[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                     
          
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                          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.
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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.
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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.
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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.
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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/.
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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/.
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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 [email protected].

                                 ______
                                 
                 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 [email protected].

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
[email protected]

                                 ______
                                 

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: 
[email protected].

                                 ______
                                 
              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

                      [email protected]

                    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
[email protected]
(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 [email protected] 
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: [email protected] 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≷=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 
[email protected] 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: [email protected]

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]