents the combination
    of price and utilization.

    Defining Value in Cancer Therapeutics

    ASCO has launched a number of programs designed to address the rising
    cost of cancer care in general, beginning with a 2009 ASCO Guidance
    Statement on the Cost of Cancer Care, continuing with efforts that
    include participation in the Choosing Wisely campaign and, most
    recently, the publication of ASCO's Value Framework.\11\,
    \12\ The Value Framework helps oncologists and patients assess
    treatment options by providing a standard measure of net health
    benefit. ASCO also has worked to address the cost and quality of cancer
    care-apart from drug price-through initiatives such as its quality
    improvement program, the Quality Oncology Practice Initiative (QOPI);
    encouraging use of high value clinical pathways; setting the bar for
    clinically meaningful outcomes in cancer clinical trials; and advancing
    payment reform through the Patient-Centered Oncology Payment Model
    (PCOP). These efforts have focused on cost reduction by encouraging
    appropriate resource utilization, with the goal of reducing excess
    spending associated with unnecessary or inappropriate care.
    ---------------------------------------------------------------------------
        \11\ Meropol NJ, Schrag D, Smith TJ, et al. ``American Society of
    Clinical Oncology Guidance Statement: The Cost of Cancer Care.'' J Clin
    Oncol 27(23): 3868-3874, 2009.
        \12\ Schnipper LE, Davidson NE, Wallins DS, et al. ``Updating the
    American Society of Clinical Oncology Value Framework: Revisions and
    Reflections in Response to Comments Received.'' J Clin Oncol 34(24):
    2925-2934, 2016.

    We are not alone in these efforts. The European Society for Medical
    Oncology (ESMO) has released a value framework very much compatible
    with the ASCO framework. Other serious efforts to describe value
    include the Memorial Sloan Kettering Drug Abacus, the Institute for
    Clinical and Economic Review (ICER) collaborative evaluation model, and
    the NCCN evidence block initiative. We are encouraged by these mature
    efforts, which demonstrate that a group of engaged stakeholders can
    provide the expertise to define and assess the value of cancer
    therapies. However, establishing a patient-centric, robust and broadly
    applicable value framework requires the assessment of a broader range
    of clinical trial endpoints during drug research and development. In
    particular, it requires collection of validated quality of life and
    patient-reported outcome measures for drug registration trials. It also
    requires rapid expansion of big data projects such as ASCO's
    CancerlinQTM that collect real world outcomes that allow
    comparison of drug safety and effectiveness outside the setting of
    ---------------------------------------------------------------------------
    formal clinical trials.

    For all stakeholders, the definition of value ultimately comes down to
    the relationship between price and meaningful improvements in health
    outcomes at the level of individual patients--and society more broadly.
    Optimizing the value of a new product begins with innovation to address
    an unmet medical need, followed by clinically meaningful improvements
    in health outcomes through well-designed and efficiently conducted
    clinical trials. Effectiveness research is essential to determine how
    well the new product performs compared to available alternatives--and
    its impact on more diverse populations than those typically included in
    the clinical trials used to establish efficacy. Patient goals,
    preferences, and choices shape the real world experience with a new
    product, and the direct and indirect costs of treatment to both
    patients and their families affect its widespread adoption. The medical
    community should be judicious in using new and costly products until
    there is clearly established value and clear understanding of how that
    value relates to treatment goals, available options, and the unique
    needs, preferences, and goals of individual patients. Doctors should
    also make sure their patients are aware of the cost, benefit, and
    personal financial impact of their treatment options and choices.

    Research in many domains is necessary to improve assessment of the
    value of new cancer treatments. Advancing our understanding of value
    requires development of new clinical efficacy endpoints, both provider
    and patient-reported, that accurately describe how a patient functions
    and feels. These endpoints should reflect outcomes of value to patients
    other than survival, particularly in non-curative settings. Better
    predictive biomarkers can transform a drug of modest efficacy in an
    unselected population to one of high efficacy in a biomarker-defined
    subgroup, and thereby contribute to improving the value of a given
    treatment.

    Policy initiatives that affect market approval, reimbursement, or price
    all deserve careful consideration to determine how well they balance
    cost while preserving both innovation and patient access to life
    improving therapies. In what follows, ASCO proposes consideration of
    strategies that could be pilot tested with a goal of improving the
    value of cancer care.

    Ensuring High-Value Drug Development

    In 2014, ASCO's Cancer Research Committee published a statement,
    ``Raising the Bar for Clinical Trials by Defining Clinically Meaningful
    Outcomes.''\13\ The committee focused on several cancer scenarios in
    the metastatic setting, with a primary focus on median overall survival
    and hazard ratios. Secondary endpoints were improvement in 1-year
    survival rates and progression free survival. Using front line
    metastatic pancreatic cancer as an example, the statement suggested
    that any new therapy should demonstrate a median survival improvement
    of 4-5 months (HR 0.67-0.69) and a minimum 1-year survival improvement
    from 48% to 63% in order to meet the definition of ``clinically
    meaningful.'' The goal of these recommendations was to encourage
    clinical trial developers to set higher goals for improving patient
    outcomes. As such, the recommendations also serve to provide an
    important context for the assessment of a new cancer treatment. To
    ensure the development of high-value drugs in cancer care, the Food and
    Drug Administration could limit its approval for indications/therapies
    to those that meet or exceed these recommended incremental benefits,
    rather than focusing on small benefits that achieve statistical
    significance in large trials.
    ---------------------------------------------------------------------------
        \13\ Ellis LM, Bernstein DS, Voest EE, et al. ``American Society of
    Clinical Oncology perspective: Raising the bar for clinical trials by
    defining clinically meaningful outcomes.'' J Clin Oncol. 2014 Apr 20;32
    (12): 1277-80.
    ---------------------------------------------------------------------------

    Testing Different Value-Based Pricing Strategies

    Value-based pathways are an approach that could be used to better align
    the pricing and utilization of drugs with the value they bring to
    patients. To test this approach, appropriate drug utilization would be
    used as a quality measure instead of a resource-use metric; drug
    therapies would be placed in hierarchical pathways based on their
    comparative value; and practice performance scores would be based on
    appropriate use of pathway recommendations. Practices that fall below a
    certain threshold would receive a negative adjustment in payment. This
    has the advantage of incentivizing both provider use of higher value
    treatments and development of therapies by the pharmaceutical industry
    that achieve high value through a combination of maximizing efficacy
    and minimizing toxicity and costs.

    Another approach worthy of consideration is indication-specific
    pricing. Under such an approach, payment for the same drug would vary
    depending on its effectiveness in different approved indications. This
    approach requires the ability to compare relative value, again
    emphasizing the need for a widely accepted mechanism to determine
    value.

    Outcomes-based pricing is another frequently discussed approach to
    controlling cost and improving value. In this scenario, reimbursement
    depends on how well the drug works in a particular patient. For
    example, if a patient survives beyond the median survival reported in
    the clinical trial population, reimbursement is higher than a stated
    benchmark. Conversely, if the drug therapy results in less than the
    expected median survival time, reimbursement would be lower. Payers
    could deploy this approach at the population level, i.e., if a drug
    does not perform in the actual treatment population as indicated by the
    trial data, manufacturers would provide discounts/rebates to payers/
    patients. This approach requires agreement on average or baseline price
    and that would best be determined using a value model as above.

    An approach that ASCO does not support is the use of payment bundles to
    control drug costs. Under such an approach, all costs for treating a
    patient, including drugs, are bundled into a single episode based
    payment. Payment bundles do not affect price directly. Further, bundled
    payment programs create circumstances that could force providers to
    make suboptimal or lower value choices. While appealing in the abstract
    to many in the health policy world, such bundles will likely never be
    sensitive enough in a world of increasing precision-based therapy and
    heterogeneous patient populations to account for appropriate variation
    in drug prescribing. ASCO is firm in its belief that no provider should
    experience financial penalty for providing the right drug to the right
    patient at the right time.

    Encouraging Development and Use of Generics and Biosimilars

    ASCO strongly endorses the position expressed by the American College
    of Physicians in opposition to ``extending market or data exclusivity
    periods beyond the current exclusivities granted to small molecule,
    generic, orphan, and biologic drugs.'' We further agree that the
    provision in President Obama's 2016 budget to reduce data exclusivity
    on biologics from 12 to 7 years is worthy of consideration. We
    additionally agree with several other provider organizations that
    practices such as product hopping, evergreening, and pay for delay
    should not be allowed. According to the Federal Trade Commission (FTC),
    the tactic known as ``product hopping'' or ``product switching'' occurs
    when brand name pharmaceutical companies introduce reformulations of
    their branded product that offer little or no therapeutic
    advantage.\14\ Similarly, ``evergreening'' occurs when brand name
    companies patent as new drugs slight modifications of old drugs.\15\
    This allows drug companies to maintain market share after drug patents
    expire. The company can withdraw its branded product, forcing patients
    to use its reformulated version, thereby obstructing generic
    competition and enabling the company to keep its market exclusivity.
    ``Pay for delay'' is a legal tactic in which branded drug manufacturers
    slow or obstruct generic competition by paying companies not to
    introduce lower cost alternatives to the marketplace. The FTC has
    estimated this practice costs consumers and taxpayers $3.5 billion in
    higher drug costs each year.\16\ By definition, these strategies
    represent higher cost without meaningful improvements in care, a result
    that is not in the best interest of patients.
    ---------------------------------------------------------------------------
        \14\ ``FTC Files Amicus Brief Explaining That Pharmaceutical
    `Product Hopping' Can Be the Basis for an Antitrust Lawsuit.'' November
    2012. https://www.ftc.gov/news-events/press-releases/2012/11/ftc-files-
    amicus-brief-explaining-pharmaceutical-product-hopping.
        \15\ Krans B. ``Pharmaceutical `Evergreening' Raises Drug Costs,
    Study Says.'' Healthline News June 2013. http://www.healthline.com/
    health-news/policy-drug-companies-use-evergreening-to-extend-market-
    share-060413.
        \16\ Federal Trade Commission. ``Pay-for-Delay: How Drug Company
    Pay-Offs Cost Consumers Billions.'' An FTC Staff Study January 2010.
    https://www.ftc.gov/sites/default/files/documents/reports/pay-delay-
    how-drug-company-pay-offs-cost-consumers-billions-federal-trade-
    commission-staff-study/100112payfordelayrpt.pdf.
    ---------------------------------------------------------------------------

    Limiting the Financial Burden That Payer Policies Place on Patients

    While ASCO shares the overall goal of supporting value-based care,
    certain cost containment approaches used by a growing number of payers
    threaten to undermine patient access to medically necessary oncology
    care. In particular, ASCO strongly opposes the trend toward tiered
    formularies. This approach places specialty drugs in the highest tiers,
    which carry higher percentages of coinsurance. This places vulnerable
    patients in the cross hairs of a problem they did not create. If their
    disease requires the use of an effective and high value therapy, they
    should not be asked to bear the financial burden of the higher price
    tag associated with this necessary-and sometimes life-saving treatment.
    As with our objection to the bundling of drugs stated above, shifting
    this problem to patients who are receiving the right drug at the right
    time is not an acceptable solution.

    Medicare Negotiation of Drug Payments

    Current law prohibits the Medicare program from negotiating volume
    discounts with manufacturers. Significant savings may be possible
    through such an approach, exemplified by the fact that private Part D
    pharmacy benefit managers do, in fact, negotiate with manufacturers for
    rebates and achieved rebates totaling $6.5 billion in 2008.\17\ While
    there is no question Medicare could use its market power to extract
    discounts and rebates as is done by Medicaid and the Veterans
    Administration system, there are several cautions to this approach.
    First, doing so effectively would ultimately require that Medicare have
    the ability to deny coverage of an FDA-approved drug if it deems the
    price to be above an assessed value. Whether the United States is
    willing to give Medicare such power requires considerable thought and
    debate. Second, at least a portion of the cost savings obtained by
    Medicare is likely to be shifted to private payers who have less
    negotiating power, which limits the societal impact of this approach.
    An alternative strategy would be for Medicare to require the use of
    value-based pathways as outlined above. In this way, the community at
    large-not the government establish value. We recommend that Medicare
    test a value-based pathway approach to reimbursement to determine its
    feasibility.
    ---------------------------------------------------------------------------
        \17\ Daniel H for the Health and Public Policy Committee of the
    American College of Physicians. ``Stemming the Escalating Cost of
    Prescription Drugs: A Position Paper of the American College of
    Physicians.'' Ann Intern Med. 2016.
    ---------------------------------------------------------------------------

    Transparency of Drug Costs

    All provider organizations that have issued statements on drug pricing
    have endorsed greater transparency on drug pricing. Doing so requires
    that manufacturers disclose material and production costs, research and
    development costs (including those for drugs acquired from other
    companies), marketing costs, and any federal research dollars that
    contributed to the discovery, research and development of the drug.
    Such transparency would allow payers and patients to at least make some
    informed comparison of the relationship between development costs and
    price for drug products and exert public pressure on companies where
    the two appear to be widely divergent. Although ASCO supports the
    general premise of testing price transparency as a means for consumer
    and provider education, we note that a validated, agreed-upon
    methodology for value-based pricing could accomplish the same goal.

    Re-importation of Drugs

    This strategy assumes that all other developed countries in the world
    have some regulatory framework in place to control the quality and
    price of drugs. It also assumes that re-importation of these lower
    priced drugs would have a downward pressure on prices charged in the
    United States. Testing this approach would require consideration and
    resolution of a number of safety concerns. In addition, given the
    dynamic nature of world markets, widespread use of this practice would
    almost certainly cause the price of drugs to rise in other countries,
    mitigating some, if not most, of the cost savings.

    Conclusions and Recommendations

    Rapidly rising drug prices and spending in the United States have
    engendered considerable passion and debate among all stakeholders in
    the system about how to constrain costs. Some proposals target market
    dynamics to control price, while others target provider and patient
    utilization to control spending. There is a growing call for more
    transparency by drug manufacturers, with particular emphasis on drugs
    that received federal funding or philanthropic support at any point
    during their development. There is also discussion about increasing
    Medicare's ability to leverage its market power in order to negotiate
    better drug prices for its beneficiaries (although there are few
    specifics on how this might work, or evaluation of potential unintended
    consequences).

    Some of these strategies are worth exploring, but the ultimate solution
    to improving the affordability of drugs requires accelerated efforts to
    define value. The notion of value-based systems in health care has
    moved beyond a theoretical concept put forward by academics. Rather, it
    has been the subject of tangible, published efforts using real patient
    data in the United States and Europe. With appropriate authorization by
    Congress to identify a standardized, value-based evaluation of
    therapeutics, the community at large could deliver a model in short
    course. Moreover, with a standard framework for defining and assessing
    value, testing multiple value-based pricing models is possible. A valid
    and reliable framework, one that is evidence-based and patient-
    centered, could support value-based approval of new therapies.

    Recommendations

    Recognizing that many are actively engaged in this issue, ASCO makes
    the following recommendations as guidance to any ongoing and future
    efforts to address the affordability of cancer drugs in the United
    States either by the Administration, Congress, or other entities.

          Solutions to address the affordability of cancer drugs--many of
    which are highlighted in this statement--should be identified,
    evaluated, prioritized and tested. Any of the approaches examined
    earlier in this statement may lead to an array of unknown impacts.
    Efforts to address the affordability of cancer drugs must recognize the
    potential of unintended consequences and, therefore, should be
    carefully tested in pilot projects before a wide-scale, national
    launch.

          The larger community--including providers, patient advocates,
    payers, hospitals, experts in health economics and health outcomes,
    representatives from the pharmaceutical and biotechnology industries,
    Members of Congress, and Administration policy makers-must actively
    participate in any effort to develop policy solutions to address the
    affordability of cancer drugs.

           There is no simple solution to escalating drug prices, and many
    differing views on what constitutes value in cancer treatment. ASCO
    believes that active dialogue and engagement by all interested parties
    must be a centerpiece of efforts to address this issue--particularly
    with the involvement of patients, who will be directly impacted by
    proposed solutions, and physicians, who have the expertise to define
    clinically sound care.

          Congress and/or the Administration can play an important role in
    bringing together a diverse group of experts to identify, evaluate, and
    prioritize a series of demonstrations designed to test some of the
    solutions highlighted in this statement--and, once tested, to recommend
    implementation for those that are successful. A high-priority effort of
    this group should be to propose a strategy for blending various value
    frameworks into a transparent and standardized approach to assessing
    value, and recommending drug pricing and reimbursement based on the
    value delivered.

           As noted earlier, many private initiatives have developed tools
    to assess the value of cancer drugs. ASCO recommends that efforts be
    advanced to articulate a universally accepted definition of value in
    cancer care and to evaluate existing value frameworks for synergistic
    opportunities and possibly combine them into a single approach for use
    by physicians with their patients, policymakers, payers, manufacturers,
    and others.

    Solutions to rising drug prices and spending should be considered with
    the following driving principles in mind:

          Patients should have access to life-prolonging and improving
    treatments and should not suffer financial harm when receiving the care
    they need.
          Providers should be confident they have support in delivering
    the right treatment at the right time to the right patients.
          Manufacturers and the investment community should continue to
    see value in high-risk, high-reward science.

    We must balance these principles with recognition of the financial toll
    of drug costs on private and public budgets. ASCO contends that
    solutions centered on value stand the best chance of achieving this
    balance in the most equitable and effective way. Drawing on the
    collective knowledge of its more than 40,000 members, ASCO stands ready
    to work together with the larger community to define, test and agree
    upon solutions to ensure access, affordability and innovation-with the
    ultimate goal of ensuring the health and well-being of the patients our
    members serve.

                                     ______

                    America's Health Insurance Plans (AHIP)
    America's Health Insurance Plans (AHIP) is the national association
    whose members provide coverage for health care and related services to
    millions of Americans every day. Through these offerings, we improve
    and protect the health and financial security of consumers, families,
    businesses, communities, and the nation. We are committed to market-
    based solutions and public-private partnerships that improve
    affordability, value, access, and well-being for consumers.

    We thank the committee for holding a series of hearings on out-of-
    control prescription drug prices. Rising drug prices impose a heavy
    burden on all Americans--this is a direct result of high list prices
    determined solely by drug companies. We look forward to working with
    the committee to advance market-based solutions that hold drugmakers
    accountable for high list prices and provide relief to American
    families from soaring prices for prescription drugs.

    In order to make life-saving drugs available and affordable for
    patients, health insurance providers (and our pharmacy benefit manager
    partners) negotiate with manufacturers. These discounts reduce drug
    prices and costs for patients, employers, and other payers. Still,
    additional steps are needed--at both the legislative and regulatory
    levels--to reduce list prices and achieve the goal of delivering more
    affordable medicines and lower costs for patients, consumers,
    employers, and taxpayers.

    Our statement focuses on:

          The reality that the prescription drug pricing process is driven
    entirely by the original list price of a branded drug--which is
    determined solely by the drug company, not by the market or any other
    participant in the pharmaceutical supply chain; and

          Our support for market-based solutions that reduce drug prices
    by delivering real competition, creating more consumer choice, and
    ensuring that open and honest drug pricing is tied to the value
    delivered to patients and a high-level overview of key areas where we
    support efforts by Congress and the Administration to put downward
    pressure on prescription drug prices.

    The Problem Is the Price

    Out-of-control prescription drug prices have profound consequences for
    all Americans. Too many hardworking Americans have to choose between
    paying their bills and accessing life saving medicines. Outrageous drug
    prices harm patients who cannot afford life-saving medications,
    consumers who pay higher and higher premiums because of higher and
    higher drug prices, employers who have fewer resources to devote to
    employee wages, and hardworking taxpayers who fund public programs like
    Medicaid and Medicare.

    Already this year, drug companies have raised the prices of hundreds of
    medicines--including top-selling drug Humira.\1\ The price of Evzio,
    which is used to treat suspected opioid overdoses, increased 652
    percent from 2014 to 2017. And the price of antidepressant Wellbutrin
    increased nearly six-fold in that same timeframe.\2\
    ---------------------------------------------------------------------------
        \1\ https://www.axios.com/drug-price-increases-2019-fba56e62-8737-
    40c5-8cd7-57c9d5bbf5f6.ht
    ml.
        \2\ https://www.ahip.org/then-vs-now/.

    As the committee addresses these concerns, we urge you to recognize
    that the entire pricing process is driven entirely by the original list
    price of a branded drug--which is determined solely by the drug
    company, not by the market or any other participant in the
    pharmaceutical supply chain. Congress needs to address this reality--
    the problem is the price--as part of any strategy for reducing
    ---------------------------------------------------------------------------
    pharmaceutical costs for the American people.

    The problem with prescription drug pricing does not lie with health
    insurance providers, pharmacy benefit managers, wholesalers,
    pharmacies, providers, or patients. The cost crisis is a direct
    consequence of pharmaceutical companies taking advantage of a broken
    market for their own financial gain at the expense of patients. The
    lack of competition, transparency, and accountability in the
    prescription drug market has created extended, price-dictating
    monopolies with economic power that exist nowhere else in the U.S.
    economy. As a result, everyone pays more--patients, businesses,
    taxpayers, hospitals, doctors, and pharmacists.

    Market-Based Solutions for Reducing Drug Prices

    Bold steps are needed, at both the legislative and regulatory levels,
    to hold drug makers accountable for high list prices and ensure that
    the American people have access to affordable medications. With
    solutions that deliver real competition, create more consumer choice,
    and ensure open and honest drug prices, we can deliver more affordable
    pharmaceutical products--while at the same time protecting and
    supporting innovations to deliver new treatments and cures for
    patients.

    Below we provide a high-level overview of key areas where we support
    efforts by Congress and the Administration to put downward pressure on
    prescription drug prices. As the committee continues to examine drug
    pricing in future hearings and through legislation, we look forward to
    working with you on these and other issues.

    Promoting Generic Competition

    Removing barriers to the availability of generic drugs is a critically
    important step toward lowering prescription drug costs for the American
    people. We appreciate that the Administration has prioritized the
    review and approval of applications for generic drugs, and we applaud
    Chairman Grassley and other committee members for your leadership in
    developing bipartisan legislative proposals that would promote generic
    competition.

    We strongly support the ``Creating and Restoring Equal Access to
    Equivalent Samples (CREATES) Act.'' This bipartisan bill offers common
    sense reforms that would discourage brand name drug manufacturers from
    blocking the availability of generic drugs by abusing Risk Evaluation
    and Mitigation Strategies (REMS) --that are otherwise required by the
    Food and Drug Administration (FDA) to promote patient safety. If this
    legislation is enacted, branded manufacturers will no longer be able to
    hide behind REMS and limited distribution arrangements to restrict
    access to adequate samples of reference drugs and impede the
    development of lower cost generic competitors.

    We also strongly support the ``Preserve Access to Affordable Generics
    and Biosimilars Act.'' This bipartisan bill would give the Federal
    Trade Commission (FTC) enhanced authority to block ``pay-for-delay''
    agreements under which prescription drug patent infringement claims are
    settled with a potential generic competitor agreeing (after receiving
    something ``of value'') not to research, develop, manufacture, market,
    or sell the product in question. Halting these anticompetitive
    settlements will remove a barrier to competition and expand the
    availability of lower-cost generic drugs and biosimilars.

    Additionally, we believe it is important to preserve the Inter Partes
    Review (IPR) process at the U.S. Patent and Trademark Office. The IPR
    process plays an important role in invalidating patents that do not
    represent true innovation and should not have been issued in the first
    place. Weakening this process would effectively extend the original
    patent monopoly for pharmaceutical and biological products and result
    in significantly higher prices for consumers.

    We support congressional action on revisions to the United States-
    Mexico-Canada Agreement (USMCA). In its current form, this proposed
    trade agreement includes problematic market exclusivity provisions that
    would benefit brand name drug manufacturers at the expense of lower
    cost generics.

    Creating a Robust and Competitive Marketplace for Biosimilars

    Biosimilars also offer great promise in generating cost savings and
    increasing patient access to needed treatments and therapies. To
    achieve this promise, it is important to promote a vibrant and
    competitive biosimilars market and ensure that providers and patients
    have unbiased information about the benefits of biosimilars. Just as
    with generic medications, a truly competitive biosimilars market will
    mean greater use of these products which, in turn, will drive down
    costs and increase patient access.

    AHIP supports key provisions of the FDA's Biosimilars Action Plan,\3\
    which takes important steps toward promoting competition and
    affordability in the market for biologics and biosimilar products. Our
    recommendations for the Action Plan include promoting regulatory
    clarity by finalizing FDA guidance related to interchangeability,
    improving efficiency in the biosimilars product development and
    approval process, and developing effective communication tools and
    resources to educate providers and patients on the safety and efficacy
    of biosimilars. We also support legislation to reduce the exclusivity
    period for brand name biologics and enhanced oversight of ``pay-for-
    delay'' arrangements that prevent generics and biosimilars from coming
    to market.
    ---------------------------------------------------------------------------
        \3\ https://www.fda.gov/ucm/groups/fdagov-public/@fdagov-drugs-gen/
    documents/document/
    ucm613761.pdf.
    ---------------------------------------------------------------------------

    Increasing Transparency Around Pharmaceutical Prices

    Requiring greater transparency on prescription drug prices is an
    important step toward ensuring that consumers have the information they
    need to make informed health care decisions. Currently, many patients
    do not have the pricing information they need to make informed choices
    about their treatment options. Increasing access to pricing information
    can help patients minimize their out-of-pocket costs, enabling them to
    compare different treatment options and help them identify lower cost,
    but equally effective options, such as generic drugs or biosimilars.

    We believe pharmaceutical manufacturers should be required, as part of
    the FDA approval process, to disclose information regarding the
    intended launch price, the use of the drug, and direct and indirect
    research and development costs. After approval, manufacturers should
    provide appropriate transparency into list price increases.

    In addition to empowering consumers, openly disclosing drug prices will
    bring additional public attention to drug price increases, which will
    discourage drug makers from raising their prices year after year--often
    multiple times a year--without justification. Government leaders,
    regulators, consumers, and insurance providers deserve to be part of a
    conversation about how prices are set and what causes them to go up. By
    understanding the market dynamics of why prices are going up, we can
    work together to mitigate those effects.

    We support the Administration's proposal to require disclosure of drug
    list prices in direct-to-consumer (DTC) television ads. We also
    recommend that this proposed requirement be broadened to apply to all
    ads by drug companies, including those in newspapers, print
    publications and on the web. We further suggest that drug pricing
    transparency requirements--including disclosure of a drug's list
    price--be extended to include drug manufacturers' marketing or
    detailing materials distributed to physicians and other prescribers.

    Additionally, we support the Administration's release of enhanced Drug
    Pricing Dashboards for Medicare Part B, Medicare Part D, and Medicaid.
    The Dashboards can provide patients, families, and caregivers with
    additional information to make informed decisions and predict their
    cost sharing.

    Preserving Recent Improvements in Medicare Part D, Expanding Private
    Sector Negotiation Tools in Parts B and D, and Enhancing Benefit
    Flexibility

    Since 2006, the Medicare Part D program has been a successful model of
    a public-private partnership, through which Part D plans have been able
    to negotiate lower drug costs so that tens of millions of seniors and
    individuals with disabilities have affordable and meaningful access to
    prescription drugs at consistently low and stable premiums year-over-
    year. This would not be possible without the Centers for Medicare and
    Medicaid Services' (CMS) symmetrical risk-based payment structure that
    incentivizes plans' cost-effective delivery of drug benefits, which
    reduces Part D bids and saves taxpayers money. Further, a Part D bid is
    approved by a plan actuary, and then by CMS, through a rigorous process
    to ensure payments are based on actuarially sound cost projections that
    rely on prior plan experience.

    AHIP has strongly supported improvements to the Medicare Part D
    program, including increased drug manufacturer liability under the
    coverage gap discount program that Congress approved last year as part
    of the Bipartisan Budget Act of 2018. Efforts to reverse these
    improvements, if successful, would increase costs for seniors and
    taxpayers, and provide a massive bailout for the pharmaceutical
    industry. We urge the committee to reject any such efforts in the 2019
    session.

    In our many comments on CMS regulatory proposals, we consistently have
    advocated for greater leverage by plan sponsors to negotiate higher
    concessions from drug manufacturers and more flexibility to use private
    sector formulary tools to deliver safe, appropriate, and cost-effective
    care for Medicare beneficiaries.

    Most recently, we expressed support for CMS proposals that would allow
    Part D plans to expand the use of clinically-appropriate, evidence-
    based medical management and formulary tools for certain high-cost
    ``protected class'' drugs and employ such tools for physician-
    administered medications covered by Medicare Advantage plans. These
    tools, which are widely used in the private sector outside of the
    Medicare program, would allow plan sponsors to ensure safe and
    appropriate care while negotiating lower drug costs on behalf of
    Medicare beneficiaries. We also highlighted how Part D's risk sharing
    structure, including rigorous review by CMS, has incentivized the cost-
    effective delivery of drug benefits, reduced bids and premiums, saved
    taxpayers money, and contributed to high levels of beneficiary
    satisfaction, since the program' s inception in 2006.

    We also support recent CMS guidance that allows for indication-based
    formularies and for streamlining mid-year formulary changes relating to
    generic drugs in the Medicare Part D program. These added flexibilities
    allow plan sponsors to design innovative formularies and quickly
    respond to high prices and price increases imposed by manufacturers.

    We also appreciate CMS' efforts to reduce prescription drug prices in
    Medicare Part B--including the proposal that would test changes to
    payments for certain Part B-covered drugs and biologics under an
    international pricing index (IPI) model. By seeking to lower
    prescription drug costs in Medicare Part B and addressing flawed
    incentives in the current payment system, this proposal holds promise
    in advancing the goals of improved access and affordability of
    medicines for millions of Medicare beneficiaries.

    Medicaid Drug Rebate Program

    Medicaid is an important safety-net health program that covers more
    than 73 million Americans, including low-income children and their
    parents, pregnant women, people with disabilities, and older adults.
    Due to the increasingly high drug prices set by manufacturers, we are
    concerned with the increasing impact of high-cost drugs on the Medicaid
    program, especially for states and their enrollees. The Medicaid Drug
    Rebate Program (MDRP) has been important in helping to offset some of
    these costs for state and federal government budgets, particularly with
    respect to high price drugs without competition that ordinarily do not
    generate rebates. However, we remain concerned that the MDRP cannot
    adequately protect against the impacts of high-cost drugs in Medicaid.

    We also have concerns about the best price component of the rebate
    program, which requires that manufacturers charge Medicaid programs no
    more than the ``best price'' available to other customers (generally in
    the commercial market) if greater than the mandated discount. Studies
    show that best price inhibits the ability of plans to obtain larger
    discounts for other payers and consumers outside of Medicaid.

    Accordingly, we recommend further evaluation of the impacts of the best
    price requirement on drug costs for consumers in other markets,
    including commercial markets. We also recommend changes to lower the
    overall cost of Medicaid drug spending by allowing states to use
    clinically appropriate, evidence-based mechanisms to encourage the use
    of lowest-cost, clinically effective drug products, rather than relying
    exclusively on the receipt of rebates.

    Ultimately, AHIP believes that the path to lower drug costs and
    spending in Medicaid, as well as in any other program, depends on
    pointing out and neutralizing effects of the games that drug
    manufacturers play--their unfettered ability to set and raise drug
    prices, especially in the absence of meaningful competition, and an
    overall lack of transparency. As such, we support measures that would
    prevent drug manufacturers from gaming the Medicaid program, such as
    the ``Right Rebate Act'' which would prevent the misclassification of a
    drug to avoid significant Medicaid rebate payments.

    Conclusion

    Thank you for considering our support for market-based solutions to
    address the pharmaceutical cost crisis. As the committee holds
    additional hearings and considers legislative options, we look forward
    to working with you to make prescription drugs more affordable.
    Everyone deserves access to the medications they need at a price they
    can afford. We should not have to choose between innovation and
    affordability. With the right solutions and genuine collaboration, we
    can have both.

                                     ______

                      Association for Accessible Medicines

                      601 New Jersey Avenue, NW, Suite 850

                              Washington, DC 20001

                               Phone 202-249-7100

                                Fax 202-249-7105

    Introduction

    The Association for Accessible Medicines (AAM) applauds Chairman
    Grassley, Ranking Member Wyden, and the Senate Finance Committee for
    its leadership in holding today's hearing on the rising cost of
    prescription drugs.

    Patients continue to struggle to afford the high cost of certain
    medications. High launch prices on new brand biologics and annual price
    increases on existing brand-name drugs, combined with an increasing
    trend of anti-competitive tactics designed to delay or prevent
    competition from more affordable biosimilars and generics, are pushing
    access to medicines out of reach for too many patients.

    That's why lowering prescription drug prices continues to be the top
    health care priority for America's patients. In the latest Politico-
    Harvard poll, respondents ranked lowering the cost of prescription
    drugs as the number one priority--with 94 percent of Democrats and 89
    percent of Republicans saying, ``It is extremely important,'' for
    Congress to take action.\1\
    ---------------------------------------------------------------------------
        \1\ Politico-Harvard, ``Americans' Health and Education Priorities
    for the New Congress in 2019,'' January 2019.

    As the Senate Finance Committee examines the affordability challenges
    of high-priced prescription drugs, it is essential to understand the
    differences between the brand-name and generic drug markets and how the
    different pharmaceutical supply chains operate. Not only is the Food
    and Drug Administration's (FDA) approval process different for generics
    and brand name drugs, but their respective markets and the path by
    which they reach patients diverge significantly, with important policy
    implications. These differences lead to different outcomes for
    patients, differences in the amount of spending funded by taxpayers,
    ---------------------------------------------------------------------------
    and differences in what consumers pay for health care coverage.

    Independent research and data, however, demonstrates one undeniable
    conclusion. Brand-name drug prices continue to rise, while generic drug
    prices continue to fall. Brand-name drugs comprise only 10 percent of
    prescriptions filled annually by patients, but now constitute 77
    percent of all spending on prescription drugs.\2\ In contrast, the
    amount spent on generic medicines has declined for, the last 30
    consecutive months.\3\
    ---------------------------------------------------------------------------
        \2\ AAM, ``Generic Drug Access and Savings Report,'' July 2018.
        \3\ Morgan Stanley, Monthly YOY Generic Prescription Drug Sales,
    January 2019.

    These trends present public policy challenges and necessitate
    meaningful action by Congress and the Administration to lower the cost
    ---------------------------------------------------------------------------
    of prescription drugs for patients.

    The Generic Drug Market Is Fundamentally Different Than the Brand Drug
    Market

    The pharmaceutical industry in the United States is predicated on a
    balance between innovation and access. Brand-name drug companies are
    rewarded for inventing and developing new treatments and cures. In
    return for the innovation, current law provides brand name drug
    companies with 12 years of guaranteed market exclusivity (i.e., a
    monopoly) for biologics and 20 years for each patent. There is also
    extra monopoly time provided to incentivize pediatric drug development
    and orphan drugs. During the period of patent and marketing
    exclusivity, brand-name drugs are priced and sold free from competition
    and discounts or rebates are negotiated with others in the supply
    chain, such as pharmacy benefit managers (PBMs), wholesalers and
    pharmacies.

    Once the exclusivity period expires and the brand-name drug is off-
    patent, generic manufacturers and the newly developing biosimilars
    market are provided with an opportunity to make the same medicine, with
    the same clinical benefit, for patients. The introduction of
    competition into the market significantly reduces the price of
    medicine, and patients benefit from greater, more affordable access to
    FDA-
    approved drugs. Experience shows prescription drug prices decline by
    more than half the first year generics enter the market.\4\
    ---------------------------------------------------------------------------
        \4\ IMS Institute for Healthcare Informatics, Price Declines After
    Branded Medicines Lose Exclusivity in the U.S., January 2016.

    Generic drugs consequently play an integral role in health care. The
    expiration of patents and the introduction of multiple generic
    manufacturers competing against each other on price results in
    significant savings for the health care system. Over the last 10 years,
    generic manufacturers delivered savings of nearly $1.8 trillion--
    including $265 billion in 2017--to patients and the health care
    system.\5\
    ---------------------------------------------------------------------------
        \5\ Ibid., AAM.

    But the manner in which the generic drug market operates differs in
    meaningful ways from the one for brand-name drugs. These differences
    between brand-name drugs and generics drugs lead to different financial
    ---------------------------------------------------------------------------
    incentives for other stakeholders in the supply chain.

    While brand-name drugs operate in a market where there is no direct
    price competition due to government-awarded exclusivities and patent
    protections, generic drugs compete within a multi-competitor model with
    drug prices decreasing as more competitors enter the market. In fact,
    today there are more than 200 manufacturers supplying generic drugs to
    the U.S. market.

    While brand-name drug companies maximize revenue through price rather
    than volume and negotiate discounts or rebates with other stakeholders
    in the supply chain, generic drug manufacturers compete solely on the
    basis of price and the ability to supply. As a result, brand-name drug
    companies retain 76 percent of all revenue, while other stakeholders in
    the supply chain for generic drugs capture 64 percent of all
    revenue.\6\
    ---------------------------------------------------------------------------
        \6\ USC Schaeffer, ``The Flow of Money Through the Pharmaceutical
    Distribution System,'' June 2017.

    In the brand-name drug market, brand-name drug companies use their
    leverage in the supply chain to negotiate formulary placement through
    rebate agreements with PBMs and health insurers. There is little room
    for wholesalers and pharmacies to capture large margins due to their
    relative lack of negotiating power. And pharmacy reimbursement for
    brand-name drugs is tied to the reported price and there is only one
    ---------------------------------------------------------------------------
    product available.

    For generic drugs, wholesalers, through collaborative purchasing
    agreements with pharmacies across the country, and group purchasing
    organizations exert leverage through their purchasing power and the
    robust competition between multiple generic manufacturers who are
    making identical products. Generic drug manufacturers now compete for
    the business of three consolidated wholesaler pharmacy groups who now
    control more than 90 percent of all generic drug sales.\7\ This
    competition results in significant savings for patients but leaves
    generic drugs vulnerable to drug shortages and easily impacted by
    increased operational costs.
    ---------------------------------------------------------------------------
        \7\ Fein, Adam, ``The 2018-19 Economic Report on Pharmaceutical
    Wholesalers and Specialty Distributors,'' October 2018.
    ---------------------------------------------------------------------------

    Brand-Name Drugs Increase Costs, Generic Medicines Drive Savings

    The differences between the brand-name drug and the generic drug
    markets lead to different results for patients. Patients thrive with
    access to generic medicines, both in terms of health outcomes and
    financial savings. Insured patients benefit from an average copay for
    generics of only $6.06, while paying more than $40 for brand-name
    drugs.\8\ In fact over 90 percent of generic prescriptions are filled
    for $20 or less out-of-pocket.\9\ That is in comparison to just 39
    percent for brand-name drugs at that price.\10\
    ---------------------------------------------------------------------------
        \8\ Ibid., AAM.
        \9\ Ibid.
        \10\ Ibid.

    Experience also shows that patients are far less likely to fill a
    prescription for a high-priced brand-name drug. Brand-name drugs
    account for 40 percent of all abandoned claims for new patients, while
    constituting, only 20 percent of approved claims.\11\ In contrast, new
    patient abandonment rates for generics are three times lower than those
    for brand-name drugs.\12\ Prescription drug abandonment has a serious
    effect on patient health--leading to hospitalizations, death, and
    extensive health care costs.
    ---------------------------------------------------------------------------
        \11\ Ibid.
        \12\ Ibid.

    With brand-name drugs now accounting for 77 percent of total spending
    on prescription drugs in 2017, the high cost of many prescriptions is
    often out of reach for patients.\13\ One of out every 10 prescriptions
    filled in the U.S. is for brand-name drugs.\14\ In other words, 10
    percent of prescriptions comprise 77 percent of the costs. And
    specialty medicines (including brand biologics) are rapidly approaching
    half of all spending although they are used by fewer than 3 percent of
    patients.\15\
    ---------------------------------------------------------------------------
        \13\ Ibid.
        \14\ Ibid.
        \15\ IQVIA, ``Medicine Use and Spending in the U.S.,'' April 2018.

    Annual price increases of less than 10 percent on brand-name drugs and
    the cumulative impact of such price increases translates into hundreds,
    if not thousands, of dollars in higher prescription drug spending.
    AARP, for example, found 94 percent (133 of 142) of brand-name drugs
    more than doubled in price between 2005 and 2017.\16\ And the Office of
    Inspector General at the Department of Health and Human Services (HHS)
    found that ``reimbursement for brand-name drugs in Part D still
    increased 62 percent from 2011 to 2015'' after accounting for
    rebates.\17\
    ---------------------------------------------------------------------------
        \16\ AARP, ``Trends in Retail Prices of Brand Name Prescription
    Drugs,'' September 2018.
        \17\ HHS OIG, ``Increases in Reimbursement for Brand-Name Drugs in
    Part D,'' June 2018.

    Higher spending on prescription drugs impacts everyone--directly in the
    form of higher premiums and out-of-pocket costs and as taxpayers to
    cover the costs of Medicare, Medicaid, and other federal health care
    programs. Prescription drugs now account for $0.23 out of every premium
    dollar and the average co-pay for brand-name drugs was $40.30 in
    2017.\18\, \19\ Moreover, in the latest National Health
    Expenditures report from the Centers for Medicare and Medicaid
    Services, Medicare spending on prescription drugs increased 36 percent,
    Medicaid spending increased 50 percent, and CHIP spending increased 35
    percent over the last five years.\20\
    ---------------------------------------------------------------------------
        \18\ America's Health Insurance Plans (AHIP), ``Where Does Your
    Health Care Dollar Go?'', May 2018.
        \19\ Ibid., AAM.
        \20\ CMS, National Health Expenditure Data 2017, December 2018.

    In contrast, nine out of every 10 prescriptions filled in the U.S. are
    for generic drugs and spending on generic drugs accounted for only 23
    percent of total prescription drug spending.\21\ Continued growth in
    the use of generic drugs and declining generic drug prices led to
    savings of $265 billion in 2017--an average of $1,952 for every
    Medicare and $568 for every Medicaid enrollee.\22\
    ---------------------------------------------------------------------------
        \21\ Ibid., AAM.
        \22\ Ibid.

    Savings, however, often go unrealized. HHS found ``incompletely aligned
    incentives for generic substitution leave significant savings
    uncaptured.''\23\ Seniors and the Medicare Part D program would have
    saved $3 billion in 2016 if generics had been dispensed rather the
    brand-name drug.\24\ Last year, the FDA reported that patients could
    have saved ``more than $4.5 billion in 2017'' if they had the ability
    to purchase FDA-approved biosimilars.\25\
    ---------------------------------------------------------------------------
        \23\ HHS, ``Savings Available Under Full Generic Substitution of
    Multiple Source Brand Drugs in Medicare Part D,'' January 2018.
        \24\ Ibid.
        \25\ FDA, Remarks from FDA Commissioner Scott Gottlieb, M.D.,
    ``FDA's Biosimilars Action Plan,'' September 2018.

    In recent years, the Assistant Secretary for Planning and Evaluation
    (ASPE) at HHS and the Government Accountability Office (GAO) examined
    trends in the prices of generic drugs. Due to the relatively-low cost
    of generic medicines, minor price changes can result in significant
    percentage increases. GAO, for example, cited the price of
    hydrocortisone increasing from $0.16 per tablet in 2012 to $0.41 per
    tablet in 2013--an increase of 160 percent.\26\ Correspondingly, the
    HHS ASPE report concluded, ``Our review of the evidence strongly
    supports the conclusion that generic drug prices are not an important
    part of the drug cost problem facing the nation.''\27\
    ---------------------------------------------------------------------------
        \26\ GAO, ``Generic Drugs Under Medicare,'' August 2016.
        \27\ HHS, ``Understanding Recent Trends in Generic Drug Prices,''
    January 2016.

    Nowhere is the need for lower-priced alternatives, and the challenges
    facing them, more real than among high-price brand biologics:
    Biologics, many of which are specialty medicines, are the most rapidly
    growing segment of increasing brand-name prescription drug: costs in
    the U.S. Many brand biologics cost tens of thousands of dollars per
    ---------------------------------------------------------------------------
    year per patient--some more than $200,000.

    Biosimilar medicines represent a key step forward in reducing high drug
    prices. Biosimilars are safe, effective and more affordable versions of
    costly brand biologics. By the year 2025, over 70 percent of drug
    approvals are expected to be biological products.\28\ Experts estimate
    that FDA-approved biosimilars could save more than $54 billion over the
    next 10 years.\29\ In doing so, biosimilars will mean greater access to
    lifesaving cures for an estimated 1.2 million Patients.\30\ Research
    shows women, low-income families, and elderly patients would
    particularly benefit from access to biosimilar medicines.\31\
    ---------------------------------------------------------------------------
        \28\ U.S. Pharmacist, ``Biosimilars: Current Approvals and Pipeline
    Agents,'' October 2016.
        \29\ RAND, ``Biosimilars Cost Savings in the United States,''
    October 2017.
        \30\ The Biosimilars Council, ``Biosimilars in the United States:
    Providing More Patients Greater Access to Lifesaving Medicines,''
    August 2017.
        \31\ Ibid.

    Unfortunately, the ability of biosimilars to fulfill their potential is
    threatened by market abuses by brand-name drug companies and misguided
    policies that block access to lower-cost medicines. Seventeen
    biosimilars are now approved in the U.S., yet only seven are on the
    market and available to patients.\32\ In comparison, more than 50
    biosimilars are available to patients in Europe.
    ---------------------------------------------------------------------------
        \32\ FDA, ``FDA-Approved Biosimilar Products,'' January 2019.

    It is sobering to consider what America's patients would face if there
    no FDA-
    approved generic or biosimilar medicines to provide reliable access to
    affordable treatments. Generics do not only deliver the most medicine
    at the lowest cost and the greatest savings; generic medicines cushion
    the significant impact dealt to patients and the health care system by
    ---------------------------------------------------------------------------
    high brand-name drug prices every day.

    Put another way, the availability of low-cost generics offsets the
    impact of high brand-name drug prices.

    Conclusion

    Understanding the differences between brand-name drug, brand-name
    biologics, generic drugs, and biosimilars; how each market functions;
    and, the different incentives stakeholders have throughout the supply
    chain is essential when considering solutions to address the rising
    costs of prescription drugs and to ensuring that the policies that are
    adopted result in meaningful savings to patients at the pharmacy
    counter.

    AAM is available to help explain how the prescription drug markets
    work, to help identify opportunities for improvement, and to discuss
    solutions that lower the cost of prescriptions for patients. We
    appreciate the Finance Committee's hearing today and look forward to
    working with the Chairman, Ranking Member, and members of the Committee
    to address this public health challenge.

                                     ______

             Association of American Physicians and Surgeons, Inc.

                         1601 N. Tucson Blvd., Suite 9

                             Tucson, AZ 85716-3450

                        (800) 635-1196 or (520) 327-4885

                      FAX (520) 326-3529 or (520) 325-4230

                          https://www.aapsonline.org/

                                January 29, 2019

    Thank you Chairman Grassley, Ranking Member Wyden and Members of the
    Senate Finance Committee, for your courage to hold these hearings
    despite intense pressure from middlemen--and others who benefit from
    high prices but add little value for patients--to preserve the status
    quo.

    We appreciate this opportunity to share with the Committee some common
    sense solutions to the issue of rising prescription drug prices. While
    some inadvisedly suggest creating a government-run manufacturer, a
    common denominator to our suggestions is the need to unleash the
    competitive market forces that provide abundant options and push prices
    down in almost every other sector of the American economy.

    We respectfully ask the Committee to consider the following actions.

    End the Safe Harbor to Anti-Kickback Law Abused by Middlemen

    One especially responsible culprit for soaring prices is the safe
    harbor to Medicare anti-kickback law enjoyed by Group Purchasing
    Organizations (GPOs) that has been further extended by administrative
    guidance to Pharmacy Benefit Managers (PBMs).

    The Federal statute granting this ``safe harbor'' is 42 U.S.C. 1320a-
    7b(b)(3)(C), the language of which was established by the ``Omnibus
    Budget Reconciliation Act of 1986,'' strengthened by the ``Medicare and
    Medicaid Patient and Program Protection Act of 1987,'' and subsequently
    ensconced in federal regulation at 42 CFR 1001.952 (j).

    The provision ostensibly facilitates greater bargaining power for the
    purchasing of supplies and drugs. However, the safe harbor has in
    practice driven up costs and scarcity by perpetuating a system rife
    with hidden kickbacks, rebates, and single source contracts, that
    financially benefit GPOs, PBMs, and large manufacturers, but constrain
    competition and ultimately harm patients.

    It is time to repeal 42 U.S.C. 1320a-7b(b)(3)(C) and direct HHS to
    revoke any related regulations and guidance that protect such improper
    kickbacks.

    Physicians Against Drug Shortages calculates that such ``corrupt
    practices have driven up the prices of drugs sold by PBMs to individual
    consumers by at least $100 billion annually.'' This is in addition to
    the $100 billion per year in inflated supply costs that result from
    kickbacks to GPOs. For additional details see http://
    www.physiciansagainstdrugshortages.com/ and the enclosed article,
    ``Group Purchasing Organizations: Gaming the System,'' by AAPS
    President Marilyn Singleton, M.D., JD published in the Journal of
    American Physicians and Surgeons, also available at http://
    www.jpands.org/vol23no2/singleton.pdf.

    Diabetes patients are one group particularly hard hit by the collusion
    between PBMs and manufacturers. CBS News recently reported that ``the
    cost of two common types of insulin increased 300 percent in the past
    decade'' thanks in large part to kickbacks to PBMs. For example, lower
    cost generic insulin drugs are excluded from plan formularies, when
    brand name manufacturers agree to pay larger ``rebates'' to PBMs.

    Research by Vanderbilt University Professor Stacie Dusetzina ``found
    that only 17 percent of Medicare plans for seniors covered Basaglar [a
    biosimilar insulin drug] launched by Eli Lilly two years ago. Nearly
    all of them covered brand-name Lantus, sold by Sanofi, as of early last
    year.''

    What does this mean for patients? A diabetic patient ``saved $800 last
    year after her insurance company started covering . . . Basaglar that
    was virtually identical to the brand she had used for years,'' reports
    Kaiser Health News. And the unnecessarily high costs are leading to
    patient harm. A 2018 study found, ``nearly half (45 percent) of
    Americans with diabetes sometimes do without care because they can't
    afford it.''

    Sunshine on these practices is long overdue. Contracts between GPOs,
    PBMs, suppliers, and manufacturers ``are guarded as fiercely as Fort
    Knox,'' warns Robin Feldman, a law professor at the University of
    California, Hastings College of the Law, despite the fact that
    taxpayers fund nearly two-thirds of every dollar spent on medical care
    (https://khn.org/news/secretive-rebate-trap-keeps-generic-drugs-for-
    diabetes-and-other-ills-out-of-reach/).

    This Committee should request, subpoena if needed, and make public,
    contracts related to the sale of insulin to help shine sunlight on
    these secret backroom deals. In addition it should similarly obtain
    copies of contracts related to other medical products that have
    recently seen a dramatic rise in scarcity or price: e.g., Baxter's
    contracts related to saline market allocation, the Hospira (now Pfizer)
    contracts for fentanyl, and Mylan's contracts for EpiPen.

    Address Anti-Competitive Manufacturer Tactics That Delay Introduction
    of Generics

    The FDA under the leadership of Scott Gottlieb, M.D. has made welcome
    progress in increasing the number of lower cost generic drugs available
    to American patients: 971 generics were approved by the agency in 2018,
    more than in any other year.

    More is needed. We urge the Committee to support the reintroduction and
    passage of the ``Creating and Restoring Equal Access to Equivalent
    Samples Act of 2018'' (CREATES Act).

    The legislation ``would promote drug price competition by making it
    easier for medicines whose patents have expired to be sold as less
    expensive generic versions, by requiring manufacturers to provide drug
    samples at a fair market price within a reasonable time,'' explains
    Dean Clancy writing in The Hill.

    Addressing ``patent thickets that are purely designed to deter the
    entry,'' as Commissioner Gottlieb puts it, is another anti-competitive
    practice the Committee should investigate and address.

    Support Efforts to End Anti-Competitive Price Fixing by Generic
    Manufacturers

    Pharmacy Benefits Managers and brand name manufacturers are not alone
    in using improper practices to limit competition. Generic drug makers
    are also entering into anti-competitive agreements. ``What started as
    an antitrust lawsuit brought by states over just two drugs in 2016 has
    exploded into an investigation of alleged price-fixing involving at
    least 16 [generic drug] companies and 300 drugs,'' reports The Chicago
    Tribune (https://www.chicagotribune.com/business/ct-biz-generic-drug-
    alleged-price-fixing-20181210-story.html).

    We encourage the Committee to take a look into such abusive practices
    and consider how it can support ongoing efforts by state attorneys
    general to end them.

    Cut the Red Tape Impeding Innovative Care Models

    Meanwhile, independent physicians are providing tremendous savings to
    patients with in-office dispensing of prescriptions that cut out the
    cost increases caused by middlemen like PBMs. For example, a 72 year
    old female patient with multiple chronic conditions purchases all nine
    of her medications through a Direct Primary Care office for $14.63/
    month. Through her Medicare ``coverage'' her cost would be $294.25 per
    month.

    The Senate Committee on Finance had jurisdiction, during the 115th
    Congress, over S. 1358, the Direct Primary Care Enhancement Act, which
    would increase patient access to this promising delivery model by
    simply clarifying that Health Savings Accounts can be used for these
    arrangements. We urge the Committee to expedite consideration and
    approval of similar legislation during this 116th Congress.

    In conclusion, lowering costs for care is going to mean ending the
    improper flow of money to middlemen profiting without adding value to
    patient care. We encourage the Committee to take action to end failed
    policies that benefit the bottom lines of these special interests and
    simultaneously implement solutions that hand control back to patients.

    Please do not hesitate to reach out to us for further discussion about
    our concerns.

    Sincerely,

    Jane M. Orient, M.D.
    Executive Director
    jane@aapsonline.org

                                     ______

    From Journal of American Physicians and Surgeons, Volume 23, Number 2,
                                  Summer 2018

               Group Purchasing Organizations: Gaming the System

    Marilyn M. Singleton, M.D., JD
    _______________________________________________________________________

    Introduction

        Both government and private entities are looking for treatable
    causes of the high costs of medical care. Over the last 15 years, Group
    Purchasing Organizations (GPOs) have been on the radar as a
    contributing factor to rising hospital costs, medication shortages, and
    stifling introduction of innovative products from smaller companies.

        Hospital supply costs are substantial. In 2013, U.S. hospitals on
    average spent $3.8 million each on supply expenses, with a median of
    $9.1 million. Supply expenses averaged 15 percent of total hospital
    expenses, and the average patient admission required $4,470 of supply
    expenses. Supply costs were as high as 30 or 40 percent in hospitals
    with, for example, complex cases or a large surgical service.\1\ GPOs
    were intended to reduce these costs.
    ---------------------------------------------------------------------------
        \1\ Abdulsalam Y, Schneller ES. ``Hospital supply expenses: an
    important ingredient in health services research.'' Med Care Res Rev,
    July 24, 2017. Available at: http://journals.sagepub.com/doi/10.1177/
    1077558717719928. Accessed May 17, 2018.
    ---------------------------------------------------------------------------

    Background: A Good Idea Gone Bad

        What is a GPO? GPOs are purchasing intermediaries that negotiate
    contracts between their customers--medical facilities such as
    hospitals, and vendors, distributors, and other suppliers of medical
    and pharmaceutical products and services. Such goods and services range
    from simple commodities like bandages to pharmaceuticals to high-tech
    devices like pacemakers. GPOs are supposed to facilitate better deals
    for their customers by means of volume purchasing. GPOs may also fund
    additional services outside of group purchasing for their customers,
    e.g., product evaluation, and marketing and insurance services.

        The Hospital Bureau of New York established the first GPO in 1910,
    and now approximately 97 percent of hospitals in the United States
    purchase through GPO contracts. The Healthcare Supply Chain
    Association, a trade association rep resenting 15 GPOs, estimates there
    are two to four GPOs per facility, and some 72 percent of hospital
    purchases are done using GPO contracts.\2\, \3\
    ---------------------------------------------------------------------------
        \2\ Government Accountability Office. ``Group Purchasing
    Organizations: Federal Oversight and Self-Regulation,'' March 30, 2012.
    Available at: https://www.gao.gov/assets/590/589778.pdf. Accessed May
    16, 2018.
        \3\ Definitive Healthcare. ``Top 10 GPOs by Member Hospital Beds,''
    August 16, 2016. Available at: https://blog.definitivehc.com/top-10-
    gpos-by-member-hospital-beds. Accessed May 17, 2018.

        Until the 1970s, GPOs' main source of revenue was through
    membership dues. To lessen the burden on smaller or struggling
    hospitals that could not afford the dues, GPOs began collecting
    ``contract administrative fees'' (rebates, kickbacks) from the vendors
    (see Figure 1). Such fees are typically based on a percentage of the
    costs of the products that GPO customers purchase through GPO-
    ---------------------------------------------------------------------------
    negotiated contracts.\2\

    [GRAPHIC] [TIFF OMITTED] T2919.005

        Normally, this fee arrangement would violate the federal healthcare
    program Anti-Kickback Statute.\4\ Federal anti-kickback provisions \5\
    were passed as part of the Social Security Act Amendments of 1972 to
    ``protect patients and the federal health care programs from fraud and
    abuse by curtailing the corrupting influence of money on health care
    decisions.''\6\
    ---------------------------------------------------------------------------
        \4\ Social Security Act Section 1128B(b), 42 U.S. Code Sec. 1320a-
    7b--Criminal penalties for acts involving Federal health care programs.
    Available at: https://www.law.cornell.edu/uscode/text/42/1320a-7b.
    Accessed May 16, 2018.
        \5\ Section 242 of Social Security Amendments of 1972, Pub. L. 92-
    603, 86 Stat. 1329 (October 30, 1972), Penalties for fraudulent acts
    and false reporting under Medicare and Medicaid. Available at: https://
    www.gpo.gov/fdsys/pkg/STATUTE-86/pdf/STATUTE-86-Pg1379-3.pdf. Accessed
    May 18, 2018.
        \6\ Office of Inspector General, Department of Health and Human
    Services. ``Federal anti-kickback law and regulatory safe harbors.''
    Fact Sheet; November 1999. Available at: https://oig.hhs.gov/fraud/
    docs/safeharborregulations/safefs.htm. Accessed May 16, 2018.

        Initially, the statute made the receipt of kickbacks, bribes, or
    rebates in the Medicare and Medicaid programs a misdemeanor punishable
    by a fine, imprisonment, or both. In response to testimony that these
    penalties were not adequate deterrents and were inconsistent with other
    federal criminal codes sanctions that made similar actions felonies,
    Congress strengthened the statute. The Medicare-Medicaid Anti-Fraud and
    Abuse Amendments of 1977 broadened the language to also prohibit the
    offer or receipt of ``any remuneration'' to induce a referral, and
    elevated the misdemeanor classification to a felony.\7\ However, this
    statute had an exception for discounts if the discount was (1)
    disclosed, and (2) reflected in the costs claimed for reimbursement
    from the government. The Senate Finance Committee included this
    provision to ``ensure that the practice of discounting in the normal
    course of business transactions would not be deemed illegal. In fact,
    the [finance] committee would encourage providers to seek discounts as
    a good business practice which results in savings to Medicare and
    Medicaid program costs.''\8\
    ---------------------------------------------------------------------------
        \7\ Medicare-Medicaid Anti-Fraud and Abuse Amendments of 1977. Pub.
    L. 95-142, 91 Stat. 1175 (October 25, 1977). Available at: https://
    www.gpo.gov/fdsys/pkgSTATUTE-91/pdf/STATUTE-91-Pg1175.pdf. Accessed May
    18, 2018.
        \8\ Report of the Committee on Finance on S. 143, Medicare-Medicaid
    Anti-Fraud and Abuse Amendments of 1977; September 22, 1977. Available
    at: https://www.finance.senate.gov/imo/media/doc/srpt95-453.pdf.
    Accessed May 18, 2018.

        In the early 1980s, the federal government's response to steeply
    rising Medicare costs may have triggered the interest in questionable
    business arrangements. The Medicare payment method was revised from a
    retrospective fee-for service system to a prospective payment system
    (PPS) in an effort to control costs. Under PPS, hospitals receive a
    fixed amount for treating patients diagnosed with a given illness,
    regardless of the length of stay or type of care received.\9\
    ---------------------------------------------------------------------------
        \9\ Social Security Act Section 1886, 42 U.S.C. Section 1395ww--
    Payments to hospitals for inpatient hospital services. Available at:
    https://www.law.cornell.edu/uscode/text/42/1395ww. Accessed May 18,
    2018.

        Hospitals complained that PPS cut into their profit margin, so they
    expanded services and sought ways to enhance revenue, some of which may
    have violated the anti-kickback law.\10\ Hospitals asserted that the
    1977 amendments effectively prohibited long-standing industry practices
    necessary to day-to-day operations. Congress believed that GPOs could
    ``help reduce health care costs for the government and the private
    sector alike by enabling a group of purchasers to obtain substantial
    volume discounts on the prices they are charged.''\11\ Consequently, as
    part of an Omnibus Budget Reconciliation Act of 1986 miscellaneous
    technical amendment to Medicare, Congress added an exception to the
    Anti-Kickback Statute to permit fees paid by vendors to a GPO if: (1)
    there was a written contract with fees at a fixed amount or a fixed
    percentage of the value of the purchases, and (2) entities that were
    service providers disclosed such fees to the customer.\12\,
    \13\
    ---------------------------------------------------------------------------
        \10\ Rogers DB. Medicare and Medicaid Anti-Kickback Statute: safe
    harbors eradicate ambiguity. J Law Health 1993;8:223-244. Available at:
    https://engagedscholarship.csuohio.edu/cgi/
    viewcontent.cgi?referer=&httpsredir=l&article=1294&context=jlh.
    Accessed May 18, 2018.
        \11\ Office of Inspector General Advisory Opinion No. 16-06; May 2,
    2016. Available at: https://www.oig.hhs.gov/fraud/docs/
    advisoryopinions/2016/Adv0pn16-06.pdf. Accessed May 16, 2018.
        \12\ Omnibus Budget Reconciliation Act of 1986, Pub. L. No. 99-509,
    Sec. 9321(a), 100 Stat. 1874, 2016. Available at: https://www.gpo.gov/
    fdsys/pkg/STATUTE-100/pdf/STATUTE-100-Pg1874.pdf. Accessed May 16,
    2018.
        \13\ House Conference Report 99-1012 to Accompany H.R. 5300,
    Providing Reconciliation Pursuant to Section 2 of the Concurrent
    Resolution on the Budget for Fiscal Year 1987; October 17, 1986.
    Available at: https://www.finance.senate.gov/imo/media/doc/Confrpt99-
    1012.pdf. Accessed May 16, 2018.

        The next year, Congress passed the Medicaid Patient and Program
    Protection Act of 1987, directing the Secretary of Health and Human
    Services (HHS) to create additional payment and business practice
    exceptions to the Anti-Kickback Statute (``safe harbors'') because such
    practices would be unlikely to result in fraud or abuse.\14\ (It also
    redesignated the GPO exception to a different section of the Social
    Security Act.)
    ---------------------------------------------------------------------------
        \14\ Medicaid Patient and Program Protection Act of 1987. Available
    at: https://www.gpo.gov/fdsys/pkg/STATUTE-101/pdf/STATUTE-101-
    Pg680.pdf. Accessed May 16, 2018.

        On July 29, 1991, the HHS Office of Inspector General (HHS-OIG)
    issued the first in a series of regulations implementing the safe
    harbors. The GPO regulations fixed the contract administrative fee at 3
    percent or less of the purchase price of the product or service, and
    required disclosure of fees received from all types of vendors to the
    respective customer.\15\
    ---------------------------------------------------------------------------
        \15\ 42 CFR Sec. 1001.952(j)--Exceptions. Available at: https://
    www.law.cornel.edu/cfr/text/42/1001.952. Accessed May 16, 2018.
    ---------------------------------------------------------------------------

    The Antitrust Safety Zone

        In response to antitrust concerns, in 1996 the Federal Trade
    Commission (FTC) studied GPOs. The FTC determined that joint purchasing
    arrangements provided to hospitals or other health care providers do
    not raise antitrust concerns. The FTC reasoned that through such joint
    purchasing arrangements, the participants frequently obtain volume
    discounts, reduce transaction costs, and have access to consulting
    advice that may not be available to each participant on its own. Thus,
    GPOs provided significantly more efficiency, benefited consumers, and
    did not raise antitrust concerns.

        The resultant FTC enforcement guideline sets forth an ``antitrust
    safety zone'' for GPOs where the FTC and Department of Justice (DOJ)
    will not challenge, ``absent extraordinary circumstances,'' any joint
    purchasing arrangement among health care providers where two conditions
    are met:

        1. Purchases through a GPO must account for less than 35 percent of
    the total sales of the product or service in question (e.g., stents) in
    the relevant market (which could be regional or national). This
    condition addresses whether the GPO accounts for such a large share of
    the purchases of the product or service that it can effectively
    exercise increased market power as a buyer. If the GPO's buying power
    drives the price of the product or service below competitive levels,
    consumers could be harmed if suppliers respond by reducing output,
    quality, or innovation.

        2. The cost of purchases through a GPO by each member hospital that
    competes with other members must amount to less than 20 percent of each
    hospital's total revenues. This condition looks at whether the GPO
    purchases constitute such a large share of the revenues of competing
    member hospitals that they could result in standardizing the hospitals'
    costs enough to make it easier to fix or coordinate prices.\16\
    ---------------------------------------------------------------------------
        \16\ Statement of Department of Justice and Federal Trade
    Commission Enforcement Policy on Joint Purchasing Arrangements Among
    Health Care Providers; August 1996. Available at: https://www.ftc.gov/
    sites/default/files/attachments/competition-policy-guidance/
    statements_of
    _antitrust_enforcement_policy_in_health_care_august_1996.pdf. Accessed
    May 16, 2018.
    ---------------------------------------------------------------------------

    GPO Fees: By the Numbers

        While there are more than 600 GPOs in various industries, only a
    few GPOs dominate the medical market. A 2015 Government Accountability
    Office (GAO) study found that during fiscal year 2012, the five largest
    GPOs contracted for similar products reported a total purchasing volume
    of $130.7 billion, and received fees totaling about $2 .3 billion in
    2012.\17\ (While these GPOs were not named in that GAO report, later
    reports indicated they were MedAssets (purchased by Vizient), Premier,
    Novation (part of Vizient), HealthTrust, and Amerinet (now called
    Intalere). This was a 20 percent increase in the total fees collected
    from vendors in 2008 (adjusted for inflation). The GPOs attribute the
    growth in volume of fees to increases in purchasing volume by customers
    and additional products being added to contracts.
    ---------------------------------------------------------------------------
        \17\ Government Accountability Office. ``Group Purchasing
    Organizations: Funding Structure Has Potential Implications for
    Medicare Costs;'' October 24, 2014. Available at: https://www.gao.gov/
    assets/670/666644.pdf. Accessed May 16, 2018.

        These five GPOs reported that the most frequent vendor fee they
    received in 2012 was 3 percent, and that such fees accounted for 92
    percent of a GPO's revenue.\17\ GPOs report that nearly 70 percent of
    these fees ($1 .6 billion) was passed on to GPO customers or owners
    (``share-backs;'' a.k.a. rebates ). The remainder of the revenue came
    from member fees, outside investments, vendor exhibit fees, and
    licensing fees-which are also based on a percentage of the purchase
    price of products-to market their products using the GPO's brand name.

    Inherent Conflict of Interest

        The current fee structure raises an obvious conflict of interest:
    when members (customers) paid the dues, the clear goal was to find
    lower prices for the member. Now, since vendors pay the fees as a
    percentage of the product cost, the higher the price, the higher the
    GPOs' fees. Since 2002, GPOs have come under scrutiny for their
    contribution to increased costs to federal health programs, drug
    shortages, and effect on the introduction of new products.

        Additionally, it has been reported that at least two GPOs and/or
    their officials have accepted stock in supplier companies in lieu of or
    in addition to cash payments, or have significant investments in
    medical supply companies.\18\
    ---------------------------------------------------------------------------
        \18\ Bogdanich W. ``Medicine's middlemen; questions raised of
    conflicts at 2 hospital buying groups.'' NY Times, March 4, 2002.
    Available at: https://www.nytimes.com/2002/03/04/business/medicine-s-
    middlemen-questions-raised-of-conflicts-at-2-hospital-buying-
    groups.html. Accessed May 18, 2018.

        Questions also have been raised about sole-source contracting, in
    which GPOs may contract with only one vendor for a given product when
    multiple vendors of comparable products are available. Here, the GPO
    contract may have minimum purchase requirements. Smaller hospitals may
    tend to purchase more than they need to reach the minimums.
    Overspending to get a purported discount is not a good trade-off. Other
    practices under scrutiny are product bundling, in which price discounts
    are linked to purchases of a specified group of products; long-term
    contracts of 5 years or more; and tiered or loyalty discounts where the
    discount (rebate) increases as the hospital buys a greater percentage
    of a specific product through that GPO. Additionally, the GAO had
    questioned whether GPOs were actually saving money.\19\
    ---------------------------------------------------------------------------
        \19\ Scanlon WJ. Government Accountability Office. ``Group
    Purchasing Organizations: pilot study suggests large buying groups do
    not always offer hospitals lower prices.'' Testimony before the
    Subcommittee on Antitrust, Competition, and Business and Consumer
    Rights, Committee on the Judiciary, U.S. Senate; April 30, 2002.
    Available at: https://www.gao.gov/assets/90/81813.pdf. Accessed May 16,
    2018.
    ---------------------------------------------------------------------------

    No Evidence of Consistent Cost Savings

        The justification for allowing GPOs' rebates and fee structure to
    be exempt from the Anti-Kickback Statute was that it would save money.
    The GAO studied several representative hospitals and found that GPOs'
    contract prices were not always lower, and were often higher than
    prices paid by hospitals negotiating with vendors directly. One factor
    is that the price breaks varied by product model. For example, for some
    pacemaker models, the hospitals using GPO contracts got up to 26
    percent lower prices than the hospitals not using a GPO contract. But
    for other models, hospitals using a GPO contract got prices that were
    up to 39 percent higher than hospitals not using a GPO contract.
    Additionally, the size of the hospital affected the price savings.
    Large hospitals (greater than 500 beds) got lower prices negotiating on
    their own. But while small and medium hospitals were more likely to
    benefit from a GPO contract, this was not a consistent finding. Price
    savings had little relationship to the size of the GPO. Hospitals
    contracting with large GPOs--those whose members purchase more than $6
    billion per year with their contracts--did not necessarily obtain
    better prices than hospitals using smaller GPOs.\19\

        Further, the GAO was unable to identify any published peer-reviewed
    studies that included an empirical analysis of pricing data that
    indicated whether GPO customers obtain lower prices from vendors.\20\
    Industry-supported studies claim savings, but a private 2012 study
    found hospitals achieved an average price reduction of 10-14 percent
    from 2001 through 2010 when the transaction was brokered by an agent
    not compensated by suppliers.\21\
    ---------------------------------------------------------------------------
        \20\ Government Accountability Office. Group Purchasing
    Organizations: research on their pricing impact on health care
    providers. Letter to Senator Charles Grassley; January 29, 2010.
    Available at: https://www.gao.gov/assets/100/96533.pdf. Accessed May
    17, 2018.
        \21\ Federal Trade Commission Workshop. Understanding Competition
    in the Prescription Drug Markets: Entry and Supply Chain Dynamics;
    November 2017: slide 174. Available at: https://www.ftc.gov/system/
    files/documents/public_events/1255653/understanding_competition_in_pre
    scription_drug_markets_workshop_slides_11-8-17.pdf. Accessed May 25,
    2018.
    ---------------------------------------------------------------------------

    Limited Government Oversight

        The DOJ, the HHS-OIG, and the FTC are responsible for oversight of
    GPOs. After negative publicity in the early 2000s, GPOs formed a
    voluntary GPO membership association, the Healthcare Group Purchasing
    Industry Initiative (HGPII) in 2005 to ``self-police'' by promoting
    best practices and public accountability among member GPOs.\2\

        In the antitrust arena, the DOJ and FTC receive and investigate
    about one complaint per year against GPOs. The GAO found one lawsuit
    filed by DOJ against a GPO in 2007. DOJ challenged actions by the GPO
    for temporary nursing services and its member hospitals, alleging that
    the GPO caused the wages paid to temporary nurses in Arizona to fall
    below competitive levels. The case was resolved with a settlement and
    consent decree. The DOJ received a complaint in 2010 from certain
    medical device manufacturers questioning the general structure of the
    industry and how the industry operates. Although DOJ spoke with the
    complainants, it did not open an investigation.\2\ As of 2014, the FTC
    had not taken any enforcement action against a GPO since 2004.\22\
    ---------------------------------------------------------------------------
        \22\ Government Accountability Office. ``Group Purchasing
    Organizations: services provided to customers and initiatives regarding
    their business practices.'' Report to the Ranking Member, Committee on
    Finance, U.S. Senate. GAO 10-738; August 2010. Available at: https://
    www.gao.gov/assets/310/308830.pdf. Accessed May 16, 2018.

        Safe harbor protection is afforded only to those arrangements that
    precisely meet all of the conditions set forth in the regulations.\11\
    Further, a lawful purpose will not legitimize a payment that also
    violates the statute. Neither the GPO safe harbor statutory provision
    nor the regulation require HHS-OIG to routinely review or monitor the
    required GPO written agreements and disclosures.\15\ Indeed, since
    2004, HHS-OIG as a matter of course has not exercised its authority to
    request and review disclosures related to GPOs' contract administrative
    fees. However, it has collected information on GPOs' contract
    administrative fees while conducting audits of hospitals' cost reports.
    HHS-OIG did investigate with DOJ two cases involving allegations that
    certain GPOs did not comply with safe harbor requirements and violated
    the Anti-Kickback Statute.\2\ Both lawsuits were brought by private
    citizens on behalf of the United States under the False Claims Act
    (``qui tam'' action). DOJ may intervene and litigate the case along
    with the private party, but in each of these cases, DOJ declined to
    ---------------------------------------------------------------------------
    intervene.

        Medicare provider reimbursement regulations generally require
    providers to offset purchase discounts, allowances, and refunds of
    expenses against expenses on their Medicare cost reports that reflect
    their costs of medical supplies.\23\
    ---------------------------------------------------------------------------
        \23\ 42 CFR Sec. 413.98--Purchase discounts and allowances, and
    refunds of expenses. Available at: https://www.law.cornell.edu/cfr/
    text/42/413.98. Accessed May 18, 2018.

        In 2005, HHS-OIG found that some GPO customers did not fully
    account for GPO revenue distributions on their Medicare cost reports.
    Despite the response by the Centers for Medicare and Medicaid Services
    (CMS), which issued guidance on proper reporting of GPO rebates, HHS
    ---------------------------------------------------------------------------
    has done no further reviews of cost reports for this information.\2\

        The information in cost reports is one element that the Medicare
    Payment Advisory Commission (MedPAC) reviews in determining the
    reasonableness of Medicare payment levels for the Prospective Payment
    System. Additionally, Medicare contractors use parts of the cost
    reports to compute Medicare reimbursement.\17\ If the rebates are not
    reported on the cost reports, Medicare could be overpaying hospitals.

        In its review of GPO payment practices, the GAO's single
    recommendation was having HHS determine what her hospitals are
    appropriately reporting administrative fee revenues on their Medicare
    cost reports, and taking steps to address any under-reporting that may
    be found.\17\

    Consolidation of the GPO Market

        As one medical device supplier noted in 2016, ``When I started in
    this space 27 years ago, there were about two dozen GPOs that we
    recognized as national GPOs. Today there are five.''\24\ Four GPOs
    (Vizient, Premier, HealthTrust, and lntalere) have about 90 percent of
    the market.
    ---------------------------------------------------------------------------
        \24\ Cline A. ``The new GPO landscape and its impacts on
    healthcare.'' Modern Healthcare, April 2016. Available at: http://
    www.modernhealthcare.com/article/20160331/SPONSORED/303319993. Accessed
    May 18, 2018.

        Vizient was founded in 2015 as the integration of VHA Inc., a
    national network of not-for-profit hospitals; University Health System
    Consortium, an alliance of the nation's leading academic medical
    centers; and Novation, the health care contracting company they jointly
    owned. In 2016, Vizient acquired MedAssets' Spend and Clinical Resource
    Management segment. Vizient has $100 billion annual spend volume, and
    its membership consists of a little more than50 percent of the nation's
    acute care providers.\25\ Vizient also serves more than 20 percent of
    the nation's ambulatory market.
    ---------------------------------------------------------------------------
        \25\ Gooch K. ``4 of the Largest GPOs.'' Becker's Hospital CFO
    Report, February 6, 2017. Available at: https://
    www.beckershospitalreview.com/finance/4-of-the-largest-gpos-2017.html.
    Accessed May 16, 2018.

        Premier has more than $50 billion annual spend volume. Premier
    members include 3,750 hospitals, which includes 76 percent of U.S.
    community hospitals, and more than 130,000 other provider
    organizations. Premier also provides data analytics and information
    technology (IT) services, among other services. Health Trust has $30
    billion annual spend volume. Its members include 1,600 hospitals and
    more than 26,000 non-acute care sites in the U.S. and UK. Intalere has
    $9 billion annual spend volume and its members include 3,734 hospitals
    ---------------------------------------------------------------------------
    and more than 85,000 non-acute healthcare providers.\25\

        The competition and choice promised in the early years of GPOs is
    clearly lacking.

    Medication Shortages

        Medication shortages have resulted in tremendous patient harm.
    Shortages increased by almost 200 percent from 2005 to 2010, and they
    increased 13 percent between 2009 and 2010 al one.\26\ A 2011 U.S. Food
    and Drug Administration (FDA) study concluded that the cause of
    shortages was multi factorial, including economic, legal, regulatory,
    policy, and clinical factors. However, FDA notes that despite high
    demand for generics and oncology medications, the supply system is
    ``vulnerable to drug shortages because a large supply disruption is
    difficult to make up with alternative suppliers.''\26\ A 2014 GAO
    report found studies that indicated GPOs' administrative fees
    contributed to generic drug shortages by reducing the profit margins,
    thereby discouraging increased production, adding to supply-chain
    fragility.\27\, \28\ A 2011 HHS study focusing on sterile
    injectables attributed manufacturers' inability to meet the demand s to
    inadequate manufacturing capacity as a consequence of the expansion in
    scope and volume of products.\29\
    ---------------------------------------------------------------------------
        \26\ U.S. Food and Drug Administration, ``A Review of FDA's
    Approach to Medical Product Shortages;'' October 31, 2011. Available
    at: https://www.ipqpubscom/wp-content/uploads/2012/02/
    FDA_drug_shortages_report.pdf. Accessed May 18, 2018.
        \27\ Government Accountability Office, ``Drug shortages: public
    health threat continues, despite efforts to help ensure product
    availability.'' Report to Congressional Addressees; February 2014.
    Available at: https://www.gao.gov/assets/670/660785.pdf. Accessed May
    25, 2018.
        \28\ Government Accountability Office, ``Drug shortages: certain
    factors are strongly associated with this persistent public health
    challenge.'' Report to Congressional Committees; July 2016. Available
    at: https://www.gao.gov/assets/680/678281.pdf. Accessed May 18, 2018.
        \29\ Office of the Assistant Secretary for Planning and Evaluation,
    Office of Science and Data Policy, U.S. Department of Health and Human
    Services, ``Economic analysis of the causes of drug shortages.'' ASPE
    Issue Brief; October 2011. Available at: https://aspe.hhs.gov/pdf-
    report/economic-analysis-causes-drug-shortages. Accessed May 18, 2018.

        The presence of a variety of vendors is key to maintaining a stable
    supply chain, which can protect against medication shortages. GPOs'
    exclusive, high-volume, sole-source contracts are awarded to those who
    can pony up the highest fees. Contracts that bundle products favor
    vendors offering a broad range of products. Consequently, smaller or
    single product companies are shut out of the market. The end users
    (patients) suffer by being deprived of lower-cost or innovative
    products-and in some cases can obtain no product at any price.

    Conclusion

        Since the federal healthcare Anti-Kickback Statute GPO exception
    was created 30 years ago, the landscape has changed. The current GPO
    funding structure's incentive is to ``negotiate'' higher prices for its
    customers. The vendors with the most money can afford to pay the high
    fees and buy themselves into the game. The term ``payola''--pay to
    play--comes to mind. The situation is exacerbated because insurers
    absorb the higher prices and thus hospitals may have less incentive to
    monitor pricing.

        GPOs assert that there is sufficient competition between them to
    mitigate any potential conflicts of interest with regard to negotiating
    the lowest prices. But when the FTC issued its ``antitrust safety
    zone'' 22 years ago, it noted, ``The existence of a large number and
    variety of purchasing groups in the health care field suggests that
    entry barriers to forming new groups currently are not great:''\16\
    Only four companies now comprise 90 percent of the GPO market. This
    industry consolidation should re-ignite antitrust concerns: limited
    choices, difficulty in changing GPOs, higher prices, and barriers to
    entry into the market by smaller companies. Worse yet is that patients
    suffer because of higher prices and insurance premiums.

        Vendors could take ``dirty'' money if doing so helped patient s by
    increasing medical care access and/or choice, or saved the government
    money. But the arrangements must precisely meet all of the conditions
    set forth in the regulations. Assuming the inducement was ``knowing and
    willful,'' based on the three questions the government is supposed to
    ask current discounting or GPO arrangements look like impermissible
    kickbacks. Does the arrangement have a potential to interfere with, or
    skew clinical decision-making? Yes. The vendor who can afford the fees
    or provide other financial perks gets the contract.

        Does it have a potential to undermine the clinical integrity of a
    formulary process? Yes. Smaller pharmaceutical companies with a less
    expensive or better product are frozen out of the contracting process.

        Does the arrangement have the potential to increase costs to
    federal health care programs, beneficiaries, or enrollees? Yes. There
    is no evidence that supply costs are lower.\30\
    ---------------------------------------------------------------------------
        \30\ Office of Inspector General. ``Compliance Program Guidance for
    Pharmaceutical Manufacturers;'' April 2003. Available at: https://
    oig.hhs.gov/fraud/docs/complianceguidance/042803
    pharmacymfgnonfr.pdf. Accessed May 25, 2018.

        In short, GPOs do not always choose the products that are best for
    their customers, patients, or the taxpayers. An honest look at the
    current state of GPOs should label the conduct illegal, yet Congress
    has not acted to repeal or sharply limit the safe harbor. Just as with
    GPO contracts, money talks. Premier has 19 lobbyists and spent
    $1,790,000 on lobbying in 2017. It contributes to Democrat and
    Republican congressional committees, and to individuals on both sides
    of the aisle, including former vice-presidential candidate Tim Kaine,
    and two prominent physician senators, John Barrasso and Bill
    Cassidy.\31\
    ---------------------------------------------------------------------------
        \31\ Center for Responsive Politics. ``Premier, Inc.'' Available
    at: https://www.opensecrets.org/lobby/
    clientsum.php?id=D000028434&year=2017. Accessed May 18, 2018.

        On the positive side, if the government will not enforce the law,
    the private sector may again take action. According to a large business
    consulting firm's annual study conducted with hospital administrators,
    health systems are increasingly receptive to bypassing GPOs for their
    medical technology contracts.\28\ Additionally, there are a growing
    number of health systems that are ``owning and controlling their own
    supply chain destinies.''\32\ And, not to be outdone, Amazon's B2B
    program has entered the healthcare market and promises a marketplace to
    comparison-shop for the best prices and selection.
    ---------------------------------------------------------------------------
        \32\ Graves K, Grabenstatter K. ``Time for medtechs to rethink
    GPOs?'' LEK Executive Insights. 2018;20(13). Available at: https://
    www.lek.com/sites/default/files/insights/pdf-attachments/2013-Medtech-
    GPOs.pdf. Accessed May 30, 2018.

        The time has come to do what is best for patients and to restore
    integrity, competition, choice, and cost savings to the purchasing
    ---------------------------------------------------------------------------
    process.

    Marilyn M. Singleton, M.D., JD, is an anesthesiologist in Redondo
    Beach, CA, and serves as president-elect of AAPS. Contact:
    marilynmsingleton@gmail.com.

                                     ______

                  Campaign for Sustainable Rx Pricing (CSRxP)

                         1341 G Street, NW, Suite 1100

                              Washington, DC 20005

                Statement of Lauren Aronson, Executive Director

    Chairman Grassley, Ranking Member Wyden, and members of the Senate
    Committee on Finance, the Campaign for Sustainable Rx Pricing (CSRxP)
    thanks you for the opportunity to submit testimony for the record on
    drug company pricing practices that have resulted in out-of-control and
    unsustainable growth in prescription drug prices. We very much
    appreciate your leadership in addressing this critically important
    issue that American consumers face every day.

    CSRxP is a nonpartisan coalition of organizations committed to
    fostering an informed discussion on sustainable drug pricing and to
    developing bipartisan, market-based solutions that promote competition,
    transparency, and value to improve affordability while maintaining
    patient access to innovative prescription drugs that can improve health
    outcomes and save lives. Our members represent organizations including
    consumers, hospitals, physicians, nurses, pharmacists, employers,
    pharmacy benefit managers and insurance providers.

    Prescription drug prices are needlessly high and continue to grow at
    unsustainable rates. Twenty-three cents of every health care dollar
    goes toward prescription drugs.\1\ One in four Americans cannot afford
    their medications. Excessively high prices unfairly threaten the
    financial security, health and well-being of U.S. patients and their
    families every day, as well as strain Federal and state health budgets
    and the taxpayers who fund them. Too often patients are faced with the
    unfortunate and unfair choice of purchasing the medications they need
    to get well and stay healthy and paying their bills. Patients should
    never be presented with such a choice.
    ---------------------------------------------------------------------------
        \1\ AHIP. ``Where Does Your Healthcare Dollar Go?'' May 22, 2018.

    CSRxP thus strongly believes it is imperative to rein in out-of-control
    drug prices and welcomes the leadership of this Committee in seeking to
    address this vexing problem that impacts Americans every day. In
    particular, we firmly believe that significant actions must be taken to
    address the root cause of the core problem: drug manufacturers--and
    drug manufacturers alone--set list prices too high and continue to
    ---------------------------------------------------------------------------
    raise them at unsustainably high rates.

    Below we describe how the current marketplace enables the brand
    pharmaceutical industry to set excessively high drug prices and
    increase them by rates that often far exceed general inflation. We then
    present bipartisan, market-based solutions that improve prescription
    drug affordability while at the same time foster innovation and
    preserve access to novel therapies. CSRxP firmly believes that without
    major actions by this Committee and others, the pharmaceutical industry
    will continue to excessively profit from the anti-competitive and
    unsustainable pricing practices that make prescription drugs
    unaffordable and jeopardize access for the patients who need them. We
    look forward to working with the Committee to curbing unfair drug
    company pricing practices and implementing these bipartisan, market-
    based solutions that blunt the unsustainable growth in out-of-control
    prescription drug prices.

    I. Growth in U.S. spending on prescription drugs is unsustainable and
    exceeds spending in other parts of the U.S. healthcare sector.

    U.S. spending on prescription drugs is growing at an unsustainable
    rate--one that exceeds the rate of growth in other categories of U.S.
    healthcare spending. Although 2018 showed a slightly smaller growth
    rate in drug prices due in large part to heightened public attention
    over the unfair pricing practices employed by the pharmaceutical
    industry, historical data generally shows that spending on prescription
    drugs has grown at rates higher than other rates of medical spending
    and Medicare expenditures on Part Band Part D drugs have followed this
    overall historical trend.\2\ To this point, the U.S. Department of
    Health and Human Services (HHS) Assistant Secretary for Planning and
    Evaluation (ASPE) found that Medicare Part B spending on prescription
    drugs increased at a rapid average annual rate of 7.7 percent from 2005
    to 2014; during that period, specialty biologic medicines grew at a
    particularly fast rate, increasing from 39 percent to 62 percent of
    total spending, with a significant share of the growth due to price
    increases rather than number of patients using the medications.\3\
    Likewise, the HHS Office of the Inspector General (OIG) recently found
    that Medicare Part D spending for brand drugs grew by 77 percent from
    2011 to 2015 (or 62 percent when netting out manufacturer rebates)--
    even though the actual number of prescriptions fell by 17 percent over
    the period, suggesting price increases contributed substantially to the
    growth in overall Part D spending.\4\
    ---------------------------------------------------------------------------
        \2\ In 2014, for example, while overall growth in U.S. healthcare
    spending increased by 5.5 percent, prescription drugs grew by 12.6
    percent, according to Keehan et al. Similarly, in 2015, while overall
    growth in U.S. healthcare spending increased by 5.8 percent, growth in
    spending on prescription drugs increased by 9 percent and outpaced
    spending on all other medical services, according to Martin et al.
        \3\ HHS Assistant Secretary for Planning and Evaluation. ``Medicare
    Part B Drugs: Pricing and Incentives,'' page 6. March 8, 2016.
        \4\ HHS OIG. ``Increases in Reimbursement for Brand-Name Drugs in
    Part D.'' June 2018.

    II. The brand pharmaceutical industry is driving excessive drug cost
    growth by setting needlessly high list prices for its products and
    increasing those prices by amounts that substantially exceed inflation
    ---------------------------------------------------------------------------
    after they enter the market.

    Despite efforts from the brand drug industry to suggest otherwise, the
    drug industry--and the drug industry alone--is the primary driver of
    the needlessly high and unsustainable prescription drug prices and
    costs that American consumers and taxpayers face today. Brand
    manufacturers set high launch prices for their products and typically
    increase those prices at rates that far exceed inflation. As healthcare
    expert Avik Roy recently said: ``[I]n the absence of competition,
    manufacturers frequently charge the highest prices they believe they
    can justify in the court of public opinion.''\5\
    ---------------------------------------------------------------------------
        \5\ Roy, Avik. ``Drug Companies, `Not Middlemen,' Are Responsible
    for High Drug Prices.'' The Apothecary. October 22, 2018.

    To this point, one recent analysis concluded that the increasing costs
    of prescription drugs were due largely to price increases imposed by
    manufacturers of drugs already on the market. From 2008 to 2016, the
    analysis found costs of oral and injectable drugs increased by 9.2
    percent and 15.1 percent, respectively, on an annual basis with
    existing drugs contributing to much of the growth.\6\, \7\
    Costs increased for specialty oral and injectable drugs by 20.6 percent
    and 12.5 percent, respectively, with 71.1 percent and 52.4 percent of
    these increases attributable to new drugs.\8\ A separate recent study
    from AARP found that retail prices for 87 percent of the most widely
    used brand name drugs by older Americans increased from 2016 to 2017,
    with 30 percent having price increases of 10 percent or higher.\9\
    Overall, prices for prescription drugs in the AARP study increased by
    an average of 8.4 percent from 2016 to 2017--or four times the 2.1
    percent rate of general inflation for the period.\10\ These 2017 price
    increases followed average double-digit annual price increases every
    year from 2012 to 2016.\11\
    ---------------------------------------------------------------------------
        \6\ Hernandez et al. ``The Contribution of New Product Entry Versus
    Existing Product Inflation in the Rising Cost of Drugs.'' Health
    Affairs. Vol. 38, No. 1. January 2019.
        \7\ Kodjak, Alison. ``Prescription Drug Costs Driven by
    Manufacturer Price Hikes, Not Innovation.'' National Public Radio.
    January 7, 2019.
        \8\ Hernandez et al. ``The Contribution of New Product Entry Versus
    Existing Product Inflation in the Rising Cost of Drugs.'' Health
    Affairs. Vol. 38, No. 1. January 2019.
        \9\ AARP Public Policy Institute. ``Trends in Retail Prices of
    Brand Name Prescription Drugs Widely Used by Older Americans: 2017
    Year-End Update,'' page 8. September 2018.
        \10\ Ibid., page 5.
        \11\ Ibid., page 6.

    High-cost specialty medications in particular are driving much of this
    unsustainable growth in prescription drug prices and spending. Pharmacy
    benefit manager Express Scripts reported, for example, that even with
    strategies in place to lower costs for consumers on specialty
    medications, growth in commercial spending on high-cost specialty
    products far outpaced growth in overall prescription drug spending in
    2017: 11.3 percent versus 1.5 percent.\12\ Similarly, a separate AARP
    analysis found that retail prices for 101 widely used specialty drugs
    increased by 9.6 percent in 2015, continuing the increasing trend of
    specialty product price increases seen since 2006.\13\ In 2015, the
    average annual cost of for a single specialty medication used on a
    chronic basis exceeded $52,000, with the annual cost of these therapies
    growing by almost $35,000 from 2006 to 2015.\14\
    ---------------------------------------------------------------------------
        \12\ Express Scripts. ``2017 Drug Trend Report,'' page 4.
        \13\ AARP. ``Trends in Retail Prices of Specialty Prescription
    Drugs Widely Used by Older Americans, 2006 to 2015,'' page 1. September
    2017.
        \14\ Ibid.

    III. Drug manufacturers suggest that research and development (R&D)
    justifies high drug prices--but data show that the excessive amounts
    charged to U.S. patients in aggregate exceed the industry's global R&D
    ---------------------------------------------------------------------------
    budget.

    Researchers have found that the drug prices paid by U.S. consumers
    create significantly more revenue for the brand pharmaceutical industry
    than the amount the industry expends globally on research and
    development. Specifically, the research concluded that the 15 drug
    companies manufacturing the 20 best-selling drugs worldwide in 2015
    made $116 billion in excess revenue from U.S. drug
    prices.\15\, \16\
    ---------------------------------------------------------------------------
        \15\ Note that this study looked at net prices--not list prices--
    that U.S. consumers paid for prescription drugs. Net prices reflect
    discounts and rebates that pharmacy benefit managers, wholesalers,
    pharmacies, and other members of the supply chain negotiate with drug
    manufacturers to lower the list price initially set.
        \16\ Yu, Nancy et al. ``R&D Costs for Pharmaceutical Companies Do
    Not Explain Elevated U.S. Drug Prices.'' Health Affairs Blog. March 7,
    2017.

    Meanwhile, brand drug makers only spent $76 billion--or $40 billion
    less--on global research and development that same year.\17\ As one
    author of the analysis, Dr. Peter Bach, Director of Memorial Sloan
    Kettering Cancer Center's Center for Health Policy and Outcomes,
    clearly said: ``the math doesn't work out.''\18\ Indeed, when
    discussing the relationship between drug prices and industry research
    and development costs, John Hopkins University professor of health
    policy and management Gerard Anderson recently said: ``Research and
    development is only about 17 percent of total spending in most large
    drug companies. Once a drug has been approved by the FDA, there is
    minimal additional research and development costs so drug companies
    cannot justify price increases by claiming research and development
    costs.''\19\
    ---------------------------------------------------------------------------
        \17\ Ibid.
        \18\ Sagonowsky, Eric. ``High U.S. Drug Prices Cover Pharma's
    Global R&D--And a Whole Lot More, Study Finds.'' Fierce Pharma. March
    10, 2017.
        \19\ Kodjak, Alison. ``Prescription Drug Costs Driven by
    Manufacturer Price Hikes, Not Innovation.'' National Public Radio.
    January 7, 2019.

    Moreover, brand drugs with the highest prices sometimes are the ones
    that are the least costly to develop, indicating that a drug maker's
    R&D budget does not necessarily justify the setting of high drug launch
    prices or imposing price increases that vastly exceed inflation. In
    other words, high prices do not necessarily correlate with the
    innovative R&D that the pharmaceutical industry maintains it is
    supporting in part through high drug prices, as a separate analysis
    concluded.\20\ This analysis found that the ``costliest drugs to
    develop are those which require large phase III clinical trials
    involving tens of thousands of patients, such as drugs for diabetes,
    high blood pressure, and heart disease. . . . But, in fact, new drugs
    in these areas have little pricing power, because doctors have the
    ability to prescribe effective and inexpensive generics for these
    conditions.''\21\ By contrast, the ``cheapest drugs to develop are
    those which require small clinical trials involving dozens of patients,
    such as drugs for ultra-rare, or `ultra-orphan' conditions. . . . Phase
    III trials for these conditions, which only affect several thousand
    people in the United States, run in the tens of millions. But
    manufacturers have generated billions in revenues from them.''\22\
    ---------------------------------------------------------------------------
        \20\ Roy, Avik. ``The Competition Prescription: A Market-Based Plan
    for Making Innovative Medicines Affordable,'' page 7.
        \21\ Ibid., page 7.
        \22\ Ibid., page 8.

    IV. Out-of-control drug prices paid by U.S. consumers enable the drug
    industry to pay for needless advertising and marketing--and contribute
    ---------------------------------------------------------------------------
    to drug makers' profitability and bottom lines.

    If the drug industry does not spend all of the money it receives from
    U.S. consumers on its products on R&D as shown above, the question
    arises as to where the industry actually spends those excessive
    revenues. It turns out that brand manufacturers are using a significant
    portion those funds for marketing and advertising--and to increase
    their bottom lines.

    First, the drug industry spends a significant amount of money on
    direct-to-consumer (DTC) advertising--over $5.5 billion in 2017,
    including nearly $4.2 billion on television advertising.\23\ In 2016,
    drug advertising represented the sixth largest category of TV
    advertising, accounting for 8 percent of total TV advertising revenue
    and increasing six places from 12th place in the category in 2012.\24\
    Of significant concern is the fact that many brand drug manufacturers
    spend more on advertising and marketing than R&O. One analysis found
    that 9 of the 10 largest drug companies spent more on sales and
    marketing, including marketing directly to prescribers, than they did
    on research in 2013.\25\
    ---------------------------------------------------------------------------
        \23\ 83 FR 52792.
        \24\ Appleby, Anne and Horovitz, Bruce. ``Prescription Drug Costs
    Are Up; So Are TV Ads Promoting Them.'' USA Today. March 16, 2017.
        \25\ Swanson, Ana. ``Big Pharmaceutical Companies Are Spending Far
    More on Marketing Than Research.'' The Washington Post. February 11,
    2015.

    Importantly, while brand drug manufacturers suggest marketing and
    advertising help inform patients and their providers of treatment
    options, these industry tactics can result in unnecessary utilization
    of often expensive prescription drugs, causing needless out-of-pocket
    spending by patients on drugs that they may or may not need based on
    their individual medical conditions or that may not be the most cost-
    effective choice according to their individual insurance plans. Indeed,
    research has shown that DTC advertisements can induce demand and
    increase unnecessary utilization.\26\, \27\,
    \28\ One recent survey found, for example, that one in eight adults (12
    percent) reported a doctor prescribed them a specific drug after asking
    about it as a result of seeing or hearing a DTC advertisement.\29\
    Notably, unnecessary utilization increases costs not just for the
    patients who use them, but also for all consumers through higher
    aggregate healthcare spending--which must be paid for in part by higher
    consumer premiums.\30\
    ---------------------------------------------------------------------------
        \26\ Dhaval, Dave and Saffer, Henry. ``Impact of Direct-to-Consumer
    Advertising on Pharmaceutical Prices and Demand,'' 79 Southern Economic
    Journal 97-126 (2012).
        \27\ Balaji, Datti and Carter, Mary W. ``The Effect of Direct-to-
    Consumer Advertising on Prescription Drug Use by Older Adults,'' 23
    Drugs Aging 71-81 (2006).
        \28\ Mintzes, Barbara et al. ``Influence of direct to consumer
    pharmaceutical advertising and patients' requests on prescribing
    decisions: Two site cross sectional survey,'' 324 The BMJ 278-29 (2002
    ).
        \29\ Kaiser Health Tracking Poll. October 2015.
        \30\ 83 FR 52793.

    Second, and very importantly, brand drug manufacturers depend on these
    unsustainable high drug prices to help support their bottom line
    growth; price increases now are replacing a decline in prescription
    volume that the industry is facing for at least certain types of
    medications. To this point, a recent analysis concluded that between
    2011 and 2014, sales from the top 10 drugs increased 44 percent even
    though prescriptions for the medications decreased by 22 percent.\31\
    Likewise, yet another analysis determined that drug price increases
    contributed $8.7 billion to net income for 28 companies analyzed,
    representing 100 percent of earnings growth for those companies in
    2016.\32\ Hence, it seems very unlikely that brand drug makers have
    little to any incentive to curb the unsustainable and excessive growth
    in prescription drug prices absent bipartisan action to change these
    unfair pricing practices and tactics employed by drug companies that
    hurt American patients and their families every day.
    ---------------------------------------------------------------------------
        \31\ Humer, Caroline. ``Analysis: Drugmakers Take Big Price
    Increases on Popular Meds in U.S.'' Scientific American.
        \32\ Tirrell, Meg. ``The Drug Industry Is Addicted to Price
    Increases, Report Shows.'' CNBC. April 20, 2017.

    V. Bipartisan, market-based solutions can help rein in unfair drug
    company pricing practices that have caused out-of-control drug prices
    ---------------------------------------------------------------------------
    to increase at unsustainable rates.

    CSRxP supports adoption of bipartisan, market-based solutions to help
    curb the excessive and unsustainable growth in prescription drug prices
    for U.S. consumers and taxpayers. To that end, CSRxP strongly urges the
    Committee to consider enactment of legislation that would implement the
    following policies to promote transparency, foster competition, and
    incentivize value in the marketplace, making prescriptions drugs more
    affordable and accessible for the patients who need them while at the
    same time preserving incentives for innovation and new drug
    development.

    Promote Transparency

    CSRxP ardently believes that improving transparency in prescription
    drug pricing is a critical component to making prescription drugs more
    affordable for consumers and taxpayers. Among other benefits, increased
    transparency will better enable transformation of the U.S. healthcare
    system toward one based on value; will better inform patients,
    prescribers, and dispensers of actual drug costs as they determine the
    most appropriate treatments to meet individual patient needs; and
    encourage drug makers to actually justify the high prices they set for
    their products. Hence, CSRxP urges the Committee to consider policies
    that promote pricing transparency, including:

          Require drug manufacturers to include list prices in all forms
    of direct-to-consumer (DTC) advertising: DTC advertising has come under
    scrutiny as prescription drug spending takes up a bigger portion of
    health care dollars each year both for consumers and taxpayers and has
    the potential to lead to over-utilization of--and unnecessary spending
    on--high-cost medicines. Requiring the inclusion of list prices--as
    well as price increases--in all forms of DTC advertising will make
    patients much more aware of prescription drug costs when they talk with
    their providers about treatment options for their individual healthcare
    needs.

          Mandate that drug makers release details of a drug's unit price,
    cost of treatment, and projection on federal spending before FDA
    approval: Given the significant impact pharmaceuticals have on overall
    health care spending, manufacturers should be required to disclose
    information on the estimated unit price for the product, the cost of a
    course of treatment, and a projection of federal spending on the
    product so that patients, providers, taxpayers and policymakers have a
    better understanding of actual treatment costs.

          Require drug companies to annually report increases in their
    drugs' list prices: Similar to requirements already in place for other
    entities like health plan issuers, hospitals and nursing facilities,
    pharmaceutical companies should have to report increases in drug' s
    list price on an annual basis, as well as how many times during the
    year the price has increased. To this end, CSRxP urges the Committee to
    consider the Fair Accountability and Innovative Research (FAIR) Drug
    Pricing Act, which would require manufacturers to report to HHS
    expensive drugs with significant price increases.

          Compel drug manufacturers to disclose R&D costs: Drug makers
    should be required to disclose how much research was funded by public
    entities like the National Institutes of Health (NIH) or other academic
    entities or by other private companies, so that regulators and
    taxpayers can properly weigh return on investment.

          Produce annual HHS reports on overall prescription drug spending
    trends and price increases for individual prescription drugs: HHS
    should produce and publicly release annual reports covering (1) overall
    prescription drug pricing trends similar to the one produced by the HHS
    ASPE in March 2016; and (2) the top 50 price increases per year by
    branded or generic drugs; the top 50 drugs by annual spending and how
    much the government pays in total for these drugs; and historical price
    increases for common drugs, including those in Medicare Part 8.\33\
    These important pieces of information will better inform patients,
    prescribers, dispensers, policymakers, and taxpayers about the high
    drug prices and substantial costs of prescription drugs that U.S.
    consumers face today.
    ---------------------------------------------------------------------------
        \33\ HHS ASPE. ``Observation on Trends in Prescription Drug
    Spending.'' March 8, 2016.

          Update routinely and expand the amount of information available
    on the Medicare and Medicaid Drug Dashboards: The Medicare and Medicaid
    Dashboards have provided valuable data and information to consumers and
    providers on prescription drug costs in a transparent manner. HHS
    should continue routinely updating information included on both dash
    boards, including list prices, price increases, and year-over-year
    pricing data, among other data points, so that consumers have a more
    transparent understanding of the prescription drug cost increases they
    face each year.
    Foster Competition
    CSRxP strongly believes that bringing more competition to the
    prescription drug market will give consumers more choices and more
    control--resulting in lower prices and improved access. As such, we
    urge the Committee to consider policies that foster competition,
    including:

          Curb misuse of FDA's Risk Evaluation Mitigation and Strategy
    (REMS) program: FDA uses the REMS program to allow products with
    potential safety issues to enter the market. Drug manufacturers often
    abuse REMS to block generic drugs from obtaining samples of brand drugs
    under the guise of addressing patient safety concerns, effectively
    preventing them from pursuing the research needed to bring generic
    drugs to market. There is concern that this practice could extend into
    the burgeoning biosimilars market as well. To thwart this anti
    competitive practice by manufacturers, CSRxP urges quick enactment of
    bipartisan legislation--the Creating and Restoring Equal Access to
    Equivalent Samples (CREATES) Act and the Fair Access to Safe and Timely
    (FAST) Generics Act--that would curb misuse of REMS.

          Give FDA additional resources to speed approval of generic drug
    applications--especially for lifesaving drugs and for drugs with no or
    limited generic competition: The FDA faces a backlog of nearly 4,000
    generic drug applications, yet approval times can be three or more
    years. The FDA should receive the resources necessary to clear this
    backlog and prioritize generic drug approval applications, especially
    for lifesaving drugs and drugs with no or limited generic competition.

          Promote a robust market for more cost-effective biosimilars and
    interchangeable biologic products: Biosimilars and interchangeable
    biologic products have the potential to expand treatment options and
    substantially lower prescription drug costs for consumers and
    taxpayers. For example, one study found that 11 biosimilars already
    approved for sale in Europe and elsewhere could generate approximately
    $250 billion in savings over 10 years if they were available in the
    U.S.\34\ Multiple policies could bolster the burgeoning U.S. market for
    biosimilar and interchangeable biologics, including:
    ---------------------------------------------------------------------------
        \34\ Express Scripts. ``The $250 Billion Potential of
    Biosimilars.'' April 23, 2013.

                Shorten market exclusivity for brand biologics
            from 12 years to 7 years: Currently, reference biologics enjoy
            a 12 year market exclusivity period. Analyses suggest this
            amount of time may be unnecessary and prevents lower-cost
            alternatives from entering the market.
                Speed the availability of interchangeable
            biologics: FDA should release final guidance documents on
            interchangeable biologic development so that developers of
            these products have more regulatory certainty.
                Educate patients, providers, and payers about
            the value, safety, and effectiveness of biosimilars: FDA and
            the Centers for Medicare and Medicaid Services (CMS) should
            engage in a robust education campaign to increase physician and
            patient confidence about these products and encourage their
            use.
                Improve information in FDA's Purple Book: FDA
            should increase the amount of information available and make
            the Purple Book more user-friendly so that developers of
            biosimilars and interchangeable biologics better understand the
            regulatory landscape they face when developing these products.

          Target exclusivity protections to the most innovative products:
    Drug manufacturers can extend patent and market exclusivity protections
    by seeking approval for a ``new'' product that is essentially the same
    as the original product, such as extended release formulations or
    combination therapies that simply combine two existing drugs into one
    pill. These anti-competitive tactics--often referred to as
    ``evergreening'' or ``product hopping''--inhibit entry of generic drugs
    into the market. For example, a recent analysis suggested that anti-
    competitive drug reformulations potentially can result in up to $2
    billion in losses per anti-competitive reformulation for consumers each
    year.\35\ Appropriate federal agencies should closely monitor these
    schemes and prosecute if they find any violation of anti-trust laws.
    ---------------------------------------------------------------------------
        \35\ Shadowen, Steve et al. ``Anticompetitive Product Changes in
    the Pharmaceutical Industry.'' Rutgers Law Journal, Vol. 41, No. 1-2,
    Fall/Winter 2009. Page 78.

          Target Orphan Drug incentives to those products that treat
    orphan diseases: The Orphan Drug Act introduced a range of incentives
    to encourage the development of medications to treat rare diseases that
    treat a patient population of 200,000 or less individuals. A recent
    investigation found that about a third of orphan approvals by the FDA
    since the program began have been either for repurposed mass market
    drugs or for drugs that have received multiple orphan approvals; of the
    approximately 450 drugs that have garnered an orphan designation since
    the program's inception in 1983, more than 70 were first approved for
    mass market use.\36\ Given the potential for abuse, steps should be
    taken assess such trends and ensure that the Orphan Drug Act's
    incentives are utilized to develop medicines to treat truly rare
    diseases.
    ---------------------------------------------------------------------------
        \36\ Tribble and Lupkin. ``Drugmakers Manipulate Orphan Drug Rules
    to Create Prized Monopolies.'' Kaiser Health News. January 17, 2017.

          Reduce drug monopolies by incentivizing competition for
    additional market entrants: Several FDA programs are intended to
    expedite review of new drugs that address unmet medical needs for
    serious or life-threatening conditions. Incentives should drive
    competition for expensive treatments where no competitors exist and
    ---------------------------------------------------------------------------
    encourage a second or third market entrant.

          Strengthen post-market clinical trials and surveillance:
    Currently, expedited drug approvals often involve small clinical trials
    with a narrow patient population and trials are not regularly reported
    publicly. Once a drug enters the market, research into the long-term
    efficacy and side effects should continue within specific timeframes
    and reporting requirements. Even if a product is not approved,
    manufacturers should be required to report data for all trials that
    summarizes non-identifiable demographics and participant
    characteristics, primary and secondary outcomes results, and adverse
    event information.

          Thwart abuse of the patent system: Drug companies increasingly
    have used ``patent thickets'' and ``patent estates'' to game the
    regulatory system and inappropriately extend market exclusivity for
    their products. A recent study of the roughly 100 best-selling drugs
    between 2005 and 2015 found, for example, that on average 78 percent of
    the drugs associated with new patents in the FDA's records were not for
    new drugs coming on the market, but rather for existing drugs.\37\
    These anti-competitive abuses of the patent system to extend brand drug
    market monopolies should be stopped by having appropriate Federal
    agencies apply increased scrutiny to biopharmaceutical patents. In
    addition, Congress should enact the Preserving Access to Cost-Effective
    Drugs (PACED) Act to prevent drug manufacturers from transferring their
    patents to Native American tribes with sovereign immunity.
    ---------------------------------------------------------------------------
        \37\ Feldman, Robin et al. ``May Your Drug Price Ever Be Green.''
    UC Hastings Research Paper No. 256. October 31, 2017, page 48.

          Curb anti-competitive ``pay-for-delay'' settlements: Brand and
    generic drug makers enter into patent dispute settlements--often
    referred to as ``pay-for-delay'' settlements--that result in a generic
    company agreeing to refrain from marketing its products for a specific
    period of time in return for compensation (often undisclosed) from the
    branded company. The Federal Trade Commission (FTC) has cited these
    arrangements as anti-competitive and estimates that they cost consumers
    and taxpayers $3.5 billion in higher drug costs every year.\38\ More
    recently, these settlements unfortunately have extended to biologics,
    delaying the entry of less costly biosimilars into the market. For
    example, the top-selling product in the world, Humira, with global
    sales exceeding $18 billion in 2017 and a more than doubling of its
    price over the past five years, will not face biosimilar competition
    until 2023 due to a settlement agreed to by the brand and biosimilar
    manufacturer of the product.\39\, \40\, \41\
    Federal agencies should apply increased scrutiny to these ``pay-for-
    delay'' agreements so that consumers can access more affordable generic
    drugs and biosimilars.
    ---------------------------------------------------------------------------
        \38\ FTC. ``Pay-for-Delay: How Drug Company Pay-Offs Cost Consumers
    Billions.'' January 2010.
        \39\ AbbVie. ``AbbVie Reports Full-Year and Fourth-Quarter 2017
    Financial Results.'' January 26, 2018.
        \40\ Reuters. ``AbbVie, Amgen settlement sets Humira U.S.
    biosimilar launch for 2023.'' September 28, 2017.
        \41\ The Center for Biosimilars. ``Latest Humira Price Increase
    Could Add $1 Billion to U.S. Healthcare System in 2018.'' January 5,
    2018.

          Improved flexibility to better manage high-cost medications in
    Medicare Part D: High-cost drugs are significant drivers in the
    unsustainable growth in prescription drug costs. With increased
    flexibility and additional tools employed in the commercial sector,
    health plans can employ their substantial private sector experience to
    Medicare Part D and lower costs particularly for high-cost medications
    while maintaining appropriate beneficiary access to treatments needed
    to get well and stay healthy.

    Incentivize Value

    CSRxP believes that patients deserve reliable information regarding
    whether a drug's ``therapeutic outcome''--or its health benefit--is in
    line with its price. This information is critical to moving America's
    prescription drug market toward a system that empowers doctors and
    patients to choose medications based on the value they provide--not the
    ``value'' set by drug manufacturers. Therefore, CSRxP urges the
    Committee to consider policies that would incentivize greater
    incorporation of value into the use and purchase of prescription drugs,
    including:

          Increase funding for private and public research efforts like
    the non-profit Institute for Clinical and Economic Review (ICER) to
    test the value of medical tests and treatments. Investment in objective
    information is critical for physicians, patients and payers as more and
    more high-price drugs enter the healthcare system.

          Require drug makers to conduct comparative effectiveness
    research (CER) studies of new versus existing drug products. Through
    CER studies, manufacturers should have to demonstrate that their
    product is better than others, so that physicians and patients can make
    smart decisions about the value of different treatments, particularly
    those with very high costs. Many other countries currently require drug
    manufacturers to provide CER studies; they should be expanded in the
    U.S. to reduce spending on unnecessary or ineffective treatments.

          Expand value-based pricing in public health programs like
    Medicare and Medicaid. Currently Medicare and Medicaid purchase
    prescription drugs for their beneficiaries, but not generally in a
    manner to accommodate value-based payment models. Steps should be taken
    to ensure these program can best take advantage of recent developments
    in value-based purchasing to ensure all parts of the U.S. healthcare
    system benefit from market-based negotiating efforts to lower drug
    prices.

    VI. Conclusion

    In conclusion, CSRxP again thanks the Committee for the opportunity to
    submit testimony for the record to address the unsustainable and
    excessive growth in prescription drug prices in the U.S. We very much
    appreciate the leadership from the Committee in addressing this
    critically important issue that affects American patients and their
    families every day. Policies must be implemented to address the root of
    the problem: brand drug makers set list prices too high and increase
    them at excessively high rates. Prescription drug prices will continue
    to grow at unacceptably unsustainable rates unless serious actions are
    taken to thwart the anti-competitive pricing practices of the brand
    industry. CSRxP looks forward to working with the Committee to
    implementing bipartisan, market-based policies that promote
    transparency, foster competition, and incentivize value to make
    prescription drugs more affordable for all consumers while at the same
    time maintaining access to the treatments that can improve health
    outcomes and save lives.

                                     ______

                            Center for Fiscal Equity

                          14448 Parkvale Road, Suite 6

                           Rockville, Maryland 20853

                          fiscalequitycenter@yahoo.com

                        Statement of Michael G. Bindner

    Chairman Grassley and Ranking Member Wyden, thank you for the
    opportunity to submit these comments for the record to the Committee on
    Finance.

    As you may recall from last year's hearing and before, we have
    advocated for a combination of catastrophic insurance, health savings
    accounts (Archer) and medical lines of credit, which is a bit more
    liquid version of a flexible spending account, with all accessed by one
    card with costs allocated based on account balances and income levels.
    Poor people would have minimum or even no copays, but would always have
    credit access. As income rises, so would copays and available balances,
    as well as catastrophic deductibles. Suchplan, however, has no chance
    of passage and if adequate to maintain access, would not save money
    either. We no longer endorse this approach

    Our proposed Net Business Receipts Tax/Subtraction Value-Added Tax
    would replace corporate income taxes and proprietary and pass through
    taxes and treat all business income the same. It would provide for the
    health insurance exclusion or fund single payer insurance.

    Single payer health care, aka, Medicare for All (with Medicaid level
    copays and premiums) could allow consumer advertising to be waste if
    the government plays hardball with drug makers, although for now it
    cannot even play hardball on Medicare Part D purchases. In single
    payer, there would likely be VAT funding, and advertising costs would
    come with a VAT paid to the advertiser and passed along to the
    consumer.

    Companies who hire their own doctors and pharmacists and buy their own
    drugs would get a tax exclusion from single payer (third party
    insurance would be discouraged), and would negotiate with drug makers
    for lower prices, although this would leave small firms at a distinct
    disadvantage and would discourage such practices as franchising and
    1099 employment. Still, on the whole, it would decrease cost while not
    discouraging innovation. Expanding the Uniformed Public Health Service
    into the Medicare and Medicaid markets (edging out HMOs) would also
    lead to cost cutting on drugs.

    Limiting advertising has been proposed by Senator Shaheen and her
    cosponsors. This dances on limiting the freedom of speech, although
    this is not absolute for commercial speech. The FDA could limit these
    ads, as could the Federal Trade Commission.

    While some favor restricting patent rights, I would argue in favor of
    having every drug approval disclose all government supported research
    used to develop the product, giving the sponsoring agency the right to
    both share in the profits and have a say in the pricing. This both
    keeps the research dollars flowing and limits cost.

    A main problem with high cost drugs, especially orphan drugs, is the
    high development costs and the cost of small batch manufacturing. This
    could drive the need to raise drug prices for mature drugs in order to
    subsidize the orphans, although some hikes are undertaken because no
    one can stop them. The solution for this is for NIH and the FDA to own
    the rights to orphan drugs and to contract out research and development
    costs as it does basic research, as well as testing and production.

    Pharma would still make reasonable profit, but the government would eat
    the risk and sometimes reap the rewards. HIH/FDA might even break even
    in the long term, especially if large volume drugs which were developed
    with government grants must pay back a share of basic research costs
    and the attached profits, as well as regulatory cost.

    Thank you for the opportunity to address the committee. We are, of
    course, available for direct testimony or to answer questions by
    members and staff.

                                     ______

                  Coalition for Affordable Prescription Drugs
    U.S. Senate
    Committee on Finance
    Dirksen Senate Office Bldg.
    Washington, DC 20510-6200

    Tuesday, January 29, 2019

    The Coalition for Affordable Prescription Drugs (CAPD) appreciates the
    opportunity to submit the following statement for the record.

    The Senate Finance Committee will discuss a critical concern of
    Americans across the country: how to alleviate the burden of high and
    ever-rising prescription drug prices on seniors, patients, and their
    families. In fact, a recent Politico/Harvard Chan School of Public
    Health poll showed that 80 percent of Americans see high prescription
    drug prices as a top priority for the new Congress and the
    Administration.

    CAPD and our members--a diverse group of employers, unions, public
    sector employees and retirees who partner with pharmacy benefit
    managers (PBMs) to provide more affordable prescription drug coverage
    for millions of Americans--encourage policymakers to address this
    critical issue and believe that any workable solutions must recognize
    the root cause of this problem: drug companies setting the high price
    of their medicines, and often raising those prices multiple times a
    year for the exact same product.

    Drug Company Price Hikes Driving High Drug Prices

    Despite the public outcry, drug manufacturers show no signs of
    reversing this trend. Since January 1st, we have witnessed price hikes
    on over 250 medications.

    These increases include Humira, which remains the world's top-selling
    prescription drug. This year's increase in Humira's price came on top
    of another 9.7 percent price increase at the start of 2018. In another
    example, Allergan raised prices on 50 of its drugs, half of which were
    increases of at least 9.5 percent. Over the last five years, prices
    increased on the top 20 most prescribed brand-name drugs for seniors by
    an average of 12 percent each year.

    The truth is simple: Drug companies hike their prices because they can.
    When they do so, millions of patients pay more at the counter. And they
    continue to do so year after year. One way to prevent ever-increasing
    price hikes is to stop the gamesmanship of the patent and regulatory
    systems that drug companies use to maintain their monopoly pricing
    power and keep lower-cost generic alternatives from entering the
    market.

    Brand drug manufacturers exploit the FDA Risk Evaluation and Mitigation
    Strategies (REMS) program to prevent generic drug makers from accessing
    needed samples, costing the U.S. health care system $5.4B each year.
    The CREATES Act, which passed out of the Senate Judiciary Committee
    last year, is a targeted, market-based, bipartisan solution to the
    longstanding problem of brand name pharmaceutical companies denying
    generic manufacturers access to the samples they require to conduct
    necessary equivalence testing to bring their product to market. We
    encourage Congress to pass this bipartisan legislation and explore
    other proposals that target patent and regulatory abuses by drug
    companies in order to lower drug prices for patients.

    Another way brand drug manufacturers game the patent and regulatory
    system is through ``pay-for-delay'' deals, in which drug makers engage
    in anticompetitive patent settlements with potential generic
    competitors, resulting in $3.SB in higher drug costs each year. In the
    most high-profile example of these abuses, drug maker AbbVie last year
    reached agreements with Amgen, Samsung Bioepis and Mylan to delay entry
    of a lower-cost biosimilar version of the drug to 2023 in the United
    States.

    PBM Value

    In the face of rising drug prices, pharmacy benefit managers (PBMs)
    partner with employers, unions, public sector retirees and other
    organizations who purchase health care to help manage prescription drug
    coverage for millions of Americans. By negotiating with drug companies
    and providing patient-centered tools to improve care and help lower
    out-of-pocket costs, PBMs save over $900 per person each year.

    In addition, PBMs are expanding visibility into drug prices by enabling
    doctors and patients to see the price of various medicines at the point
    of prescribing, based on the individual's specific drug benefits, so
    they can make more informed decisions. Nearly 20 percent of the time,
    physicians switch to a more affordable medicine when clinically
    equivalent alternatives are offered through UnitedHealth Group's RTBT,
    PreCheck MyScript, and 30 percent of prior authorizations are avoided
    or initiated electronically. CVS Health's Real Time Benefits tool has
    saved patients an average of $120 to $130 per fill.

    PBMs are most effective in delivering savings for patients and the
    employers, unions and public sector retirees they partner with when
    there is competition in the marketplace. When competition is undermined
    though regulatory schemes or abuses of the patent system, drug
    companies maintain their monopoly pricing power and continue to raise
    prices at will.

    Policymakers are considering proposals to address these patent and
    regulatory abuses and we believe the time to act is now. CAPD is
    committed to working with Congress and other stakeholders on this and
    other solutions to meaningfully lower prescription drug prices for all
    Americans. We look forward to supporting this critical effort.

    Debra Barrett
    Executive Director, Coalition for Affordable Prescription Drugs

    Contact: Meghan Scott
    Spokesperson, Coalition for Affordable Prescription Drugs
    mscott@affordableprescriptiondrugs.org
    (202) 341-2060

                                     ______

                        Letter Submitted by Bruce Cutler
    February 1, 2019

    U.S. Senate
    Committee on Finance
    Dirksen Senate Office Bldg.
    Washington, DC 20510-6200

    cc: Jerry Moran, U.S. Senate, SD 521; Pat Roberts, U.S. Senate, SH 109;
    Steven Watkins, 1205 Longworth House Office Building

    I wish to comment on the cost of insulin for treatment of Type 1
    diabetes. I was diagnosed nearly 55 years ago with Type 1 diabetes.
    Until about 20 years ago prices of insulin were reasonable, however
    since that time the cost of insulin has multiplied extravagantly. I
    take a low-moderate amount of insulin daily, unlike some younger
    diabetics who may need larger amounts. The monthly cost of my insulin
    before Medicare and Part D coverage is $760/month. I am fortunate that
    I have the insurance coverage that I do, and am able to afford it, as
    well as the out-of-pocket costs. However, for those less fortunate, it
    means going without their recommended daily dosage, and the resulting
    damage such as, blindness and kidney disease requiring dialysis puts a
    significant burden, not only on the individual but on society as a
    whole. There is no cheaper, alternative substitute for insulin. As such
    the pharmaceutical industry has a captive market and they are milking
    it for all it is worth. Further, there have been no huge breakthroughs
    in insulin manufacture and formulation in the past 15 years that could
    justify supposed R&D investment to the tune of 10 or more times the
    cost of what it was at the turn of the century. Even suppliers of
    illicit drugs work to keep the cost of their product down, we have seen
    no such restraint in the suppliers of insulin.

    Respectfully,

    Bruce Cutler

                                     ______

                    Letter Submitted by David J. DuBourdieu
    U.S. Senate
    Committee on Finance
    Dirksen Senate Office Bldg.
    Washington, DC 20510-6200

    Dear Sirs:

    Thank you for finally turning your attention to the fact that market
    forces are not involved in setting ``prices'' in the health-care
    product industry.

    There is clearly no relationship whatsoever between the costs of
    producing these products and the prices which are charged for them.

    There is also clearly no ``market'' at work here: no informed group
    buyers selecting product from a range of suppliers and using ``price''
    and ``features'' as the information to make a purchase decision.

    Instead, there is a collection of businesses who have succeeded in
    taking control of all aspects of (a) government, (b) the medical
    community, and (c) the insurance industry to manipulate a result highly
    beneficial to themselves.

    Let me relate several personal cases.

    Last night, I purchased a 60 gram bottle (7 inches high) of a skin
    treatment for psoriasis named Enstilar from Leo Laboratories, Dublin,
    Ireland. This bottle cost me $745. The pharmacist was very helpful and
    spend a great deal of time today on the web and on the phone with the
    manufacturer. It turns out the list price is $1,200, and because I have
    good private insurance and because they gave me a $300 discount, it was
    only $745. Perhaps they think I should be grateful to them. Their
    website, however, has the temerity to provide a ``copay'' card which
    should make the product available for ``as little as $20.''

    My deceased wife Paula was hospitalized several times in her final
    year. Fortunately, I had good private insurance. The bills came, and
    there was the charge: $140,000 for her 10 day stay. However, the
    insurance company said ``no, actually that bill is only going be
    $15,000 and your copay is $6,000.'' Again, they think I should be
    grateful. Obviously, 90% of that hospital price was not considered
    valid by anyone involved, just like the fact that 99% of the price of
    this Enstilar is not valid.

    The same ridiculous situation was repeated at the Emergency Room at the
    Lake Forest Hospital, where the sham of posting a ``price list'' was
    invoked for several years. That price list meant nothing, and everybody
    knew it. They finally took it down after a while because it was clearly
    an embarrassing charade.

    The definition of ``Economics'' is that it is the study of the
    allocation of scarce resources.

    What we have here in America is an industry which does not use markets
    or pricing in any meaningful way. Some of us are old enough to still
    remember how we would mock the Soviet Union for its non-priced/non-
    market-based approach to the basic process of economics. We should
    realize that now we are doing the same with our healthcare products,
    and the injustice to our country and our people of this Soviet economic
    model calls out for our government to change this situation. We would
    not be a Soviet Communist nation, but we adopted their insane approach
    to our healthcare industry.

    Sincerely,

    David J. DuBourdieu
                                     ______

                         Healthcare Leadership Council

                         750 9th Street, NW, Suite 500

                              Washington, DC 20001

                        (202) 452-8700  (202) 296-9561

                              https://www.hlc.org/

    January 29, 2019

    The Honorable Charles E. Grassley   The Honorable Ron Wyden
    Chairman                            Ranking Member
    U.S. Senate                         U.S. Senate
    Committee on Finance                Committee on Finance
    219 Dirksen Senate Office Building  219 Dirksen Senate Office Building
    Washington, DC 20510                Washington, DC 20510

    Dear Chairman Grassley and Ranking Member Wyden:

    The Healthcare Leadership Council (HLC) appreciates the opportunity to
    submit this letter for the U.S. Senate Committee on Finance hearing,
    ``Drug Pricing in America: A Prescription for Change, Part I'' on
    January 29, 2019.

    HLC is a coalition of chief executives from all disciplines within
    American healthcare. It is the exclusive forum for the nation's
    healthcare leaders to jointly develop policies, plans, and programs to
    achieve their vision of a 21st century healthcare system that makes
    affordable high-quality care accessible to all Americans. Members of
    HLC--hospitals, academic health centers, health plans, pharmaceutical
    companies, medical device manufacturers, laboratories, biotech firms,
    health product distributors, post-acute care providers, home care
    providers, and information technology companies--advocate for measures
    to increase the quality and efficiency of healthcare through a patient-
    centered approach.

    Competition and Innovation

    The U.S. healthcare system has seen an increase in the cost of
    prescription drugs which has adversely affected patients, providers,
    payers, and other healthcare stakeholders. Increases in drug prices are
    often due to the lack of competition in the prescription drug
    marketplace. As a diverse coalition of healthcare stakeholders across
    the U.S. healthcare system, we believe innovation is essential to
    increasing market competition to deliver affordable, cutting-edge drug
    therapies to the public. HLC believes policies that encourage
    competitive markets and support innovation will lower drug costs and
    improve access to treatment. Additionally, competition from generic
    drugs is critical to lowering drug prices. Addressing barriers to and
    encouraging the entry of new generic drugs into the market will create
    more competition and help to lower drug prices.

    Promoting Value-Based Care

    HLC supports a shift towards a value-based system that pays based on
    value versus volume. In a value-based system, payment for medications
    is tied to patient outcomes and achieving clinical targets. A value-
    based payment system creates a disincentive for inappropriate
    prescribing practices and overutilization, protecting both patient and
    federal healthcare dollars. However, the adoption of value-based
    systems, including for prescription drugs, has been stifled by laws
    designed to discourage inappropriate behavior in a fee-for-service
    payment model. The most notable barriers in our current healthcare
    system, the physician self-referral law (``Stark Law''), and the Anti-
    Kickback Statute require modernization as our healthcare system shifts
    from volume-based care to increasing the value of care. Modernization
    of federal fraud and abuse laws will enable pro-patient, value-focused
    collaboration among payers, providers, and manufacturers.

    A significant regulatory barrier is the Medicaid Best Price rule
    requiring drug manufacturers to offer the Medicaid program the lowest
    price negotiated with any other buyer. This requirement can deter
    companies from entering into value-based contracts. To utilize value-
    based contracting, manufacturers must be able to work with providers
    and health plans to assess the efficacy of a certain drug in a clinical
    setting and then set prices based on the results. Under current
    regulations, if a manufacturer sets a substantially discounted price
    for a drug while waiting for an evaluation of patient outcomes that
    artificially lowered price would have to be offered to the Medicaid
    program. This creates a disincentive for pharmaceutical companies to
    accept increased risk in value-based contracting and thus, decreases
    patient access to innovative drug therapies.

    Innovation, competition, and a collaborative environment for payers,
    providers, manufacturers, and patients are conduits for lowering
    prescription drug costs for all Americans. Thank you for examining this
    important issue and please feel free to reach out to Tina Grande,
    Senior Vice President for Policy, at (202) 449-3433 or tgrande@hlc.org
    with any questions.

    Sincerely,

    Mary R. Grealy
    President

                                     ______

                     Letter Submitted by Hannah J. Mikesell

    To the Senate Committee on Finance:

    I wanted to write a letter concerning my personal experiences with the
    outrageous prices of healthcare and prescriptions in the United States.

    I am a Type 1 Diabetic, I was diagnosed 3 years ago and have already
    spent hundreds of thousands of dollars on hospital stays, medications
    and doctors visits. When I was first diagnosed I went through denial, I
    said this isn't happening to me, I don't have to do any of this. I'm a
    cross country and track athlete; before I was diagnosed my running was
    suffering severely, and when I began using insulin my times greatly
    improved and I was feeling better all around. When I stopped taking
    insulin as part of my denial and rebellious teenager stage of my life I
    began to get sick again and my times became slower and slower.

    This life changing experience of watching myself get sicker and sicker
    while holding in my hand the needle and drug that would reverse this
    and keep me alive convinced me to turn myself around. And so here I am.
    A collegiate runner at the most prestigious college in the state
    thriving as a pre-med chemistry and French major, but I've run into a
    new hurdle: I can't afford the drugs that keep me alive. Allow me to
    repeat that, I don't have the money for the one thing that keeps me
    alive.

    Can you imagine making the decision between your own life and dinner or
    groceries? The answer is no for the majority of you, you've never been
    faced with this decision. I only make about $200 a month with a part
    time job, and that is not nearly enough for groceries and
    prescriptions. So I do the only thing I can do, I cut back on my
    insulin. In order to do that while remaining mostly healthy I have to
    greatly decrease my carbohydrate intake.

    Type 1 diabetes means I don't have the hormone insulin to properly
    metabolize carbohydrates, and as a distance runner this is an extremely
    fine line to walk between eating well and maintaining blood glucose
    levels that don't dip too low or high. With a diet of reduced carbs I'm
    losing weight and training is becoming increasingly difficult, however
    if I eat a proper diet my sugars are too high and I run the risk of
    diabetic ketoacidosis and high A1C levels.

    In French there is a saying that goes ``entre le marteau et l'enclume''
    which (roughly) translates to ``trapped between the devil and the deep
    blue sea'' or in English we like to use ``between a rock and a hard
    place.'' How am I supposed to make this impossible choice?

    This is why I implore you to reduce the price of prescription drugs, so
    that young people like me can have a chance to succeed in life. I came
    very close to dying before being diagnosed my sophomore year of high
    school. Thanks to a fantastic staff of doctors and nurses I lived to
    see my junior and senior prom, my high school graduation and now I'm
    going to the college of my dreams, but at what cost? I plan on going to
    medical school, so along with fears of the crushing student loans and
    hitting the ceiling of federal aid I have to worry about the drugs that
    allow me to wake up each morning and do the things I love.

    I don't want to have to rely on my (amazing) friends to give me their
    expired insulin, or loan me a couple hundred bucks they know won't be
    repaid anytime soon. I want to fall asleep each night knowing I'll wake
    up in the morning, and be able to live each day knowing I will have a
    tomorrow.

    Please make a change that will benefit the nation you are representing,
    and help the people that voted you into office.

    Thank you for your time,

    Hannah J. Mikesell

                                     ______

                      National Retiree Legislative Network

             601 Pennsylvania Avenue, NW, Suite 900, South Building

                           Washington, DC 20004-2601

                Email: contact@nrln.org Toll Free: 866-360-7197

     Congress and President Must Act to Reduce Price of Prescription Drugs

                         Talk Is Cheap--Drugs Are Not!

    In spite of a lot of talk by members of Congress and the President on
    the importance of making prescription drug prices more affordable, 30
    drug companies announced at the beginning of 2019 price increases in
    the United States on more than 250 drugs. The price increases--the
    first of more to come in 2019--ranged from 5% to 9.5%, well above the
    nation's rate of inflation.

    Americans, Especially Seniors, Caught in Pharma's Perfect Storm

    Americans, especially the 58 million Americans age 65 and older and
    people with disabilities on Medicare, are caught in the terrible
    perfect storm of prescription drug price gouging. They are taking more
    expensive medications while living on fixed incomes. Even with their
    Medicare Part D prescription drug plan they are paying substantial out-
    of-pocket costs. This means that they especially feel the pain of
    pharmaceutical companies' relentless price increases while bills that
    would provide lower prices have not been passed by Congress.

    The 62 million seniors and people with disabilities who receive Social
    Security have been especially harmed. Since 1992, the growth in out-of-
    pocket healthcare costs, including prescription drugs, has outstripped
    Social Security's cost-of-living adjustments by more than a third.

    Total U.S. prescription sales in the 2017 calendar year were $455.9
    billion, according to a May 7, 2018 report by the American Journal of
    Health-System Pharmacy. On a per capita basis, inflation-adjusted
    retail prescription drug spending in the U.S. increased from $90 in
    1960 to $1,025 in 2017, according to a February 14, 2018 report in
    Health News. In the same report, prescription drugs are expected to see
    the fastest annual growth over the next decade, rising an average of
    6.3% per year, due to higher drug prices and more use of specialty
    drugs such as those for genetic disorders and cancer.

    Per capita prescription drug spending in the United States exceeds that
    in all other countries--even 40% more than Canada for essentially the
    same medications--largely driven by brand-name drug prices that have
    been increasing in recent years at rates far beyond the Consumer Price
    Index (CPI). Just because there are more drugs on the American market,
    that doesn't mean all patients can access them. ``To think that
    patients have full access to a wide range of products isn't right,''
    Aaron Kesselheim, an associate professor of medicine at Harvard Medical
    School, said in a May 10, 2018 article on Vox.Com. ``If the drugs are
    so expensive that you can't afford them, that's functionally the same
    thing as not even having them on the market.''

    Price Increases for Brand-Name Drugs

    Brand-name prescription drug prices have doubled between 2008 and 2016
    and retail prices for some of the most popular prescription drugs older
    Americans take to treat everything from diabetes to high blood pressure
    to asthma increased by an average of 8.4% in 2017, far exceeding the
    2.1% inflation rate for other consumer goods and services, according to
    a September 26, 2018 report from the AARP Public Policy Institute.

    A September 26, 2018 Forbes article reported that the Associated Press
    (AP) analyzed 26,176 changes in list prices for branded drugs from 2015
    through mid-
    September 2018 and concluded drug companies raised prices more
    frequently than they cut them. In fact, price increases outpaced
    decreases by 16.5-to-1 in June and July 2018.

    In July 2018, Bloomberg introduced a tool to track what has happened to
    prices for some of the most widely used drugs. The prices for 40
    commonly used drugs in six categories--diabetes, cancer, HIV, multiple
    sclerosis, asthma and chronic obstructive pulmonary disease, and
    autoimmune diseases such as rheumatoid arthritis and psoriasis--were
    compared over a three-year period. Starting from June 2015, the indexes
    tracked the average percent increase in drug prices through late June
    2018.

    For all six categories of drugs, list prices rose far faster than
    inflation. Prices for 10 commonly used diabetes drugs rose 25.6%, on
    average, while average prices for rheumatoid arthritis and other
    autoimmune treatments rose 40.1%. The latter category includes AbbVie
    Inc.'s Humira, the biggest-selling drug in the world. Prices for the
    injection soared 52% on five separate price increases.

    Americans Want Action to Reduce Drug Prices

    Americans are outraged that they are losing access to lifesaving and
    life-enhancing treatments because they have become less and less
    affordable.

    Three-quarters of Americans consider the cost of prescription drugs in
    the United States to be ``unreasonable,'' despite promises from
    Congress and the President to rein in prices, according to poll results
    released on September 13, 2018 by the West Health Institute, a
    nonpartisan, nonprofit healthcare research organization, and conducted
    by NORG at the University of Chicago.

    In that poll, only 16% approve of how of how Republicans in Congress
    are addressing high prescription drug prices and only 20% approve of
    what Democrats in Congress are doing to reduce drug prices. Only 23% of
    the public approves of how President Trump is dealing with the high
    cost of prescription drugs.

    Also, the survey found that 82% of Americans favor allowing Medicare to
    negotiate directly with drug companies to get lower prices; 82% support
    allowing more generics to compete with name brand drugs; 80% want more
    transparency on pricing from drug companies; 65% want Americans to be
    allowed to purchase drugs from Canada, and 52% want prescription drug
    advertising eliminated.

    ``The rising cost of prescription drugs is a growing economic and
    public health crisis that hurts the U.S. economy and threatens
    individual health and financial security, and Americans want solutions.
    Unfortunately, they don't feel like they're getting them from
    Washington,'' said Shelley Lyford, president and CEO of the West Health
    Institute. ``Our representatives in Washington D.C. need to make lower
    drug prices a reality instead of simply an empty campaign promise.''

    A poll conducted by Goldman Sachs (GS) Strategy Group and reported in
    an article in The Hill newspaper on February 5, 2018 showed 85.5% of
    registered voters surveyed think lowering the cost of prescription
    drugs should be a ``top priority'' or an ``important priority'' for
    Congress. The poll also showed three-fourths of registered voters think
    Congress and President Trump need to do more to lower the cost of
    drugs.

    The Kaiser Family Foundation (KFF), a nonprofit, nonpartisan
    organization focused on health care, periodically conducts its Health
    Tracking Poll. Poll results released on March 23, 2018 found that
    approximately 80% of Americans think that the cost of prescription
    drugs is unreasonable, and 73% believe that pharmaceutical companies
    are making too much profit on their products.

    Most respondents (72%) said that pharmaceutical companies have too much
    influence in Washington, 77% said that pharma's profits are a major
    factor contributing to the high cost of drugs, and just over half had
    an unfavorable view of pharmaceutical companies.

    Respondents said that the government should negotiate lower prices for
    the Medicare program (92%); encourage generic market entry (87%);
    require manufacturers to disclose pricing information (86%), and allow
    for importation of cheaper drugs from Canada (72%). With respect to
    drug importation, more respondents (76%) felt confident that buying
    imported Canadian drugs would make medicine affordable without
    sacrificing quality versus buying drugs from Canadian online pharmacies
    (68%).

    More than half of respondents (52%) said that passing legislation to
    bring down the price of drugs should be a top priority for Congress and
    President Trump.

    The poll results were not unique to 2018. KFF reported poll results in
    March 2017 that more than half of Americans say that lowering the cost
    of prescription drugs is a top priority. The KFF poll in October 2016
    found that 74% of responders said Congress and the President should
    make sure that high-cost drugs for chronic conditions are affordable to
    those who need them and 63% said the government should take action to
    lower prescription drug prices. A KFF poll of 1,800 Americans in July
    2015 showed that allowing Medicare to negotiate lower drug prices is
    supported by 87% of Americans.

    Despite the calls by Americans for actions by the 114th Congress (2015
    and 2016), the 115th Congress (2017 and 2018) and two Presidential
    administrations, nothing tangible has been done to curtail prescription
    drugs prices.

    NRLN Advocates Legislation to Reduce Drug Prices

    Since 2009 the National Retiree Legislative Network (NRLN) has
    aggressively advocated federal legislation to curtail rising health
    care cost through more competition in America's pharmaceutical market
    through competitive bidding by Medicare for prescription drugs and the
    importation of safe lower cost prescription drugs from Canada and other
    nations that meet Federal Drug Administration (FDA) safety standards.

    The NRLN supports passage of legislation for Medicare to be directed to
    take competitive bids for prescription drugs and allowing importation
    of safe and less expensive drugs from Canada.

    NRLN's Position on Prescription Drug Competitive Bidding

    Members of Congress have quoted CBO studies to wrongly justify a claim
    that the CBO and others have said that there would be very little
    savings if Health and Human Services (HHS) required competitive bidding
    for Medicare's drug business. These are old irrelevant claims. Other
    than two letters written in the 2006-2007 period by two incumbent CBO
    Directors to Oregon Senator Ron Wyden and others, there are no
    published relevant studies made available to support this claim. It has
    been said that the Health and Human Services (HHS) Secretary would have
    to be authorized to set (not competitively bid) prices. In some cases,
    such as in chronic and fatal disease treatment drugs, this may be even
    more problematic today.

    Total retail prescription drugs filled at pharmacies in 2017 reached
    4.063 billion. Since 2007, generic drug availability has mushroomed
    from less than 20% of drugs dispensed in the U.S. to where today they
    represent around 90% of the pills, capsule and injected drug units
    sold. A growing number of these drugs treat the same ailments! And, a
    growing number will treat even more as drug patents expire. This data
    is not speculation or political rhetoric.

    Current law bars Medicare from negotiating drug prices. This is known
    as the ``noninterference'' clause in the Medicare Modernization Act of
    2003 which stipulates that the HHS Secretary ``may not interfere with
    the negotiations between drug manufacturers and pharmacies and PDP
    sponsors, and may not require a particular formulary or institute a
    price structure for the reimbursement of covered Part D drugs.'' In
    effect, this provision means that the government can have no role in
    negotiating or setting drug prices in Medicare Part D.

    Medicare is required to cover nearly all drugs that the Food and Drug
    Administration approves. This means that Medicare must cover drugs that
    aren't an improvement over what currently exists, so long as the FDA
    finds they're safe for human consumption. Drugmakers know that as long
    as their products are safe, Medicare must buy them.

    CNN Business reported on May 15, 2018 that the Centers for Medicare and
    Medicaid Services (CMS) spent $174 billion on prescription medications
    in 2016, or 23% of its total budget. CMS has not updated its Drug
    Spending Dashboard for 2017 or 2018. The Congressional Budget Office
    (CBO) estimates that spending on Medicare Part D benefits will total
    $99 billion in 2019. A 2018 report by the U.S. Senate Homeland Security
    and Governmental Affairs Committee revealed that the Medicare program
    pays 61% higher prices for the 20 most commonly prescribed drugs than
    the Veterans Administration which negotiates for drug prices.

    There is only one solution to this problem:

    Congress should remove the prohibition on Medicare competitive bidding
    and replace it with a competitive bidding mandate to be applied
    wherever two or more FDA approved generic drugs, or two or more brand
    drugs, or a generic and brand drugs (upon patent expiration) treat the
    same medical condition.

    The following prescription drug bills have been introduced in the 116th
    and one should be passed:

    S. 62, Empowering Medicare Seniors to Negotiate Drug Prices Act would
    allow the Secretary of Health and Human Services to directly negotiate
    with drug companies for price discounts of their drugs, which is banned
    under current law. Or . . .

    S. 99, Medicare Drug Price Negotiation Act, would direct the Secretary
    of Health and Human Services (HHS) to negotiate lower prices for
    prescription drugs under Medicare Part D. Or . . .

    H.R. 275, To amend Medicare Part D to require the Secretary of Health
    and Human Services to negotiate covered Part D drug prices on behalf of
    Medicare beneficiaries.

    NRLN's Position on Prescription Drug Importation

    Countries that practice socialized medicine exact low prices for people
    served in their countries by demanding below market pricing from
    American pharmaceutical manufacturers.

    As the prescription drug price gouging has taken place, tens of
    millions of generally law-abiding Americans have committed a
    technically illegal act in response by purchasing prescriptions, online
    or otherwise, outside the U.S., imported pills that are subject to
    confiscation.

    Making it legal to import medication at a lower cost, will break the
    stranglehold of the drug companies on the throats of American patients.

    There are two counter-measures to U.S. manufacturers being forced to
    take losses:

    A. Pharma companies should exit these markets, thus protecting
    Americans and our economy from subsidizing socialized medicine.

    B. To the extent pharma and Congress don't eliminate this unethical
    practice of absorption and passing of losses on to Americans and the
    U.S. economy, Congress must pass laws allowing importation of safe, and
    lower priced prescription drugs from Canada and elsewhere so that
    Americans and our economy benefit. Start with Canada NOW.

    Congress Has Failed to Pass Drug Importation Bills

    The following prescription drug bills have been introduced in the 116th
    and one should be passed:

    S. 61, Safe and Affordable Drugs From Canada Act of 2019, would allow
    for the personal importation of safe and affordable drugs from approved
    pharmacies in Canada. Or . . .

    S. 97, Affordable and Safe Prescription Drug Importation Act, which
    would allow patients, pharmacists and wholesalers to import safe,
    affordable medicine from Canada and other major countries. Or . . .

    H.R. 447, To amend the Federal Food, Drug, and Cosmetic Act to allow
    for the importation of affordable and safe drugs by wholesale
    distributors, pharmacies, and individuals. Or . . .

    H.R. 478, To amend the Federal Food, Drug, and Cosmetic Act to allow
    for the personal importation of safe and affordable drugs from approved
    pharmacies in Canada.

    Pay-for-Delay on Generics Must Be Stopped

    In a May 4, 2017 article in ModernHealth.Com, Dr. Scott Knoer, chief
    pharmacy officer of the Cleveland Clinic, said pharmaceutical companies
    have paid manufactures not to develop generics.

    The NRLN urges Congress to pass legislation that bans pay-for-delay.
    The Supreme Court ruled on a single case that this practice restrained
    trade but that each case must be dragged through the courts for years
    while Americans--especially retirees--are denied access to cheaper
    generic drugs.

    Congress should pass this bill:

    S. 64, Preserve Access to Affordable Generics and Biosimilars Act,
    would prohibit brand name drug companies from compensating generic drug
    companies to delay the entry of a generic drug into the market and to
    prohibit biological product manufacturers from compensating biosimilar
    and interchangeable companies to delay the entry of biosimilar
    biological products and interchangeable biological products.

    President Trump's Plan for International Price Indexing

    President Trump announced on October 25, 2018 that his administration
    is moving to stop ``global freeloading'' by foreign nations when it
    comes to the price that Americans pay for prescription drugs. Saying
    that drug companies have ``rigged the system'' against American
    consumers by charging higher prices in the U.S. than they do abroad,
    President Trump proposed creating an ``international pricing index'' as
    a benchmark to decide how much the government should pay for
    prescription drugs covered by Medicare's Part B outpatient program.

    HHS estimates the new pricing index--which the agency says would apply
    to 50% of the country--would save Medicare $17.2 billion over five
    years. Medicare now pays the average sales price of a medicine in the
    United States, plus a fee based on a percentage of that price. Under
    the new model, Medicare would pay fees to doctors that are more closely
    aligned with what other countries pay.

    Although President Trump called the proposal ``a revolutionary
    change,'' it wouldn't affect prescription drugs bought from pharmacies.
    It would only apply to infused and injected drugs administered by
    physicians at doctor's offices and in hospitals (some of the most
    expensive drugs older patients get), and only in half the country which
    has not been identified. It would take effect in late 2019 or 2020.

    The NRLN prefers passage of the following bill that would provide
    prescription drug savings for all Americans.

    S. 102, The Prescription Drug Price Relief Act, would peg the price of
    prescription drugs in the United States to the median price in five
    major countries: Canada, the United Kingdom, France, Germany and Japan.

    Prices of Many Generic Drugs Climb Higher

    Generic drugs represent about 90% of all prescription filled and have
    been one of the few bargains for Americans. However, the cost savings
    on generics are slowing. Pharmaceutical experts have begun to notice
    something even more disturbing. The prices of many generic drugs that
    have been around for years have suddenly spiked. AARP's Public Policy
    Institute found that 27% of the most widely used generics have gone up
    in price, in some cases into the stratosphere.

    On June 13, 2017 as members of the Senate Committee on Health,
    Education, Labor and Pensions gathered to discuss the rising cost of
    prescription drugs, the prices of 14 common medications were increased
    by some 20% to 85%. The affected drugs would appear to be unlikely
    candidates for price hikes. All were generic drugs, which lack patent
    protection and therefore tend to be much less expensive.

    NRLN Supports Funding FDA to Speed Approval of Generics

    The NRLN supports providing adequate funding to clear the FDA product
    approval backlog of over 4,000 generics. This would make more
    affordable alternatives more readily available to patients.

    It was reported in a July 25, 2017 Los Angeles Times article that Dr.
    Scott Gottlieb, head of the Food and Drug Administration, told a
    conference that since the FDA has no power to dictate price to drug
    companies the agency will focus on speeding up the approval process for
    generic drugs so consumers have cheaper alternatives to branded drugs.
    He also wants to encourage greater competition among drug companies to
    lower prices.

    Consumers pay 94% of the branded drug price on average when one generic
    firm enters the market, but that drops to 52% with two competitors and
    to 44% with three, according to an FDA analysis. The savings ripple
    across the health-care system, and in 2016 generics saved $253 billion,
    according to a June 2017 report from the Association for Accessible
    Medicines.

    A Grim Scenario

    It's a grim scenario some doctors say they are all too familiar with.
    ``As physicians, all too often we are seeing the situation where we
    prescribe a medication and a patient says `doc, I just can't afford
    it.' We hear that all the time,'' says Wayne Riley, M.D., past
    president of the American College of Physicians.

    Pharmacists are worried too, seeing the everyday effects of not being
    able to afford medications. Says Beverly Schaefer, RPh, co-owner of
    Katterman's Sand Point Pharmacy in Seattle, ``More and more I'm seeing
    that consumers are becoming acutely aware of rising drug prices. They
    are stretching doses, seeking alternatives, asking more questions of
    their doctor and pharmacist, and sometimes refusing prescriptions or
    asking for a less expensive treatment option.''

    It's Time to Pass Bills to Reduce Prescription Drug Prices

    Too many Americans are having to choose between paying for food,
    housing and other necessities, or try to stretch out their drug supply
    by cutting the prescribed dose or worse, simply going without their
    medicines.

    Retirees, prospective retirees, and most Americans are suffering with
    prescription drug price gouging. This is at the expense of deferring or
    passing up altogether the purchase of goods and services that prop up
    the U.S. economy and thus federal tax revenue that sustains our
    country. Members of Congress cite internal opinions and old studies
    that defy logic and reality, and Pharma has far too much influence over
    public policy on this matter. It is time to change policy, to pass
    prescription drug importation and Medicare competitive bidding bills
    and to outlaw pay-for-delay and other obstructing tactics once and for
    all!

    Retirees know that interim steps already suggested by several in
    Congress would not go anywhere near the realm of government price
    setting. Retirees also know that the high prices they are paying for
    prescription drugs only serves to support market entry of those same
    drugs into countries around the world. It is time for Congress to pass
    and the President to sign common-sense legislation and stand up for
    Americans' health and stop the prescription drug price gouging. Talk is
    cheap, drugs are not. There is no time to waste!

                                     ______

                            PharmacyChecker.com, LLC

                             333 Mamaroneck Avenue

                             White Plains, NY 10605

                             Phone: (718) 554-3067

                              Fax: (718) 715-1033

    February 5, 2019

    U.S. Senate
    Committee on Finance
    Dirksen Senate Office Bldg.
    Washington, DC 20510-6200

    To Editorial and Document Section:

    We are submitting the two enclosed documents for the congressional
    record associated with the Senate Committee on Finance hearing held on
    January 29, 2019, called ``Drug Pricing in America: A Prescription for
    Change, Part I.'' We believe these documents supplement the hearing's
    discussion points related to drug prices in other countries and drug
    importation:

    Levitt, Gabriel, Executive Summary from ``Online Pharmacies, Personal
    Drug Importation and Public Health: Ill-Considered Enforcement Prevents
    Access to Safe and Affordable Medication,'' February 2015; submitted to
    the Senate Committee on Health, Education, Labor, and Pensions and the
    House Committee on Energy and Commerce.

    Bate, Roger, ``Bing's Disservice to Online Drug Safety,'' American
    Enterprise Institute, January 2019.

    Chairman Grassley has expressed serious concerns about FDA's personal
    importation policies and enforcement actions that may interfere with
    Americans obtaining needed medicines. These submissions give voice to
    American patients who are suffering from high drug prices and rely on
    personal importation.

    Sincerely,

    Gabriel Levitt
    President
    PharmacyChecker

                                     ______

                 Online Pharmacies, Personal Drug Importation
                               and Public Health

       Ill-Considered Enforcement Prevents Access to Safe and Affordable
                                   Medication

    GAO Report on Internet Pharmacies Can Mislead Lawmakers and the Public
                     About International Online Pharmacies

    For the Senate Committee on Health, Education, Labor, and Pensions, and
                   the House Committee on Energy and Commerce

              Gabriel Levitt, Vice President, PharmacyChecker.com

                               February 12, 2015

    A GAO report entitled ``Internet Pharmacies: Federal Agencies and
    States Face Challenges Combatting Rogue Sites, Particularly Those
    Abroad,'' contains critical inaccuracies and omits important peer
    reviewed research that could lead lawmakers and their staffs to draw
    erroneous conclusions about international online pharmacies,
    potentially resulting in unnecessary enforcement actions that
    disadvantage consumers and threaten the public health. According to the
    U.S. Centers for Disease Control and Prevention (CDC) about five
    million Americans buy prescription drugs from foreign sources each year
    for reasons of cost. The evidence provided herein, including consumer
    testimonials and empirical data, shows that safe international online
    pharmacies are lifelines of affordable medication for many Americans.
    While rogue pharmacy sites can be very dangerous, overly broad and ill-
    considered Federal enforcement against safe international online
    pharmacies will lead to fewer Americans taking prescribed medication.

    EXECUTIVE SUMMARY

    The U.S. government relies on the Government Accountability Office
    (GAO) for objective and independent research and analysis of government
    programs and policies that affect public health. GAO's report entitled
    Internet Pharmacies: Federal Agencies and States Face Challenges
    Combatting Rogue Sites, Particularly Those Abroad (the ``GAO report'')
    \1\ contains critical inaccuracies and omits important peer-
    reviewed research to the extent that lawmakers and their staffs will
    likely draw erroneous conclusions about international online pharmacies
    that could lead to overreaching and unnecessary enforcement actions
    that disadvantage consumers and threaten public health. The GAO report
    was written pursuant to Section 1127 of the Food and Drug
    Administration Safety and Innovation Act of 2012 (FDASIA), a law
    dedicated to protecting public health.\2\
    ---------------------------------------------------------------------------
        \1\ Internet Pharmacies: Federal Agencies and States Face
    Challenges Combatting Rogue Sites, Particularly Abroad, GAO-13-560
    (Washington, DC July 2013). See https://www.gao.gov/assets/660/
    655751.pdf [last accessed 10/7/2014].
        \2\ Pub. L. No. 112-144, Sec. 1127, 126 Stat. 993, 1117-18 (2012).

    In contrast to the GAO report, the following holistic, consumer-
    focused, evidence-based analysis discusses online pharmacies within the
    important context of a health crisis caused by high drug prices in
    America, and can more appropriately guide lawmakers on how to protect
    the public from counterfeit or substandard medication. Legitimate
    public health concerns about rogue online pharmacies are being used to
    encourage legislative, regulatory, and private sector actions that
    curtail online access to safe and affordable medication.\3\ The
    consequence of overreach could be millions more Americans facing
    economic hardship or having to forgo prescribed medication, which
    studies show can lead to more sickness and death.\4\
    ---------------------------------------------------------------------------
        \3\ Graczyk, Lee, ``Americans Can't Afford U.S. Medication, Need a
    Safe Alternative,'' November 12, 2014, The Hill Congress Blog, see
    https://thehill.com/blogs/congress-blog/healthcare/223650-americans-
    cant-afford-us-medication-need-a-safe-alternative [last accessed 11/12/
    14]. See Gabriel Levitt, ``Inconvenient Truths About Foreign Online
    Pharmacies,'' October 8, 2014, The Hill Congress Blog, see https://
    thehill.com/blogs/congress-blog/healthcare/220034-inconvenient-truths-
    about-foreign-onlinepharmacies [last accessed 10/30/2014]. See Roger
    Bate, ``Google's Ad Freedom Wrongly Curtailed,'' September 28, 2011,
    RealClearMarkets.com, see https://www.realclearmarkets.com/articles/
    2011/09/28/googles_advertizing_freedom_is_curtailed_9928
    1.html [last accessed 10/19/2014].
        \4\ Brown, Marie T., and Jennifer K. Bussell, ``Medication
    Adherence: WHO Cares?'' Mayo Clinic Proceedings 86.4 (2011): 304-314
    [last accessed 1/19/2015] https://www.ncbi.nlm.nih.gov/pmc/articles/
    PMC3068890/.

    Fifty million Americans did not fill a prescription due to cost in
    2012, according to the Commonwealth Fund.\5\ According to the Harvard
    School of Public Health, over half of Americans who do not take
    prescription medication due to cost report becoming sicker.\6\ That
    means potentially 25 million Americans become sicker each year because
    they can't afford prescribed medication.\7\ According to the U.S.
    Centers for Disease Control and Prevention (CDC), about 5 million
    Americans buy prescription drugs from foreign sources each year for
    reasons of cost.\8\ Additional estimates show that between 4 and 5
    million Americans get their imported prescription drugs through
    international online pharmacies due to their lower prices.\9\
    ---------------------------------------------------------------------------
        \5\ S.R. Collins, R. Robertson, T. Garber, and M.M. Doty,
    ``Insuring the Future: Current Trends in Health Coverage and the
    Effects of Implementing the Affordable Care Act,'' The Commonwealth
    Fund, April 2013, https://www.commonwealthfund.org//media/files/
    publications/fundreport/2011/mar/
    1486_collins_help_on_the_horizon_2010_biennial_survey_report_final_v2.
    pdf, [last accessed 9/17/2014].
        \6\ Harvard School of Public Health/USA Today/Kaiser Family
    Foundation, Health Care Costs Survey (conducted April 25-June 9, 2005).
    The survey finds that 20% of respondents, adult Americans, report not
    filling a prescription due to cost; 54% of those respondents said their
    condition got worse as a result. Extrapolated to the 2012 population of
    adults 18 and older, which is 234,564,071, the number is approximately
    25 million people. See https://kff.org/health-costs/poll-finding/
    health-care-costssurvey-summary-and-chartpack/ [last accessed 7/5/
    2014].
        \7\ Ibid.
        \8\ Cohen R.A., Kirzinger W.K., Gindi R.M., ``Strategies used by
    adults to reduce their prescription drug costs,'' National Center for
    Health Statistics data brief, no 119, U.S. Centers for Disease Control
    and Prevention, April 2013, Hyattsville, MD; see https://www.cdc.gov/
    nchs/data/databriefs/db119.pdf, [last accessed 7/22/2013].
        \9\ Consumer Reports National Research Center, ``Best Buy
    Prescription Drug Tracking Poll 3,'' August 10, 2011. See https://
    www.consumerreports.org/health/resources/pdf/best-buy-drugs/2011-BBD-
    Rx-poll-public-release.pdf [last accessed 9/17/2014].

    As a government performance audit, the GAO report must abide by
    generally accepted government auditing standards (GAGAS). Those
    standards include a responsibility to meet stringent professional and
    ethical standards, including ``. . . exercising reasonable care and
    professional skepticism. Reasonable care includes acting diligently in
    accordance with applicable professional standards and ethical
    principles. Professional skepticism is an attitude that includes a
    questioning mind and a critical assessment of evidence.''\10\
    ---------------------------------------------------------------------------
        \10\ Government Auditing Standards, GAO-12-331G (Washington, DC,
    December 2011), see https://gao.gov/assets/590/587281.pdf [last
    accessed 9/17/2014].

    The GAO report does not meet the appropriate performance audit
    standards because its conclusions are mostly based on consultations
    with stakeholders that have significant financial interests in the
    audit's outcome or the organizations they fund: the GAO seems to rely
    on their data and positions without a ``questioning mind and a critical
    assessment of evidence.'' The GAO also misreports critical data it was
    provided by industry and government sources. GAO did not consult a
    wider range of available data, expert analyses, and stakeholders known
    to its authors that would have resulted in a more balanced
    analysis.\11\ Central to the above, the GAO seems to neglect the public
    interest by completely omitting a discussion about Americans who rely
    on safe and effective prescription drug imports ordered from foreign
    Internet pharmacies, ones the GAO report mistakenly refers to as
    ``rogue.''
    ---------------------------------------------------------------------------
        \11\ Such as peer reviewed studies by Roger Bate and Aparna Mathur
    at the American Enterprise Institute; recommendations from studies
    funded by the California HealthCare Foundation; and earlier studies by
    GAO on Internet pharmacies, all of which are discussed in this report.
    Supporters of buying medications from international online pharmacies
    include Mature Voices Minnesota, Coalition of Wisconsin Aging Groups,
    the Congress of California Seniors, Third Power Age, and New York
    Statewide Senior Action Council; and non-governmental organizations
    such as RxRights.org and Demand Progress; and companies such as
    PharmacyCheceker.com, founded in 2002 to evaluate online pharmacies,
    U.S. and foreign, and compare their drug prices.

    The GAO correctly presents the regulatory challenges to shutting down
    rogue online pharmacies, but incorrectly conflates such dangerous
    pharmacy websites with safe online pharmacies that sell medication from
    licensed pharmacies in Canada and other countries, which offer
    Americans a source of affordable medication (``safe international
    online pharmacies''). This conflation unnecessarily curtails access to
    safe medication because federal regulatory and private enforcement
    actions against rogue online pharmacies engulf safe international
    ---------------------------------------------------------------------------
    online pharmacies that Americans rely on.

    In part, the problem stems from different classification systems to
    define ``rogue online pharmacy.'' The National Association of Boards of
    Pharmacy (NABP) and the GAO report wrongly refer to safe international
    online pharmacies as ``rogue.'' LegitScript, a stakeholder that is
    repeatedly cited in the GAO report, classifies these safe online
    pharmacies as ``unapproved,'' but not ``rogue,'' a critical fact
    overlooked in the GAO report. A more useful and honest definition of
    ``rogue online pharmacy'' is a drug-selling website that intentionally
    sells fake, adulterated, or unlicensed medication; genuine and
    regulated medication that is not dispensed by a licensed pharmacist
    and/or pursuant to a valid prescription; or engages in fraud. This
    definition provides a clear framework to enable lawmakers and
    regulators to target dangerous foreign and domestic pharmacy websites
    without overreaching enforcement action against safe ones.

    The GAO report asserts that most rogue online pharmacies operate from
    abroad. However, according to the data of industry stakeholders
    consulted by the GAO, it is actually not clear whether there are more
    rogue online pharmacies based in the United States or abroad. In its
    focus on pharmacies ``abroad,'' the GAO report obfuscates technical
    violations of drug importation laws by Americans who import safe and
    effective medication for personal use with the use of dangerous web
    pharmacies, foreign and domestic.

    The GAO report largely relies on data and analysis it obtained from
    pharmaceutical companies, U.S. pharmacies and organizations they fund,
    and federal agencies, particularly the U.S. Food and Drug
    Administration (FDA). The aforementioned entities do not recognize the
    public health benefits of online access to safe and more affordable
    pharmacies outside the U.S. Their positions are untenable because the
    public health benefits of safe, personally imported medication
    purchased online are indisputable--as explained below.

    The National Consumers League (NCL) identifies 125,000 annual deaths
    due to prescription medication non-adherence, but that number only
    applies to non-adherence related to heart conditions and is based on
    data from a 1998 article.\12\ It's unknown how many deaths are
    currently due to prohibitive drug costs, but given the prominence of
    cost as a barrier to access, the numbers are clearly unacceptable. A
    2012 CVS survey found that 61% of U.S. pharmacists cite drug costs as
    the main reason Americans don't take their medications.\13\
    ---------------------------------------------------------------------------
        \12\ McCarthy R. ``The Price You Pay for the Drug Not Taken,''
    Business Health 1998.
        \13\ ``CVS/Caremark Survey Says Cost is Biggest Barrier to
    Prescription Adherence,'' CVS/Caremark Insights, September 27, 2012,
    see https://info.cvscaremark.com/cvs-insights/cvs-caremark-survey-says-
    cost-biggest-barrier-prescription-adherence [last accessed 9/17/2014];
    or see https://www.prnewswire.com/news-releases/cvs-caremark-survey-
    pharmacists-say-cost-is-big
    gest-barrier-to-medication-adherence-171516471.html [last accessed 9/
    17/2014].

    For the past 15 years Americans have ordered medication from Canada and
    many other countries over the Internet from licensed pharmacies that
    require a valid prescription,\14\ employ trained and licensed
    pharmacists, and protect their patients' privacy.\15\ There are no
    reported incidents of an American dying or experiencing a severe
    adverse reaction from taking a medication ordered online from a
    pharmacy outside the U.S. that requires a prescription from a licensed
    healthcare provider who has physically examined the patient.\16\ There
    are also no reported deaths or serious illnesses due to dispensing
    errors committed by safe international online pharmacies, while
    dispensing problems in U.S. pharmacies are routine and have killed and
    sickened many Americans over the past decade.\17\
    ---------------------------------------------------------------------------
        \14\ This report concurs with the definition of ``valid
    prescription'' identified in the Model State Pharmacy Act and Model
    Rules of the National Association of Boards of Pharmacy. A valid
    prescription is one written pursuant to a ``valid patient-practitioner
    relationship'' consultation between a licensed healthcare practitioner
    and a patient. ``Valid Patient-Practitioner Relationship'' means the
    following have been established: (1) a patient has a medical complaint;
    (2) a medical history has been taken; (3) a face-to-face physical
    examination adequate to establish the medical complaint has been
    performed by the prescribing practitioner or in the instances of
    telemedicine through telemedicine practice approved by the appropriate
    Practitioner Board; and (4) some logical connection exists between the
    medical complaint, the medical history, and the physical examination
    and the drug prescribed.
        \15\ For example, such pharmacists have provided testimony before
    Congress. The Canadian International Pharmacy Association was founded
    in 2002. That association's vice president at the time, Dr. Andy
    Troszok, testified before the House Committee on Government Reform,
    Subcommittee on Human Rights and Wellness. He said: ``I am a Canadian
    licensed pharmacist, and when I graduated I pledged an oath to take the
    health, safety, and well-being of my patients as a priority. I have the
    privilege of working in community pharmacy for 8 years, and also in
    academia, and I have had the ability to work with patients, and every
    time I did I took that to the strongest possible level. I think patient
    safety and overall patient health should be the priority of any
    pharmacist working in any kind of realm, be it hospital, retail, or
    innovative delivery of service such as distance-based delivery or mail
    order.'' U.S. House, Committee on Government Reform, Subcommittee on
    Human Rights and Wellness, International Prescription Drug Parity: Are
    Americans Being Protected or Gouged?, source, hearing, April 3, 2003,
    Serial No. 108-12. Washington: Government Printing Office 2003. See
    http://webcache.googleusercontent
    .com/search?q=cache:ua5hIPDo8yYJ:https://bulk.resource.org/gpo.gov/
    hearings/108h/87228.txt+&cd=4&hl=en&ct=clnk&gl=us [last accessed 9/17/
    2014].
        \16\ Neither the FDA nor any other federal or state agency, or
    group, whether for or non-profit, has reported a single death or
    serious adverse effect from personal drug importation in a situation
    where the importing consumer had a valid prescription. This is after
    about 15 years during which Americans have purchased medication online
    from foreign pharmacies.
        \17\ Cohen, Elizabeth, ``Don't Be a Victim of Pharmacy Errors,''
    CNN Health, October 30, 2007. See https://www.cnn.com/2007/HEALTH/10/
    25/pharmacy.errors/ [last accessed 9/7/2014]. See Henry I. Miller,
    ``Medication Mistakes Are a Tough Pill to Swallow,'' Forbes, February
    16, 2011; https://www.forbes.com/sites/henrymiller/2011/02/16/
    medication-mistakes-are-a-tough-pill-to-swallow [last accessed 9/17/
    2014].

    Thousands of Americans have publicly affirmed that they greatly benefit
    from lower cost medication available from international online
    pharmacies and that such access saves their lives, and prevents
    financial hardship.\18\, \19\ Here are a few examples of
    what Americans are saying:
    ---------------------------------------------------------------------------
        \18\ Change.org petition 2014--over 2,000 people, who identify
    their names and where they live in the U.S., comment about buying their
    medications internationally; https://www.pharmacy
    checker.com/pdf/comments-by-americans-concerned-section708-fdasia.pdf.
    The comments were made on a petition of over 8,000 signatures hosted on
    Change.org; https://www.change.org/p/kathleen-sebelius-please-don-t-
    stop-americans-from-getting-medicine-at-lower-cost-outside-the-u-s
    [last accessed 9/19/2014].
        \19\ Also see RxRights.org consumer testimonials; http://
    www.rxrights.org/testimonials/.

    Morton Ross, Palm Harbor, FL 2014-04-03, ``The meds I take daily, are
    the difference between `life and death.' I cannot afford the higher
    ---------------------------------------------------------------------------
    prices at local pharmacies.''

    Darilyn Schlie, Fort Worth, TX 2014-04-03, ``Without the ability to go
    outside the U.S. I will not be able to afford the medication I need.''

    James Marshall, Nashville, TN 2014-04-03, ``I have emphysema and could
    not afford my medications if not for being able to order some of them
    from outside the USA.''

    By failing to note that personal drug importation from safe
    international online pharmacies is a public health benefit, as
    exemplified by the above testimonials, the GAO report does not properly
    or fully inform Congress about foreign Internet pharmacies.

    The GAO report does not take into account pertinent data about
    international online pharmacy safety, which was published in two peer-
    reviewed studies. Those studies demonstrate that medication ordered
    from credentialed online pharmacies, foreign and domestic, were safe
    and effective, and that those credentialed online pharmacies all
    required valid prescriptions. The credentialing agencies were the
    National Association of Boards of Pharmacy (NABP), LegitScript, a
    private investigation and verification company contracted by the
    FDA,\20\ PharmacyChecker.com, a private pharmacy credentialing company
    and drug price comparison website, and the Canadian International
    Pharmacy Association (CIPA), a Canadian trade association of pharmacies
    and pharmacists that sell medication globally.\21\ The medication
    purchased domestically in that study was about 50% more expensive than
    the same medication purchased from other countries.\22\ That level of
    savings is substantial but much lower than Americans often save.
    PharmacyChecker.com price comparison data demonstrate that savings are
    often as high as 90% from credentialed international online pharmacies
    when consumers have access to online price comparisons and can find the
    lowest prices.\23\ The FDA has relied on and cited
    PharmacyChecker.com's data for its own drug price analyses.\24\
    ---------------------------------------------------------------------------
        \20\ U.S. Food and Drug Administration, Department of Health and
    Human Services, FDA Contract Solicitation Number: FDA-SOL-10-1068201-
    02; Internet Monitoring and Support Services; contract award date,
    September 17, 2010, contract award dollar amount: $2,571,765.00; see
    https://www.fbo.gov/
    index?s=opportunity&mode=form&tab=core&id=6e179a4b6e9d90bb5696dbf
    bc2edd065 [last accessed 10/7/14].
        \21\ Bate, Roger, Ginger Zhe Jin, and Aparna Mather, ``In Whom We
    Trust: The Role of Certification Agencies in Online Drug Markets,'' The
    B.E. Journal of Economic Analysis and Policy, December 2013, Volume 14,
    Issue 1, pages 111-150, ISSN (online) 1935-1682, ISSN (print) 2194-
    6108, DOI. See 10.1515/bejeap-2013-0085 [last accessed 9/19/2014].
        \22\ Ibid.
        \23\ PharmacyChecker.com (September 30, 2013), Online Pharmacies
    May Help Many Afford Prescription Medication Under Obamacare [press
    release]. See https://www.pharmacychecker.
    com/news/online_pharmacy_prescription_savings_obamacare_2013.asp [last
    accessed9/20/14].
        \24\ ``FDA: U.S. Generics Can Be a Better Bargain than Canadian
    Drugs,'' Associated Press in St. Petersburg Times Online, see http://
    www.sptimes.com/2004/01/18/news_pf/Worldand
    nation/FDA__US_generics_can_.shtml [last accessed 9/23/2014].

    The GAO report omits a central finding about the safety of Canadian
    Internet pharmacies found in an earlier GAO report.\25\ Through test
    purchases of prescription drugs online, GAO's earlier report found that
    all Canadian Internet pharmacies required prescriptions and sent
    genuine medication, whereas some U.S. online pharmacies did not require
    valid prescriptions.\26\ The earlier GAO report was written, at least
    in part, by the author of the new GAO report, Marcia Crosse.\27\
    ---------------------------------------------------------------------------
        \25\ Internet Pharmacies: Some Pose Safety Risks for Consumers,
    GAO-04-820 (Washington, DC: June 17, 2004). See http://www.gao.gov/
    new.items/d04820.pdf [last accessed 9/17/2014].
        \26\ Ibid.
        \27\ Marcia Crosse is an exceedingly talented and dedicated public
    servant. Her research and policy analysis have served Congress and the
    American public well for over 30 years. That Ms. Crosse is responsible
    for this report was surprising and disappointing. The flawed analysis
    of the GAO report is mostly a reflection of the legislative and
    regulatory capture by pharmaceutical commercial interests in this issue
    area--not Ms. Crosse's dedication and ability, which I admire.

    In addition to its previous, and more evidence-based report, the GAO
    might have considered independent analysis published by the Center for
    Studying Health System Change, funded by the California HealthCare
    foundation and the Robert Wood Johnson Foundation, which recommends
    that U.S. states provide their residents with, ``A user's guide and
    price comparison tool for Canada-based or other foreign-based online
    pharmacies, which would be particularly helpful to consumers who need
    brand-name drugs.''\28\
    ---------------------------------------------------------------------------
        \28\ Tu, Ha T. and Catherine Corey, ``State Prescription Drug Price
    Websites: How Useful to Consumers,'' Health System Change Research
    Brief #1, February 2008, Center for Studying Health System Change; see
    http://www.hschange.com/CONTENT/966/ [last accessed 9/20/14].

    The GAO could argue that the language of Section 1127 neither expressly
    requests an independent analysis on the issue of online pharmacy safety
    and usage, nor asks the question whether safe non-U.S. online
    pharmacies are accessed by and help Americans. Indeed, Section 1127
    contained nuanced biases to maintain a narrow line of inquiry favorable
    to the commercial interests of pharmaceutical and U.S. pharmacy
    companies. As evidence of that bias the record shows that a government
    relations advisor and lobbyist working with drug companies and a U.S.
    pharmacy trade association drafted Section 1127.\29\ While this may
    explain the language of Section 1127 it does not excuse GAO from
    failing to: (1) consult sources that are not known to be hostile to
    American consumers buying medication from Canada and other countries,
    online or otherwise; and (2) engaging in an independent inquiry and
    analysis.
    ---------------------------------------------------------------------------
        \29\ Ms. Libby Baney is identified as a lobbyist for the Alliance
    for Safe Online Pharmacies in this lobbying disclosure report: https://
    soprweb.senate.gov/index.cfm?event=getFilingDetails&
    filingID=6B1B406C-D5C0-48C6-9484-B9FF3B372B1F&filingTypeID=51 [last
    accessed 10/21/2014]. Ms. Baney, now executive director of the Alliance
    for Safe Online Pharmacies, is also now principal at FWD Strategies
    International. In marking her consulting firm Ms. Baney takes credit
    for drafting Sec. 1127, see http://fwdstrategies.com/services/ [last
    accessed 9/20/14].

    Even within the biased parameters of inquiry found in Section 1127, the
    GAO report is not sufficiently responsive. For instance, Section 1127
    requests an analysis of ``the harmful health effects that patients
    experience when they consume prescription drugs purchased through such
    pharmacy Internet Web sites''--referring to websites that ``sell
    prescription medication in violation of federal and state laws.''\30\
    The industry stakeholders consulted by the GAO have compiled data on
    this core issue of safety and found not a single example of patient
    harm resulting from purchasing medication outside the U.S. from
    international online pharmacies that require a valid prescription.\31\
    The GAO did not mention those findings, which are specifically
    responsive to the core issue of safety and lend further evidence that
    international online pharmacies requiring a prescription are safe.
    ---------------------------------------------------------------------------
        \30\ Pub. L. No. 112-144, Sec. 1127, 126 Stat. 993, 1117-18 (2012).
        \31\ The Alliance for Safe Online Pharmacies' Response to the U.S.
    Intellectual Property Enforcement Coordinator's Request for Public
    Comment on the Development of the Joint Strategic Plan on Intellectual
    Property Enforcement, August 2012, see https://safeonlinerx.com/wp-
    content/uploads/2012/08/ASOP-Response-to-IPEC.pdf [last accessed 12/19/
    2013].

    The GAO report calls into question the appropriateness of the U.S. Drug
    Enforcement Agency's efforts to combat dangerous web pharmacies. The
    DEA views the Internet as an insignificant source of illegally obtained
    controlled drugs, and online pharmacies are not a DEA priority.\32\ As
    explained in greater detailbelow, the problem may be somewhat larger
    than DEA asserts but GAO appears to defend the position of one of its
    stakeholders, LegitScript, instead of analyzing the hard data.
    Specifically, the GAO report does not mention the source of the most
    extensive survey data relating to the nation's prescription abuse
    problem, which shows 0.2% of prescription narcotic abuse is attributed
    to the Internet.\33\
    ---------------------------------------------------------------------------
        \32\ DEA Agent Robert Hill presentation at the Partnership for Safe
    Medicines Interchange Conference in October 2010. See http://
    www.tubechop.com/watch/1046694 [last accessed 9/20/14].
        \33\ Substance Abuse and Mental Health Services Administration,
    Results From the 2012 National Survey on Drug Use and Health: Summary
    of National Findings, NSDUH Series H-46, HHS Publication No. (SMA) 13-
    4795. Rockville, MD: Substance Abuse and Mental Health Services
    Administration, 2013. See https://www.samhsa.gov/data/NSDUH/
    2012SummNatFindDet
    Tables/NationalFindings/NSDUHresults2012.pdf [last accessed 9/19/2014].

    Despite the absence of any discussion about safe international online
    pharmacies in the GAO report, the lead author clearly recognizes that
    international online pharmacies can be safe, as evidenced by an online
    video in which Ms. Crosse discusses her report.\34\ The key safety
    issue, according to Ms. Crosse, isthat the dispensing pharmacy is
    ``real'' and that the patient has a prescription from a licensed health
    provider. She affirms the safety of personal drug importation when
    Americans buy online from licensed Canadian pharmacies pursuant to
    valid prescriptions.\35\ In speaking to a consumer who orders from a
    Canadian online pharmacy, she states that if the patient has ``done
    some kind of verification that it's a Canadian pharmacy, and she knows
    that the drug she has been receiving is the drug that has been
    prescribed, that's fine.''\36\
    ---------------------------------------------------------------------------
        \34\ For the relevant clip of an interview with Marcia Crosse, see
    Ask GAO Live: Chat on Internet Pharmacies, August 12, 2013 at http://
    www.tubechop.com/watch/1407272; for the whole discussion, see https://
    www.youtube.com/watch?v=qzvVK6GhF5Q [last accessed 9/19/14].
        \35\ Ibid.
        \36\ Ibid.

    Current federal and state laws that curtail access to safe and
    affordable medication from pharmacies outside the U.S. hurt American
    consumers. New regulations, executive branch initiatives, and private
    sector actions are now threatening that access completely. Section 708
    of FDASIA gives the FDA new authority to destroy genuine and safe
    imported medication valued at $2,500 or less, but only after creating
    regulations that allow people an appropriate due process to provide
    testimony to defend their prescription drug imports.\37\ The GAO report
    mentions section 708 once in a footnote, but does not explore the
    unintended consequences of seizing and destroying medications imported
    for personal use.
    ---------------------------------------------------------------------------
        \37\ Pub. L. No. 112-144, Sec. 708 (2012).

    In a floor statement in 2012 during debate on FDASIA, former
    Representative Jo Ann Emerson (R-MO) warned her colleagues about
    similar language to Section 708 that was in an earlier version of the
    bill: ``This language threatens a critical, cost-effective supply of
    medications and pharmaceuticals. These drugs are exactly the same as
    their counterparts sold in America. I urge further discussion of this
    critical issue in conference and a full examination of the consequences
    of passing this provision into law.''\38\
    ---------------------------------------------------------------------------
        \38\ Representative JoAnn Emerson (MO), ``Food and Drug
    Administration Reform Act,'' May 30, 2012. See https://votesmart.org/
    public-statement/702416/food-and-drug-administration-reform-act-of-
    2012#.UxVJN-co4s9 [last accessed 9/22/14].

    More recently, Senators Charles Grassley (R-IA), Dean Heller (R-NV),
    Angus King (I-ME), David Vitter (R-LA) expressed serious concerns about
    the ``potential health threat to hundreds of thousands of Americans''
    from Section 708.\39\ Congressman Keith Ellison wrote the FDA about
    many of his constituents expressing serious concerns with how Section
    708 will impede their access to safe and affordable medication.\40\
    ---------------------------------------------------------------------------
        \39\ U.S. Senator David Vitter, ``Vitter Fights to Keep
    Prescription Drug Prices Affordable Through Reimportation,'' July 9,
    2014 [press release]; see http://www.vitter.senate.gov/newsroom/press/
    vitter-fights-to-keep-prescription-drug-prices-affordablethrough-
    reimportation [last accessed 9/20/14].
        \40\ Letter to the U.S. Food and Drug Administration by Congressman
    Keith Ellison dated July 1, 2014. See https://www.regulations.gov/
    #!documentDetail;D=FDA-2014-N-0504-0022 [last accessed 9/20/14].

    Through its Office of the Intellectual Property Coordinator (IPEC), the
    Obama administration created and encouraged policies and actions
    affecting access to online pharmacies.\41\ One of its focuses is on
    encouraging the private sector to take ``voluntary'' actions against
    rogue online pharmacies.\42\ IPEC encouraged the formation of a
    business consortium, one now established as a non-profit called the
    Center for Safe Internet Pharmacies (CSIP). While CSIP helps curb
    access to rogue pharmacies, it also acts to discourage Americans from
    accessing safe, affordable pharmacies outside the U.S. The CSIP website
    is largely a clearing house for information from pharmaceutical
    industry-funded groups such as The Partnership for Safe Medicines,
    which is funded by the Pharmaceutical Researchers and Manufacturers of
    America (PhRMA) and led by one of Pharma's vice presidents, and the
    National Association of Boards of Pharmacy, which runs Internet
    pharmacy programs that rely on funding from the pharmaceutical
    industry: an industry that engages in scare campaigns by labeling any
    pharmacy outside the U.S. that sells to Americans as rogue, thus
    conflating licensed pharmacies with dangerous pharmacy websites.\43\
    ---------------------------------------------------------------------------
        \41\ ``Obama Seeks Action on Online Pharmacies,'' Securing
    Industry, September 3, 2010, see https://www.securingindustry.com/
    pharmaceuticals/obama-seeks-action-on-online-pharmacies-domainnames/
    s40/a567/#.VB3d-OfD_mI [last accessed 9/20/14].
        \42\ Ibid.
        \43\ Levitt, Gabriel, Statement to the House Judiciary Committee
    Subcommittee on the Courts, Intellectual Property, and the Internet,
    September 18, 2013, see http://docs.house.gov/meetings/JU/JU03/
    20130918/101316/HHRG-113-JU03-WstateLevittG-20130918-U1.pdf [last
    accessed 10/21/2014]. Also by Gabriel Levitt, ``Why Is Google
    Supporting Big Pharma?'', January 6, 2014, in http://infojustice.org/
    archives/31846.

    Using funds provided by Eli Lilly, Merck, and Pfizer, the NABP applied
    to the Internet Corporation for Assigned Names and Numbers (ICANN) to
    operate a generic top-level domain (gTLD) called .pharmacy. The NABP
    will use the .pharmacy designation to identify any international online
    pharmacy as a rogue if it sells to people in the U.S. Pharmacies such
    as Walgreens, CVS, and Rite Aid can expect to obtain permission to
    register a .pharmacy web address, whereas the safest international
    online pharmacy will be prohibited from doing so.\44\ NABP will launch
    public education campaigns urging consumers to avoid any drug-selling
    website that does not have .pharmacy at the end of it, which could
    scare more Americans away from safe and affordable medication. At the
    time of this writing, the .pharmacy string has been delegated to NABP,
    but ICANN is facing pressures from consumer groups and the ICANN
    community to delay its full implementation.\45\
    ---------------------------------------------------------------------------
        \44\ According to the NABP's new registration program for .pharmacy
    gTLD, eligible applicants must have a pharmacy license ``in the
    jurisdictions where they are based and where they serve patients.''
    Since Canadian pharmacies that serve U.S. patients are licensed in
    Canada but not in a U.S. state, they will all be banned from the
    program. See http://www.dotpharmacy.
    net/.
        \45\ ``Your 24,349 Signature Petition Had an Impact,'' October 22,
    2014, RxRights.org, see http://www.rxrights.org/24349-signature-
    petition-impact/ [last accessed 11/6/2014].

    The ``voluntary'' protocols encouraged by the Obama administration have
    now led online and physical ``gatekeepers'' such as credit card
    companies, mail carriers and domain registration to deny service to
    safe international online pharmacies. For example, VISA, a member of
    CSIP, recently adopted policies in coordination with LegitScript that
    restrict the use of Visa credit cards for prescription sales to U.S.-
    based consumers to U.S. pharmacies only.\46\
    ---------------------------------------------------------------------------
        \46\ ``VISA Policies Curtail Consumer Access to Safe Medicines
    Online: Reminiscent of China or North Korea!!'', PharmacyCheckerBlog,
    December 4, 2014, by Gabriel Levitt, Vice President,
    PharmacyChecker.com see https://pharmacycheckerblog.com/visa-policies-
    curtail-consumer-access-to-safe-medicines-online-reminiscent-of-china-
    ornorth-korea [last accessed 1/19/2015]. Also see from the Canadian
    International Pharmacy Association, ``Checks Are Best When Ordering
    From CIPA Member Pharmacies,'' see https://www.cipa.com/news/checks-
    are-best-when-ordering-from-cipamember-pharmacies/ [last accessed 11/
    10/2014].

    Coordination with gatekeepers is one way to protect consumers from
    rogue pharmacy websites but it need not and should not affect a
    consumer's ability to access a safe international online pharmacy. The
    way to shut down rogue online pharmacies is demonstrated in a series of
    coordinated federal and global actions called Operation Pangea, which
    bring together efforts by law enforcement and private industry.\47\
    According to Interpol's website, Pangea's ``activities target the three
    principal components used by illegal websites to conduct their trade--
    the Internet Service Provider (ISP), payment systems and the delivery
    service.''\48\ Additionally, through Operation Pangea, counterfeiters
    (people who make counterfeit drugs) and those threatening public health
    through online drug sales have been arrested and imprisoned.\49\
    ---------------------------------------------------------------------------
        \47\ Interpol on Operation Pangea; see https://www.interpol.int/
    Crime-areas/Pharmaceutical-crime/Operations/OperationPangea [last
    accessed 9/22/14].
        \48\ Ibid.
        \49\ Ibid.

    The question for lawmakers is this: which online pharmacies should be
    targeted by FDA and private sector enforcement operations? A definition
    of ``rogue online pharmacy'' that focuses strictly on public health
    considerations, rather than technical restrictions on personal drug
    importation and intellectual property law, provides the answer. Those
    online pharmacies in the business of selling genuine medications,
    dispensed by a licensed pharmacy and pharmacist that require a
    patient's prescription should not be considered ``rogue.'' In stark
    contrast, criminals in the business of intentionally selling fake,
    spurious, or adulterated medications online, or real prescription drugs
    without requiring a valid prescription are ``rogue.'' Millions of
    Americans are buying genuine medications internationally, despite
    technical legal prohibitions, because they are much lower cost.
    Stopping them from doing so would be unethical and likely lead to more
    people becoming sick and dying.\50\ Furthermore, actions that are
    necessary to protect one's health should not be sanctioned as criminal
    to begin with. Lawmakers should pass legislation to remove criminal
    penalties (even if they are never enforced) that can be applied to
    individuals who import small quantities of medication for their own
    use. Such laws are inimical to our basic rights of life and liberty.
    ---------------------------------------------------------------------------
        \50\ Levitt, Gabriel, ``Scare Tactics Over Foreign Drugs,'' March
    24, 2014, New York Times; see https://www.nytimes.com/2014/03/25/
    opinion/scare-tactics-over-foreign-drugs.html [last accessed 10/21/
    2014]. Since cost is noted as the factor most likely to cause an
    American to skip filling a prescription, it follows that many consumers
    who rely on safe international online pharmacies will go without needed
    medications if that option is removed.

                                     ______

                  From the American Enterprise Institute (AEI)

                    Bing's Disservice to Online Drug Safety

                                 By Roger Bate

                                  January 2019

    Key Points

          To warn consumers of the dangers of importing medicine, the
    search engine Bing has placed pop-up warnings against foreign websites
    selling medicines. Unfortunately, the sites targeted are credentialed
    foreign pharmacies, while potentially rogue sites are in effect given a
    clean bill of health by having no pop-up warnings.

          Original research confirms this folly. Using the search terms
    ``Viagra'' and ``Canada,'' I identified websites and ordered the
    prescription drug Viagra from nine credentialed sites with warnings;
    all sold legitimate Viagra. I also ordered Viagra from 14
    uncredentialed sites with no warnings; two of these sites sold fake
    Viagra. To add insult to possible injury, the uncredentialed sites were
    on average 25 percent more expensive.

          Bing must change its policy, since the current one is driving
    traffic to unsafe sites and away from legitimate international
    pharmacies.
    _______________________________________________________________________

    It is well-known that Americans pay more for medication than the
    citizens of other nations. To avoid high prices, some enterprising
    Americans, perhaps as many as four million, buy from foreign web
    pharmacies, often at under half the price they would pay in the U.S.\1\
    ---------------------------------------------------------------------------
        \1\ Robin A. Cohen and Maria A. Villarroel, ``Strategies Used by
    Adults to Reduce Their Prescription Drug Costs: United States, 2013,''
    U.S. Department of Health and Human Services, Centers for Disease
    Control and Prevention, National Center for Health Statistics, January
    2015, https://www.cdc.gov/nchs/data/databriefs/db184.pdf; and Gabriel
    Levitt, ``Fewer Americans Importing Medications in 2016: Good or Bad?
    Oh, and Happy New Year!'', PharmacyCheckerBlog, December 31, 2015,
    https://www.pharmacycheckerblog.com/fewer-americans-importing-
    medications-in-2016-good-or-bad-oh-and-happy-new-year.

        Until web sales took off, many Americans, particularly seniors in
    states bordering Canada, would travel over the border to buy their
    medication. A string of pharmacies in Western Canada sprung up to
    service this demand. Early in this century, demand switched from
    ---------------------------------------------------------------------------
    physically visiting Canada to online purchases from Canadian websites.

        There are obvious risks to purchasing medication online due to the
    anonymity of the web, where rogue actors have established sites to sell
    bogus medicine and steal identities. Therefore, groups such as the
    Canadian International Pharmacy Association (CIPA) and
    PharmacyChecker.com were established to credential websites linked with
    real pharmacies selling proper medicine and assist patients looking for
    cheaper good-quality medication.

        U.S. pharmacies and all major pharmaceutical companies always
    disliked Americans purchasing foreign pharmaceuticals since the former
    directly lost business and the latter wanted to maintain consistently
    higher prices on medicines in the U.S. The argument advanced by the
    pharmaceutical companies is that higher pricing leads to more research
    and development. While there is truth to this stance, higher prices
    harm millions of poor or underinsured Americans, who may forgo or not
    take their medication as often as prescribed to save money.

        With a nod to this reality, historically the Food and Drug
    Administration (FDA) has allowed individuals to import a 90-day supply
    of most prescription medicines, even though the law forbids such
    importation. While importation is prevented primarily to inhibit price
    arbitrage, it is often argued that importation aids safety.\2\
    ---------------------------------------------------------------------------
        \2\ Congress has passed laws, implemented by the FDA, that makes
    the personal importation of medicine illegal. But Congress applies
    exceptions. The Prescription Drug Import Fairness Act of 2000 was
    passed into law as Section 746 of an appropriations bill for the FDA
    and other agencies in 2000 (H.R. 4461). In this law, Congress
    articulates these findings: ``Patients and their families sometimes
    have reason to import into the United States drugs that have been
    approved by the Food and Drug Administration (``FDA'').'' Prescription
    Drug Import Fairness Act of 2000, Pub. L. No. 106-387. Furthermore, the
    FDA's ``Coverage of Personal Importation'' says that ``FDA personnel
    may allow entry of shipments when the quantity and purpose are clearly
    for personal use, and the product does not present an unreasonable risk
    to the user.'' U.S. Department of Health and Human Services, Food and
    Drug Administration, Regulatory Procedures Manual, December 12, 2017,
    chap. 9, 23, https://www.fda.gov/ICECI/ComplianceManuals/
    RegulatoryProceduresManual/default.htm; and U.S. Department of Health
    and Human Services, Food and Drug Administration, ``Is it Legal for Me
    to Personally Import Drugs?'', August 22, 2018, https://www.fda.gov/
    aboutfda/transparency/basics/ucm194904.htm.

        Recently, due to the alarming increase in fatal opioid overdoses
    fueled predominantly from foreign sources, legislative efforts and
    policy have increased the powers of various agencies, including the
    FDA, to intercept and destroy medicine imports. Clearly the target is
    illegally trafficked narcotics, especially opioids. Yet other
    medicines, such as personal imports of life-saving medicines, may be
    prevented in the process, as companies seek to limit any potential
    liability and packages are stopped without much reason.\3\
    ---------------------------------------------------------------------------
        \3\ See Chapter 3 of the SUPPORT for Patients and Communities Act,
    expanding the authority of Health and Human Services (through the FDA)
    to debar individuals importing controlled substances on the basis that
    they have engaged in ``a pattern of importing or offering for import .
    . . adulterated or misbranded'' drugs. (Misbranded drugs include simply
    imported drugs.) SUPPORT for Patients and Communities Act, Pub. L. No.
    115-271, https://www.congress.gov/115/bills/hr6/BILLS-115hr6enr.pdf.

        Fortunately this new opioid law--known as the SUPPORT for Patients
    and Communities Act--includes a measure protecting those importing
    drugs for ``personal or household use,'' putting into law, albeit not
    exhaustively, the sentiment that limited personal importation will be
    tolerated.\4\ However, reports persist of the FDA interdicting drugs
    intended for personal use.\5\ It is too early to tell how these recent
    policy measures are affecting drug imports systematically, but search
    engines and payment companies are clearly being pressured to limit
    people's ability to import medicine.
    ---------------------------------------------------------------------------
        \4\ Curiously, while the initial House version of the bill included
    the protection for personal importation, the language was dropped in
    the Senate version of the bill. See SUPPORT for Patients and
    Communities Act, Pub. L. No. 115-271, Sec. 3022, https://
    www.congress.gov/115/bills/hr6/BILLS-115hr6enr.pdf; and SUPPORT for
    Patients and Communities Act, S. 6193, 115th Cong., 27, https://
    www.congress.gov/115/bills/hr6/BILLS-115hr6eas.pdf. A Kaiser Family
    Foundation article noted that congressional staffers speaking on
    background stated the change was because senators ``believed it was
    unnecessary.'' Adding further: ``The FDA already has discretion to look
    the other way on personal imports and told lawmakers it has no
    intention of changing the policy.'' Michael McAuliff, ``Buried in
    Congress' Opioid Bill Is Protection for Personal Drug Imports,'' Kaiser
    Health News, September 27, 2018, https://khn.org/news/buried-in-
    congress-opioid-bill-is-protection-for-personal-drug-imports/. While on
    the surface the comment may be true, the subtle change nevertheless
    stresses the political stakes involved.
        \5\ Michael McAuliff, ``Trump Administration Seizing Cheaper
    Medications From Canada and Other Countries,'' Tarbell, June 14, 2018,
    https//www.tarbell.org/2018/06/trump-administration-seizing-cheaper-
    medications-from-canada-and-other-countries/Pref=featured.

        Specifically related to Bing, informed sources tell me that
    Microsoft has been pressured by the FDA and legislators to prevent the
    sale of opioids over the Internet. The message is clear that the
    government's priority is preventing the sale of opioids rather than
    allowing access to medicines.

    What Did Bing Do?

        On November 12th, Bing, Microsoft's Internet search engine,
    announced a change in its policy on access to medicines via the web.\6\
    The search engine will now generate a pop-up warning whenever a user
    attempts to access a site that has been flagged by the National
    Association of Boards of Pharmacy (NABP) as appearing ``to be out of
    compliance with state or federal laws or NABP patient safety and
    pharmacy practice standards.''\7\ Simply dispensing foreign medicines
    is sufficient to make the list.
    ---------------------------------------------------------------------------
        \6\ Bing Blogs, ``Bing to Warn Customers About the Threats of Fake
    Online Pharmacies,'' November 12, 2018, https://blogs.bing.com/search/
    2015/08/06/bing-to-warn-customers-about-the-threats-of-fake-online-
    pharmacies/.
        \7\ National Association of Boards of Pharmacy, ``Not Recommended
    Sites,'' January 2, 2019, https://safe.pharmacy/not-recommended-sites/.

        Bing is trying to alert those seeking drugs from overseas of the
    potential dangers of such practices. There are numerous risks of buying
    pharmaceuticals online, ranging from bogus medicines to identity theft.
    However, as I have attested in the peer-review literature, buying from
    credentialed overseas sites can be done safely, at least in the general
    understanding of that word.\8\ Purchasing pharmaceuticals can never be
    100 percent safe, including those bought from brick-and-mortar
    pharmacies in the U.S. Nevertheless, the dangers of buying online
    remain, and U.S. pharma and pharmacy interests have used those risks to
    scare people from buying online and alarm policymakers who have not
    legislated to explicitly allow such purchasing.
    ---------------------------------------------------------------------------
        \8\ Roger Bate and Kimberly Hess, ``Assessing Website Pharmacy Drug
    Quality: Safer Than You Think?'', PloS One5, no. 8 (August 13, 2010),
    https://journals.plos.org/plosone/article?id=
    10.1371/journal.pone.0012199; and Roger Bate, Ginger Zhe Jin, and
    Aparna Mathur, ``In Whom We Trust: The Role of Certification Agencies
    in Online Drug Markets,'' B.E. Journal of Economic Analysis and Policy
    14, no.1 (2013):111-50.

        Convincing Bing to highlight the CIPA- and PharmacyChecker.com-
    credentialed sites with pop-up warnings represents a major conquest for
    pharma interests. One can argue that since these sites encourage folks
    to break the law (a law that is not enforced, but still a law), it is
    legitimate. Bing has bought into the NABP's dangerous self-interested
    argument that any overseas site, even if linked to a legitimate foreign
    pharmacy, is illegitimate for simply taking business from a U.S.
    pharmacy. Using the NABP list of sites it deems unacceptable has led to
    a ludicrous and dangerous outcome, as a myriad of non-credentialed
    ---------------------------------------------------------------------------
    sites have no such pop-up warnings.

        This report investigates the quality of a key medicine dispensed by
    sites with warnings and without warnings. In doing so, this report will
    evaluate the quality of Bing's warning system and offer commentary on
    the use of online notifications to ensure patient safety in purchasing
    pharmaceuticals.

    Online Buying

        I undertook a simple Bing search using the terms ``Viagra'' and
    ``Canada,'' and a string of adverts and websites popped up. The foreign
    sites credentialed by PharmacyChecker.com or the CIPA (such as Canadian
    Pharmacy King) have a pop-up warning against them. But sites such as
    Canadian-pharmacyon.com, which explicitly state that one can get
    prescription drugs without prescriptions and are not credentialed by
    any entity, have no pop-up warnings.

    [GRAPHIC] [TIFF OMITTED] T2919.006

        Using the same methodology as with previously published peer-review
    studies,\9\ I sampled Viagra from credentialed sites with Bing pop-up
    warnings and from uncredentialed sites not displaying pop-up warnings.
    I bought the smallest samples possible from nine credentialed sites and
    14 uncredentialed sites, primarily based on how someone might shop
    using a Bing search: The earlier an item appears in a search of
    ``Viagra'' and ``Canada,'' the more likely it is to be purchased.
    ---------------------------------------------------------------------------
        \9\ See Bate and Hess, ``Assessing Website Pharmacy Drug Quality.''

        Using a handheld Raman spectrometer, I tested for authenticity as
    per previous research. Raman spectrometers are frequently used as a
    quick, reliable, and cost-effective way to differentiate between
    genuine and counterfeit drugs.\10\ The device compares an unknown
    sample--in this case a pill--to a reference standard by comparing the
    frequencies of certain kinds of light that are scattered after the two
    substances have been illuminated with a monochromatic laser.\11\ The
    device compares the resulting ``spectra'' from the scans, which
    generates a p-value denoting the probability that the difference
    between the reference standard and the sample is due to measurement
    uncertainty rather than the difference in molecular structure.
    Therefore, a p-value of greater than or equal to 0.05 would represent a
    pass result (i.e., any difference is due to measurement uncertainty),
    while a p-value of less than 0.05 would represent a failed result.\12\
    ---------------------------------------------------------------------------
        \10\ Bate and Hess, ``Assessing Website Pharmacy Drug Quality.''
        \11\ Mark R. Witkowski, ``The Use of Raman Spectroscopy in the
    Detection of Counterfeit and Adulterated Pharmaceutical Products,''
    American Pharmaceutical Review (January/February 2005), http://
    www.horiba.com/fileadmin/uploads/Scientific/Documents/Raman/aprraman.
    pdf.
        \12\ Thermo Scientific, ``Analytical Methods for Field-Based
    Material Identification and Verification: Probabilistic Evaluation vs.
    HQI Similarity Assessment,'' 2014, https://assets.thermofisher.com/TFS-
    Assets/CAD/Application-Notes/TS-Pharma-pvalue-HQI.pdf; and Gurvinder
    Singh Bumbrah and Rakesh Mohan Sharma, ``Raman Spectroscopy--Basic
    Principle, Instrumentation and Selected Applications for the
    Characterization of Drugs of Abuse,'' Egyptian Journal of Forensic
    Sciences 6, no. 3 (September 2016): 209-15, https://www.
    sciencedirect.com/science/article/pii/S2090536X15000477.
    ---------------------------------------------------------------------------

    Results

        After testing several pills from each site, the nine credentialed
    sites yielded 28 results, and the 14 uncredentialed sites yielded 39
    results. None of the samples from the credentialed sites failed,
    whereas four of the 39 samples from two of the uncredentialed sites
    were not authentic and appeared to be fake, displaying no correct
    spectra for Sildenafil (the active ingredient in Viagra).

        In addition to the uncredentialed sites including fake medicines,
    on average they were about 25 percent more expensive. The average cost
    was $16.55 per pill (ranging from $9.20 to $22.00 per pill), whereas it
    was $13.45 (ranging $8.70 to $17.00 per pill) from the credentialed
    sites (Figure 1). The fake pills were at the cheaper end at $9.50 per
    pill. But as the saying goes, nothing is as expensive as a fake
    medicine. It does not work, and it might kill you.

        These prices were then compared with U.S. brick-and-mortar
    pharmacies, which from a quick online search averaged around $41.00 per
    pill. With pills bought from credentialed sites being a third of the
    price of those bought at U.S. pharmacies, one can see why people buy
    online. The discount price from foreign sites is actually understated
    because I did not buy the cheapest per-pill deals but just the smallest
    sample size possible. People who buy in larger quantities could get
    pills at the lowest end of the range, well under $9.00 each.

        Figure 2 shows the quality measurements (p-values) plotted against
    the price. Of the sites with a warning, the trendline is almost flat,
    implying that price has no relationship with quality. Within this
    sample, that makes sense. All the samples are from licensed pharmacies
    selling products, presumably identical Pfizer or Pfizer-
    licensed products.

    [GRAPHIC] [TIFF OMITTED] T2919.007

        However, the sites without a warning show a rising trendline and an
    R-squared with some explanatory power. The implication is that more
    expensive products are better quality, probably actual Pfizer products.
    Extrapolating from the trend line, anything cheaper than $10.28 a pill
    is likely to fail authentication, and anything below $7.30 is likely to
    have zero p-value and be a fake.

        It is interesting that the failing products are cheaper. Web
    sellers (of drugs and probably most products) fall into two main camps:
    those that want repeat business and hence do the best job they can
    satisfying the customer (cheap, quality products reliably delivered)
    and those that want to make what they can from a customer now, not
    expecting their business again. These sellers may sell shoddy products
    or not even deliver the product after the money is taken. They
    obviously want to sell at high prices, but with competition from good
    sellers, they will probably price low to attract customers. So those
    selling fake products are likely to sell cheaply to attract buyers.
    This finding is particularly disconcerting with drugs because those
    looking online on overseas sites are by definition looking to save
    money and hence may go to the cheapest sources.

        I noted in extensive prior research that fake drugs are usually
    priced similarly to the legitimate product they are copying, sitting
    literally alongside real drugs on shelves.\13\ This was in order not to
    differentiate themselves from the market primarily because the vast
    majority of pharmacists are not complicit in their sale but are being
    duped too. But the unique characteristics of buying on the web--where
    sellers can be anonymous and where repeat business may be less likely--
    can make the pricing different.
    ---------------------------------------------------------------------------
        \13\ Roger Bate, Phake: The Deadly World of Falsified and
    Substandard Medicines (Washington, DC: AEI Press, 2014).

        In earlier work on web purchasing, I saw some cheaper pricing of
    fake Viagra, but it was more pronounced in this latest sample.\14\
    Viagra is an unusual product in that it is in high demand but not often
    covered by insurance, and some men will not want to ask for a
    prescription. As a result, individuals maybe more likely to buy from
    risky sources than they would for other pharmaceuticals. To confirm a
    pricing and quality bias, one would need to sample different types of
    drugs over time.
    ---------------------------------------------------------------------------
        \14\ Bate and Hess, ``Assessing Website Pharmacy Drug Quality'';
    and Bate, Jin, and Mathur, ``In Whom We Trust.''

        But from this small sample, one can conclude that someone going to
    Bing to find Viagra is being directed to less safe sites, some of which
    are selling fake products. That is not to say that those sites know
    they are selling bogus products. Often, sellers go to an intermediary,
    or an intermediary seeks them out, offering to sell cheaper versions of
    the product. Commercial buyers of these products should, on their
    customers' behalf, test the products, but often they will not go to the
    expense of doing so. This also gives them plausible deniability if the
    products end up being bogus. Such action is negligent, but sellers may
    genuinely not know whether they are selling a good deal or a dangerous
    fake.

    Conclusion

        One repeatedly hears of the dangers of buying online. When a
    respected search engine such as Bing warns one against a site, only a
    fool would buy from it. Yet Bing's policy is driving people away from
    sites selling authentic and cheaper Viagra and onto ones that sell
    potentially fake, more expensive products. The results may differ if
    one picked other medicines to sample. But Viagra is one of the most
    popular medicines to buy online, and it must at least represent a
    scenario of the dangers involved in Bing's policy.

        Bing's policy to alert searchers of the possible dangers of buying
    medicine from foreign websites has backfired. Rather than encouraging
    safer purchasing of pharmaceuticals, the measure is driving consumers
    to uncredentialed sites that may be dangerous and did send me fake
    Viagra while advising consumers not to buy from credentialed sites with
    good track records. Bing has made a mistake and should rectify its
    policy immediately.

    About the Author

    Roger Bate is an economist who researches international health policy,
    with a particular focus on tropical disease and substandard and
    counterfeit medicines. He is a visiting scholar at the American
    Enterprise Institute.

                                     ______

                                 Premier, Inc.

                    444 North Capitol Street, NW, Suite 625

                              Washington, DC 20001

                                 T 202-393-0860

                                 F 202-393-6499

                          https://www.premierinc.com/

    The Premier healthcare alliance appreciates the opportunity to submit a
    statement for the record on the Senate Finance hearing titled ``Drug
    Pricing in America: A Prescription for Change, Part I'' scheduled for
    January 29, 2019. We applaud the leadership of Chairman Grassley,
    Ranking Member Wyden and members of the Committee for holding this
    first in a series of hearings scrutinizing prescription drug pricing
    and considering policy and oversight solutions to lower costs for
    American patients.

    Premier is a leading healthcare improvement company, uniting an
    alliance of more than 4,000 U.S. hospitals and health systems and
    approximately 165,000 other providers and organizations to transform
    healthcare. With integrated data and analytics, collaboratives, supply
    chain solutions, consulting and other services, Premier enables better
    care and outcomes at a lower cost. A 2006 Malcolm Baldrige National
    Quality Award recipient, Premier plays a critical role in the rapidly
    evolving healthcare industry, collaborating with members to co-develop
    long-term innovations that reinvent and improve the way care is
    delivered to patients nationwide. A key component of our alliance is
    our Integrated Pharmacy Program, which combines essential clinical data
    with purchasing power to deliver reduced costs, improved quality and
    safety, and increased knowledge-sharing with other healthcare
    professionals.

    Premier is a solution to the rising cost of drugs. We need, however,
    policy changes for us to continue to succeed in our work to reduce
    healthcare spending. We have developed policy solutions that are
    attainable, practical, and sustainable.\1\ As the Committee begins to
    examine the rising cost of drugs and develop policy and oversight
    solutions to help lower costs for Americans, Premier urges the
    Committee to focus on the following as overarching principles:
    ---------------------------------------------------------------------------
        \1\ Premier previously provided detailed comments in response to
    the ``HHS Blueprint to Lower Drug Prices and Reduce Out-of-Pocket
    Costs'' request for information. Available at: https://
    www.premierinc.com/wpdm-package/premiers-response-trump-
    administrations-rfi-drug-
    pricing/.

          Solutions that use competitive forces to lower drug prices and
    increase the availability of generic medications and biosimilars in the
    marketplace--A wealth of research and Premier analytics show that
    competition in the pharmaceutical marketplace brings down prices.
    Competition from generic drugs has saved the U.S. healthcare system
    $1.46 trillion from 2005 to 2015.\2\ According to the FDA, drug prices
    drop to roughly 52 percent of brand-name drug prices with two
    manufacturers producing a generic product, 44 percent with three
    manufacturers and 13 percent with 15 manufacturers.\3\ This dynamic is
    reflected in the fact that 88 percent of dispensed prescriptions are
    for generic drugs, yet they account for only 28 percent of total drug
    spending.\4\ But in order to increase the competitive forces, more
    players are needed.
    ---------------------------------------------------------------------------
        \2\ ``Generic Drug Access and Savings in the U.S. 2017.'' Available
    at: https://accessiblemeds.org/sites/default/files/2017-07/2017-AAM-
    Access-Savings-Report-2017-web2.pdf.
        \3\ IMS Health, ``Price Declines After Branded Medicines Lose
    Exclusivity in the U.S.'' January 2016. Available at: https://
    www.iqvia.com/-/media/iqvia/pdfs/institute-reports/price-declines
    -after-branded-medicines-lose-exclusivity-in-the-us.pdf.
        \4\ Id.

            By aggregating the buying power of U.S. hospitals, Premier's
            drug portfolio prices have grown less than half the rate of the
            industry average inflation rate. Premier is saving our members
            millions of dollars by driving economies of scale, creating
            transparency around pricing and quality and applying
    ---------------------------------------------------------------------------
            competitive pressure to the marketplace.

            Therefore, solutions to address drug prices should focus on
            promoting the use of competitive forces to bring additional
            generic and biosimilar competition to the market.

          Sustainable solutions to address drug shortages that decrease
    barriers to entry, namely the time and cost to enter the marketplace,
    while maintaining the quality and safety of the product--Drug shortages
    continue to plague the healthcare system and have grown in both number
    and intensity in the past two years.\5\ Over the past 15 years Premier
    has implemented innovative strategies enabling us to reliably supply
    our members with 91 National Drug Codes (NDCs) that are on the drug
    shortage list. We have also embarked on an expanded partnership
    strategy with suppliers we expect will extend this progress. This work,
    therefore, is not done, and we will not stop until we have eliminated
    drug shortages. A recent study found that prices for drugs under
    shortage between 2015 and 2016 increased more than twice as quickly as
    they were expected to in the absence of a shortage.\6\ Another recent
    study found that the price of fluphenazine tablets in 2016 increased by
    over 2000% during a shortage.\7\ Therefore, solutions to address drug
    prices should focus on eliminating drug shortages to prevent the
    subsequent price increases that occur during a shortage.
    ---------------------------------------------------------------------------
        \5\ FDA public hearing, ``Identifying the Root Causes of Drug
    Shortages and Finding Enduring Solutions.'' Available at: https://
    healthpolicy.duke.edu/events/drug-shortage-task-force.
        \6\ Hernandez I, Sampathkumar S, Good CB, Kesselheim AS, Shrank WH.
    ``Changes in Drug Pricing After Drug Shortages in the United States.''
    Ann Intern Med; 170:74-76. doi: 10.7326/M18-1137.
        \7\ Fox E.R., Tyler L.S. (2017). ``Potential association between
    drug shortages and high-cost medications.'' Pharmacotherapy 37, 36-42.
    10.1002/phar.1861.

    In closing, the Premier healthcare alliance appreciates the opportunity
    to submit a statement for the record on the Senate Finance Committee's
    hearing on drug pricing. As an established leader in using competitive
    forces to lower drug prices and working towards eliminating drug
    shortages, Premier is available as a resource and looks forward to
    working with Congress as it considers policy options to address this
    ---------------------------------------------------------------------------
    very important issue.

    If you have any questions regarding our comments or need more
    information, please contact Soumi Saha, Senior Director of Advocacy, at
    soumi_saha@premierinc.comor 202-879-8005.

                                     ______

                                 Public Citizen

                              1600 20th Street, NW

                              Washington, DC 20009

                                  202-588-7769

    Public Citizen, a national public interest organization with more than
    500,000 members and supporters, urges senators to advance legislation
    to address the top congressional priority of people across the country:
    taking action to lower prescription drug prices.\1\
    ---------------------------------------------------------------------------
        \1\ Politico and Harvard T.H. Chan School of Public Health,
    ``Americans' Top Priorities for the New Congress in 2019'' (December
    2018), https://cdn1.sph.harvard.edu/wp-content/uploads/sites/94/2019/
    01/Politico-Harvard-Poll-Jan-2019-Health-and-Education-Priorities-for-
    New-Congress-in-2019.pdf.

    Currently, one in five Americans reports not taking their medication as
    prescribed because of cost,\2\ while many others face financial
    hardship and are forced to reduce spending on other necessities, like
    groceries, because of high drug prices.\3\
    ---------------------------------------------------------------------------
        \2\ The Commonwealth Fund, ``How the Affordable Care Act Has
    Improved Americans' Ability to Buy Health Insurance on Their Own''
    (2016), https://www.commonwealthfund.org/publications/issue-briefs/
    2017/feb/how-affordable-care-act-has-improved-americans-ability-
    buy?redirect
    _source=/publications/issue-briefs/2017/feb/how-the-aca-has-improved-
    ability-to-buy-insurance.
        \3\ Lisa Gill, Consumer Reports, ``How to Pay Less for Your Meds,''
    https://www.consumer
    reports.org/drug-prices/how-to-pay-less-for-your-meds/.

    Public Citizen is encouraged by the Senate Committee on Finance
    demonstrating that it takes the problem of high prescription drug
    prices seriously by dedicating its first hearing of the 116th Congress
    to the subject, but this hearing must be followed by passing bold,
    meaningful policies that will deliver the relief that is needed and
    ---------------------------------------------------------------------------
    demanded by people around the United States.

    Numerous pieces of legislation were introduced in the 115th Congress
    and some already in the 116th Congress that would increase access to
    medicines and collectively provide tens of billions of dollars in
    savings annually. Specifically,

          The Medicare Negotiation and Competitive Licensing Act (H.R.
    6505, 115th Congress) would lower prices for prescription drugs for
    Medicare Part D beneficiaries and taxpayers by requiring the U.S.
    government to negotiate directly with pharmaceutical manufacturers.
    Through competitive licensing, the Act safeguards patients' access to
    medicines, even when negotiations fail to reach a reasonable price.

          The Stop Price Gouging Act (S. 1369, 115th Congress), would put
    an end to steep, unfair prescription drug price spikes by imposing
    penalties on corporations that price gouge proportionate to the
    severity of the abuse. Researchers estimated that this bill would have
    saved $26 billion in taxpayer dollars through Medicare Part D alone in
    2015.\4\
    ---------------------------------------------------------------------------
        \4\ Thomas Hwang and Aaron Kesselheim, ``Taxing Drug Price Spikes:
    Assessing the Potential Impact,'' Health Affairs Blog, May 12, 2017,
    https://www.healthaffairs.org/do/10.1377/hblog20170512.060041/full/.

          The Prescription Drug Price Relief Act (S. 102) would help put
    an end to patients rationing treatment and suffering financial hardship
    because of exorbitant drug prices. It would ensure that U.S. drug
    prices are not higher than those paid in other large, wealthy economies
    and enable the government to license competition when pharmaceutical
    ---------------------------------------------------------------------------
    corporations set excessive prices on the medicines that people need.

          The Affordable Drug Manufacturing Act (S. 3775, 115th Congress)
    would establish an Office of Drug Manufacturing within the Department
    of Health and Human Services to ensure drug corporations with de facto
    monopolies are not able to spike prices with impunity and to provide
    stability in the supply of important generic medicines.

          The CREATES Act (S. 974, 115th Congress) would help put an end
    to brand-name pharmaceutical companies engaging in anticompetitive
    tactics to deny manufacturers of generics and biosimilars access to
    product samples they need to obtain FDA approval and market entry. This
    practice delays the introduction of price-lowering generic and
    biosimilar competition, and the brand-name manufacturers
    inappropriately extend their monopolies.

          The Preserve Access to Affordable Generics and Biosimilars Act
    (S. 64) and the Competitive DRUGS Act (H.R. 4117, 115th Congress) would
    help end pay-for-delay deals, wherein brand-name companies pay generic
    firms not to bring low-price generic or biosimilar versions of their
    brand-name prescription drug product on the market for a certain period
    of time, by making such deals presumptively anticompetitive, helping to
    bring price-lowering competition to market sooner.

    High prescription drug prices will continue to be an issue of national
    significance and a priority for all Americans. It is crucial for
    legislators to advance meaningful policies that will be felt by people
    across the country who are rationing treatment and facing financial
    hardship because of exorbitant prescription drug prices.

                                     ______

                      Letter Submitted by Debra L. Raffle
    February 26, 2019

    Chairman Grassley and the Committee:

    I hope I am not too late and will be read at least. I only received
    this notification a few days ago from the American Diabetes
    Association.

    I have type 1 diabetes. I was diagnosed around 9-11, sadly that it
    makes it easy to remember. The cost of insulin that I need to stay
    alive 24 hour a day has escalated from $70 per 1,000 ml vial to nearly
    $300 a bottle. The same bottle of Novolog sells for $47.99 in Canada. I
    just had to pay $2,300 out of pocket for 3 months of insulin (and that
    was with a supposed discount!) The insurance I have through my employer
    has an extremely high deductible and high co-pays and some items are
    not covered at all. If my insulin pump supplies are not covered, I
    simply cannot afford them. If I can't afford to manage my diabetes the
    way my doctor and I have been successfully through pump therapy all
    these years, I will likely get sick, get a complication or two and then
    ultimately die. This is insane to me! I should be able to afford my
    insulin and pump supplies, as in the past, but due to escalating prices
    of medications, insulin and insurance costs (so they can all make their
    profits) it is becoming unsustainable. I can't afford it and I am very
    healthy and have a good paying job.

    I would like to fight insurance companies who seem to think we can do
    without these drugs--insulin is not even a drug, it's something my body
    quit making that most of you all take for granted, but without it, I
    will, in fact, die within a few days/possibly lingering a few weeks in
    a coma. I didn't ask for this; however, if I am able to get what I
    need, what my doctor prescribes for me and have that covered by my
    insurance, I remain healthy. I also take a medication called Symlin
    that allows me to utilize my insulin more efficiently. It decreases my
    insulin intake about 30%. This helps me maintain a healthy weight. More
    insulin means more weight and more weight means taking more insulin.
    It's a vicious circle. I am a type 1 so I have never been over weight
    and I struggle to maintain my weight for the reasons I have listed
    above. If I can maintain my weight, not only will I be healthier, but I
    can take slightly less insulin to help combat the astronomical cost of
    something that I MUST HAVE EVERY SINGLE DAY OF MY LIFE. By reducing my
    intake by 10 units a day, I may get another day or two out each vial
    and that's a lot! It certainly will NOT help my overall health to put
    on extra pounds! Anyhow, my new insurance will not cover Symlin at all
    and they tell me it will cost $5,800 for a 3 month's supply that I used
    to pay $70 co-pay when I had Premera. I have been on this drug about 10
    years. This is ridiculous and clearly, I cannot afford this, so I get
    to go off its cold turkey, increase my insulin intake and pay more than
    I ever have for the same insulin!

    I don't think they understand how this all works nor do insurance
    companies and administrators care, but if you give us the tools
    (medications and supplies) to manage our diseases with, we will not
    have as many costly complications. So, it is cost effective to give us
    what we need now to avoid higher costs of complications later! To date,
    since I was diagnosed as a type I in 2001 and having been on an insulin
    pump for 17 years, I have never had any complications due to my
    diabetes and would like to keep it that way.

    I am so disgusted with insurance companies and I want to know what we
    can do to get things changed. Can I go up to Canada and purchase my
    insulin? What can I do to lower my medication and durable medical
    equipment costs? The insurance company cannot even tell me what things
    cost until I purchase them, which is ridiculous since I don't want to
    pay for things I clearly cannot afford. I'm lost and feeling desperate.
    I look to you to make this manageable disease. It is manageable if we
    can afford what we need to survive and there's NO reason for the price
    to quadruple in the last 10 years, NONE except for greed and profits.

    I spent over $6.5K last year on out pocket medical costs, mostly
    insulin and pump supplies. I had no surgeries, I had no illnesses, I
    had no procedures. This is becoming very difficult to afford.

    I don't think I should have to struggle to afford groceries and lose my
    home or just make simple choices because I can't afford my insulin and
    supplies. Please do something about the escalating cost of health care,
    specifically common insulin, Novolog in my case and do what you have
    promised for many years. This is unsustainable!

    Thank you for listening,

    Debra L. Raffle

                                     ______

                       Statement of Mary J. Ruwart, Ph.D.

       How to Lower Drug Prices Virtually Overnight Without Compromising
                      Safety, Effectiveness, or Innovation

    Chairman Grassley, Ranking Member Wyden, and distinguished members of
    the Committee, my name is Mary J. Ruwart, Ph.D. For 19 years, I was an
    award-
    winning Research Scientist at the Upjohn Company in Kalamazoo,
    Michigan. My job was to discover and develop new drugs.

    After leaving pharmaceutical research, I presented some of the
    following information at the American Association for Pharmaceutical
    Sciences. Others still in the industry told me that they wholeheartedly
    agreed with my data and its conclusions, but would never speak out
    publicly because of their fear that the FDA might retaliate against the
    companies that employed them. Consequently, drug company executives who
    testify to your committee may be hesitant to confirm the material I
    share with you today.

    Figure 1 shows how the industry's R&D costs are rising exponentially
    each year for new drugs (referred to in the industry as a ``new
    molecular entity'' or NME). For the past 4 decades, the collaborators
    cited in footnote 1 have used consistent methodology, including the
    cost of failures, to estimate R&D. Therefore, while one might dispute
    their reported out-of-pocket R&D costs, there should be no disagreement
    about the trend, which is greatly increasing each decade. Capitalizing
    these costs would approximately double these estimates.
    ---------------------------------------------------------------------------
        \1\ Data taken from Hansen (1979); DiMasi, Hansen, Grabowski, et
    al. (1991); DiMasi, Hansen, Grabowski (2003); DiMasi and Grabowski
    (2007); and DiMasi, Grabowski, and Hansen (2016) and converted to 2017
    $ by the author.

    [GRAPHIC] [TIFF OMITTED] T2919.008

    Economics 101 tells us that to stay solvent, businesses must pass the
    cost of producing their products on to consumers. The largest single
    cost of a new drug is its R&D, not its manufacturing costs. Indeed, as
    you can see from Figure 2, the price of new (brand-name) drugs rises
    ---------------------------------------------------------------------------
    along with R&D (r\2\ = 0.93 for the technically inclined).

    [GRAPHIC] [TIFF OMITTED] T2919.009

    Clearly, new drug R&D drives what we pay at the pharmacy. However, even
    after approval, only about 3 out of 10 new post-Amendment drugs recover
    their R&D costs.\4\ The entire industry relies on blockbuster drugs for
    its survival. Drugs launched between 2005 and 2009 are not even
    expected to recover their R&D, let alone produce an after-tax
    profit.\5\
    ---------------------------------------------------------------------------
        \2\ The average price for a branded prescription drug was taken
    from Eli Lilly Company (1972, 24) and U.S. Census Bureau (2012, 113,
    Table 159) and converted to 2015 dollars by author.
        \3\ Capitalized R&D/NME was calculated by author from data taken
    from Schnee (1970); Baily (1972); Hansen (1979); DiMasi, Hansen,
    Grabowski, et al. (1991); DiMasi, Hansen, Grabowski (2003); DiMasi and
    Grabowski (2007); and DiMasi, Grabowski, and Hansen (2016) and
    converted to 2017 $ by the author.
        \4\ Grabowski, Vernon, and DiMasi (2002); Grabowski and Vernon
    (1994).
        \5\ Berndt, Nass, Kleinrock, and Murray Aitken (2015).

    Why are R&D costs soaring and driving drug prices up? As a scientist
    involved in R&D, I saw first-hand that increased regulatory demands
    were largely responsible for rising development costs. Even as research
    became more efficient with computers, automation, and the rapid data
    sharing made possible by the Internet, regulatory demands grew. Instead
    of bringing in more researchers for drug discovery, the industry hired
    ---------------------------------------------------------------------------
    more scientists to run FDA-mandated studies.

    The soaring drug prices of the past several decades give the impression
    that they've always been on the rise. In fact, real (inflation-
    adjusted) drug prices fell 32% from 1949 to 1961.\6\ Only since the
    passage of the 1962 Kefauver-Harris Amendments has the cost of getting
    FDA approval risen so steeply.
    ---------------------------------------------------------------------------
        \6\ Telser (1975).

    How did the Amendments shift us from declining drug prices to soaring
    ones? Figure 3 illustrates how the Amendments more than tripled the
    time needed to take a drug from the lab bench to the marketplace, with
    a slight decrease after the Prescription Drug User Fee Act was passed
    in 1992.
    ---------------------------------------------------------------------------
        \7\ Pre-Amendment development times for self-originated and
    acquired new drugs were taken from Schnee (1970). Development times
    were adjusted by the author to reflect a mixture of 78% self-originated
    new drugs and 22% acquired new drugs to correspond to the post-
    Amendment data. Acquired drugs generally take longer to get to market
    because the time to negotiate a licensing agreement can greatly extend
    development time. The transition year 1962 is not included in the
    graph.
        \8\ The 1963-99 post-Amendment development times were taken
    directly from DiMasi (2001), which reported a mixture of 78% self-
    originated new drugs and 22% acquired new drugs. The estimate of the
    2000-09 development times was made as follows: The 1990s development
    time for self-originated new drugs was 11.8 years as per DiMasi,
    Hansen, and Grabowski (2003). The 2000s development time for self-
    originated drugs was 10.7 years as per DiMasi, Grabowski, and Hansen
    (2016). The difference between the two time periods was 1.1 years (11.8
    years-10.7 years). If we assume that acquired new drugs in the 2000s
    enjoyed the same decrease in development time from the 1990s as self-
    originated ones, the estimated development times for the 2000s would be
    13.1 years (14.2 years-1.1 years).

    [GRAPHIC] [TIFF OMITTED] T2919.010

    Figure 3 suggests that the FDA requirements have stabilized, but this
    is not the case. The Amendments are open-ended; the FDA can, and does,
    increase regulatory requirements. Regulatory-driven clinical trial
    requirements are the costliest; the Tufts group credit human trial
    ---------------------------------------------------------------------------
    complexity as responsible for the largest cost increases.

    The development timeline has been kept steady in recent years as drug
    companies have become more efficient at development, in spite of the
    increasing regulatory demands. However, part of that ``efficiency'' is
    gained through increasing the cost of development, such as doing animal
    dose-response studies concurrently instead of sequentially. Such a
    strategy requires the addition of extra groups and doses that would
    otherwise not be needed, for example.

    If increased regulatory demands gave us safer and more effective drugs,
    we might find the skyrocketing drug prices a small price to pay.
    However, there is little or no evidence for these presumed benefits.
    For example, prior to the Amendments, the rate at which drugs approved
    by the FDA were withdrawn from the market because of safety concerns
    was 2.5%.\9\ Since Amendment passage, the withdrawal rate has actually
    been somewhat higher, averaging 3.4%.\10\ Clearly, the Amendments have
    not prevented more unsafe drugs from reaching the market.
    ---------------------------------------------------------------------------
        \9\ Gieringer (1985); Wikipedia; Bakke, Wardell, and Lasagna
    (1984).
        \10\ Bakke, Manocchia, de Abajo, et al. (1995); U.S. FDA (2005);
    Wikipedia; Throckmorton (2014).

    Why wouldn't the extra studies required by the Amendments result in
    more safety? The reason is simple: animal studies and the relatively
    small clinical studies that precede FDA approval simply cannot predict
    every side effect that we'll see when large numbers of people take new
    ---------------------------------------------------------------------------
    drugs.

    In addition, because of the difficulty in recovering R&D costs, drug
    companies favor development of drugs meant to be taken for years, if
    not decades. While our bodies can detoxify drugs taken for a short
    period of time, lengthy treatments deplete the cofactors, such as
    vitamins, that the body uses to transform drugs into less harmful
    metabolites. In addition, people take more drugs than ever before,
    creating drug-drug interactions that can be harmful. As a consequence,
    about 106,000 people die each year from properly prescribed drugs.\11\
    ---------------------------------------------------------------------------
        \11\ Lazarou, Pomeranz, and Corey (1998).

    If anything, the Amendments have brought us less safety, not more.
    Indeed, Vioxx was arguably the deadliest drug ever marketed in the
    ---------------------------------------------------------------------------
    United States and it was approved under the Amendments.

    Proponents of the Amendments believe that without them that
    thalidomide-like drugs would reach the American market. However, pre-
    Amendment regulations had sufficient power to stop thalidomide approval
    in the United States and did so. The Amendments were overkill.

    The primary thrust of the Amendments was to ensure that all marketed
    drugs were effective, so that people wouldn't waste their money on
    drugs that didn't work. Studies suggest that about 7-10% of pre-
    Amendment drugs were totally ineffective,\12\ presumably because the
    marketplace discouraged companies from marketing drugs that didn't
    work. Manufacturers feared that doctors would be hesitant to prescribe
    their products in the future if today's drugs were ineffective. The
    Amendments might have done a slightly better job of regulating
    effectiveness, but the cost was soaring drug prices, clearly a poor
    trade-off.
    ---------------------------------------------------------------------------
        \12\ Peltzman (1974). The National Academy rated about 7% of
    prescription drugs approved before 1962 as ``lacking substantial
    evidence of effectiveness'' for any of the indications for which they
    were sold (NRC 1969, 12). Jondrow (1972) re-evaluated their data and
    concluded that evidence of effectiveness was lacking for as many as 9%
    of pre Amendment prescription drugs.

    The biggest cost of the Amendments, however, is not in skyrocketing
    drug prices, but in the premature death of millions of Americans who
    died waiting because of the long development time line or the loss of
    innovation as pharmaceutical companies shifted their funds from
    research to development. I estimate that each of us may have lost as
    many as 5-10 years \13\ of our lives to the Amendments.
    ---------------------------------------------------------------------------
        \13\ Data too voluminous for this testimony, but can be submitted
    upon request.

    The good news is that if these costly regulations are harming us
    instead of helping us, we could dispense with them, thereby slashing
    development costs, encouraging innovation, and making drugs much more
    affordable. Safety won't be compromised, because the Amendments have,
    ---------------------------------------------------------------------------
    if anything, decreased it.

    Based on past experience, effectiveness might be expected to decline,
    but I find that unlikely. Because of the Internet, patients can widely
    share their own opinions of whether or not drugs help them. Producers
    of ineffective drugs are likely to be punished by bad reviews, which
    may deter physicians from readily prescribing them.

    On the other hand, today's patients are acutely aware that the
    regulations keep them from getting access to new drugs. Right to Try
    (RTI) legislation was passed to alleviate this problem, but
    manufacturers often don't have enough drug supplies prior to approval
    to supply RTI patients. Companies often hesitate to engage in direct
    negotiations with patients for fear, warranted or not, of FDA
    retaliation.

    Doing away with the Amendments will likely be considered too drastic to
    be politically expedient. However, plans have been proposed which could
    allow for an intermediate solution. Heartland's Free to Choose Medicine
    (FTCM) initiative,\14\ for example, would permit drugs that have had
    FDA-regulated human safety trials to enter a totally separate market-
    regulated development track. FTCM requires more rigorous disclosure by
    the pharmaceutical companies, so that a comparison could be made
    between drugs marketed under the current FDA-regulated pathway and the
    FTCM track. FTCM drugs will have regulatory oversight only in the early
    stages of development; the decision as when to market would be made by
    the developing company.
    ---------------------------------------------------------------------------
        \14\ https://www.heartland.org/Center-Health-Care/free-to-choose-
    medicine/index.html.

    In conclusion, this abbreviated testimony illustrates how soaring drug
    prices are driven by ever increasing regulatory costs, identifies the
    1962 Kefauver-Harris Amendments as driving this regulatory expansion,
    and provides evidence that this legislation didn't give us safer drugs
    or greatly improve drug efficacy. Indeed, we all have probably lost 5-
    ---------------------------------------------------------------------------
    10 years of our lives due to the Amendments.

    Until the 1962 Amendments are rolled back or modified, drug prices will
    continue to soar. Other proposed tweaks will be, at best, temporary
    fixes if the underlying problem behind rising drug prices is not
    addressed.

    References

    Baily, MN. 1972. Research and Development Costs and Returns: The U.S.
    Pharmaceutical Industry. Journal of Political Economy, Jan.-Feb.;80(1):
    70-85.

    Bakke, OM, MA Manocchia, F de Abajo, et al. 1995. Drug Safety
    Discontinuations in the United Kingdom, the United States, and Spain
    from 1974 through 1993: A Regulatory Perspective. Clinical Pharmacology
    and Therapeutics, Aug.;58(1): 108-17.

    Bakke, OM, WM Wardell, and L Lasagna. 1984. Drug Discontinuations in
    the United Kingdom and the United States, 1964-1983. Issues of Safety,
    Clinical Pharmacology, and Therapeutics, May;35(5): 559-67.

    Berndt, ER, DN Nass, M Kleinrock, and M Aitken. 2015. Decline in
    Economic Returns from New Drugs Raises Questions About Sustaining
    Innovations. Health Affairs Feb;34 (2): 245-252.

    DiMasi, JA. 2001. New Drug Development in the United States From 1963
    to 1999. Clinical Pharmacology and Therapeutics, May;69(5): 286-96,
    Figure 5.

    DiMasi, JA, and HG Grabowski. 2007. The Cost of Biopharmaceutical R&D:
    Is Biotech Different? Managerial and Decision Economics, June;28: 469-
    79.

    DiMasi, JA, HG Grabowski, and RW Hansen. 2016. Innovation in the
    Pharmaceutical Industry: New Estimates of R&D Costs. Journal of Health
    Economics, May;47: 20-33.

    DiMasi, JA, RW Hansen, and HG Grabowski. 2003. The Price of Innovation:
    New Estimates of Drug Development Costs. Journal of Health Economics,
    Mar.;22(2): 151-85.

    DiMasi, JA, RW Hansen, HG Grabowski, et al. 1991. Cost of Innovation in
    the Pharmaceutical Industry. Journal of Health Economics; 10: 107-42.

    Eli Lilly Company. 1972. The Lilly Digest. (Indianapolis, IN: Eli Lilly
    Company), 24.

    Gieringer, DH. 1985. The Safety and Efficacy of New Drug Approval. Cato
    Journal, Spring/Summer;5(1): 177-201.

    Grabowski, HG and J Vernon. 1994. Returns to R&D on New Drug
    Introductions in the 1980s. Journal of Health Economics 13: 383-406.

    Grabowski, HG, J Vernon, and JA DiMasi. 2002. Returns on Research and
    Development for 1990s New Drug Introductions. Pharmacoeconomica; 20
    Suppl. 3:11-29.

    Hansen, RW. 1979. The Pharmaceutical Development Process: Estimates of
    Current Development Times and Effects of Regulatory Changes. In Issues
    in Pharmaceutical Economics, ed. RI Chien (Lexington, MA: Lexington
    Books).

    Jondrow, JA. 1972. Measure of the Monetary Benefits and Costs to
    Consumers of the Regulation of Prescription Drug Effectiveness
    [dissertation]. (Madison: University of Wisconsin).

    Lazarou, J, BH Pomeranz, and PN Corey. 1998. Incidence of Adverse Drug
    Reactions in Hospitalized Patients. Journal of the American Medical
    Association, Apr. 15;279(15): 1200-05.

    Peltzman, S. 1974. Regulation of Pharmaceutical Innovation: The 1962
    Amendments (Washington, DC: American Enterprise Institute for Public
    Policy Research).

    Schnee, JE. 1970. Research and Technological Change in the Ethical
    Pharmaceutical Industry [dissertation]. (Philadelphia: University of
    Pennsylvania).

    U.S. Census Bureau. 2012. Table No. 159. Statistical Abstract of the
    United States. (Washington, DC: U.S. Government Printing Office).

    Telser, LG. 1975. The Supply Response to Shifting Demand in the Ethical
    Pharmaceutical Industry. In Drug Development and Marketing, ed. RB
    Helms. (Washington, DC: American Enterprise Institute for Health Policy
    Research).

    Throckmorton, DC. 2014. Non-Clinical Cardiovascular Safety Testing:
    Moving Forward. Oct. 22, 6. http://www.fda.gov/downloads/aboutfda/
    centersoffices/officeofmedicalproductsandtobacco/cder/ucm420834.pdf,
    acc. May 15, 2016.

    U.S. FDA. 2005. CDER 2005 Report to the Nation: Improving Public Health
    Through Human Drugs. (Rockville, MD: U.S. Food and Drug
    Administration).

    Wikipedia. List of Withdrawn Drugs. https://en.wikipedia.org/wiki/
    List_of_
    withdrawn_drugs, acc. Oct. 25, 2013.

                                     ______

             Letter Submitted by Jerry I. Schaefer, Attorney at Law

                            2201 Vista Grande Drive

                          Vista, California 92084-2734

                               (760) 724-5681 Tel

                               (760) 726-8427 Fax

                         Email: jerry@jerryschaefer.com

    March 12, 2019

    U.S. Senate
    Committee on Finance
    Dirksen Senate Office Bldg.
    Washington, DC 20510-6200

    Re: Import prescription drugs from Canada

    Dear Sen. Chuck Grassley of Iowa:

        The costs of prescriptions in America are inflated; I can speak
    from experience because I need to take two separate medications. The
    cost in the States at Walgreens for one medication is $380.00 per
    month, the other is $337.00 per month, and totaling $717.00 month; with
    the discounts offered the cost is $638.63 for 1 month. One of the
    medications is manufactured in Germany by Boehringer Ingelheim and sold
    by Pharmaceuticals, Inc. in Ridgefield, CT. The other medication is
    manufactured in Loughborough, England, and sold by Merck in Whitehouse
    Station, NJ. Both drug companies also sell the same medications in
    Canada and Germany. Yes, not counterfeit, but the same companies, and I
    purchase them through a legit pharmacy in Canada, and for a 3-month
    supply the total cost is $663.18. If I purchased the drugs at
    Walgreens, the 3-month supply would total $1,915.89. Yes the drugs are
    manufactured by the same firms, and are not generic.

        I can provide the committee with invoices to verify what I paid for
    the medications if you require, including the labels of where and who
    manufactures them.

        In addition, the U.S. Government has threatened both Visa and
    MasterCard from taking payments for the medications, and American
    Express is the only credit card company that stills allow the payments.

        We know where the former congresspeople are now employed who voted
    for Plan D and blocked Medicare from negotiating for lower costs of
    medicine.

                Sincerely,

                Jerry I. Schaefer

                                      [all]