[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]
TREATING THE PROBLEM: ADDRESSING
ANTICOMPETITIVE CONDUCT AND CONSOLIDATION IN HEALTHCARE MARKETS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON ANTITRUST, COMMERCIAL, AND ADMINISTRATIVE LAW
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
__________
THURSDAY, APRIL 29, 2021
__________
Serial No. 117-19
__________
Printed for the use of the Committee on the Judiciary
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Available via: http://judiciary.house.gov
U.S. GOVERNMENT PUBLISHING OFFICE
48-272 WASHINGTON : 2022
COMMITTEE ON THE JUDICIARY
JERROLD NADLER, New York, Chair
MADELEINE DEAN, Pennsylvania, Vice-Chair
ZOE LOFGREN, California JIM JORDAN, Ohio, Ranking Member
SHEILA JACKSON LEE, Texas STEVE CHABOT, Ohio
STEVE COHEN, Tennessee LOUIE GOHMERT, Texas
HENRY C. ``HANK'' JOHNSON, Jr., DARREL ISSA, California
Georgia KEN BUCK, Colorado
THEODORE E. DEUTCH, Florida MATT GAETZ, Florida
KAREN BASS, California MIKE JOHNSON, Louisiana
HAKEEM S. JEFFRIES, New York ANDY BIGGS, Arizona
DAVID N. CICILLINE, Rhode Island TOM McCLINTOCK, California
ERIC SWALWELL, California W. GREGORY STEUBE, Florida
TED LIEU, California TOM TIFFANY, Wisconsin
JAMIE RASKIN, Maryland THOMAS MASSIE, Kentucky
PRAMILA JAYAPAL, Washington CHIP ROY, Texas
VAL BUTLER DEMINGS, Florida DAN BISHOP, North Carolina
J. LUIS CORREA, California MICHELLE FISCHBACH, Minnesota
MARY GAY SCANLON, Pennsylvania VICTORIA SPARTZ, Indiana
SYLVIA R. GARCIA, Texas SCOTT FITZGERALD, Wisconsin
JOE NEGUSE, Colorado CLIFF BENTZ, Oregon
LUCY McBATH, Georgia BURGESS OWENS, Utah
GREG STANTON, Arizona
VERONICA ESCOBAR, Texas
MONDAIRE JONES, New York
DEBORAH ROSS, North Carolina
CORI BUSH, Missouri
PERRY APELBAUM, Majority Staff Director & Chief Counsel
CHRISTOPHER HIXON, Minority Staff Director
------
SUBCOMMITTEE ON ANTITRUST, COMMERCIAL,
AND ADMINISTRATIVE LAW
DAVID N. CICILLINE, Rhode Island, Chair
PRAMILIA JAYAPAL, Washington, Vice-Chair
JOE NEGUSE, Colorado KEN BUCK, Colorado, Ranking Member
ERIC SWALWELL, California DARREL ISSA, California
MONDAIRE JONES, New York MATT GAETZ, Florida
THEODORE E. DEUTCH, Florida MIKE JOHNSON, Louisiana
HAKEEM S. JEFFRIES, New York W. GREGORY STEUBE, Florida
JAMIE RASKIN, Maryland MICHELLE FISCHBACH, Minnesota
VAL BUTLER DEMINGS, Florida VICTORIA SPARTZ, Indiana
MARY GAY SCANLON, Pennsylvania SCOTT FITZGERALD, Wisconsin
LUCY McBATH, Georgia CLIFF BENTZ, Oregon
MADELINE DEAN, Pennsylvania BURGESS OWENS, Utah
HENRY C. ``HANK'' JOHNSON, Jr.,
Georgia
SLADE BOND, Chief Counsel
DOUG GEHO, Minority Counsel
C O N T E N T S
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Thursday, April 29, 2021
Page
OPENING STATEMENTS
The Honorable David Cicilline, Chair of the Subcommittee on
Antitrust, Commercial, and Administrative Law from the State of
Rhode Island................................................... 2
The Honorable Ken Buck, Ranking Member of the Subcommittee on
Antitrust, Commercial, and Administrative Law from the State of
Colorado....................................................... 4
The Honorable Jerrold Nadler, Chair of the Committee on the
Judiciary from the State of New York........................... 6
WITNESSES
Panel I
The Honorable Amy Klobuchar, Senator, Minnesota
Oral Testimony................................................. 9
Prepared Testimony............................................. 11
The Honorable Charles Grassley, Senator, Iowa
Oral Testimony................................................. 15
Prepared Testimony............................................. 17
The Honorable Richard Blumenthal, Senator, Connecticut
Oral Testimony................................................. 19
Prepared Testimony............................................. 21
The Honorable John Cornyn, Senator, Texas
Oral Testimony................................................. 23
Prepared Testimony............................................. 25
The Honorable Mike Lee, Senator, Utah
Oral Testimony................................................. 27
Prepared Testimony............................................. 29
The Honorable Carolyn Maloney, Chair of the Committee on
Oversight and Government Reform
Oral Testimony................................................. 32
Prepared Testimony............................................. 34
Panel II
Leemore Dafny, Bruce V. Rauner Professor of Business
Administration, Harvard Business School, Harvard Kennedy School
Oral Testimony................................................. 38
Prepared Testimony............................................. 41
Michael Carrier, Professor of Law, Rutgers Law School--Camden
Oral Testimony................................................. 59
Prepared Testimony............................................. 61
Robin Feldman, Professor of Law, University of California
Hastings College of the Law
Oral Testimony................................................. 71
Prepared Testimony............................................. 73
Alden Abbott, Senior Research Fellow, Mercatus Center, George
Mason University
Oral Testimony................................................. 79
Prepared Testimony............................................. 81
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Materials submitted by the Honorable David Cicilline, Chair of
the Subcommittee on Antitrust, Commercial, and Administrative
Law from the State of Rhode Island, for the record
Statement from Kristen McGovern, Executive Director,
Partnership to Empower Physician-Led Care.................... 110
Statement from George Slover, Senior Policy Counsel, Consumer
Reports...................................................... 115
Statement from the Purchaser Business Group on Health.......... 118
Statement from Marni Jameson Carey, Executive Director,
Association of Independent Doctors........................... 122
APPENDIX
Supplementary Materials from Michael Carrier, Professor of Law,
Rutgers Law School--Camden..................................... 130
Materials submitted by the Honorable David Cicilline, Chair of
the Subcommittee on Antitrust, Commercial, and Administrative
Law from the State of Rhode Island, for the record
Statement from Patrick Kilbride, Senior Vice President, Chamber
of Commerce's Global Innovation Policy Center, for the record 265
Statement from Christopher G. Sheeron, President, Action for
Health, for the record....................................... 267
QUESTIONS AND ANSWERS FOR THE RECORD
Questions submitted by the Honorable Eric Swalwell, a Member of
the Subcommittee on Antitrust, Commercial, and Administrative
Law from the State of California, for the record............... 280
Responses by Professor Robin Feldman to questions from the
Honorable Eric Swalwell, a Member of the Subcommittee on
Antitrust, Commercial, and Administrative Law from the State of
California, for the record..................................... 281
Responses by Professor Michael Carrier to questions from the
Honorable Eric Swalwell, a Member of the Subcommittee on
Antitrust, Commercial, and Administrative Law from the State of
California, for the record..................................... 282
Responses by Professor Robin Feldman to questions from the
Honorable Dan Bishop, a Member of the Committee on the
Judiciary from the State of North Carolina, for the record..... 283
TREATING THE PROBLEM: ADDRESSING
ANTICOMPETITIVE CONDUCT AND CONSOLIDATION IN HEALTHCARE MARKETS
Thursday, April 29, 2021
House of Representatives
Subcommittee on Antitrust, Commercial,
and Administrative Law
Committee on the Judiciary
Washington, DC
The Subcommittee met, pursuant to call, at 1:04 p.m., in
Room 2141, Rayburn House Office Building, Hon. David Cicilline
[Chair of the Subcommittee] presiding.
Present: Representatives Cicilline, Nadler, Jones, Deutch,
Jeffries, Raskin, Jayapal, Demings, Scanlon, Dean, Johnson of
Georgia, Buck, Issa, Johnson of Louisiana, Steube, Bishop,
Fischbach, Spartz, Fitzgerald, and Owens.
Staff Present: Cierra Fontenot, Chief Clerk; John Williams,
Parliamentarian; Amanda Lewis, Counsel; Joseph Van Wye,
Professional Staff Member; Slade Bond, Chief Counsel; Phillip
Berenbroick, Counsel; Ella Yates, Minority Member Services
Director; Douglas Geho, Minority Chief Counsel for
Administrative Law; and Kiley Bidelman, Minority Clerk.
Mr. Cicilline. The Subcommittee will come to order without
objection. The Chair is authorized to declare a recess of the
Subcommittee at any time. Good morning, and welcome to today's
hearing to examine consolidation and anticompetitive conduct in
the healthcare industry.
I am truly honored by my colleagues' presence, along with
our esteemed Witnesses on the second panel.
I would like to extend an especially warm welcome to my
counterpart on the Senate Antitrust Subcommittee, Senator
Klobuchar, who has been a real leader on these issues.
I also want to extend a warm welcome to Senator Blumenthal,
Senator Cornyn, and Senator Grassley, and to thank them for all
their work to lower prescription drug costs and on several of
the bills under discussion today. Of course, we may have to
move the order around, depending on the schedule of the
Senators.
It is also a pleasure to welcome Senator Lee, the Ranking
Member of the Senate Antitrust Subcommittee.
Finally, I am very pleased to be joined today by our
colleague in the House, Chair Maloney, who has led a serious
and effective investigation into drug prices as the Chair of
the Committee on Oversight.
Before we begin, I would like remind Members that we have
established an email address and distribution list dedicated to
circulating exhibits, motions, or other written materials that
Members might want to offer as part of today's hearing. If you
would like to submit materials, please send them to the email
address that has been previously distributed to your offices,
and we will circulate the materials to Members and staff as
quickly as we can.
I would also like to remind all Members and our Witnesses
that guidance from the Office of the Attending Physician states
that face coverings are required for all meetings in an
enclosed space, such as Committee hearings. I expect all
Members on both sides of the aisle to wear a mask for the
duration of today's hearing.
I now recognize myself for an opening statement. Prior to
the onset of the COVID-19 pandemic, our healthcare system was
in a State of crisis. The cost of prescription medicine has
increased by 200 percent in a short period of time, while
Kaiser Health reported that a quarter of cancer patients in the
United States could not afford their medicine. They had
resorted to cutting their pills in half or skipping drug
treatment entirely. Despite decades of rising costs, the United
States ranked dead last in health outcomes among similar
countries.
In the wake of the pandemic, the healthcare sector has
undergone a wave of consolidation across the entire industry,
and all the while the cost of healthcare continues to
skyrocket.
In the second half of 2020, there were five mega-mergers in
the pharmaceutical marketplace alone, adding up to nearly $100
billion. Within the decade, the Centers for Medicare and
Medicaid Services project that spending on healthcare in the
United States will surpass $6 trillion, equal to nearly 20
percent of U.S. gross domestic product.
Despite ample evidence of rising costs and anticompetitive
conduct in the pharmaceutical sector, the FTC has not attempted
to block any of these deals, including the combination of
Pfizer and Mylan's generic drug business into what is now the
largest manufacturer of generics in the world.
As then Commissioner Chopra and Acting Chair Rebecca Kelly
Slaughter noted in a dissenting statement, there has not been a
single instance in recent history where the agency has filed a
complaint in Federal court seeking to halt a prescription drug
merger. Under the leadership of Acting Chair Slaughter, the FTC
recently launched an international working group to rethink the
FTC's approach, which is a very promising step. In the hospital
markets, the FTC has been more active in seeking to block
mergers. The time and expense of bringing these cases over the
past few years has stretched the FTC's razor thin resources to
the breaking point.
At the same time, executive compensation at healthcare
firms continues to soar. The CEO of Tenet Healthcare, a for-
profit hospital giant with $399 million in profit last year,
was paid $16.7 million in the same year that the company
furloughed about 11,000 workers and received hundreds of
millions in bailout funds. According to reports by The
Washington Post, Genesis Healthcare--one of the largest nursing
home chains in the country--rewarded their CEO with a
multimillion dollar bonus, despite shortages of medical
equipment for workers at their facilities and a higher COVID
mortality rate than its major competitors. Finally, The New
York Times reported earlier this week that the CEO of a chain
of primary care physicians was paid $199 million last year
alone.
In other words, we are not seeing better care or more
innovation as a result of consolidation and anticompetitive
practices in the healthcare sector. It is far more likely that
monopoly profits are contributing to a CEO's mega yacht than
bringing new lifesaving drugs to market.
As our Nation recovers from both the public health and
economic effects of the pandemic, it is more essential than
ever that we take these issues head-on. Our competition system
is the backbone of promoting open and fair markets, and that is
especially true here.
In the pharmaceutical marketplace, the entry of generic
drug competitors can reduce the cost of branded drugs
exponentially. In hospital and healthcare insurance markets,
competition not only lower prices, but it also improves the
quality, availability, and affordability of care.
In far too many cases, effective antitrust enforcement
takes too long to deliver meaningful results to people in need.
For example, some branded drug companies have abused safety
protocols to delay generic entry, preserving their monopoly
power for more than the decade. As Professor Robin Feldman has
noted, even months of delay could be worth hundreds of millions
of dollars in additional monopoly revenues as the generic sits
on the sideline.
While this anticompetitive conduct should violate the
antitrust laws, even successful cases often take long to
provide effective relief. In response to this crisis, we
enacted the CREATES Act in December 2019, legislation I
introduced with Senator Leahy, that will lower drug prices by
billions of dollars. This law will help end the abuse of FDA
safety protocols by branded drug companies and spur the entry
of numerous lower cost alternatives. According to a recent
report by the FDA, the CREATES Act has already increased
generic and biosimilar competition to lower drug prices and
simplified the process for market entry.
In the final days of the 116th Congress, we also enacted
the Competitive Health Insurance Act, legislation that repeals
the longstanding exemption for the business of health insurance
that has been on the books since 1945.
In this Congress, we plan to build on these successes by
moving legislation to address other forms of anticompetitive
conduct and promote competition to healthcare markets.
Yesterday, I reintroduced the Affordable Prescriptions for
Patients through Competition Act together with Subcommittee
Ranking Member Buck and Senators Cornyn and Blumenthal. This
legislation addresses product hopping, a particular abusive
form of conduct used by drug manufacturers to extend their
monopolies by preemptively switching the market for a drug
prior to the expiration of the patent. As the National
Institute for Health has noted, there is often little or no
therapeutic advantage for the switch. It only exists to block
competitors from entering the market.
For example, several years ago, the pharmaceutical company
Actavis attempted to remove its blockbuster treatment for
Alzheimer's disease and replace it with a ``new and improved,''
version in order extend its monopoly until 2029. The new
version was simply a once daily dose instead of a twice daily
dose, which may be helpful but does not warrant decades of
additional exclusivity. This is not true innovation, and it is
costing hardworking Americans.
According to a recent report by Matrix Global Advisors,
just five instances of product hopping alone cost working
Americans $4.7 billion annually.
My distinguished colleagues on the first panel will discuss
several other proposals that address additional abuse of
conduct from pay-for-delay agreements to citizen petition
abuse.
As Chair Maloney will testify today, her committee's drug
pricing investigation uncovered new evidence of anticompetitive
conduct underscoring the urgency for congressional action.
In closing, the American people deserve a government that
is in their corner fighting for them to take on drug
profiteering and other barriers to affordable healthcare. Since
the beginning of the 116th Congress, ending this moral crisis
has been a top priority of mine as Chair of this Subcommittee,
and a top priority for House Democrats to keep our promise to
the American people to lower their healthcare costs.
With that, it is my pleasure now to recognize the Ranking
Member of the Subcommittee Mr. Buck for the purposes of making
an opening statement.
Mr. Buck, you may still be on mute.
Mr. Buck. Does that work.
Mr. Cicilline. It does indeed.
Mr. Buck. I wanted to assure the Chair that I am going to
go maskless, and I am socially distanced, approximately, 1,400
miles away from Capitol Hill at this point. So, I appreciate
the Chair's indulgence.
Today's hearing focuses on the issues that are important to
every American. Healthcare is a very large and important sector
of our economy that accounts for almost \1/5\ of the United
States GDP. According to the Centers for Medicare and Medicaid
Services, America spends almost $3.8 trillion, or almost
$12,000 per person, on healthcare. These sky-high costs are a
result of many factors, including the misguided Obamacare
legislation, a patchwork of often contradictory and burdensome
Federal and State laws, and anticompetitive conduct by a host
of actors in the healthcare sector but especially the
pharmaceutical industry.
I want to start by thanking our Witnesses today. It is
always a pleasure to interact with our Senate colleagues and
see the bipartisan nature of a legislation we will be
considering in the future.
I also want to thank Chair Cicilline for arranging this
hearing and my friend from Colorado, Congressman Joe Neguse,
for highlighting abuses in the pharmaceutical industry and
finding ways to lower drug cost for consumers.
Obamacare was sold to the American people as a means to
make healthcare affordable and protect patients. Over the past
decade, the exact opposite has materialized. Obamacare has
resulted in the loss of doctors and insurance options,
skyrocketing costs, and increasing consolidation and
monopolization of insurance and hospital markets across the
country. As we heard in Martin Gaynor's testimony before this
Subcommittee last Congress, the two largest insurers have 70
percent of the market in over one-half of all local insurance
markets. There have been almost 1,600 hospital mergers over the
past two decades, and there were nearly 31,000 physician
practice acquisitions by hospitals from 2008-2012. At least a
third of all doctors are now in hospital-owned practices.
One particularly pernicious result of this failed law is
the consolidation and closing of hospitals, especially in rural
areas. This leaves people in rural America, like most of the
people in my home district, with few options other than driving
to facilities that are often hours away.
A second factor that is driving up prices, destroying
competition, and leaving patients with fewer choices is the web
of inconsistent and often contradictory Federal and State laws
and regulations. We all know the Federal system is a virtually
unnavigable morass of laws, regulations, and guidance
documents. This seems to increasingly be the case at the State
level as well.
The pandemic has shown the need for a more nimble and
responsive healthcare system. That is not what we have in
either the Federal or State level. Instead, we have an ossified
system that seemingly can't get out of its own way.
For example, the Trump Administration took critical steps
to cut red tape and allow companies to develop extremely
effective and safe vaccines to stop the pandemic in under one
year. This previously unheard-of timeline highlights the need
for permanent regulatory reform, as promising drugs for other
diseases like cancer, cystic fibrosis, and multiple sclerosis
continue to languish for years in a bureaucratic approval
process.
Further, many of the largest players use this regulatory
framework to stifle smaller competitors, who rely on getting
new medication to market to become profitable and remain in
business. These smaller companies frequently end up bought by
giant competitors because they do not have the funds to survive
a decade-long FDA approval process.
Lastly and probably more egregiously in terms of driving up
costs and decreasing patient options are the examples of
anticompetitive conduct and abuse of government process we have
seen from the pharmaceutical industry.
The three bills we are considering today will result in
more competition and lower prices for patients.
I want to thank Senators Grassley, Cornyn, and Klobuchar,
and Blumenthal for their work on these important issues and for
being here today to discuss these bills.
In summary, the bills we are looking at today authorize
regulators to investigate the abuse of citizen petitions which
artificially delay the entry of generic competitors, curb the
practice of using anticompetitive pay-for-delay tactics that
artificially inflate prices for patients, and stop the brand-
name pharmaceuticals from playing games with their patents to
extend the period of their monopoly while destroying the market
for generics. These bills address the gamesmanship and abusive
process we have seen in this market, they will help curb the
price increases, and provide more options to the American
supervisor. In sum, the underlying issue in each of these
markets is the lack of competition and anticompetitive conduct
exhibited by the biggest players.
Our healthcare system is based on markets, and the system
only works as well as the markets that underpin it.
Mr. Chair, I am proud to cosponsor these three bills with
you that will result in more competition, lower prices, and
greater choice for patients.
I yield back.
Mr. Cicilline. Thank you to the Ranking Member.
I now recognize the Chair of the Full Committee, the
gentleman from New York, Mr. Nadler, for an opening statement.
Chair Nadler. Thank you. The Judiciary Committee has a
strong bipartisan tradition of promoting competition in
healthcare markets. We have done this work to make healthcare
services, particularly prescription drugs, more affordable for
patients. We continue that tradition with today's hearing which
will examine anticompetitive practices in this market, along
with legislation to address it. I am pleased that we are joined
by our distinguished colleagues from the Senate, and I thank
them for their hard work on a bipartisan basis on the important
legislation we introduced yesterday to lower prescription drug
costs. I want to take this opportunity to congratulate Senator
Klobuchar on her new book ``Antitrust,'' and to wish her well
on its sales.
All these bills are essential to help stop pharmaceutical
companies from engaging in anticompetitive conduct, such as so-
called pay-for-delay agreements, citizen petition abuse, and
product hopping. This conduct blocks or delays access to
affordable medications without any offsetting benefits.
I also want to extend a warm welcome to Chair Maloney, who
has led one of the most comprehensive and in-depth
investigations of drug prices in congressional history as Chair
of the Oversight and Reform Committee. The investigation, which
was originally launched by our late colleague, Chair Elijah
Cummings, has already uncovered significant new evidence of
pharmaceutical companies exploiting their market power at every
turn, all at the expense of the patient.
Today, one-quarter of Americans report that it is difficult
to afford their medicines. In fact, exorbitant medical bills
are one of the major causes of why Americans seek bankruptcy
relief. It is painfully clear that the soaring cost of
healthcare is also bad for the health and well-being of
American families. It is unacceptable that many seniors cannot
afford the arthritis medication they need to perform everyday
tasks, such as buttoning their coat or opening a jar, without
excruciating pain. It is unacceptable that hundreds of
thousands of cancer patients are reportedly delaying lifesaving
care, cutting their pills in half, or skipping treatment
entirely because of high drug prices. It is unacceptable that
people suffering from diabetes must worry about life-
threatening consequences of not being able to afford insulin
because of its exorbitant costs.
These trends have only worsened in the wake of the
pandemic, which has brought tremendous economic hardship to our
communities. It is time for this to change. As many experts
have noted, including some of the Witnesses who will testify
here today, the lack of competition in healthcare markets is
one of the primary causes of escalating costs.
In recent years, under Republican and Democratic
leadership, the Subcommittee has held numerous hearings in this
area, examining the topics of consolidation in the market for
health insurance, competition in the drug supply chain, and
anticompetitive practices by prescription drug companies. I am
pleased that we are continuing that essential work today. One
focus of our efforts should be lowering prescription drug costs
by strengthening competition from lower priced generic drugs.
According to the Federal Trade Commission, the first
generic competitor to brand the product is typically offered at
a price 20-30 percent below the brand price. Subsequent generic
entry creates greater price competition with price drops
reaching 85 percent or more off the brand price. In response to
the threat of generic entry, which of course threatens the
ability of branded drug companies to charge monopoly prices,
branded companies have engaged in numerous anticompetitive
tactics.
This Committee has been and will continue to be active in
stopping drug companies from reaping monopoly profits at the
expense of patients' health. For example, I am proud to have
reintroduced the Preserve Access to Affordable Generics and
Biosimilars Act, which Senator Klobuchar, Chair Cicilline, and
Ranking Member Buck to ban so-called pay-for-delay settlements.
These anticompetitive agreements allow branded drug companies
to pay off a generic competitor to delay entering the market
with a lower cost generic product. As a result of this abuse of
conduct, a brand name drug company gets to keep its monopoly,
and the generic gets paid off with a portion of the monopoly
profits, but the consumers inevitably lose.
Although the Supreme Court in FTC v. Actavis held that pay-
for-delay agreements could violate the antitrust laws, the FTC
has spent significant resources challenging what appear to be
clear violations. This legislation would address that problem
by requiring courts to view such agreements as presumptively
unlawful.
According to the nonpartisan Congressional Budget Office,
this legislation would save American taxpayers at least
hundreds of millions of dollars over 10 years due to the high
costs imposed on our healthcare system by this anticompetitive
conduct.
I was pleased that this legislation passed unanimously out
of the Committee in the last Congress, with strong support from
then Ranking Member Collins. I hope it will receive similar
support from my colleagues on the Committee in this Congress.
I also look forward to addressing this issue together with
our colleagues on the Energy and Commerce Committee in the
weeks ahead.
In closing, I thank the Chair for holding today's important
hearing, and I welcome all our esteemed colleagues and
panelists. I look forward to hearing their testimony, and I
yield back the balance of my time.
Mr. Cicilline. Thank you, Mr. Chair.
It is now my pleasure to introduce the Witnesses on our
first panel. Our first Witness is the Senior Senator from
Minnesota and Chair of the Senate Judiciary Subcommittee on
Competition Policy, Antitrust, and Consumer Rights, Amy
Klobuchar, and soon to be an award-winning author.
Additionally, Senator Klobuchar is Chair of the Democratic
Steering and Outreach Committee as well as the Rules and
Administration Subcommittee. She has served Minnesota for more
than 20 years, first as a Hennepin County attorney from 1998-
2006, and since as United States Senator.
Prior to entering public service, Chair Klobuchar was a
partner at both Dorsey & Whitney and Gray, Plant, and Mooty,
specializing in regulatory work in the areas of
telecommunications.
Chair Klobuchar received her bachelor's degree from Yale
University and her J.D. from the University of Chicago Law
School.
Today's second Witness is Senator Charles Grassley, former
Chair of the Senate Judiciary Committee, President Pro Tempore
of the Senate, and Senior Senator from Iowa. Additionally, Mr.
Grassley has Chaired the Senate Finance, Narcotics, and Aging
Committees in his four decades in the United States Senate.
Prior to being elected to the Senate in 1980, Mr. Grassley
served in the Iowa House of Representatives from 1959-975 and
the United States House of Representatives from 1975-1980.
Before entering public service, Mr. Grassley worked farms
and on factory floors in Iowa, first as a sheet metal shearer
and then as an assembly line worker. Mr. Grassley received both
his bachelor's and master's degrees from the University of
Northern Iowa.
Our third Witness is the Senior Senator from the State of
Connecticut, Richard Blumenthal. He was elected in 2010 and is
currently serving his second term. Prior to his election to the
Senate, Mr. Blumenthal served Connecticut as Attorney General
for 20 years, from 1991-2011--the longest tenure in the State's
history--as a State Senator from 1987-1991, in the Connecticut
House from 1984-1987, and as United States Attorney for the
district of Connecticut from 1977-1981.
He is also a 6-year veteran of the United States Marine
Corps Reserves where he attained the rank of sergeant. Mr.
Blumenthal received his bachelor's degree from Harvard College
and his J.D. from Yale Law School.
Our fourth Witness, Senator John Cornyn, is Chair of the
Senate Judiciary Committee on Border Security and Immigration
and the Senior Senator from the State of Texas. Senator Cornyn
is currently serving his fourth term and was first elected to
the Senate in 2002. He has served his State of Texas in a
number of elected positions, including as Bexar County district
judge, Texas Supreme Court, and Texas Attorney General. In the
114th, 115th, and 116th Congresses, Mr. Cornyn served as a
Senate Majority Whip. Senator Cornyn received his bachelor's
degree from Trinity University, his J.D. from St. Mary's Law
School, and his Master of Laws from the University of Virginia.
Our fifth Witness, Senator Mike Lee, is the Ranking Member
of the Senate Judiciary Subcommittee on Antitrust Competition
and Policy and Consumer Rights, and a senior Senator from Utah.
Mr. Lee is also the Ranking Member of the Joint Economic
Committee. He was elected to the Senate in 2010 and is
currently serving his third term. He spent years at the law
firm Sidley Austin as an attorney specializing in appellate and
Supreme Court litigation, and then as assistant United States
attorney in Salt Lake City. He has clerked for Supreme Court
Justices Samuel Alito on both the U.S. Court of Appeals Third
Circuit and on the Supreme Court.
Mr. Lee received both his bachelor's degree and his J.D.
from Brigham Young University.
The final Witness on our first panel is my distinguished
colleague, the Chair of the House Committee on Oversight and
Government Reform, Carolyn Maloney. Chair Maloney has
represented New York's 12th district since 1992 and has served
as Chair of the Committee on Oversight and Government Reform
since 2019.
A lifelong public servant, she worked for the people of her
State at the New York City Board of Education and in the New
York State legislature. In 1982, Chair Maloney was elected to
the New York City Council, where she served for 10 years until
her election to Congress.
She has also served at various times as Vice Chair of the
Joint Economic Committee, regional whip of the Democratic
Caucus, and a Vice Chair of the House Democratic Steering and
Policy Committee.
Chair Maloney received her bachelor's degree from
Greensboro College.
We welcome all our very distinguished Witnesses on our
first panel, and we thank them for their participation. I will
ask the Witnesses to summarize your testimony in 5 minutes. To
help you stay within that time, there is a timing light in
Webex. When the light switches from green to yellow, you will
have 1 minute to conclude your testimony. When the light turns
red, it signals that your 5 minutes have expired. Of course,
your full written testimony will be made a part of the record.
With that, I now recognize the distinguished Senator from
Minnesota, Senator Klobuchar for 5 minutes.
STATEMENT OF THE HON. AMY KLOBUCHAR, A SENATOR FROM THE STATE
OF MINNESOTA
Senator Klobuchar. Well, thank you very much, Mr. Chair,
Ranking Member. I assure you, Mr. Chair, if they ever make a
movie out of my book, dream on, you will have a starring role.
Thank you for your work on digital platforms, the
bipartisan work in this Committee, and this incredible
gathering you have put together to make the point that it is
not just tech where we see this kind of consolidation. It is
healthcare. It is everything from cat food to caskets.
So, I got involved on the pharma side when I got a call in
2008 from a pharmacist at Minneapolis Children's Hospital who
said: ``You know, the price of this lifesaving drug for heart
defects for kids, babies, newborn babies, has gone up from $85
a treatment to $1,600 a treatment.''
I am thinking that is impossible. I called the head of the
hospital. I start looking into it. What happened was one
company bought that drug, and then they cornered the market.
They bought the other drug. Those were the only two drugs
available, and they went to town and made a whole bunch of
money.
Even the FTC, they tried to take it on. We tried to take it
on in Congress. AGs across the country tried to take it on.
They ultimately failed. It took years--years--for a generic to
develop.
That is what we are dealing with. When newborn babies and
their parents and all the hospitals in a country can't win a
case, we better do something about it. I think you know some of
the answers because they have come right out of the House.
First, I would suggest negotiation of drug prices under
Medicare, a bill that I lead with Representative Welch. I think
it is a great idea. The President mentioned it last night.
Doing something when it comes to drug reimportation is
something that I know, Chair, many people have worked on over
on this side. I also have worked on that bill with Senator
Grassley. I know he is coming up next. That is a pretty
important effort. There are efforts over here as well.
Second, is protecting drug price competition and doing
something about generics. You mentioned the CREATES Act, and
the work we have to do to stop pay-for-delay. That is ripe for
action. It is outrageous that we still have this practice going
on where pharmaceuticals are paying their competitors to keep
their products off the market, and there is more we can do on
that, and you mentioned a few of those efforts, Mr. Chair.
Finally, antitrust competition policy. Incredible
consolidation has been going on. I am focused here--there are
other aspects of healthcare--but on pharma. What I am thinking
is when you look at what we are dealing with, when we have got
the biggest companies the world has ever known in Facebook and
Google now being sued by the FTC and by the Justice Department,
this was a good thing. I am glad that Makan Delrahim and Chair
Simons under the Trump Administration brought these suits. Now,
they are being carried on by the Biden Administration.
You can't just do that and expect these healthcare pharma
issues to be taken care of without funding those agencies.
Senator Grassley and I--he can mention this--have a bill to
finally update our nation's antitrust laws regarding fees when
it comes to mergers. This merger filing fee bill almost got
done, as you know, Mr. Chair, at the end of the year in the
budget with support from the White House. We need to get that
done immediately. That will add significant resources to the
two agencies, plus the appropriations policy.
You cannot take on Big Pharma and Big Tech with Band-Aids
and duct tape. You have got to give our enforcers the resources
to do it.
Then I would finally add the work we are all doing on going
after exclusionary conduct, going after these mergers, changing
the standards, and making sure that our laws are as
sophisticated as the companies that are supposed to be serving
consumers. Thank you, Mr. Chair.
[The statement of Senator Klobuchar follows:]
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Mr. Cicilline. Thank you, Senator.
I now recognize the distinguished Senator from Iowa,
Senator Grassley, for 5 minutes.
STATEMENT OF THE HON. CHUCK GRASSLEY, A SENATOR FROM THE STATE
OF IOWA
Senator Grassley. Thank you very much for the invitation,
Mr. Chair. Millions of Americans started their day with a dose
of prescription medication. Unfortunately, for many patients,
those drugs aren't affordable, prescriptions are left at the
pharmacy counter, and doses are skipped or rationed until the
next paycheck. That is unacceptable.
As Chair of the Finance Committee last Congress, I explored
several approaches to reduce healthcare costs. Senator Wyden
and I started by investigating insulin pricing. We found that
the business practices in competitive relationships between
manufacturers and middlemen, the pharmacy benefit managers, or
PBMs, whatever you want to call them, have created a vicious
cycle of pricing increases. PBM's spur drug makers to hike list
prices to secure prime formulary placement and greater rebates.
I also investigated the debt collection practices of
nonprofit hospitals. I examined how these hospitals make
financial assistance plans available to patients, and the
patients can't even afford to pay. Nonprofit hospitals enjoy
certain tax benefits because they are supposed to serve the
needs of their communities and, particularly, patients with
limited means. It is only fair that we ensure compliance with
the laws if they get special treatment.
I have worked with Senator Wyden on a prescription drug
bill that would lower drug costs and at the same time save the
taxpayers $95 billion. Our bill would cap out-of-pocket drug
costs for seniors at $3,100. It would slow the growth of drug
costs in the future while protecting innovation by keeping
government out of the business of setting prices. The key part
of the bill limits year-over-year increases to CPI, or
approximately 2 percent today, as opposed to the usual
increases of 5-10 percent every year. It is the only
prescription drug bill that can get 60 votes in the United
States Senate.
I also believe that the importation of safe and affordable
prescription drugs from Canada would lower healthcare costs. As
you heard, Senator Klobuchar and I worked together on several
bills. We have a bill to allow this, creating savings for
consumers and injecting more competition into the
pharmaceutical market.
When I chaired the Judiciary Committee, I conducted an
investigation into EpiPen's misclassification in the Medicaid
Drug Rebate Program. My investigation started when a
constituent contacted me about high EpiPen costs. Those
constituent contacts and the resulting congressional
investigation ultimately contributed to the implementation of
the bipartisan bill that we call the Right Rebate Act.
We must deter companies from engaging in activities that
aim to reduce competition, including regulatory interference,
pay-for-delay, product hopping, and rebate bundling, just to
name a few. Again, Senator Klobuchar and I reintroduced our
bill to combat anticompetitive pay-for-delay deals where brand
drug companies pay their generic competitors not to compete.
Senator Klobuchar and I also reintroduced our bill to
reduce the incentives for branded drug companies to interfere
with the regulatory approval of generics and biosimilars that
would compete with their own products. The largest PBMs have
merged with insurance companies. These conglomerates often own
other players in the healthcare industry. It is important to
determine whether consolidation helps patients, or as I
believe, creates anticompetitive behavior and increased costs.
I have also introduced a bill with Senator Cantwell to
bring transparency to the PBM industry by requiring the Federal
Trade Commission to study the effects of consolation on pricing
and potential anticompetitive behavior.
Further, Congress should codify regulations requiring
hospitals and insurers to disclose their low discounted cash
prices and negotiated rates to consumers before they receive
medical care.
We should pass Senator Braun's Price Transparency Act,
which I cosponsored. We should work in a bipartisan, bicameral
fashion to tackle the problems of rising healthcare costs. This
hearing proves in a bicameral way that we are doing it.
Thank you again for the opportunity to testify.
[The statement of Senator Grassley follows:]
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Mr. Cicilline. Thank you very much, Senator Grassley.
I now recognize Senator Blumenthal, the distinguished
Senator from the State of Connecticut for 5 minutes.
STATEMENT OF THE HON. RICHARD BLUMENTHAL,
A SENATOR FROM THE STATE OF CONNECTICUT
Senator Blumenthal. Thanks so much, Mr. Chair.
I want to begin by really very enthusiastically thanking
you for your leadership on antitrust issues. What you and the
Committee have done, along with the other Members, on the tech
monopoly and predatory pricing and conduct issues is truly
remarkable. I am sure that you will be doing the same here. I
am proud to be a cosponsor with you of many of the measures
that are coming before the Committee today.
I just want to say how honored I am to join in sponsoring
the No Stalling Act and to support the Preserve Access to
Affordable Generics and Biosimilars Act led by Senator
Klobuchar.
Speaking of Senator Klobuchar, here is the book. Buy it. It
is a big book. Serious. As the title indicates, it covers
taking on monopoly power from the Gilded Age to the Digital
Age.
Now, in the Gilded Age, as you know, they divided up
territory, and they fixed prices in smoked-filled rooms. Now,
monopoly and predatory conduct are much more sophisticated and
less visible because we live in the Digital Age. The effects
are a matter of life and death. I am very much in favor of
conduct remedies or misconduct remedies, the behavioral
standards that we are going to hopefully write into law,
including importing more drugs, requiring negotiation of
Medicare pricing, other kinds of steps. One of them, by the
way, is the bipartisan Affordable Prescription for Patients
Act, which I have joined with Senator Cornyn on cosponsoring.
At the end of the day, what is really needed here is a
structural remedy. Break them up. That is the remedy that I
have advocated on some of the Big Tech companies. Break them
up. They have grown too big. It has given them monopoly power.
They are misusing that power. I know what it is like to sue
based on antitrust law, a monopolistic predatory power. I did
it as Attorney General against Microsoft. It had an enormously
important positive effect for consumers.
So, I respectfully suggest that we need stronger
enforcement of the laws we have. We also need to enhance and
improve the laws with regard to our power of enforcement and
provide more resources to the enforcers. In the FTC, in the
Department of Justice, they need to be empowered to enforce the
law more aggressively and effectively. We have seen too little
of it in past years.
Let me speak on the bipartisan Affordable Prescription for
Patients Act. I thank Senator Cornyn for sponsoring this bill.
It would eliminate the abuses of product hopping, which, for
example, was demonstrated by Actavis when it feared that its
patent would run out on an Alzheimer's disease medication.
Instead of facing the fact that it would no longer have
exclusivity, it issued a new product, supposedly, but really it
was the old product, with an extended-release mechanism. It
pulled the old drug from the market. It was able to continue
charging monopoly prices as a result of it.
This kind of practice is used with respect to countless
drugs. They inflate prices. They deprive people of lifesaving
medication. I am also pleased to be in partnership with
Representatives Johnson and Issa in a House companion to a bill
that shuts down the abuses of the patent dance, the product
hopping patent dance. They have colorful names, but they are
abhorrent to consumers.
Patent dancing involves, in effect, resolving patent
litigation quickly before a biosimilar is introduced on the
market, which creates a pattern dispute resolution process and
enables the manufacturer to continue with a lock on the market.
So, I recommend tougher, more aggressive enforcement and
structural remedies, but in the meantime these kinds of efforts
to eliminate abuses of monopolistic power must be advanced. I
thank you, Mr. Chair, and I yield.
[The statement of Senator Blumenthal follows:]
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Mr. Cicilline. Thank you very much, Senator Blumenthal.
Now, I recognize Senator Cornyn, who is the co-lead of the
Affordable Prescription for Patients Act, along with Senator
Blumenthal, Ranking Member Buck, and myself.
Welcome to the Committee. You are now recognized for 5
minutes.
STATEMENT OF THE HON. JOHN CORNYN, A SENATOR FROM THE STATE OF
TEXAS
Senator Cornyn. Well, thank you, Chair Cicilline and
Ranking Member Buck and Members of the Subcommittee. It is
unusual to have this many Members of the Senate testifying in
the House, but we are grateful for your invitation and the
opportunity.
After more than a year battling COVID-19, the light at the
end of the tunnel is rapidly growing brighter and larger
because of the astonishing scientific achievements that led to
multiple, effective vaccines. As you know, more than half of
the adults in America have received at least one dose. I look
forward to the time when this vaccine helps put this virus to
bed once and for all.
I say this because it is important to recognize that
American ingenuity, creativity, and innovation are remarkable
qualities that has led to lifesaving discoveries. Alongside
this innovation, we also have to have smart public policies
that protect both the creators and the beneficiaries of these
discoveries. There is no better example than prescription drug
prices.
As the cost of many prescription drugs have skyrocketed in
recent years, countless of my constituents in Texas have
reached out to share stories about the impossible decisions
their families have had to make, which have only become more
heart-wrenching over the last year. Not paying some of their
bills, cutting pills in half, skipping doses, or not filling
prescriptions altogether because they are simply too expensive.
No family should have to make these types of difficult choices.
That is why Senator Blumenthal and I have offered up the
Affordable Prescriptions for Patients Act in the Senate. We
have been proud to work with a bipartisan group of colleagues
on both sides of the Capitol, and the strong bipartisan,
bicameral support of this bill demonstrates just how
commonsense these reforms are.
Now, I know most of us haven't heard of the terms ``product
hopping'' or ``patent thicketing'' in the past, but as you
heard from Senator Blumenthal, this is the core of the problem
that this bill attempts to solve.
Product hopping occurs when a company develops a
reformulation of a product that is about to lose its patent
exclusivity and then pulls the original product off the market.
This isn't done because the new formula is more effective but
because it prevents generic competition. This simply needs to
stop. The FTC should be able to bring antitrust suits against
bad actors who deliberately game the patent system. This
legislation will ensure that that is possible.
Second is patent thicketing. This occurs when an innovator
uses multiple overlapping patents with identical claims to make
it nearly impossible for competitors to come to market. This
abuse of the patent system comes at a high cost for patients.
To solve this, our legislation would streamline the way drug
manufacturers resolve patent disputes so lengthy legal
processes don't stand in the way of competition. We are
protecting patents rights, which are critical, but we are not
letting these important issues get bogged down in the sludge of
time-consuming and expensive litigation.
We know companies are unlikely to pour extensive time,
money, and resources into discovering new cures if, at the end
of it, they can't recoup their costs. We can't allow bad actors
to abuse the system for their financial gain either.
We know there is bipartisan support for this bill, as I
said, on both ends of the Capitol. I hope we can achieve the
same success we did last year when this bill passed with
bipartisan support, unanimous support in both the House and
Senate Judiciary Committees.
So, I am proud to be here with my colleague Senator
Blumenthal to advocate for these proposals, and we look forward
to working with all of you to bring down drug prices for
American families.
[The statement of Senator Cornyn follows:]
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Mr. Cicilline. Thank you very much, Senator Cornyn.
I now recognize Senator Lee for 5 minutes. I believe he is
on the--
STATEMENT OF THE HON. MIKE LEE, A SENATOR FROM THE STATE OF
UTAH
Senator Lee. Thank you so much. Thank you, Mr. Chair, and
Ranking Member Buck, esteemed Members of the Subcommittee,
thanks to all of you for asking me to speak today.
As the leading Republican on the Senate's sister
Subcommittee to this body, over the last decade, I have
developed a tremendous appreciation for our country's antitrust
laws and for the importance of competition policy to our
national economy.
Rising healthcare costs and limited healthcare options are
leading concerns for Americans of all stripes, making
competition in the healthcare markets particularly important.
Now, I share the commitment of my colleagues who have joined
you today in ensuring and protecting competition across the
healthcare space. In 2016, I was honored to introduce, along
with Senators Grassley, Leahy, and Klobuchar the CREATES Act,
which was timely passed by Congress and signed into law by
President Trump in 2019.
As you know, the CREATES Act was designed to protect
competition and to lower drug costs by ensuring that generic
competitors have access to samples of certain brand-name drugs
for the purpose of establishing bioequivalence for the FDA. The
Congressional Budget Office estimated that the law will save
taxpayers $3.8 billion over 10 years. Industry participants
tell me that it is already improving generic competition.
As this Subcommittee considers additional legislation aimed
at ways to improve competition across various healthcare
markets, I would urge you to follow the model that we made with
the CREATES Act and that helped make the CREATES Act so
successful. Light-touch reform to help align private incentives
to benefit competition rather than government intervention that
displaces competition with regulation.
We should all examine our history to find the root causes
of consolidation in America's healthcare industry and tackle
the issue with incremental targeted fixes rather than a
massive, one-size-fits-all approach. That in turn will require
taking up a widened view of the factors that impact competition
in healthcare markets, including existing Federal and State
laws and regulations.
If there is anything worse than a monopolist using its
power to squelch competition and squeeze consumers, it is when
that monopolist is a creature of government policy and power.
We as elected representatives of the people, entrusted with
enacting the laws, hopefully, in pursuit of justice and
equality, have to always be vigilant against allowing the
democratic process to be corrupted, even if inadvertently, to
pick winners and losers.
If we want to make reforms in this area, we sadly have no
shortage of opportunities. At the State level, entry into
hospital markets is frequently restrained by State certificate
of need laws. These laws require potential market entrants and
existing competitors to obtain approval or permission in
advance from the State to build new hospitals or to expand
current facilities. In some states, incumbent hospitals even
have veto power over granting certificates to new entrants.
This is crony capitalism, pure and simple. Patients everywhere
have suffered for it where these laws have been in place.
It is no wonder that the pandemic saw at least 24 states
suspend or loosen their certificate of need laws. Imagine the
benefits to healthcare and competition within healthcare if
states just repealed those laws. Which we don't need anyway and
harm people, in any event.
Another common restriction at the State level are
limitations on nurse practitioners, some of which make little
to no sense and provide little to no benefit or additional
safety to the patient. The conflict of interest is obvious. For
many basic needs, nurse practitioners offer a comparable skill
in service at a lower price. This is something that increases
access to the healthcare for the most economically vulnerable.
So, removing those sorts of restrictions would inevitably
generate price and quality competition between nurse
practitioners and physicians and improve costs and outcomes for
patients across the country. This is one of those many areas in
which we should just allow for people to do what they do best.
Here in the case of nurse practitioners, take care of people
without excessive government intervention. We would be better
off without that intervention.
Government intervention in healthcare has also had
disastrous effects at the Federal level. Medicare has used
Federal clout to strong-arm healthcare providers into agreeing
to low reimbursement rates. Now, ordinarily, we should cheer
lower prices. In this case, these so-called savings are really
just subsidies paid for by insured and self-paid patients. This
isn't healthcare reform. It is sort of Ponzi scheme. Medicare-
for-all would mean that there was no one left to pay the
subsidy, and everyone would suffer. These artificial pricing
pressures also mean that healthcare markets are not able to
fully respond to competitive pressure and would have fewer
resources to invest in expansion and innovation. As a result,
consumers would have fewer options. Quality would go down;
prices would go up.
Obamacare has had a similar effect.
Mr. Cicilline. Senator, if I could just ask you to conclude
your testimony. You are well over time, but I wanted to
accommodate you as much as I can.
Senator Lee. Great. Thank you. So, we are all familiar with
the promise that if you like your plan, you can keep it. This
has turned out not to be true. So, it is always tempting in all
of this to retrench into tribalism and push forward
encompassing reforms, all-encompassing solutions that might
only require floor time once. Our constituents deserve better.
Then deserve a free-market approach where providers can respond
to needs and demand.
Antitrust enforcement and competition policy have
historically been areas of bipartisan agreement. We know that
vigorous competition is necessary. So, thanks for your close
attention to keeping America's healthcare markets competitive.
I thank you again for inviting me to join you today. I look
forward to working with you today.
[The statement of Senator Lee follows:]
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Mr. Cicilline. Thank you, Senator Lee.
Now, at the risk of offending our colleagues in the other
Chamber, we did save the best for last.
Chair Maloney, you are recognized for 5 minutes.
STATEMENT OF THE HON. CAROLYN B. MALONEY,
A REPRESENTATIVE IN CONGRESS FROM THE STATE
OF NEW YORK
Ms. Maloney. Thank you so much, Chair Cicilline, Chair
Nadler, Ranking Member Buck, and Members of the Subcommittee,
thank you for holding this important hearing today and inviting
me to testify about the Oversight Committee's findings of
anticompetitive conduct in the pharmaceutical industry.
At the onset, I want to commend the Subcommittee for its
groundbreaking work on antitrust issues and also acknowledge
the historic work of my friend and colleague in the Senate,
Senator Klobuchar, and her heroic work in fighting rising
prescription drug prices.
The former Chair of my Committee, the late Elijah Cummings,
cared deeply, as I do, about the issue of rising prescription
drug prices. He understood that drug companies' exorbitant
prices have devastated patients across our country, forcing
many to make gut-wrenching choices between affording their
medications and paying rent, buying food, or saving for
retirement.
For this reason, at the beginning of the 116th Congress,
Chair Cummings launched an in-depth investigation into some of
the largest and most profitable drug companies in the world.
This investigation has remained one of my highest priorities
since I took over as Chair.
Over the last 2 years, we have reviewed over 1.3 million
pages of internal company documents. Last fall, the Committee
held hearings with six CEOs and released five staff reports
summarizing our initial findings. Before I describe some of
these findings, I want to recognize that we rely on the
pharmaceutical industry to develop critical new therapies,
cures, and vaccines. In exchange, our system grants these
companies the exclusive right to sell their products for a
limited number of years without facing competition from lower
priced generic and biosimilar drugs.
Unfortunately, brand-name drug companies have abused this
system by engaging in blatantly anticompetitive strategies to
extend their monopoly pricing for far longer than our system
intended. Our Committee's investigation found that these
strategies, combined with laws restricting Medicare's ability
to negotiate directly for lower prices, have emboldened drug
companies to target the United States for price increases while
cutting prices in the rest of the world. Our system, in
essence, is leading to higher and less affordable drug prices
right here in the United States.
In addition, our investigation found that pharmaceutical
companies dedicate significant portions of their research
budgets to coming up with new ways to suppress generic and
biosimilar competition, rather than focusing on developing new
therapies.
By allowing these anticompetitive tactics to continue, we
are paying more money and getting less innovation. Our
investigation exposed the inner workings of the types of
anticompetitive conduct your Subcommittee is seeking to combat.
Here are just a few examples. One drug company, Teva,
engaged in what is known as product hopping, using its monopoly
market power to shift patients from one dose of its blockbuster
MS drug Copaxone to another dose before generic competition for
the first dose comes to market. Experts estimate this one
product hop cost the U.S. Health System $4.3 billion.
In another example, companies such as Amgen and Novartis
entered into patent settlement agreements with potential
generic competitors to delay their entry into the market. Amgen
internally estimated that it collected $202 million in extra
sales of the kidney drug Sensipar by delaying generic entry by
just 10 weeks. Experts estimate that Novartis' delay of generic
competition for its cancer drug Gleevec cost the U.S. market
over $700 million.
In my last example, executives at another company Celgene
discussed how to leverage the high price of their cancer drug
Revlimid to prevent other competitors from conducting
productive cancer research.
Our Committee's investigation also revealed damning details
about other abuses like patent thickets, misuse of the Orphan
Drug Act, and exclusionary contracting with pharmacy benefit
managers. I encourage Members and the public to use these
reports as a resource as they seek to combat rising drug prices
in our country.
I want to end by emphasizing that we are not done. My
Committee is continuing to investigate abuses by the
pharmaceutical industry. On May 18th, the Committee will hold a
hearing with the CEO of AbbVie. AbbVie sells Humira, the
highest grossing drug in the United States and the world. The
Committee has obtained internal documents, previously not
public, that show the tactics AbbVie has used to suppress
competition for Humira and other drugs that maintain monopoly
pricing in the U.S.
I hope the Oversight Committee's findings are helpful to
the Judiciary Committee as you consider legislation to address
the pharmaceutical industry's anticompetitive practices and
unsustainable, unfair, deceptive price increases. Thank you. I
appreciate the opportunity to appear before you today and
congratulate you on all your hard work in this area. I yield
back.
[The statement of Ms. Maloney follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Mr. Cicilline. I thank the gentlelady for her testimony and
can assure her that the extraordinary work of your Committee is
very supportive of the work of this Subcommittee. So, we thank
you.
With that, I would like to thank each of our distinguished
Witnesses on our first panel for their very valuable testimony
today. You are now excused. We will hold briefly while staff
will make the necessary accommodations for our second panel. We
should just take a couple of minutes.
Mr. Cicilline. The Committee will come back to order.
It's now my pleasure to introduce the Witnesses on our
second panel. Our first Witness is Dr. Leemore Dafny. Dr. Dafny
currently serves as the Bruce V. Rauner Professor of Business
Administration at the Harvard Business School and Harvard
Kennedy School where she teaches courses on healthcare strategy
and policy. Her research focuses on competitive interactions
between patients and providers of healthcare, with a focus on
antitrust competitive strategy and public policy.
Dr. Dafny is a research associate of the National Bureau of
Economic Research and is on the panel of health advisers to the
Congressional Budget Office. From 2002-2013, she served as the
deputy director for healthcare and antitrust at the FTC's
Bureau of Economics, and has been published in various
journals, including the American Economic Review and The New
England Journal of Medicine. Dr. Dafny received her bachelor's
degree from Harvard College and her Ph.D. from the
Massachusetts Institute of Technology.
The second Witness on our panel is Michael Carrier,
Distinguished Professor and Codirector of the Rutgers Institute
for Policy and Law. Professor Carrier has served at Rutgers
since 2001 and was named codirector of the Institute for
Information Policy & Law in 2013. He's widely published and has
been featured in many journals, including the Chicago Law
Review, the Michigan Law Review, the Columbia Law Review, and
CPI Antitrust Chronicle. Professor Carrier is currently on the
board of advisers to the American Antitrust Institute and is a
contributing editor for the Antitrust Law Journal.
Before joining the faculty of Rutgers, Professor Carrier
spent 4 years at the firm of Covington & Burling, where he
focused on antitrust, intellectual property, sports, and civil
litigation. Professor Carrier received his bachelor's degree
from Yale University and his J.D. from the University of
Michigan Law School.
The third Witness on our panel is the Arthur J. Goldberg
Distinguished Professor of Law at the University of California
Hastings College of Law, Professor Robin Feldman. She is also
the director of the UC Hastings Center for Innovation.
Professor Feldman has been published in many well-respected
journals, including the New England Journal of Medicine and the
Stanford Technology Law Review. She was elected to the American
Law Institute in 2012 and has received both the William Rutter
Award for Excellence in Teaching and the 1066 Foundation Award
for Scholarship.
Professor Feldman received both her bachelor's degree and
her J.D. at Stanford University.
Our last Witness today is Alden Abbott, the Senior Research
Fellow at George Mason University's Mercatus Center. Before
joining Mercatus, Mr. Abbot served as the Federal Trade
Commission's General Counsel, representing the Commission in
court. He has a long career of serving the Federal government
at the FTC, the Department of Justice, and the Department of
Commerce. He's also worked at The Heritage Foundation and
BlackBerry Limited. Mr. Abbott was an adjunct professor at
George Mason University's Antonin Scalia Law School for almost
20 years and is widely published on competition, regulation,
international trade.
Mr. Abbott received his bachelor's degree from the
University of Virginia, his master's in economics from
Georgetown University, and his J.D. from Harvard Law School.
We welcome all our distinguished Witnesses on our second
panel and we thank you for your participation.
I will begin by swearing in our Witnesses, and I ask our
Witnesses that are testifying in person to rise. I ask our
Witnesses testifying remotely to turn on their audio and make
sure that we can see your face and your raised right-hand while
I administer the oath.
Do you swear or affirm under penalty of perjury that the
testimony you're about to give is true and correct to the best
of your knowledge, information, and belief, so help you God?
Let the record show the Witnesses answered in the
affirmative.
Thank you and please be seated. Please note that your
written statements will be entered into the record in their
entirety. Accordingly, I ask that you summarize your testimony
in 5 minutes. To help you stay within that timeframe, there's a
timing light in Webex. When the light switches from green to
yellow, you have 1 minute to conclude your testimony. When the
light turns red, it signals that your 5 minutes have expired.
I now recognize Dr. Dafny for 5 minutes.
TESTIMONY OF DR. LEEMORE DAFNY
Dr. Dafny. Chair Cicilline, Ranking Member Buck, and
distinguished Members of the Subcommittee, I thank you for
holding this hearing and giving me the opportunity to testify
on the subject of healthcare consolidation. My name is Leemore
Dafny, and I'm an academic health economist with long-standing
research interests in competition and consolidation. I'm a
professor at the Harvard Business School and the Harvard
Kennedy School, and I previously served as the deputy director
for healthcare and antitrust in the Bureau of Economics at the
Federal Trade Commission while on university leave. I'm on the
panel of health advisers to the Congressional Budget Office,
and I engage with regulators, policymakers, and businesses in
my role as a faculty member and a healthcare antitrust expert.
The United States spends a larger share of its GDP, nearly
18 percent, on healthcare in any other country. Studies show
that high prices, not the type or quantity of services
consumed, nor the health of our population, are the primary
driver of higher U.S. spending. International comparisons also
show the U.S. lags other leading developed countries on most
dimensions of healthcare quality. We are not receiving the
highest possible value for our dollars, far from it.
My focus today is healthcare providers, such as hospitals
and physicians who jointly account for about half our
healthcare spending. As you're aware, government programs like
Medicare set prices for provider services like hospital
admissions, but the private sector relies on market-based
prices, and those prices are high and growing.
Back in the late nineties, private prices were about 10
percent higher than Medicare prices. By 2012, they were 75
percent higher. Today, privately insured patients pay on
average two times what Medicare pays for hospital care. These
higher prices hurt patients and they hurt our economy.
As a response to high prices, health insurance premiums and
deductibles are rising. High deductibles mean people pay
thousands of dollars out of pocket when they are unlucky enough
to require care. Higher insurance premiums mean smaller
paychecks.
The key questions I'm here to answer is whether
consolidation is driving these higher prices and what we can do
about it. My answer to the first question is yes, studies show
horizontal or same market consolidation results in higher
prices for hospitals. It is also true for physician groups and
for insurance premiums. The evidence on nonhorizontal
healthcare mergers, such as mergers across providers or firms
in different geographies or service categories, also shows
prices in spending increased post-merger, in particular, after
hospital systems acquire additional hospitals in the same State
and after hospitals acquire physician practices. Antitrust
enforcers regularly challenge horizontal margins, but
challenges of nonhorizontal mergers are very rare, and in my
recommendations, I suggest ways to enable such challenges.
Let me be clear. The bad guys in healthcare are not
hospitals or doctors or even insurers. The bad guy is a lack of
competition, driven by consolidation.
The COVID pandemic has shown us what is magnificent about
our healthcare providers. They rose to the occasion and did all
they could to meet patients' needs. They collaborated with one
another in resourceful ways, but that doesn't mean they need to
merge with one another now. If the pandemic stimulates even
more consolidations, we'll face a different type of long-haul
symptom of COVID, higher prices.
To protect competition, I have three recommendations.
First, strengthen our Federal enforcement agencies' ability
to identify and review potentially anticompetitive conduct in
mergers. You can do that by requiring more healthcare
transactions to be reported, mandating insurers share
healthcare claims data with Federal agencies, and increasing
agency budgets.
In real terms, appropriations in 2018 were 18 percent lower
than in 2010. The recent increase has only kept up with
inflation. Restoring and increasing funding will yield a return
for years to come.
Second, amend and strengthen the antitrust statutes. Ensure
the statutes prohibit healthcare mergers that enable providers
to exploit existing market power and are likely to harm
consumers. The current wording or interpretation of that
wording is enabling scores of transactions that are harmful to
consumers to proceed.
Third, ask the agencies to issue healthcare guidelines that
set forth their interpretation of antitrust statutes in
healthcare today. Regulators, private parties, and courts pay
close heed to agency guidelines, so this has potential for real
impact.
Our healthcare providers have so many people working hard
to help people live better lives. My recommendations are not
aimed at making their work more difficult; they are aimed at
creating a market context that brings out their best and
rewards them for it.
Thank you.
[The statement of Dr. Dafny follows:]
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Mr. Cicilline. Thank you very much, Dr. Dafny.
I now recognize Professor Carrier for 5 minutes.
TESTIMONY OF MICHAEL CARRIER
Mr. Carrier. Thank you very much.
Drug prices are too high. One main reason why is that brand
companies play all sorts of games, like product hopping, pay-
for-delay settlements, citizen petitions, and biosimilar
disparagement. All these things harm consumers and there's no
justification at all based on patents or innovation.
At the same time, there is increasing consolidation. The
industry is getting more and more consolidated, and the FTC has
responded only by requiring the divestiture of overlapping
products. Congress can Act to make consumers' lives better and
will not touch innovation in the process. The CREATES Act is a
great model. Chair Cicilline, I thank you for your leadership
on this important bill which has had a significant effect.
I also wanted to tie my remarks to what Senator Lee said.
Senator Lee said that we wanted a ``light touch reform'' and
``incremental targeted fixes.'' Every one of these pieces of
legislation fits that description exactly.
My name is Michael Carrier. I'm a distinguished professor
at Rutgers Law School. I've spent my career focused on the
intersection of the antitrust and the IP laws. I have written
130 articles, am coauthor of the leading treatise on the topic,
and really spend all my time thinking about these issues.
The first thing that Congress can do is to address product
hopping. Most reformulations by drug companies are fine. Most
of the time there's innovation, and there is not a pending
generic. Some of these reformulations are very concerning. Some
of the reformulations make no sense at all other than harming
the generic. Every time that the brand company makes a tiny
switch from a capsule to a tablet or just adjusts the dose a
little bit, the generic cannot be substituted at the pharmacy
counter and so it has to go back to the drawing board and
consumers are stuck paying high prices.
Brand companies often have no good reason for what they are
doing. In the Namenda case, the brand company pulled a $1.5
billion drug from the market. In the Suboxone case, it
disparaged its own product. Legislation being considered, H.R.
2873, would address these issues. The courts have not figured
out what to do with soft switches, which occur when the old
drug remains on the market. This is the best piece of
legislation to deal with the problem.
Second is pay-for-delay settlements. Brand companies have
paid generics to delay entry. There's no good reason for this,
but even though the Supreme Court, in FTC v. Actavis, clearly
said this violates antitrust law, the settling parties have
come up with all sorts of reasons why their agreement is not a
pay-for-delay settlement. This piece of legislation would be
very important to give the FTC power to go to court and not
have to spend a decade trying to prove something that is very
difficult to prove. It also would solve some problems in the
courts. Not every court gets Actavis right, and so that's why
the legislation is so important.
Third is citizen petitions. Citizen petitions are meant to
raise legitimate concerns with the FDA. As it turns out,
however, most of them are filed by brand companies and the FDA
denies most of them. So, H.R. 2883 would be very helpful in
giving the FTC power to go after this sham-related conduct to
make clear that a series of petitions could be a sham and to
show that the penalties are significant, which would increase
deterrence.
Fourth is biosimilar disparagement. In the biologics
industry, which is the next big wave, there's not as close a
relationship between the biologic and the biosimilar as there
is between the brand and the generic. Biologic manufacturers
have made all sorts of claims that the biosimilar is not
identical, that maybe if you take it, something bad will happen
to you. The courts have not shown that they're up to the task
of getting this right. So, I would recommend a presumption that
monopolists engaging in false advertising constitute
monopolization.
Fifth is mergers. There has been a ton of consolidation in
the industry. The FTC has responded by focusing on the
divestiture of overlapping products. I believe that there is a
theory of unilateral effects that is well established that
would cover what is going on here. So, the first thing I'd say
is that there should be a presumption against mergers between
large companies. If you look at these large companies, they
have significant advantages in insurance and reimbursement,
marketing and detailing, and financing. There's no good reason
for them to merge.
In terms of mid-size firms, even if I might not recommend a
presumption, there are other factors to look at beyond the
overlapping products. I'd consider factors like must-have
blockbusters, rebate laws, and anticompetitive conduct. For
example, the AbbVie-Allergan merger, all three of those were
present, and that deserved more attention.
Finally, generic mergers deserve more attention as well.
Not every generic is doing what it was supposed to do. When it
starts getting a lot of its revenue from the brand side, that
alters its incentives and that should be considered.
At the end of the day, the three pieces of legislation that
this Committee is considering would make consumers' lives
better and would not touch innovation.
Thank you very much.
[The statement of Mr. Carrier follows:]
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Mr. Cicilline. Thank you, Professor Carrier.
I now recognize Professor Feldman for 5 minutes.
TESTIMONY OF ROBIN FELDMAN
Ms. Feldman. Mr. Chair and esteemed Members of the
Committee, I'm honored to be here today to address an issue
that is causing real pain for patients and for those who are
trying to help them.
Open and vigorous competition is the backbone of U.S.
markets, but we're not seeing that in the pharmaceutical
industry. We know pharma markets aren't working because we see
monopoly pricing extend well beyond the statutory grant of
exclusivity. That hurts patients who can't access affordable
medicines and it burdens taxpayers.
Quite simply, pharmaceutical companies are repeatedly
gaming the system to protect and extend their monopolies.
Companies are doing this through schemes to block generic
entry, including product hopping, pay for delay, and citizen
petition abuse. Companies string these games out one after
another to maintain monopoly pricing. This Committee has an
historic opportunity to address the problem.
In describing this anticompetitive gaming, I would like to
focus on a few key issues. First, many of the games, including
product hopping, involve making some modification to an
existing drug. The company then pushes the market to the new
version, which is protected by shiny new patents. One can see
this, for example, in the market for treating opioid use
disorder when a company switched from tablets to melt-a-ways
just before the patents expired.
Now, these modification patents are often quite weak, and
when generics fully challenge them in court, the generic wins
three-quarters of the time. The challenge takes years, and in
the meantime, there's no competition and prices stay high.
Most important, when a company makes a modification to a
drug, like changing a tablet from 20-40 milligrams, the R&D is
far less than for the drug's initial discovery. A company
should be able to earn its reward in the market for the
modification. It's really the massive investment in the initial
discovery for which government should intervene in the market,
put its thumb on the scale, and give the company years of
patent protection.
These gaming opportunities also mean that much of the
system is focused on repurposing old drugs rather than
discovering new ones. In fact, 78 percent of the drugs
associated with new patents aren't new drugs coming on the
market; they are drugs we already have.
Now, against this backdrop of repeated anticompetitive
gaming, the pharma industry also has become increasingly
consolidated. Pharma now outsources most of its R&D, generally
by buying startup after startup. All this reduces the chance of
disruption and competition in the industry.
Antitrust law just hasn't kept up, either with the monopoly
gaming or with the waves of mergers and buy-ups. Instead,
courts and agencies tend to focus on a single behavior or a
single startup purchase. That misses a lot. For example, if a
dominant firm buys 100 companies, the likelihood that any one
purchase harms competition is low. The likelihood that the
pattern of acquisitions harms competition is much greater. The
same is true with the pattern of behavior.
Much of this monopoly gaming has blossomed just in the last
15 years. It's not age old, and it's not inevitable. I am
tremendously encouraged to see bipartisan efforts to address
these critical needs and to help improve access to affordable
prescription drugs for patients.
Thank you.
[The statement of Ms. Feldman follows:]
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Mr. Cicilline. Thank you, Professor Feldman.
I now recognize Mr. Abbott for 5 minutes.
TESTIMONY OF ALDEN ABBOTT
Mr. Abbott. Thank you, Chair Cicilline, Ranking Member
Buck, distinguished Members of the Subcommittee. Thanks for
this opportunity to testify.
As Chair Cicilline noted, I'm a former general counsel in
the Federal Trade Commission. I served in other roles there as
well. I also formerly served in the Antitrust Division of the
Department of Justice.
In my statement today I will focus on four points.
(1) Additional funding for the Federal antitrust agencies;
(2) granting the FTC's statutory authority over nonprofit
entities;
(3) what status antitrust statutory changes are appropriate;
(4) major legal reforms unrelated to antitrust.
First, additional funding. Federal antitrust enforcement is
a bipartisan endeavor, and the FTC Commissioner unanimously
supports substantially increased funding for FTC enforcement.
As already noted, in real terms, resources have diminished over
the last decade for such enforcement at the FTC.
I expect that the Biden Administration will recommend
additional funding for the Justice Department's Antitrust
Division as well.
Acting FTC Chair Slaughter recently testified before the
Senate Commerce Committee that FTC employment has remained flat
despite a growing workload, with merger filing doubling in
recent years. She noted that FTC resource constraints lead to
difficult tradeoffs that may adversely affect the pursuit of
some meritorious investigations. I can attest to the accuracy
of her observation based on my personal experience as FTC
general counsel.
The problem of resource constraints is particularly acute
in the case of healthcare merger review, given the increasing
consolidation of healthcare institutions in recent years.
Antitrust enforcers will need additional resources to ensure
that this trend does not yield mergers that undermine the
competitive process and harm consumers.
Second, FTC authority over nonprofits. Many healthcare
entities, particularly hospitals, are organized as nonprofits.
FTC and Antitrust Division Clayton Act merger enforcement
applies both to for-profit and not-for-profit enterprises. The
FTC Act has not reached nonprofit corporations. Then FTC Chair
Simons testified in 2019 that this limitation, which makes no
logical sense, has prevented the FTC from examining problematic
unilateral conduct by hospitals.
In short, it's high time the FTC be given statutory
authority over nonprofits.
Third, legislative change. While a few marginal adjustments
to the antitrust statutes appear appropriate, I believe the
mainstream consensus consumer welfare approach in the major
statute should be retained. I believe there's a risk that far-
reaching extensive statutory changes could generate costly
welfare reducing uncertainty in antitrust enforcement.
However, as noted already by a couple of speakers, targeted
statutory amendments narrowly tailored to address specific
competitive healthcare sector abuses may be appropriate in the
right circumstances. For that reason, I testified in favor of
the CREATES Act.
Several distinguished scholars, including my fellow
Witnesses, have advanced a number of thoughtful, additional
targeted legislative proposals to address competitive problems
affecting healthcare.
I will not comment today on the merits of specific
proposals, but I would respectfully suggest that before
legislating, Congress seriously weigh whether the benefits of
eliminating targeted harmful conduct will likely be outweighed
by the cost of condemning and deterring specific instances of
such conduct that could have benefited consumers.
Fourth, nonantitrust issues. Major improvements to the
competitive condition of the healthcare sector require far more
than enhanced antitrust enforcements--and enhanced antitrust
enforcement. Serious competitive distortions are posed by a
host of State and Federal statutory provisions that bedeviled
the healthcare sector, including as merely one example, State
certificate of need laws that restrict competitive entry.
The Federal antitrust agencies have over the years done an
outstanding job in calling for statutory and legislative
reforms to improve healthcare competition under Republican and
Democratic Administrations. Enhancing competition in healthcare
markets, whether through enforcement or legislative and
regulatory reform, has been and should remain a nonpartisan
endeavor.
Thank you. I look forward to your questions.
[The statement of Mr. Abbott follows:]
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Mr. Cicilline. Thank you, Mr. Abbott.
We will now--again, thank you to our Witnesses for their
opening statements. We'll now proceed under the 5-minute rule
for questions. I will begin by recognizing myself for 5
minutes.
Professor Feldman, in a recent op-ed you note that between
1995 and 2015, the 60 leading pharmaceutical companies merged
to only 10. As you note, this has resulted in a handful of
manufacturers sourcing the vast majority of prescription drugs.
So, my question is, why has there been so much consolidation in
this industry? What are the effects of such extreme
consolidation? To what extent do killer acquisitions pose a
problem in the pharmaceutical markets?
Ms. Feldman. Thank you. The closer we can get to a free
market, the better we're going to do for competition and for
lowering drug prices. The competition agencies in the United
States have essentially taken the view that they can manage
mergers by allowing for divestiture of pipeline products or
other types of changes. It simply hasn't been effective. We
need a far greater response to mergers and buy-ups at startup
after startup. We also need a second look, where we look back
at the mergers that have happened to see whether competition
has actually improved or lessened, and then try to fix it.
Mr. Cicilline. Thank you, Professor Feldman.
Dr. Dafny, in your written testimony, you recommend
implementing a legal framework, and I quote, ``to explicitly
prohibit healthcare mergers that enable greater exploitation of
existing market power and are likely to result in harm to
consumers.'' What are some examples of mergers in the
healthcare sector that are harmful to consumers but nonetheless
go unchecked under current law? Secondly, do you think it would
be helpful to shift the burden to merging parties to show that
their merger would not result in higher prices or lower quality
of care?
Dr. Dafny. Chair Cicilline, I thank you very much for
asking this question. Examples of harm that are occurring that
are not currently being investigated or are not publicly or
seriously so, when hospitals are buying up other hospitals, not
in the exact same area but nearby areas, that show a dominant
hospital in a town has a great reputation, high prices will buy
up a community hospital in the suburbs and then instantly be
able to roll that hospital on to its contract, raising prices,
which all gets passed down to us. That's one example.
Another example, hospital acquires a physician practice.
Physician practice, everything's the same, puts up a sign,
everything's the same for the patient, okay, which is what
counts right here. Puts up a sign, says, you will now be also
paying hospital facility fees for this service; increases
prices.
These transactions are proceeding unchallenged because
either the statutes don't allow or the interpretations of those
statues don't allow challenges to them on competition grounds.
You second asked about shifting the burden. This is a good
example where one could require the parties that are proposing
such an acquisition to demonstrate why their transaction is not
going to be harmful, as opposed to requiring the plaintiffs,
the government, to demonstrate why it is going to be harmful to
the standards that are currently required in the competition
statutes.
Mr. Cicilline. I take it you think that would be a good
idea?
Dr. Dafny. I do.
Mr. Cicilline. Okay. Great.
Professor Carrier, my last question, you explain in your
testimony that product hopping causes patients to overpay by
potentially billions of dollars annually for their prescription
drugs. Can you explain why this product hopping is so harmful
and how the Affordable Prescriptions for Patients Act
legislation, which I introduced with Ranking Member Buck and
Senators Cornyn and Blumenthal, would combat this abusive
practice? Respond to the defense that pharmaceutical companies
have expressed that preventing product hopping will somehow
stifle innovation and block new treatments from coming to the
market.
Mr. Carrier. Sure. Product hopping is concerning because it
evades the regulatory regime. Drug product substitution laws
are designed to bring affordable generics to the market. When a
brand company makes a tiny change just to avoid substitution,
everybody suffers. The legislation would be very helpful in
making clear that these soft switches, in which the old product
is left on the market, that courts are not understanding is a
problem. The legislation would be incredibly helpful for that.
In terms of innovation, I'd say that, first, the
legislation is quite targeted. There's a competition window
that allows for challenges only in a short period of time.
There are exclusions, and there are justifications. Also, this
is limited to the FTC under section 5. The FTC almost never
brings a case. At most it will be once every year or two.
Then, finally, in terms of innovation, this is not the
first time that the pharmaceutical industry has made this
argument. I wrote an op-ed that showed that, going back to
1961, every single time there's patent or antitrust legislation
in this body, they say it's going to be the end the world. Now,
there's a new variation based on COVID, but it's still the same
thing. This is sort of like the boy who cried wolf.
Mr. Cicilline. Thank you, Professor.
I now recognize the Ranking Member of the Subcommittee, Mr.
Buck, for 5 minutes.
Mr. Buck. I thank the Chair. I would ask the Chair, I'd
like to go last with my questions. If the Chair could recognize
Congressman Issa, I would very much appreciate it.
Mr. Cicilline. Happily. I recognize Mr. Issa for 5 minutes.
Mr. Issa. Thank you. I want to thank the Ranking Member for
letting me go out of order.
The fact is I support this legislation in principle. I know
that, as we go through the process, many companies can give us
examples where they may want to have a nuance change but let me
go through a couple of quick questions that may go the other
direction. We'll start with Professor Carrier.
Many of the changes that we're trying to thwart with this
legislation are predictable and repeatable. If we cannot get,
if you will, some of these commonsense reforms through, is
there any reason that this body couldn't, for example, give a
right of anyone not having a patent to put up barriers to, if
you will, the obvious?
You mentioned or it was mentioned in the earlier testimony
that, for example, changing the dosage or the method of
delivery, time release, each of these nuances that are
currently going on at the end of a product life, and the
opioids are famous for them, these are, in fact, patentable
because we allow them to be patentable, and we don't bar them
based on obvious. Yet, something--if you will, medicines
continue to basically add these features that are predictable
and repeatable, wouldn't. You say that it is certainly within
our purview to, as a matter of law, define those as obvious if
we can't get some sort of middle ground with pharma and their
pattern of abuse?
Mr. Carrier. You're absolutely right that the patent system
is incredibly important. We need to make sure that we give the
patent system the deference it deserves. At the same time,
however, not every patent is valid. A lot of these patents are
not on the active ingredient. The concerns with product hopping
is that it is an evasion of the regulatory regime.
I talked about the drug product substitution laws. The
Hatch-Waxman Act, also included a whole bunch of provisions to
increase generic competition. So, I view this as purely
bipartisan legislation that is narrowly targeted, that will not
affect innovation, and that will make consumers lives better.
Mr. Issa. I want to do one more follow-up. In most areas of
patent law, we all are used to the common statement that a
patent, by definition, on its face, with the disclosure, has to
be sufficient for someone of ordinary skill in the art to, in
fact, duplicate the product.
Please explain for the record why that does not occur in
biologics today, and why the entire pattern of abuse where
you're at the end of a patent life at the point in which a
biosimilar would like to produce something and doesn't have, in
some cases, even the medicine, but they don't have the ability
to do it. Because, if I'm correct as a layperson, we have not
forced the disclosure at the front end to meet that test that
if someone of ordinary skill in the art can't on the face of
the disclosure know how to duplicate the product.
Mr. Carrier. You're absolutely right. What's going on with
the biologics industry is not just patent protection, not just
patent secrets, but there's also trade secret protection. So,
even if, exactly as you mentioned, the patent system is
designed to enable inventions, when a lot of the process of
creating biologics is hidden under lock and key, it's hard for
the biosimilar to figure that out. We have the patent system
that's designed to serve a purpose. You don't usually have
trade secrecy layered on top of that. That's what's going on
here, and it's an additional reason why we're not seeing enough
biosimilar entry.
Mr. Issa. So, let me ask it as a final question. Certainly,
I appreciate trade secrets, and manufacturing nuances are
abundant in the electronics industry that I came from many
years ago. In return for the bargain of providing a patent, the
assumption would be that, again, someone of ordinary skill in
the art with the information that, by definition, someone of
ordinary skill in the art has, can duplicate the product.
Should we be looking at an outright recognition that the
trade secrets cannot, in fact, be allowed to create a barrier
if you want the patent? For example, putting it in simple
terms, Coca-Cola can't have a secret formula and patent the
formula. Just a quick answer if you would, please.
Mr. Cicilline. Yeah. The time of the gentleman has expired,
but the Witness can answer briefly.
Mr. Carrier. Sure. You're right. In most areas, and
inventor needs to choose between patent and trade secret
protection; in contract with biologics, one builds on top of
the other. This is worth attention.
Mr. Cicilline. The gentleman yields back.
Mr. Issa. Thank you. I thank the Chair for the indulgence.
Mr. Cicilline. Thank you. I now recognize the gentleman
from New York, Mr. Jones, for 5 minutes.
Mr. Jones. Thank you, Mr. Chair and to the Ranking Member,
for your strong leadership. This has been a pleasantly
bipartisan hearing thus far. I look forward to joining Mr. Issa
in reforming our Nation's patent laws.
I also want to thank the esteemed Witnesses on both of our
panels today for joining us this afternoon. I am excited to be
part of this vital effort to ensure that everyone in the United
States of America can afford the prescriptions that they need.
I also, of course, want to thank the sponsors of the three
important bills before us today, for their leadership. Thanks
to you, we have the opportunity to help patients and families
across the United States, and I am so committed to working with
you.
Today, pharmaceutical companies are confronting the
American people with a terrible choice: Miss rent payments and
skip meals to pay for their prescriptions or go without the
lifesaving medications that they need. I know the toll that
takes firsthand, because when I was growing up, my family
didn't always know if we could afford the healthcare that we
needed. There is simply no reason, indeed no excuse, for
leaving patients and their families struggling to get by just
so that pharmaceutical profits can continue to soar.
Professor Carrier, in your testimony today, you have
illuminated a source of the crisis of high drug prices that we
have not yet heard enough about, and that is the consolidated
power of the biggest pharmaceutical firms. As pharmaceutical
companies have expanded through mergers, they have raised drug
prices higher and higher. I've been hearing that same message
from a range of leading experts from the American Economic
Liberties Project to my courageous colleagues like Katie Porter
and, of course, our distinguished Chair, David Cicilline.
To help clarify the stakes for everyone, could you share an
example of a pharmaceutical merger that shows how these mergers
can harm patients, families, and our communities?
Mr. Carrier. Sure. Thank you for your attention to mergers,
which are a really important issue. I would focus on the
AbbVie-Allergan merger, where this received a lot of attention.
At the end of the day, the FTC solution just came down to
forcing the divestiture of a few overlapping products.
When you think about the harm, however, it comes from more
than just particular markets. So, in this case, both companies
had blockbuster products in AbbVie's Humira and Allergan's
Botox. When you get all these must-have products in one
company, they have a lot of power to provide rebates to PBMs.
That makes it harder for consumers who need to have these
medications.
At the same time, you have these rebates that make it
tougher for any other competitor that can't compete with that
broad range of products. You have some companies that are in
antitrust hot water. For example, Abbvie has been accused of
pay-for-delay settlements, and with Allergan, there have been
concerns with tribal immunity and citizen petition challenges.
There is a lot that's going on that's not captured by the
current approach. I think that this harms consumers and,
therefore, a new approach should be considered.
Mr. Jones. Last month, acting FTC Chair Rebecca Kelly
Slaughter declared that, quote, ``Given the high volume of
pharmaceutical mergers, skyrocketing drug prices, and ongoing
concerns about anticompetitive conduct in the industry, it is
imperative that the FTC rethink its approach toward
pharmaceutical merger review.''
In your testimony, you called for imposing a presumption
against mergers between large pharmaceutical companies. Can you
explain your proposal further and tell us more about why a
presumption against these mergers is so important to ensuring
that everyone can afford the drug they need?
Mr. Carrier. Absolutely. Patricia Danzon at Wharton and I
have an article forthcoming in the Antitrust Law Journal where
we look at pharmaceutical mergers and the key element of size.
Size makes a really big difference. Basically, we conclude that
there's no good reason for two large companies to merge. They
have entrenched advantages in things like financing, marketing
and sales, insurance, and reimbursement. You put that all
together, and it makes it almost impossible for anyone else to
compete. Plus, there's no good innovation reason for two large
firms to merge.
So, that's why we suggest a presumption against the merger
of two large firms. With mid-size firms, I might not go all the
way to a presumption, but I still would apply those factors.
So, the size of the firm really needs to be considered.
Mr. Jones. Thank you so much.
Professor Dafny, let me ask you as well, how would it help
patients if we made certain kinds of healthcare mergers
presumptively unlawful?
Dr. Dafny. I thank you for the question. If we took a set
of healthcare mergers that are known typically to be damaging
to consumers and insisted that the acquiring parties
demonstrate that they are not going to damage consumers, that
would save substantial regulatory resources.
Mr. Jones. Thank you so much.
Thank you, Mr. Chair. I yield back.
Mr. Cicilline. The gentleman yields back.
I now recognize the gentleman from Louisiana, Mr. Johnson,
for 5 minutes.
Mr. Johnson of Louisiana. Thank you, Mr. Chair. Thanks to
all my colleagues. It is rare, as has been noted, for us to
have bipartisan things to work on these days in Judiciary. So,
this is a refreshing hearing that we've had so far.
Mr. Cicilline. Mr. Johnson, I won't take this time away
from you, but not rare on the Antitrust Subcommittee.
Mr. Johnson of Louisiana. Oh, yes. I salute you for that,
sir, and Ken Buck as well.
Listen, this is a big problem, a big issue, and there's a
lot to deal with. So, it's not even really fair to give these
Witnesses just 5 minutes apiece and letting us ask some
questions. Let me drill down into something that is of great
concern to a lot of people, and that is the certificates of
need issue. Let me ask Mr. Abbott, if he will, maybe describe
what that is, and then talk a little bit about the
anticompetitive effects of certificates of need.
Mr. Abbott. Thank you for that question, Congressman. A
certificate of need basically is a State law provision which
states that any additional investments, say in a hospital, a
healthcare facility, depending upon how it's defined, must be
justified. Often you will have a panel that will decide if a
particular investment is justified and is cost effective. The
theory, if you find out about it, about certificates of need,
is that a concern about scarce resources, overinvestment in
certain resources, cost saving in short.
The reality is, and the FTC and the Justice Department over
the last 20 years have done many studies of certificates of
need. They've shown that, in reality, certificates of need
cause barriers to entry. It is a way, for example, that a
powerful incumbent hospital might argue that, oh, well, you
don't really need new beds, you don't really need new entry
because our supply of hospital facilities is sufficient. That
can prevent badly needed entry.
Also, the existing certificate of need law prevented the
FTC from doing anything about a merger to monopoly in the State
of Georgia in the Phoebe Putney case. On the case, the Supreme
Court, the relief to sort of before change in hands of assets
required to get relief. Yet, certain divestitures were
effectively blocked by a certificate of need law in the State
of Georgia.
This has been totally bipartisan, both Republican and
Democratic Administrations, the FTC, and Justice Department
have regularly submitted letters saying, we have found
certificates of need to be anticompetitive and we recommend
against them. They don't really do much into save resources at
all. Their main effect really is to limit competition, which
we've already heard can raise prices and reduce quality.
Mr. Johnson of Louisiana. Very good. So, if we [inaudible]
particular service, just in layman's terms, how would that
improve the healthcare experience for the average consumer over
time? I mean, the presumption is it would unleash more
competition. Right? I mean, is that oversimplifying it?
Mr. Abbott. Yes, Congressman. Indeed, it would. It would
allow new entry in markets. It would allow the market to decide
about how many beds are needed, what new facilities can be
brought forth, say it's an imaging facility, and it would
prevent particularly rural or regional monopolies from
entrenching their market power.
As I mentioned, that was a problem in Georgia. So, I think
that's a particular issue. I don't have the specific numbers in
front of me, would be glad to provide them to you. As I say, I
think there has been a lot of research. The research that I am
aware of unequivocally has shown that this tends to be
anticompetitive and drive up prices.
Mr. Johnson of Louisiana. I appreciate that. If it will not
be too much effort, if you could supply that to us after the
hearing [inaudible] because we need real ammunition and
evidence for making these changes and that would be a big help.
I'm having technical glitches, Mr. Chair, so I yield back.
Thank you.
Mr. Cicilline. The gentleman yields back.
Mr. Raskin, if you turn on your camera, you are next. If
not, we'll move to Ms. Jayapal.
Mr. Raskin. Yes. Thank you, Mr. Chair. I didn't realize I
was coming up. Thank you so much.
A number of our colleagues have remarked upon the pleasant
bipartisanship of this hearing. I wonder if we'd take a moment
to reflect on what that means historically. I know that
socialism has become part of the political dialogue in America
today. I wonder if we could examine the way in which antitrust
enforcement really became an answer to socialists who were
saying that we needed to take over the big businesses because
they were so out of control. The progressive response--
progressives meaning both Republicans like Teddy Roosevelt and
Democrats like Franklin D. Roosevelt--was to say, let's break
up the big businesses to make sure that there's real
competition.
I'm wondering, Professor Feldman, perhaps if you would
reflect for a moment on the development of antitrust law as a
response to other efforts to deal with the problem of monopoly
power in the country.
I think you're muted.
Ms. Feldman. Thank you. Markets need to be fair, open, and
efficient if we are going to have the type of free market
economy that you envision there. The antitrust laws are an
essential partner for making sure we can do that.
Unfortunately, antitrust laws haven't kept up with the
sophistication that has happened in the healthcare field along
the way and with the games that have developed. If we want
antitrust to be an effective tool and to guarantee the free
market that we all would like, we're going to have to update
it.
Mr. Raskin. On that point, it does seem as if within the
antitrust field we're always playing catch-up with the various
innovations by businesses or would-be monopolists to take
advantage of their power. I suppose that's built into the
system too.
Is there any way that we can create an antitrust system
that is more readily and nimbly responsive to the kinds of
things that people have been talking about today, the kinds of
schemes that are derived to take advantage of market power?
Ms. Feldman. It's always more difficult for government to
stay ahead, particularly for a body like Congress that is
deliberative. I believe one has to pass legislation that has
two parts. One is examples of specific, targeted behaviors that
are inappropriate, and another is sufficient language that
gives the agencies the space they need to respond as new games
develop.
Mr. Raskin. Okay. Thank you.
Professor Dafny, let me ask you this question, what have we
learned from many decades of antitrust legal enforcement as to
what the most effective ways are to make government more
rapidly and readily enabled to deal with the kinds of schemes
that you're talking about?
Dr. Dafny. Thank you for the question, Representative
Raskin. So, to just elaborate on the previous query, there
needs to be an incentive not to play games. When those
incentives to play games exist, when incentives to merge for
the purpose of raising price because we are willing to pay
whatever price is charged or the increase in price, when those
incentives exist, that's when people play games. That's when
mergers happen.
How do you prevent them? Research shows, you know, that a
lot of mergers that have been able to go through under the
current enforcement regime have caused substantial price
increases. So, if we strengthen enforcers' hands by increasing
the reportability of transactions, because there's evidence
that they are not typically challenged below the threshold, if
we reduce the burden of proof in certain transactions, and if
we explicitly make unlawful certain practices that are gaming,
I think we'll end up with better outcome.
Mr. Raskin. All right.
So, Mr. Chair, I just want the record to demonstrate that
both parties here are looking for effective public action to
guarantee real market competition. No party, either Republican
or Democrat, seems to be looking for a government takeover of
the healthcare sector or any other business sector. This is
very much within the tradition and mainstream of American
progressive, legal, and policy action.
I yield back to you.
Mr. Cicilline. The gentleman yields back.
I now recognize the gentleman from Florida, Mr. Steube, for
5 minutes.
Mr. Steube. Thank you, Mr. Chair.
My questions are for Mr. Abbott. Beyond certificate of
needs, Mr. Johnson asked you about that, can you further
discuss State policies that might be labeled as, quote,
``anticompetitive,'' or are these purely State issues, or is
there a role for Congress to play?
Mr. Abbott. Well, thanks for that question, Congressman.
Certainly, there are occupation licensing restrictions that
unnecessarily restrict competition certainly in healthcare. A
good example is restrictions on a nurse practitioner practice.
We see that there are some--many boards, health-related boards
in States that have limited competition without any good
justification. For example, on a North Carolina dental board
case, which FTC won before the Supreme Court, this was a case
where you had a dental regulatory board dominated by dentists
that, in effect, passed the regulation, effectively preventing
clinics providing whitening services without the involvement of
a dentist. Obviously drove prices up.
South Carolina, there were dental board restrictions, again
examined by the FTC, that prevented services being offered by
dental hygienists to poor people in rural areas without the
presence of a dentist. That tended to raise costs and limit
valuable dental services.
In general, occupational licensing is a big problem. I
think this, again, is bipartisan. The Obama Administration
recommended major occupational licensing legal reforms in
summer of 2016, and it certainly might be--I know Senator Lee,
I think, supported legislation that would allow people in the
Armed Forces that had a spouse who would not need to get
licensing elsewhere.
Given the interstate nature of movement of many American
professionals is an argument. You could have nationwide
licensing of positions or at least lowering your barriers for
States that unnecessarily delay new licensing of positions in
particular States.
I won't get--it's a rather complicated topic, but the
certificate of public advantage by which a State may give an
antitrust immunity for businesses that want to merge or
consolidate, that also may have helped consolidations. The
argument there was that this was to promote better outcomes and
efficiencies. Again, I think some economists say there's little
evidence of that.
So, in short, there are a number of restrictions, State
restrictions, some of which could be preempted, if Congress
wanted to do that.
Mr. Steube. It's my understanding that the Trump
Administration HHS issued a final rule on Medicare part F. Can
you talk about the current status of that rule, and whether it
would help with the issues that we're discussing today, in
particular, realigning incentives in healthcare?
Mr. Abbott. I apologize, Congressman, I'm really not an
expert on details of that rule. I'm glad to get back to you and
provide a response for the record.
Mr. Steube. That's fine. I can move on to my next question.
You address ObamaCare or the Affordable Care Act in your
testimony and note that it accelerated the consolidation of
hospitals, health systems, and medical groups. Could you
explain on why this has been detrimental, particularly to
consumers and patients?
Mr. Abbott. Right. Well, there's certainly some research by
a number of economists that suggest that the incentives--it did
create incentives for consolidation and that those incentives
could--tended to, in an increased concentration indeed and also
the set of reimbursement rules. Again, I'm not a full expert on
that. I just know I've seen literature suggesting that that was
the case. Again, I'm glad to provide more details. It's a
complicated topic. I'm more of a pure antitrust person, but
I've certainly seen that literature from a number of economists
whom I view as reputable.
Mr. Steube. Well, let me take it a little broader. What are
the dangers of broad-sweeping antitrust laws to address very
narrow healthcare issues? How can the problems discussed today
be addressed in an appropriately narrow way?
Mr. Abbott. Well, I think the danger with broad laws, for
instance, generally reversing presumptions and mergers or
presumptions against mergers of a certain size or changing the
language of section 2 of the Sherman Act, some of the proposals
out there apply to all industries. Healthcare is unusual
precisely because they have a combination of extensive State
and Federal regulation. A lot of payments going, as you see,
through Medicare and Medicaid involving government involvement.
You've got State licensing restrictions, you've got Federal FDA
restrictions, HHS restrictions. This combination of--you had
Hatch-Waxman Act, which created incentives for gaming.
This combination of laws enacted even with the best of
intentions created opportunities for regulations and laws to
strategically be used to harm entry or deny competition.
Mr. Cicilline. The time of the gentleman has expired, so I
just ask the Witness to wrap up your answer, please.
Mr. Abbott. Yes, sir. Yes, Mr. Chair. So, that basically is
it.
Mr. Cicilline. I thank the gentleman. The gentleman yields
back.
I now recognize the distinguished gentleman from New York
and the author of the Stop Stalling Access to Affordable
Medications Act, Mr. Jeffries, for 5 minutes.
Mr. Jeffries. I thank the distinguished Chair for your
great leadership. I also thank Ranking Member Buck for his
leadership, particularly as it relates to this issue of citizen
petition abuse.
Professor Carrier, the FDA has a citizen petition process
that was meant to provide for an opportunity to raise
legitimate concerns about the health and safety of a new
prescription drug or device that's under review by the agency.
Is that right?
Mr. Carrier. That's correct.
Mr. Jeffries. This process does seem to make sense in
theory, consistent with its intent. Is there reason to believe
that it has been increasingly abused in an anticompetitive
manner by brand name drug companies as part of an effort to
delay the entry of generics onto the market?
Mr. Carrier. Absolutely. I've conducted two empirical
studies of all citizen petitions filed between 2001-2015. My
most recent one found that of the 505(q) petitions, which are
petitions against a pending generic, the FDA denies 92 percent.
That figure rose to 98 percent, 49 out of 50, when they were
filed at the last minute. So, this certainly is an abuse.
Mr. Jeffries. So, the overwhelming majority of petitions
filed actually are found to be frivolous or at least lacking
merit. Is that correct?
Mr. Carrier. Exactly, yes.
Mr. Jeffries. Now, this would be one thing if this were
citizens actually using a legitimate process that was put into
place. Could you tell us what your study has found in terms of
who actually is filing these petitions?
Mr. Carrier. The brand firms are the ones that are filing
these petitions. Ninety-two percent of these 505(q) petitions
were filed by brand firms. There are almost none that are filed
by individual citizens.
Mr. Jeffries. So, the brand firms are actually filing these
petitions, subsequently found to be almost always meritorious,
and that results in the delay of lower cost generic drugs being
brought to the market. Is that right?
Mr. Carrier. Yes. Because as frivolous as a citizen
petition is, the FDA has never summarily denied one on its
face. The FDA has that power, but it has never used it, because
it has to review these long petitions, with lots of scientific
language. The FDA can't resolve these immediately and that
delays generic entry.
Mr. Jeffries. So, how does this stalling tactic adversely
impact the consumer?
Mr. Carrier. Every day that a consumer does not have access
to an affordable, generic medicine is a bad day for that
consumer. Citizen petitions are used, along with other conduct,
like product hopping and pay-for-delay settlements, to make it
harder for consumers to afford the medications that they need.
Mr. Jeffries. So, generic drugs generally cost 80-85
percent less than the brand-name drugs on average. Is that
right?
Mr. Carrier. Yes.
Mr. Jeffries. So, this will be part of the reason why
adversely delaying the arrival of generic drugs onto the market
clearly has a significant financial impact on the consumer?
Mr. Carrier. Absolutely. Every day of delayed generic entry
harms the consumer.
Mr. Jeffries. Now, is there any explanation that has been
offered by the brand-name companies as to the justification to
engage in this type of frivolous practice?
Mr. Carrier. Well, they claim that they are raising safety
concerns. When courts look at this, they often find that it's a
sham. Sometimes there's no good reason for what they're doing.
Oftentimes, companies hide behind the First amendment and
petitioning immunity. At the end of the day, when they're
asking the generic to do something they don't do themselves, or
they knew about an issue and waited years to raise it, that
raises some real questions about what they're doing.
Mr. Jeffries. Thank you for your work. Thank you for your
testimony. In the past, this Committee has unanimously moved
forward legislation to address this egregious practice with the
support of the Chair of the Subcommittee as well as the Chair
of the Full Committee. We have reintroduced legislation to
address this. It is being championed on the other side of the
aisle by Ranking Member Buck. We look forward to addressing
this egregious practice again. Thank you for your testimony.
Mr. Carrier. Thank you.
Mr. Cicilline. The gentleman yields back.
I now recognize the gentleman from North Carolina, Mr.
Bishop, for 5 minutes.
Mr. Bishop. Thank you, Mr. Chair.
I too am glad for the bipartisan approach here and the
uniform commitment to improving competition healthcare market.
I think that--when I was a State legislator for 5 years, I was
a consistently pro-CON repeal. I favor, I think the three bills
that have been discussed today are no-brainers.
I want to take up something that Mr. Steube mentioned, I
and I thought I was sort of prepared for this hearing, and then
saw some materials that suggested there's something to it.
In 2014, Scott Gottlieb talked about a flurry of takeover
transactions in the healthcare space set in motion by the
Affordable Care Act. The Wall Street Journal described in the
next year 2015, 5 years after the Affordable Care Act helped
set off a healthcare merger frenzy, the pace of consolidation
is accelerating.
I even understand, looking at some other material here that
the architects of the Affordable Care Act were condensed, the
consolidation in healthcare relief to decrease healthcare
spending by eliminating duplications, standardizing treatment
protocols, and incentivizing better utilization. So, that is to
say not only did the law encourage consolidation throughout the
healthcare space as a matter of result; it was intended to do
so on the theory that that would result in lower cost in price.
So, maybe, Professor Feldman, I certainly have liked what
you had to say about markets. I wonder is that true of the ACA?
If it is, are we not engaged in sort of a Sisyphean or futile
task to try to advance competition in the healthcare space if
the primary design of the healthcare system through ACA is
designed to promote consolidation?
Mr. Cicilline. Professor, I believe you might be on mute.
Ms. Feldman. My apologies. I am having a little bit of an
equipment problem here. So, I have sometimes been asked whether
it might be better to just give up competition in the
healthcare space, whether you're talking about hospitals or
pharmaceuticals because it's too difficult, it's too
complicated, it's already layered with too many regulations.
Personally, I don't believe that. I believe that even if it is
not perfect, the closer we can get to competition, and the more
we can make the changes that will encourage that competition,
the better off our patients will be.
So, I understand there are pressures throughout the system,
but I think we have extraordinary opportunities to try to Act
in the patient's interest.
Mr. Bishop. Do you have a view as to whether the ACA does
promote consolidation or not.
Ms. Feldman. It's an interesting question, sir. I would
love to take the time to think about that and come back to you
with a thoughtful response.
Mr. Bishop. Okay.
Let me go to Dr. Dafny then and see if you have a few of
that question. Dr. Dafny.
Dr. Dafny. Certainly. Well, it's been 10 years since the
ACA was passed. We have seen enormous consolidation during that
period. There's no evidence that it's causal. Right? So, we
don't have a counterfactual State of the world of what would
have happened, and there was a lot of activity before.
What I will say is that the Act promoted coordination of
multiple providers, and that some people have invoked it as a
reason for a merger: If I am going to be responsible for the
whole episode of care, then I ought to own all the components
of the delivery system. The problem is that a lot of those
transactions have not been about the whole episode of care:
That is, the physician, the hospital, the rehab clinic, and
home health. It's been a lot about buying up the same of what
you do and more horizontal consolidation.
Mr. Bishop. Is it possible, Dr. Dafny, that if you promote
consolidation, let's say, among the healthcare plans, and then
you are robustly enforcing antitrust law as against hospital
systems or pharmaceutical company that you might produce
distortions that would be problematic?
Dr. Dafny. I believe you just asked, would it be better--
problematic to consolidate the health insurers while keeping
the provider sector competitive. My answer would be that yes,
that would concern me. There is evidence that when insurers are
larger, they tend to negotiate lower prices, but there's no
evidence they pass those on down to consumers. Think about it.
What's the incentive if you don't have very many rivals as an
insurer, why would you pass on savings?
Mr. Bishop. Yeah. I am inclined to yield, if I have any
time left, to the gentleman from Maryland to address this
because he might be more even on the point. I find that to be a
fascinating issue that we are--because I believe in competition
in the healthcare space. Glad we interested in it on a
bipartisan basis; confused if ACA was designed in part to
impair it. I yield back because my time is out.
Mr. Cicilline. The gentleman yields back.
I now recognize the gentlelady from Washington, Ms. Jayapal
for 5 minutes.
Ms. Jayapal. Thank you, Mr. Chair, for a very important
hearing. I think we all understand that when components of
consolidation in healthcare promised us better quality of care,
the reality that we got is that patients had been forced to pay
exorbitantly high medical costs in exchange for worse care. We
see a system that's plagued with unregulated mergers, hospital
closures, skyrocketing healthcare costs only exacerbated by
COVID-19.
At a time in which healthcare services are needed the most,
medical institutions serving low-income communities,
communities of color, rural communities, have fared worse than
wealthier institutions, despite serving patients who have
suffered a disproportionate rate of COVID-19 infections and
deaths. So, I think the issue of consolidation is actually
deeply tied to the issues of health inequity for so many
communities.
Dr. Dafny, in your article, ``Health Care Needs Real
Competition,'' you mentioned that, quote, ``The U.S. Healthcare
System is inefficient, unreliable, and crushingly expensive.''
Has the lack of fair competition contributed to these issues,
and if so, how?
Dr. Dafny. I thank you for the question Representative
Jayapal. Absolutely. Unequivocally, the source of our higher
spending is not the health of our population, not that we use
more services but that we pay higher prices for them. Now,
there's some difference in the intensity of the service and the
technology. You could debate a little bit the level. The growth
in prices, the explosion in commercial prices that has
coincided with what Representative Bishop was observing, the
increasing consolidation of the healthcare sector, that's
unmistakable. Then later on academic research that looks really
at what happened when there is a discrete change in
consolidation, and there is significant evidence across a range
of sectors, both providers and insurers, that increasing the
market power enable higher prices and is the driver.
Ms. Jayapal. Just for people who are listening, how does
hospital consolidation affect their quality of care, patient
choice, patient experience, even what effects does it have on
small businesses?
Dr. Dafny. Right. A couple of ways. First, it affects
spending. Right? Because it's going to pass through higher out-
of-pocket spending. When you have increases your deductible,
burdens the employers because they have higher premiums.
Second, reduction in your options. A reduction in--there's
evidence of a reduction in patient experience, and no evidence
of improvements in clinical outcomes or other process measures.
Ms. Jayapal. In your testimony, you also noted the role of
nonprofit hospitals. Nonprofit hospitals are often considered
charitable institutions. In 2019, 66 percent of all hospital
and health system mergers and acquisitions involved nonprofit
entities.
In the upcoming documentary, ``InHospitable,'' directed by
Sandra Alvarez, the fact that nonprofit hospitals behave like
for-profit hospitals is discussed. Can you talk a little bit
about how nonprofit and for-profit hospitals engage in similar
behaviors to maximize profits, if you think that's true? Or if
you don't, explain why that's not the case.
Dr. Dafny. Not-for-profits and for-profits in healthcare
are in the same industry. Even if not-for-profits are not
seeking to return those profits to shareholders, they need to
break even, and they also have other sources where they put
those profits. Sometimes salary, but often just the program
that they deem to be valuable, which might not be what your
taxpayer wants to pay for.
Certainly, the research has not found that not-for-profits
are increasing prices less after mergers and that--so I would
put that out there.
What we should not have is a difference in terms of
enforcement vis-a-vis the not-for-profits. The fact that the
FTC is not permitted to challenge anticompetitive conduct by
not-for-profits is nonsense.
Ms. Jayapal. So, did you get cut off or what?
Dr. Dafny. Nope. I'm brief.
Ms. Jayapal. Oh, okay. Great. So, I mean, I guess you're
getting at this. I wanted to ask you if these large
consolidated nonprofit systems do require antitrust scrutiny
due to their tax-exempt status. Can you say a little bit more
about that?
Dr. Dafny. Well, two items. First, is they absolutely
require antitrust scrutiny. The authorities have brought a
number of cases, challenges, and have succeeded in many of
them.
The second is that there are other statutes that State
attorneys general can enforce to try to ensure the not-for-
profits are fulfilling the community benefit standard.
Ms. Jayapal. So, very quickly, just on private equity
firms, because my time is out, how can antitrust laws and
regulations be strengthened for better oversight to prevent
harmful nonhorizontal mergers in healthcare?
Dr. Dafny. More reporting and, when appropriate, shifting
the burden: Have the party demonstrate why the transaction is
not harmful.
Ms. Jayapal. Thank you so much, Dr. Dafny.
I yield back, Mr. Chair.
Mr. Cicilline. The gentlewoman yields back.
I now recognize the gentlewoman from Minnesota, Ms.
Fischbach, for 5 minutes.
Ms. Fischbach. There we go. I got it unmuted. Thank you so
much, Mr. Chair. I just wanted to ask a little bit about to Mr.
Abbott about the Federal role in State restrictions. I know
that Congressman Steube asked a little bit about the
certificates of need, but maybe he can talk a little bit more
about the Federal role in the State restrictions as related to
the healthcare competition.
Mr. Abbott. Well, thank you very much, Congresswoman, for
that question. The Federal role, I think, part of it is
competition advocacy, but not always successful. As I think I
indicated, the FTC and Justice Department have advocated a
repeal of CON laws because they--and I am just--on a bipartisan
basis.
Now, to the extent that CON laws are viewed as having a
harmful effect on interstate commerce in principle and because
they harm the competitive process, you could have an argument
for Federal preemption if the Federal government wanted to do
that. Similarly, with COPA laws. The Federal government has
chosen not to do that. Certainly, part of the problem--and of
course, these laws have some defenders--is that they were in a
way special interests. Incumbents can take advantage of them to
forestall competition.
Occupational licensing should be a no-brainer, in my view,
but it's not. There has been some litigation against State
occupational licensing restrictions on constitutional grounds
by the Institute of Justice, for example. There is no really
good reason that I'm aware of why artificial restrictions on
nurse practitioners, on other medical providers, limitations on
not science or based on activities, as I say, of dental
hygienists should be maintained. Again, this gets sensitive
because it goes to the nature of State licensing, which is
historically a State function.
So, I think the Federal government certainly should look at
those excessive conditions and, particularly, how State
regulation interacts with Federal law and undermines the
concern about consolidation, certainly, that may have some
effect on consolidation as well because it denies--CON laws,
for example, may preclude a new entry.
Ms. Fischbach. Thank you. I will just say, I know that a
couple of people have mentioned that consolidation. I guess it
hasn't been mentioned, I don't think, that regarding the fact--
I represent a rural district, and so consolidation really does
affect those rural districts and rural healthcare in general.
Mr. Abbott, maybe just briefly, I only have another minute
or so. Maybe you could talk a little bit about how the
regulation compliance costs and all the regulatory costs that
those healthcare providers experience whether it's hospitals,
pharmaceuticals, or--but how do those create barriers to entry
and make competition
harder?
Mr. Abbott. Right. Well, competition, you're asking in
addition to the restrictions I already mentioned? Additional
restrictions?
Ms. Fischbach. Yeah, and well, kind of that regulation, and
we just have--I wanted to keep it short because I only have a
minute or so, but just if there was anything on that
regulation, those regulatory issues.
Mr. Abbott. Right. I think regulatory--I think major
reforms for occupational licensing I have already mentioned.
When I was asked earlier, Congresswoman, about--this is on
State regulation. It's Federal regulation about Obamacare. One
article I would mention by Christopher Pope of the Heritage
Foundation. I'll describe some of the ways in which accountable
care organizations and--tended to promote, like it or not,
consolidation by disbursing capitated payments for integrated
organizations, to provide all-inclusive packages to Medicare
employees, and encouraging vertical integration, and also some
horizontal integration.
I would be glad to provide additional information on how
Federal and State regulations may have diminished competition.
It's a very complicated topic. Lots of my colleagues at the
Mercatus Center, have written about that.
Ms. Fischbach. Well, thank you very much, Mr. Abbott.
Mr. Cicilline. The time of the gentleman has expired.
The gentlewoman now yields back.
I now recognize the distinguished gentleman from the State
of Florida, Mr. Deutch, for 5 minutes.
Mr. Deutch. Thank you, Chair Cicilline. Thank you for your
leadership of this Subcommittee and thank you for using that
leadership to focus on affordable healthcare for the American
people. It's clear to me that the sticker shock Americans are
seeing when they fill a prescription or discharge from the
hospital isn't a product of supply and demand.
Healthcare markets are broken. In the prescription drug
market, gaming and abusing the patent system robs us of
innovative new therapies. We have a responsibility to stop this
profiteering that is leaving too many Americans either broke or
sick or both.
This is urgent, and I acknowledge that for me and, Mr.
Chair, for you, and for so many of us on this Subcommittee, we
agree completely with the President when he said last night
that we should give Medicare the power to negotiate directly on
behalf of the beneficiaries to get fair drug prices.
This hearing is focused on the things that all of us, I
believe, agree on--things that Judiciary Committee approved
last Congress. So, we need to keep up the momentum to get these
bills done this year.
With that, Professor Carrier, I wanted to ask you, amid the
COVID-19 health emergency, the opioid overdose epidemic is
surging. According to provisional data from the CDC, over
81,000 drug overdose deaths occurred in the United States in
the 12 months ending in May 2020, the highest number of
overdose deaths ever recorded in a 12-month period. One of the
best tools to help people find recovery and save their lives is
medication-assisted treatment.
Now, you mentioned that one of the drugs used to treat
opioid-use disorders is Suboxone. Can you explain the story of
what the drug company did when the patent was about to expire?
Mr. Carrier. Absolutely. So, thank you for the question.
Suboxone is a poster child for all this anticompetitive
conduct being used together. So, first, we begin with product
hopping. Initially, the medicine could be taken in tablet form.
Then the company said, you know what, we're going to switch it
to a film form. When it did that, even though the patients
preferred the tablets because they were easier to take--the
film was irritating, it would blow in the wind, children would
ingest it, so it was actually less safe--nonetheless, what the
manufacturer, Reckitt, said was that the tablet was the one
that wasn't safe.
The film is what the kids are putting in their mouths, but
Reckitt is saying the tablet is not safe. So, it switches the
market. It gives up all those sales from the tablet that
everybody likes, and then it goes to stage 2. Stage 2 is the
citizen petition. Reckitt files a petition with the FDA, asking
the agency to withdraw the tablets. Now, these are the tablets
that it had been selling for years, and it never said there was
a safety problem. The court said that this is a joke. This is
objectively baseless because you dismissed the safety concern
less than 1 month before when you told the FDA that the product
was, quote, ``successful and needed no further changes.'' This
was so concerning that the FDA referred this to the FTC for an
antitrust investigation.
So, there you have a product hop together with a citizen
petition, disparaging your own product that you have been
selling for years, and then together with that, you have a REMS
program that delayed generic competition. Again, the CREATES
Act is designed to deal with the REMS program. It's gotten a
whole lot better.
In that one example--and again, this is real harm and
people are really suffering--you have a drug company putting
together at least three significant types of anticompetitive
conduct.
Mr. Deutch. Can you just tell us what was the annual sales
for Suboxone?
Mr. Carrier. I do not know off the top of my head the
annual sales.
Mr. Deutch. My understanding is it's close to $700 million.
When you say that it makes no sense when pharmaceutical
companies use these product hopping strategies, what does that
mean? Help us understand that.
Mr. Carrier. In antitrust law, there is a very, very
conservative test called the no economic sense test, which
says: Defendant, monopolist, if you have any reason at all for
doing what you're doing other than harming a rival, then it's
fine. So, it's more deferential than the rule of reason. Under
the rule of reason, courts balance anticompetitive against pro-
competitive effects. The no economic sense test is as
conservative as you could get. By the way, again, most
reformulations are fine; 80 percent take place outside what's
called the generic window when we expect generic competition to
happen. So, we're just talking about a really small handful.
Those small handful are completely anticompetitive. They
undercut the regulatory regime, and there's no excuse at all
for it.
So, when I say there is no economic sense, there is
literally no reason that Suboxone would badmouth its own
product, would sell tablets for years, and then say: ``Oh, FDA
take this off the market because it's unsafe.''
That makes no sense at all other than harming generic
competition.
Mr. Deutch. That's why we're here today, Mr. Chair. Thanks
so much for calling this hearing, and I thank the Witnesses.
Mr. Cicilline. The gentleman yields back. I now recognize
the gentlewoman from Indiana, Ms. Spartz, for 5 minutes.
Ms. Spartz. Thank you, Mr. Chair and Members of the
Committee.
I appreciate this discussion. Actually, as someone who
worked on major healthcare reform in the State of Indiana and
also worked in Fortune 500 world, I can tell you we have a huge
monopoly problem in healthcare markets, enormous amount of
horizontal, vertical integration, dominance of health systems,
aggressive vertical mergers, hostile takeovers, ton of
anticompetitive clauses, CRN, all or nothing, gag clauses, TRN.
It's really problematic. It's really in the whole healthcare.
We're talking about prescription drugs. It's only 10 percent of
healthcare. Over half of healthcare is actually hospital and
professional services. We have to have that discussion too.
If you look at when it started, it actually started after
World War II due to government interventions, when they start
doing wage and price controls. Then we continued doing them
more and more until the Affordable Care Act did actually very
conscious effort to consolidate more, and it really took it to
the next level. Then so we created, as Friedman said, political
entrepreneurship due to partially socialized medical care when
now this, people, politicians compete for votes by offering
government services, special interest groups are fighting with
each other in political arena. It was protectionist, and they
want to shield themselves from market competition and kind of
shift the cost like hot potatoes. So, this consolidation in
government interventions led to rise of oligopolies in every
market, but healthcare market is really bad.
So, we're looking at some of these bills. I think these are
good initiatives. They're really a top-down, not bottom-up
approach. We're not looking at the causes but treating symptoms
and consequences of bad policies. If you look at sham citizen
petition, why we're not talking about FDA? If we are looking,
since settled, why our agency have friendly settlements much as
they do include some of the stakeholders, and actually Senator
Grassley and I are working on some bill. We just filed a bill.
Hopefully, this Committee can support it. If we're looking at
product hopping, why don't we look at patent law? Our America
Invents Act created a lot of advantages for larger stakeholders
in our intellectual property laws.
So, my question is--I will maybe ask Mr. Abbott--are there
any approaches that we can do in the bottom-up that actually
will be way more effective than constantly just kind of picking
losers and winners and have more government interventions where
we will see how it's going to be effective? I am supportive of
doing something. I am actually not against this bill, but I
think it's a piecemeal approach, and it's not going to help. Do
you have any other ideas, Mr. Abbott, what we can do?
Mr. Abbott. Well, thank you, Congresswoman, for that
question. It certainly, as I say, may seem simplistic, but I
think that regulatory reform and competition advocacy are very,
very important, including on issues affecting potential reform
to the ACA. Now, there were efforts from Federal Trade
Commission in the last Administration to work with HHS to see
what they could within the regulatory system do to--and I was
not intimately involved at all, but some of my colleagues and
the FTC were involved in policy office, working with HHS to try
to see if they could reduce the regulatory costs and
disincentive--and the incentive really, as you suggested, to
potential consolidation.
Again, if we view this as a bipartisan matter, there are a
lot of regulatory improvements that could be had. I would
certainly think that FTC has 70 Ph.D. economists. Many of them
have spent a lot of time thinking about the healthcare system.
I would hope that they could perhaps be given a greater role in
policy advocacy, working with the Executive Branch, and also
openly filing advocacy letters with the State. Obviously, it's
a new Administration. We'll have to decide how it wants to
allocate its resources. I think that is perfectly consistent
with the policy also of trying to be very aggressive and going
after anticompetitive transactions, which Acting Chair
Slaughter had said. I think they could go hand in hand.
Ms. Spartz. I yield back. Thank you.
Mr. Cicilline. The gentlewoman yields back.
I now recognize the gentlewoman from Pennsylvania, Ms.
Dean, for 5 minutes.
Ms. Dean. Thank you, Mr. Chair.
Man, oh, man, I am impressed with these two panels. Thank
you for assembling all these terrific testifiers, Senators,
Members of the House, and all these experts.
I want to follow up on something that many have touched on
but, most recently, Representative Deutch.
Professor Feldman, I am looking at--and I am going to study
more closely your article entitled, ``May Your Drug Price Be
Ever Green,'' published in the Journal of Law and Biosciences.
It was in December of 2018. I want to examine the problem of
orphan drug pricing and the protection of orphan drug--of the
Organ Drug Act and how it has been really misapplied to the
detriment of the marketplace, to the detriment of patients very
often.
I have introduced legislation, the Fairness in Orphan Drug
Exclusivity Act, which would carefully and narrowly close a
current loophole in the Orphan Drug Act.
The second criteria of the Orphan Drug Act allow a
manufacturer to qualify for organ drug designation if there are
more than 200,000 patients affected, but if the manufacturer
has no reasonable expectation to recoup costs.
Unfortunately, a company approved under this criterion, as
we have seen and you have talked about, can grandfather
themselves into an orphan drug designation if a newly approved
product has the same active ingredient regardless if the
company now has the ability to recoup costs.
I was looking at just even the beginning of your article in
which you analyzed more than 60,000 drug data points from 2005-
2015, and you said that the results show a startling departure
from the classical conceptualization of intellectual property
protection for pharmaceuticals. Rather than creating new
medicines, pharmaceutical companies are largely recycling and
repurposing old ones. Specifically, 78 percent of the drugs
associated with new patents were not new drugs.
Would you just comment on this use, this narrow use of
orphan drug exclusivity, what it's doing to the marketplace,
and would a closing of that loophole, the misuse of the very
Act that is supposed to bring drugs to market for patients who
otherwise have, you know, rare disease or the company has no
ability to recoup costs, is now being misused, protecting
companies to make billions of dollars?
Ms. Feldman. Thank you for the question. The Orphan Drug
Act was intended for when companies could not possibly recoup
their costs, but, instead, we're seeing big-dollar returns. So,
for example, in 2015, out of the 10 drugs with the highest
annual sales revenue, 7 were orphan drugs. To paraphrase an old
opera, today everyone claims to be an orphan.
Closing that loophole that you talked about would go a long
way for helping people who are suffering from opioid-use
disorder and other patients who are struggling to reach
affordable medications.
Ms. Dean. I really appreciate that. The area of opioid
overdose and death is one that is near and dear to my heart. As
Representative Deutch pointed out, in this pandemic, the number
of deaths from opioid overdose is dramatically up. It is
possible that number in the 12 months of the pandemic will
reach 100,000 people in this country dead. So, we need
manufacturers and pharmaceutical companies who want to be a
part of the solution, not a part of just the profits.
So, if you would broaden it out, what does this lack of
competition, this protection of marketplace and lack of
competition do more broadly?
Ms. Feldman. The problem is access to affordable
medications for our patients. When we allow drug companies to
extend their monopoly pricing long past the time of the
original patent grant, to pile on protections one after
another, we prevent patients from getting access to that
medication. That's extraordinarily important for our healthcare
in this country.
Ms. Dean. Something that you talked about was slicing up,
you called it the salami slicing.
Ms. Feldman. Salami slicing.
Ms. Dean. Thank you. Can you describe that phenomenon and
how that's getting in the way of access to medication at
affordable prices?
Ms. Feldman. The Orphan Drug Act is intended to apply to
drugs that reach only small populations. So, companies slice
and dice up their populations and then apply for serial orphan
drug designations. We have to differentiate between marketing
and innovation. Here, companies haven't created something new;
they just figured out how to adapt it to a new market, how to
sell it differently. We don't give patents for marketing.
Ms. Dean. Well, I really appreciate your work and the work
of all the esteemed testifiers.
I also want to compliment the entire subcommittee. It is a
bright moment of bipartisanship where we're recognizing
Democrats, Republicans, that this is an issue that's really
important. That's why I have enjoyed Republican support on my
bill, a bill that would close the loophole by requiring a
company when applying for the new product to demonstrate their
ability or inability to recoup development costs, preserving
the incentives to develop products to treat rare diseases. We
don't want to have any impact on the ability to incentivize R&D
about around rare diseases. We do need to close the loophole.
With that, Mr. Chair, I thank you, and I yield back.
Mr. Cicilline. That is why we welcomed with open arms your
wonderful addition to our Subcommittee. Thank you for those
kind words.
I now recognize the gentleman from Wisconsin, Mr.
Fitzgerald, for 5 minutes.
Mr. Fitzgerald. Thank you, Mr. Chair.
Senator Cornyn in the first hearing kind of alluded to
this. I just wanted to underscore it once again, which is the
amazing speed that we have seen from the pharmaceutical
companies when it comes to COVID and the development of the
vaccines. I worried sometimes we kind of lose sight of that.
I do support the bill, and I think it is something that's
overdue. I just want to proceed with caution, I guess, and make
sure that we do this right.
The first thing I would say for Mr. Abbott is, what we did
experience, many different facets of life changed during COVID,
and one of them was that occupational licensing laws were
waived as a result of COVID. What I am wondering is, if there
is any examples out there of laws that policymakers, that we
should look at before we reinstate them? Because it might be an
opportunity--maybe it's not. It might be an opportunity to kind
of revisit some of these licensing laws and make some changes
there both at the Federal and State level.
Mr. Abbott. Thank you, Congressman.
I certainly--I think you're right about licensing laws.
Obviously, there are certain minimum safety standards that are
required in medicine. There are many, many licensing laws that
prevented, as I say, interstate movement. For example, why
couldn't there be some sort of interstate compact or, better
yet, some sort of national standard for medical licensing? That
could allow for easier entry and movement and easier service of
rural clinics that--there is the issue about, that was raised
about rural hospitals. Certainly, closure is a problem there.
The antitrust agencies do recognize that small hospitals can
generally merge, free from antitrust scrutiny, except in most
extraordinary cases. That doesn't deal with the problem of
closures and some loss of revenues due to the COVID crisis.
I mentioned already certificate of need laws. I think one--
some leading economists suggest that any subsidies through the
ACA should probably--if you could, be redirected more towards
patients, not providers, better allow patients to shop around.
In fact, nationwide provision of insurance looking at State--
regulatory State commissions that unnecessarily limit insurance
policies, that has been called for a sort of sensible reform
given the interstate nature of that, among other things.
Mr. Fitzgerald. Very good.
Just one quick question for Dr. Feldman as well. Over the
last couple of weeks, I have met with a number of grocery
stores in my district. Some are single store operators, and
then there's some that are local chains. I would say State
chains of grocery stores. I didn't meet with kind of the big
box ones that we're familiar with.
In that environment, what they were all trying to relay to
me was that there were supply chains that changed and were kind
of segregated out as a result of COVID. It shined a white-hot
spotlight on their industry and was fascinating, kind of
getting their feedback. They were worried that some of the
antitrust in that area is just--it was created in the 1930s. It
has outlived its usefulness. I am wondering, in the discussion
we had here today, I mean, you can go too far too. I am just
wondering if you have any comment on that.
Ms. Feldman. Thank you, sir. It is important that antitrust
keep pace with changes over time in many different ways. I was
struck by that question and with your earlier comment about the
COVID-19 vaccines. Keeping all the experiences that we've had
in mind so far, the COVID vaccines are a spectacular example of
science in action, but also of government-industry
participation. After all, government funding here and at
academic institutions across the world helped bring this great
innovation forward. It's a good reminder that patents are not
the only important way that governments can promote
competition. It's important for us to have government funding,
and to increase government funding for basic research but also
to provide incentives for all students from elementary school
to graduate school, to enter science careers. Our future
depends on those types of initiatives, not just the patent
system.
Mr. Cicilline. The time of the gentleman has expired.
Mr. Fitzgerald. Mr. Chair, I yield back.
I now recognized the distinguished Ranking Member of the
Antitrust Subcommittee, Mr. Buck, for 5 minutes.
Mr. Buck. Thank you, Mr. Chair. I take it I'm on right now?
Mr. Cicilline. Yes, you are, Mr. Buck.
Mr. Buck. Thank you. Professor Dafny, I want to direct
these questions to you, and it really is a follow-up on
questions that Congresswoman Jayapal asked. I have noticed in
the nonprofit area of hospitals, that the salaries for top
executives are, in my view, excessive. When I think of a
nonprofit, I think of United Way. I think of gun rights groups,
gun control groups. I think of environmental groups, I think of
private property rights groups. They rely, for the most part,
on fundraising for their revenue stream, sometimes on
government grants, sometimes on other programs, but oftentimes
on fundraising. When there are issues--and there have been I
think with United Way a few years back where there was an
allegation of excessive salary or benefits or expenses, and I
know there was recently with a gun rights group also--the
funding source sort of dries up. The fundraising is more
difficult, if you will. That's not the case with hospitals. For
the most part, hospitals--I know of some hospital benefit
events. For the most part, hospitals receive revenue from the
services that they provide.
I am wondering if there is a way for the Antitrust
Subcommittee to look into this area as one of the rising costs
in resulting costs for healthcare in this country.
I have to tell you, when the CEO of Apple or the CEO of
Microsoft or the CEO of other companies make a lot of money,
I'm okay. They have a board of directors. They have a profit
incentive, and there is some downward pressure on their high
salaries. I don't know that there is in this area, and I just
want to get your thoughts. As a small government conservative,
I don't want a regulatory agency overseeing salaries for
hospitals or other healthcare entities. As a taxpayer advocate,
I also don't want to see a lot of taxpayer money going to pay
costs when these folks are making so much money. Any thoughts
on that?
Dr. Dafny. Just briefly. Thank you for the question,
Representative Buck. I am not familiar with what's with any
statutes that might restrict the compensation. I would add the
compensation for executives at nonprofit insurers are quite,
quite high. I would say that, just as is the case with regular
for-profit businesses, it's about the boards. If the boards--
they have compensation committees as well--are benchmarking
against other similar CEOs and they approve the salary, then
that's kind of what the market price is for someone with that
skill.
I would say that the enterprises are very large in the
billions of dollars. So, personally, my concern was more with
what the total amount that is being charged is ending up and
less with the specific compensation of the executives that
belong. I would say that they ought to be touchable by a State
enforcement of community benefit profit loss.
Mr. Buck. So, often boards of directors are appointed by,
or at least recruited by, the former boards of directors or the
high-ranking executives. So, often--
Dr. Dafny. A rise in governance problem, right?
Mr. Buck. Yeah, and so, often in these areas, the high-
ranking executives are treated like the shareholders in a for-
profit company. The excess revenue is distributed to those at
the top of the organization, and it's very concerning. You
raised insurance, nonprofit insurers, and I am not trying to
pick on the hospitals, but it just seems like there has to be
some mechanism to try to keep those salaries in check so that
we have a more responsible expenditure of Federal funds.
I would love to talk to you offline about this.
Frankly, Mr. Chair, I would love to have a dialogue with
you, also, on this issue, because I think it really goes to the
cost of healthcare--part of the cost of healthcare in America.
I yield back.
Mr. Cicilline. Absolutely, Mr. Buck, and I look forward to
our ongoing discussion on that really critical issue.
At this time, I will seek unanimous consent to add a number
of letters and statements regarding the Committee's work to
address anticompetitive conduct in healthcare markets to the
record.A statement from Kristen McGovern, the Executive
Director of the Partnership to Empower Physician-Led Care;a
statement for the record from George Slover and Sumit Sharma
from Consumer Reports;a statement for the record from the
Purchaser Business Group on Health; anda statement for the
record from Marni Jameson Carey, Executive Director of the
Association of Independent Doctors.
Without objection.
[The information follows:]
MR. CICILLINE FOR THE RECORD
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Mr. Cicilline. Before I close, I just want to say thank
you, again, to our extraordinary panel of Witnesses for your
testimony that I think really helped to inform the work of this
Committee and will allow us to really make some progress on
reducing the cost of prescription drugs in this country in a
bipartisan way.
So, with deep, deep gratitude, I thank you for your
presence here today.
Without objection, all Members will have 5 legislative days
to submit additional written questions for the Witnesses or
additional materials for the record.
With that, the hearing is hereby adjourned.
[Whereupon, at 3:53 p.m., the Subcommittee was adjourned.]
APPENDIX
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QUESTIONS AND ANSWERS FOR THE RECORD
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Representative Eric Swalwell
House Committee on the Judiciary
Subcommittee on Antitrust, Administrative, and Commercial Law
Thursday, April 29, 2021; 1:00 p.m.
Hearing: Treating the Problem: Addressing Anticompetitive
Conduct and Consolidation in Health Care Markets
Question for Pressor Robin Feldman, Leemore Dafny,
and Michael Carrier
I represent Veeva Systems, a cloud computing company in the
healthcare space. It has alleged, in a lawsuit as well as
communications with my office and the Federal Trade Commission
(FTC), certain antitrust abuses in the healthcare industry.
Specifically, it complains that one company, IQVIA, which
maintains an enormous database of global sales and reference
data on doctors and prescriptions of pharmaceuticals, is a
monopolist which is refusing to allow bio-tech and
pharmaceutical companies that use software that competes with
IQVIA to have access to this vital warehouse of data.
Without commenting on the merits of Veeva's allegations, how
can it be damaging to competition when a monopolist refuses
competitors access to data or information needed to compete?
Can such an action be an abuse of monopoly power?
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