[Congressional Record Volume 144, Number 143 (Sunday, October 11, 1998)]
[Extensions of Remarks]
[Pages E2061-E2065]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                       PRESCRIPTION DRUG PRICING

                                 ______
                                 

                        HON. HAROLD E. FORD, JR.

                              of tennessee

                    in the house of representatives

                        Friday, October 9, 1998

  Mr. FORD. Mr. Speaker, at its core, the issue we are discussing 
today--the astronomically high prices seniors pay for prescription 
drugs--is about fairness.
  Anyone in America who has older relatives or friends who are living 
on a fixed income and taking prescriptions drugs, understands first-
hand the devastating impact that the high cost of medication can have 
on the health and well-being of seniors.
  As we all know, with age comes a greater susceptibility to health 
problems. As such, it is no surprise that: on average Americans over 
the age of 65 spend three times as much of their income (over 20%) on 
health care than Americans under the age of 65; 75% of Americans 65 and 
older take prescription drugs; on average older Americans take 2.4 
prescription drugs at any one time; and even though older Americans 
only comprise 12% of the population, they take 33% of the nation's 
prescription drugs.
  One would think that since older Americans make-up such a large 
segment of the market for prescription drugs that they would pay 
reasonable prices for their medication.
  Unfortunately, that is not the case. Rather due to a pharmaceutical 
industry practice known as ``cost-shifting'' and the limited powers of 
seniors, they get the short end of the stick compared to HMO's and 
other ``most favored customers'' when it comes to the cost of drugs.
  For example, studies conducted by the Government Reform & Oversight 
Committee of Congressional districts across the nation (see Attachment 
``Prescription Drug Pricing in the 9th Congressional District in 
Tennessee, Drug Companies Profit at the Expense of Older Americans'') 
shows that for commonly prescribed drugs, seniors on average pay 
between 96%-104% more than ``most favored customers.'' Back home in my 
Congressional District, seniors who have suffered a stroke or have high 
blood pressure or depression, can pay anywhere from $110-$275 for their 
prescription medication. For the senior in my District that is taking 
the national average of 2.4 prescription drugs, that means a medication 
bill of: at least $264 a month or $3,168 a year; or at most $633 a 
month or $7,600 a year.
  No matter how you cut it, these prices and the discrepancy in cost 
between what seniors and HMOs pay is fundamentally unfair and must come 
to an end. In my view, if anything, seniors and not HMOs should be the 
``most favored customers'' of pharmaceutical companies.
  Fortunately, thanks to the leadership of my colleagues Jim Turner and 
Tom Allen, we now have legislation--the Prescription Drug Fairness Act 
and the Prescription Drug Fairness for Seniors Act--designed to help 
level the playing field when it comes to the cost of prescription 
drugs. Under these measures, the price of medication for seniors will 
be reduced, among other ways, by: providing Medicare beneficiaries with 
a drug benefit card that will entitle the holder to purchase drugs at 
reduced prices from participating pharmacies; and allowing pharmacies 
to purchase drugs at the same lower price as the Federal Government, 
thus allowing pharmacies to pass the savings on to seniors.
  As Congress continues in the weeks and months ahead to discuss and 
debate the scope and nature of health care reform, it is critically 
important that we take the time to confront issues like this--issues 
that affect the ability of millions of Americans to receive quality 
health care in an efficient and cost effective manner.
  As a public policy maker at the federal level, I believe Congress has 
a responsibility to help

[[Page E2062]]

protect seniors--who because of their pressing health needs and limited 
incomes are particularly vulnerable--from the unreasonably high costs 
of prescription drugs.
  The Prescription Drug Fairness Act and the Prescription Drug Fairness 
for Senior Act are designed to accomplish just that.

    Prescription Drug Pricing in the 9th Congressional District in 
   Tennessee Drug Companies Profit at the Expense of Older Americans


                           EXECUTIVE SUMMARY

       This staff report was prepared at the request of Rep. 
     Harold E. Ford, Jr. of Tennessee. In Mr. Ford's district, as 
     in many other congressional districts around the country, 
     older Americans are increasingly concerned about the high 
     prices that they pay for prescription drugs. Mr. Ford 
     requested that the minority staff of the Committee on 
     Government Reform and Oversight investigate this issue.
       Numerous studies have concluded that many older Americans 
     pay high prices for prescription drugs and have a difficult 
     time paying for the drugs they need. This study, the first of 
     its kind in Tennessee, presents new and disturbing evidence 
     about the cause of these high prices. The findings indicate 
     that older Americans and others who pay for their own drugs 
     are charged far more for their prescription drugs than are 
     the drug companies' most favored customers, such as large 
     insurance companies and health maintenance organizations. The 
     findings show that a senior citizen in Mr. Ford's district 
     paying for his or her own prescription drugs must pay, on 
     average, over twice as much for the drugs as the drug 
     companies' favored customers. The study found that this is an 
     unusually large price differential--more than five times 
     greater than the average price differential for other 
     consumer goods.
       It appears that drug companies are engaged in a form of 
     ``discriminatory'' pricing that victimizes those who are 
     least able to afford it. Large corporate and institutional 
     customers with market power are able to buy their drugs at 
     discounted prices. Drug companies then raise prices for sales 
     to seniors and others who pay for drugs themselves to 
     compensate for these discounts their favored customers.
       Older Americans are having an increasingly difficult time 
     affording prescription drugs. By one estimate, more than one 
     in eight older Americans has been forced to choose between 
     buying food and buying medicine. Preventing the 
     pharmaceutical industry's discriminatory pricing--and thereby 
     reducing the cost of prescription drugs for seniors and other 
     individuals--will improve the health and financial well-being 
     of millions of Americans.
     A. Methodology
       This study investigates the pricing of the ten brand name 
     prescription drugs with the highest sales to the elderly. It 
     estimates the differential between the price charged to the 
     drug companies' most favored customers, such as large 
     insurance companies and HMOs, and the price charged to 
     seniors. The results are based on a survey of retail 
     prescription drug prices in chain and independently owned 
     drug stores in Mr. Ford's congressional district in 
     Tennessee. These prices are compared to the prices paid by 
     the drug companies' most favored customers. For comparison 
     purposes, the study also estimates the differential between 
     prices for favored customers and retail prices for other 
     consumer items.
     B. Findings
       The study finds that:
       Older Americans in Tennessee pay inflated prices for 
     commonly used drugs. For the ten drugs investigated in this 
     study, the average price differential in Mr. Ford's district 
     was 115% (Table 1). This means that senior citizens and other 
     individuals who pay for their own drugs pay more than twice 
     as much for these drugs than do the drug companies' most 
     favored customers.

 TABLE 1: AVERAGE RETAIL PRICES FOR THE BEST-SELLING DRUGS FOR OLDER AMERICANS IN TENNESSEE ARE TWICE AS HIGH AS
                       THE PRICES THAT DRUG COMPANIES CHARGE THEIR MOST FAVORED CUSTOMERS
----------------------------------------------------------------------------------------------------------------
                                                                                                        Price
                                                                                          Retail    differential
                                                                           Price for    Prices for       for
        Prescription drug            Manufacturer             Use           favored     Tennessee     Tennessee
                                                                           customers      senior       senior
                                                                                         citizens     citizens
                                                                                                      (percent)
----------------------------------------------------------------------------------------------------------------
Ticlid..........................  Hoffman-LaRoche...  Stroke............       $33.57      $120.02           258
Zocor...........................  Merck.............  Cholesterol.......        42.95       111.05           159
Prilosec........................  Astra/Merck.......  Ulcers............        58.38       118.97           104
Norvasc.........................  Pfizer Inc........  High Blood                58.83       118.02           101
                                                       Pressure.
Procardia XL....................  Pfizer Inc........  Heart Problems....        67.35       133.07            98
Relafen.........................  Smithkline Beecham  Arthritis.........        62.58       122.76            96
Vasotec.........................  Merck.............  High Blood                56.08       109.32            95
                                                       Pressure.
Fosamax.........................  Merck.............  Osteoporosis......        31.86        58.28            83
Zoloft..........................  Pfizer, Inc.......  Depression........       123.88       220.10            78
Cardizem CD.....................  Hoechst Marrion     Angina/                   99.36       175.02           76
                                   Roussel.            Hypertension.
      Average price differential..................................................................           115
----------------------------------------------------------------------------------------------------------------

       For other popular drugs, the price differential is even 
     higher. This study also analyzed a number of other popular 
     drugs used by older Americans, and in some cases found even 
     higher price differentials (Table 2). The drug with the 
     highest price differential was synthroid, a commonly used 
     hormone treatment manufactured by Knoll Pharmaceuticals. For 
     this drug, the price differential for senior citizens in 
     Tennessee was 1,512%. An equivalent dose of this drug would 
     cost the manufacturer's favored customers only $1.78, but 
     would cost the average senior citizen in Tennessee $28.69. 
     For Micronase, a diabetes treatment manufactured by Upjohn, 
     an equivalent dose would cost the favored customers $6.89, 
     while seniors in Tennessee are charged $48.33. The price 
     differential was 601%.

                        TABLE 2: PRICE DIFFERENTIALS FOR SOME DRUGS ARE MORE THAN 1,500%
----------------------------------------------------------------------------------------------------------------
                                                                                                        Price
                                                                                          Retail    differential
                                                                           Prices for   prices for       for
        Prescription drug            Manufacturer             Use           favored     Tennessee     Tennessee
                                                                           customers      senior       senior
                                                                                         citizens     citizens
                                                                                                      (percent)
----------------------------------------------------------------------------------------------------------------
Synthroid.......................  Knoll               Hormone treatment.        $1.78       $28.69          1512
                                   Pharmaceuticals.
Micronase.......................  Upjohn............  Diabetes..........         6.89        48.33           601
                                 ---------------------
----------------------------------------------------------------------------------------------------------------

       Price differentials are far higher for drugs than they are 
     for other goods. This study compared drug prices at the 
     retail level to the prices that the pharmaceutical industry 
     gives its most favored customers, such as large insurance 
     companies and HMOs. Because these customers typically buy in 
     bulk, some difference between retail prices and ``favored 
     customer'' prices would be expected. The study found, 
     however, that the differential was much higher for 
     prescription drugs than it was for other consumer items. The 
     study compared the price differential for prescription drugs 
     to the price differentials on a selection of other consumer 
     items. The average price differential for the ten 
     prescription drugs was 115%, while the price differential for 
     other items was only 22%. Compared to manufacturers of other 
     retail items, pharmaceutical manufacturers appear to be 
     engaging in significant price discrimination against older 
     Americans and other individual consumers.
       Pharmaceutical manufacturers, not drug stores, appear to be 
     responsible for the discriminatory prices that older 
     Americans pay for prescription drugs. In order to determine 
     whether drug companies or retail pharmacies were responsible 
     for the high prices being paid by seniors in Mr. Ford's 
     congressional district, the study compared average wholesale 
     prices that pharmacies pay for drugs to the prices at which 
     the drugs are sold to consumers. This comparison revealed 
     that Tennessee pharmacies appear to have relatively small 
     markups between the prices at which they buy prescription 
     drugs and the prices at which they sell them. The retail 
     prices in Tennessee are 8% above the published national 
     Average Wholesale Price. The differential between retail 
     prices and a second indicator of pharmacy costs, the prices 
     from one wholesaler, is only 27%. This indicates that it is 
     drug company pricing policies that appear to account for the 
     inflated prices charged to older Americans and other 
     customers.

[[Page E2063]]

      I. THE VULNERABILITY OF OLDER AMERICANS TO HIGH DRUG PRICES

       This report focuses on a continuing, critical issue facing 
     older Americans--the cost of their prescription drugs. 
     Numerous surveys and studies have concluded that many older 
     Americans pay high costs for prescription drugs and are 
     having a difficult time paying for the drugs they need. The 
     cost of prescription drugs is particularly important for 
     older Americans because they have more medical problems, and 
     take more prescription drugs, than the average American. This 
     situation is exacerbated by the fact that the Medicare 
     program, the main source of health care coverage for the 
     elderly, fails to cover the cost of most prescription drugs.
       According to the National Institute on Aging, ``as a group, 
     older people tend to have more long-term illnesses--such as 
     arthritis, diabetes, high blood pressure, and heart disease--
     than do younger people.'' \1\ Other chronic disease which 
     disproportionately affect older Americans include depression 
     and neurodegenerative diseases such as Alzheimer's disease, 
     Lou Gehrig's disease, and Parkinson's disease.*
---------------------------------------------------------------------------
     *Footnotes appear at end of article.
---------------------------------------------------------------------------
       According to the American Association of Retired Persons, 
     older Americans spend almost three times as much of their 
     income (21%) on health care than do those under the age of 65 
     (8%), and more than three-quarters of Americans aged 65 and 
     over are taking prescription drugs.\2\
       The average older American takes 2.4 prescription drugs.\3\ 
     More importantly, older Americans take significantly more 
     drugs on average than the under-65 population.\4\ It is 
     estimated that the elderly in the United States, who make up 
     12% of the population, use one-third of all prescription 
     drugs.\5\
       Although the elderly have the greatest need for 
     prescription drugs, they often have the most inadequate 
     insurance coverage for the cost of these drugs. A 1996 AARP 
     survey indicated that 37% of older Americans do not have 
     insurance coverage for prescription drugs.\6\ As a result, 
     many older Americans--a large percentage of whom live on a 
     limited, fixed income--are forced to pay the full, out-of-
     pocket expense of prescription drugs.
       The primary reason for this burden is that, with the 
     exception of drugs administered during in-patient hospital 
     stays. Medicare generally does not cover prescription drugs. 
     While Medicare managed care plans may offer optional 
     prescription drug coverage, they are available only as an 
     option subject to the discretion and fiscal priorities of the 
     health plans. Moreover, these Medicare managed plans 
     currently serve only a small portion of the Medicare 
     population.
       Although Medicare beneficiaries can purchase supplemental 
     ``Medigap'' insurance privately, these policies are often 
     prohibitively expensive or inadequate. For example, one of 
     the standardized Medigap policies available provides only a 
     $3,000 drug benefit, while still leaving beneficiaries 
     vulnerable to a high deductible and to paying at least half 
     of their total drug cost.\7\
       Medicare beneficiaries without public or private 
     prescription drug coverage are the group most at risk of high 
     out-of-pocket prescription drug costs. According to the 
     Senate Special Committee on Aging, this group includes those 
     ``who are not poor enough to receive Medicaid, do not have 
     employer-based retiree prescription drug coverage, and cannot 
     afford any other private prescription drug insurance 
     plans.''\8\
       The high costs of prescription drugs, and the lack of 
     insurance coverage, directly affect the health and welfare of 
     older Americans. In 1993, 13% of older Americans surveyed 
     reported that they were forced to choose between buying food 
     and buying medicine.\9\ By another estimate, five million 
     older Americans are forced to make this difficult choice.\10\


II. ARE DRUG COMPANIES EXPLOITING THE VULNERABILITY OF OLDER AMERICANS?

       Rep. Harold E. Ford, Jr. of Tennessee asked the minority 
     staff of the Committee on Government Reform and Oversight to 
     investigate whether pharmaceutical manufacturers are taking 
     advantage of older Americans through price discrimination, 
     and if so, whether this is part of the explanation for the 
     high drug prices being paid by older Americans in his 
     congressional district. This report presents the results of 
     this investigation.
       Industry analysis have recognized that price discrimination 
     occurs in the prescription drug market. According to a recent 
     Standard & Poor's report on the pharmaceutical industry, 
     ``[d]rugmakers have historically raised prices to private 
     customers to compensate for the discounts they grant to 
     managed care customers. This practice is known as `cost 
     shifting .'''\11\ Under this practice, ``drugs sold to 
     wholesale distributors and pharmacy chains for the individual 
     physician/patient are marked at the higher end of the 
     scale.''\12\
       Although industry analyses acknowledge that price 
     discrimination occurs, they have not estimated its degree or 
     impact. This report, prepared at Mr. Ford's request, is the 
     first attempt to quantify the extent of price discrimination 
     and its impact on senior citizens in Tennessee.
       The study design and methodology used to test whether drug 
     companies are discriminating against older Americans in their 
     pricing are described in part III. The results of the study 
     are described in part IV. These results show that drug 
     manufacturers appear to be engaged in substantial price 
     discrimination against older Americans and other individuals 
     who must pay for their own prescription drugs. Drug 
     manufacturers' profitability is discussed in part V.


                            III. METHODOLOGY

     A. Selection of Drugs for this Survey
       This survey is based primarily on a selection of the ten 
     patented, nongeneric drugs with the highest annual sales to 
     older Americans in 1997. The list was obtained from the 
     Pennsylvania Pharmaceutical Assistance Contract for the 
     Elderly (PACE). The PACE program is the largest out-patient 
     prescription drug program for older Americans in the United 
     States for which claims data is available and is used in this 
     study, as well as by several other analysts, as a proxy 
     database for prescription drug usage by all older 
     Americans. In 1997, over 250,000 persons were enrolled in 
     the program, which provided over $100 million of 
     assistance in filling over 2.8 million prescriptions. \13\
     B. Determination of Average Retail Drug Prices for Seniors in 
         Tennessee
       In order to determine the prices that the elderly are 
     paying for prescription drugs in Tennessee, the minority 
     staff and the staff of Mr. Ford's congressional office 
     conducted a survey of ten pharmacies in Mr. Ford's 
     congressional district. Mr. Ford represents Tennessee's 9th 
     Congressional District, located in Memphis.
     C. Determination of Prices for Drug Companies' Most Favored 
         customers
       Drug pricing is complicated and drug companies closely 
     guard their pricing strategies. The best publicly available 
     indictor of the prices companies charge their most favored 
     customers, such as large insurance companies and HMOs, is the 
     Federal Supply Schedule (FSS).
       The FSS is a price catalog containing goods available for 
     purchase by federal agencies. Drug prices on the FSS are 
     negotiated by the Department of Veterans Affairs. The Prices 
     on the FSS closely approximate the prices that the drug 
     companies charge their most favored nonfederal customers. 
     According to the U.S. General Accounting Office (GAO), 
     ``[u]nder [General Services Administration] procurement 
     regulations, VA contract officers are required to seek an FSS 
     price that represents the same discount off a drug's list 
     price that the manufacturer offers its most-favored 
     nonfederal customer under comparable terms and conditions.'' 
     \14\ Thus, in this study, FSS prices are used to represent 
     the prices drug companies charge their most favored 
     customers.
     D. Determination of Prices Paid by Pharmacies
       The survey also looked at two other pricing indicators: (1) 
     the Average Wholesale Price (AWP) and (2) the prices charged 
     pharmacies by a large drug wholesaler. These two prices 
     provide an indicator of the extent of markups that are 
     attributable to the pharmacy (in contrast to those that are 
     due to the drug manufacturer). The AWP is an average of 
     prices charged by the drug wholesalers to retail pharmacies. 
     The AWP prices were obtained from the 1997 Drug Topics Red 
     Book. \15\ As another measure of wholesale prices, the study 
     used the wholesale prices charged pharmacies by McKesson, the 
     world's largest wholesaler.
     E. Determination of Drug Dosages
       When comparing prices, the study used the same criteria 
     (dosage, form, and package size) used by the GAO in its 1994 
     report, Prescription Drugs: Companies Typically Charge More 
     in the United States Than in Canada. For drugs that were not 
     included in the GAO report, the study used the dosage, form, 
     and package size common in the years 1994 through 1997, as 
     indicated in the Drug Topics Red Book.
     F. Comparison of Price Differentials for Other Retail Items
       In order to determine whether the differential between FSS 
     prices and retail prices for drugs commonly used by older 
     Americans is unusually large, the study compared the 
     prescription drug price differentials to price differentials 
     on other consumer products. To make this comparison, a list 
     of consumer items other than drugs available through the FSS 
     was assembled. FSS prices were then compared with the retail 
     prices at which the items could be bought at a large national 
     chain. \16\


    IV. DRUG COMPANIES CHARGE OLDER AMERICANS DISCRIMINATORY PRICES

     A. Discrimination in Drug Pricing
       For the ten patented, nongenetic drugs most commonly used 
     by seniors, the average differential between the price that 
     would be paid by a senior citizen in Mr. Ford's congressional 
     district and the price that would be paid by the drug 
     companies' most favored customers was 115% (Table 1). The 
     study thus showed that the average price that older Americans 
     and other individual consumers in Mr. Ford's district pay for 
     these drugs in more than double the price paid by the drug 
     companies' favored customers, such as large insurance 
     companies and HMOs.
       For individual drugs, the price differential was even 
     higher. Among the ten best selling drugs, the highest price 
     differential was 258% for Ticlid, a stroke treatment 
     manufactured by Hoffman-LaRoche. Zocor, a cholesterol-
     reducing drug manufactured by Hoffman-LaRoche, had a price 
     differential of 159%.
       For other popular drugs, the study found even greater price 
     differentials. The drug with the highest price differential 
     was

[[Page E2064]]

     Synthroid, a commonly used hormone treatment manufactured by 
     Knoll Pharmaceuticals. For this drug, the price differential 
     for senior citizens in Tennessee was 1,512%. An equivalent 
     dose of this drug would cost the most favored customers only 
     $1.78 but would cost the average senior citizen in Tennessee 
     $28.69. for Micronase, a diabetes treatment manufactured by 
     Upjohn, the price differential was 604%.
       Every drug looked at in this study had a large price 
     differential. Eight of the ten best-selling drugs had price 
     differentials of over 80%. Four of the ten drugs had price 
     differentials over 100%. Cardizem CD, the drug with the 
     lowest markup, still had a differential of 76%.
     B. Comparison With Other Consumer Goods
       The study also analyzed whether the large differentials in 
     prescription drug pricing could be attributed to a volume 
     effect. The drug companies' most favored customers, such as 
     large insurance companies and HMOs, typically buy large 
     volumes of drugs. Thus, it could be expected that there would 
     be differences between the prices charged the most favored 
     customers and retail prices. The study found, however, that 
     the differentials in prescription drug prices were much 
     greater than the differentials in prices for other consumer 
     goods. The study found that, in the case of other consumer 
     goods, the average differential between retail prices and the 
     prices charged most favored customers, such as large 
     corporations and institutions, was only 22%. The average 
     price differential in the case of prescription drugs was more 
     than five larger than the average price differential for 
     other consumer goods. This indicates that a volume effect is 
     unlikely to explain the large differential in prescription 
     drug pricing.
     C. Drug Company Versus Pharmacy Responsibility
       Finally, the study sought to determine whether drug 
     companies or retail pharmacies were responsible for the high 
     prices being paid by older Americans. To do this, the study 
     compared the average wholesale prices that pharmacies pay for 
     drugs to the prices at which the drugs are sold to consumers. 
     This comparison revealed that pharmacies appear to have 
     relatively small markups between the prices at which they buy 
     prescription drugs and the prices at which they sell them. 
     The study found that the average retail price for the ten 
     most common drugs was only 8% higher than the published 
     national Average Wholesale Price, and only 27% higher than 
     the price available directly from one large wholesaler. This 
     finding indicates that it is drug company pricing policies, 
     not retail markups, that account for the inflated prices 
     charged to older Americans and other individual customers. 
     These findings are consistent with other experts who have 
     concluded that because of the competitive nature of the 
     pharmacy business at the retail level, there is a relatively 
     small profit margin for retail pharmacists.\17\
       Moreover, the study found few differences between retail 
     prices at pharmacies in different parts of Mr. Ford's 
     district. Further, although there were variations in prices 
     between chain and independent pharmacies, these differences 
     were small and not systematic.\18\


                   V. DRUG MANUFACTURER PROFITABILITY

       Drug industry pricing strategies have boosted the 
     industry's profitability to extraordinary levels. The annual 
     profits of the top 10 drug companies is nearly $20 
     billion.\19\ Moreover, the drug companies make unusually high 
     profits compared to other companies. The average manufacturer 
     of branded consumer goods, such as Proctor & Gamble or 
     Colgate-Palmolive, has an operating profit margin of 10.5%. 
     Drug manufacturers, however, have an operating profit margin 
     of 28.7%--nearly three times greater.\20\
       These high profits appear to be directly linked to the 
     pricing strategies observed in this study. For instance, 
     Merck, the country's largest pharmaceutical manufacturer, had 
     an increase in profits of 15% to 18% in the second quarter of 
     1998. According to industry analysts, Merck's increased 
     profits were due in large part to sales of Zocor and 
     Fosamax.\21\ Both of these drugs are sold at large price 
     differentials to seniors and other individual consumers in 
     Mr. Ford's district. Zocor, which is sold in Mr. Ford's 
     district at a price differential of 159%, itself accounts 
     for 6% of Merck's revenue.\22\
       Overall, profits for the major drug manufacturers are 
     expected to grow by about 20% in 1998, compared to 5% to 10% 
     for other companies on the Standard & Poors Index. The drug 
     manufacturers' profits are expected to grow by up to an 
     additional 25% in 1999.\23\ According to one analyst, ``the 
     prospects for the pharmaceutical industry are as bright as 
     they've even been.'' \24\.

                                          APPENDIX A.--INFORMATION ON PRESCRIPTION DRUGS ANALYZED IN THIS STUDY
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                Prices (dollars)
                                                                                       -----------------------------------------------------------------
           Brand name drug                Dosage and form             Indication                                                 Average        Price
                                                                                            FSS         Major         AWP         retail    differential
                                                                                                      wholesaler                  price       (percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Ticlid..............................  250 mg, 60 tablets.....  Stroke.................       $33.57       $99.44      $108.90      $120.02           258
Zocor...............................  5 mg, 60 tablets.......  Cholesterol reducer....        42.95        85.47       106.84       111.05           159
Norvasc.............................  5 mg, 90 tablets.......  Blood pressure.........        58.83        97.92       125.66       118.02           101
Relafen.............................  500 mg, 100 tablets....  Arthritis..............        62.58        88.88       111.10       122.76            96
Prilosec............................  20 mg, 30 capsules.....  Ulcer..................        58.38        99.20       108.90       118.97           104
Procardia XL........................  30 mg, 100 tablets.....  Heart..................        67.35       105.05       131.31       133.07            98
Fosamax.............................  10 mg, 30 tablets......  Osteoporosis...........        31.86        50.91        51.88        58.28            83
Vasotec.............................  10 mg, 100 tablets.....  Blood pressure.........        56.08        85.56       102.94       109.32            95
Cardizem CD.........................  240 mg, 90 tablets.....  Angina.................        99.36       154.10       165.42       175.02            76
Zoloft..............................  50 mg, 100 tablets.....  Depression.............       123.88       172.44       215.55       220.10           78
      Average price differential..........................................................................................................           115
--------------------------------------------------------------------------------------------------------------------------------------------------------


 APPENDIX B.--THE 10 TOP SELLING PATENTED, NONGENERIC DRUGS FOR SENIORS
                      RANKED BY TOTAL DOLLAR SALES
------------------------------------------------------------------------
  Rank            Drug              Manufacturer          Indication
------------------------------------------------------------------------
1.......  Prilosec............  Astra/Merck........  Ulcer.
2.......  Norvasc.............  Pfizer, Inc........  High Blood
                                                      Pressure.
3.......  Zocor...............  Merck..............  Cholesterol
                                                      reduction
4.......  Zoloft..............  Pfizer, Inc........  Depression.
5.......  Procardia XL........  Pfizer, Inc........  Heart Problems.
6.......  Vasotec.............  Merck..............  High Blood
                                                      Pressure.
7.......  Cardizem CD.........  Hoechst Marion       Angina.
                                 Roussel.
8.......  Ticlid..............  Hoffman-LaRoche....  Stroke.
9.......  Fosamax.............  Astra/Merck........  Osteoporosis.
10......  Relafen.............  Smithkline Beecham.  Arthritis.
------------------------------------------------------------------------
Source: Pharmaceutical Assistance Contract for the Elderly (``PACE''),
  Pennsylvania Department of Aging, Annual Report to the Pennsylvania
  General Assembly (January 1-December 31, 1997).


     APPENDIX C.--PRICE COMPARISONS FOR NON-PRESCRIPTION DRUG ITEMS
------------------------------------------------------------------------
                                           FSS     Retail   Differential
                 Item                     price     price     (percent)
------------------------------------------------------------------------
Binder Clip, small, 1 box.............     $0.49     $0.49           0
Rubber Bands, 1 lb....................      2.57      2.67           4
Toilet Paper, 96 Rolls................     44.74     47.98           7
Rolodex, 500 cards....................     13.24     14.29           8
Tape Dispenser........................      1.44      1.69          17
Wastebasket, Plastic, 13 qt...........      2.95      3.49          18
Scissors..............................     10.88     12.99          19
Pencils, #2, 20-pack..................      1.03      1.26          22
Paper Towels..........................     22.94     29.98          31
Post-It Notes.........................      2.08      2.89          39
Envelopes, 500, White, 20 lb. weight..      6.45      9.49          47
Correction Fluid, 18 ml., dozen.......      6.66      9.99         50
    Average price differential............................          22
------------------------------------------------------------------------

                               FOOTNOTES

     \1\ National Institute on Aging (NIA), NIA Age Page 
     (www.nih.gov/nia/health/pub/medicine.htm).
     \2\ AARP Public Policy Institute and the Lewin Group, Out of 
     Pocket Health Spending By Medicare Beneficiaries Age 65 and 
     Older: 1997 Projections (February 1997).
     \3\ AUS/ICR for the American Association of Retired Persons, 
     National Pharmaceutical Council, and Pharmaceutical Executive 
     Magazine, Survey on Prescription Drug Issues and Usage Among 
     Americans Aged 50 and Older, I (May 1996).
     \4\ Senate Special Committee on Aging, Developments in Aging: 
     1996, 1 S. Rep. 36, 105th Cong., 1st Sess. 121 (1997).
     \5\ Senate Special Committee on Aging, Developments in Aging: 
     1993, 1 S. Rep. 403, 103d Cong., 2d Sess. 35 (1994).
     \6\ AARP Public Policy Institute and the Lewin Group, supra 
     note 1.
     \7\ Families USA Foundation, Worthless Promises: Drug 
     Companies Keep Boosting Prices, 6 (March 1995).
     \8\ Senate Report 36, supra note 4, at 122.
     \9\ Families USA Foundation, supra note 7, at 6.
     \10\ Senate Special Committee on Aging, A Status Report--
     Accessibility and Affordability of Prescription Drugs For 
     Older Americans, S. Rep. 100, 102d Cong., 2d Sess. 2 (1992).
     \11\ Herman Saftlas, Standard & Poor's, Healthcare: 
     Pharmaceuticals, Industry Surveys, 19-20 (December 18, 1997).
     \12\ Id., at 19.
     \13\ Pharmaceutical Assistance Contract for the Elderly 
     (``PACE''), Pennsylvania Department of Aging, Annual Report 
     to the Pennsylvania General Assembly (January 1-December 31, 
     1997).
     \14\ U.S. General Accounting Office, Drug Prices: Effects of 
     Opening Federal Supply Schedule for Pharmaceuticals Are 
     Uncertain (June 1997) (emphasis added).
     \15\ Medical Economics Company, Inc., 1997 Drug Topics Red 
     Book.
     \16\ The items were binder clips, rubber bands, toilet paper, 
     rolodexes, tape dispensers, wastebaskets, scissors, pencils, 
     paper towels, post-it notes, envelopes, and correction fluid.
     \17\ National Association of Chain Drug Stores, Did You Know 
     . . . (pamphlet) [citing financial data assembled by Keller 
     Bruner & Company, P.C., Certified Public Accountants (1995)].
     \18\ In 1993, independent pharmacies sued 19 drug 
     manufacturers, alleging that the differential between the 
     prices charged most favored customers and the prices charged 
     pharmacies violated antitrust laws. In 1996, 11 of these drug 
     manufacturers agreed to settle with the pharmacies. Under 
     this

[[Page E2065]]

     agreement, these pharmaceutical companies promised to offer 
     pharmacies the same price discounts as favored customers like 
     large HMOs if the pharmacies could show the same ability to 
     move market share as the favored customers. On July 13, 1998, 
     four additional drug manufacturers agreed to a settlement 
     under similar terms.
     Unfortunately, the results of this study cast doubt on 
     whether these agreements are likely to end the price 
     discrimination practices of the large pharmaceutical 
     companies. Eight of the ten most popular prescription drugs 
     in this survey--Zocor, Norvasc, Prilosec, Procardia XL, 
     Relafen, Vasotec, Fosamax, and Zoloft--are covered by the 
     agreement reached in 1996, and there is still large price 
     discrimination for all of these drugs. Synthroid is also 
     covered under the agreement, and this drug has a price 
     differential of 1,512%.
     The reason for the continued high price differentials may be 
     that, unlike hospitals or HMOs, pharmacies cannot control 
     decisions made by doctors about what drugs to prescribe, and 
     thus are unable to demonstrate to the drug manufacturers that 
     they can influence market share. The doubts raised by this 
     study are consistent with the observations of other industry 
     analysts, who note that ``there is already intense skepticism 
     among retail buying groups for independent drugstores about 
     whether the smaller independents will have the ability to 
     qualify for the potential windfall and pass the savings on to 
     customers.'' Wall Street Journal, Drug Makers Agree To Offer 
     Discounts For Pharmacies, July 15, 1998, p. B4, column 3.
     \19\ See 1998 Fortune 500 Industry List (www.pathfinder.com/
fortune500/indlist.html).
     \20\ Paul J. Much, Houlihan Lokey Howard & Zukin, Expert 
     Analysis of Profitability (February 1988).
     \21\ USA Today, Drugmakers Have Healthy Outlook (July 20, 
     1998).
     \22\ IMS America, Top 200 Drugs of 1997 (1998).
     \23\ USA Today, supra note 22.
     \24\ Id., D1.

     

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