[Congressional Record (Bound Edition), Volume 145 (1999), Part 16]
[Senate]
[Pages 22658-22660]
[From the U.S. Government Publishing Office, www.gpo.gov]



           PRESCRIPTION DRUG FAIRNESS FOR SENIORS ACT OF 1999

  Mr. JOHNSON. Madam President, the second issue I want to talk about 
this afternoon is the issue of prescription drug costs. I am going to 
have to edit my remarks due to time constraints more than I really 
prefer, but I do want to talk about the prescription drug costs we face 
in this Nation.
  American seniors 65 or older make up only 12 percent of our 
population but consume, understandably, 35 percent of all prescription 
drugs. Studies have shown that the average senior citizen takes more 
than 4 prescription drugs per day and fills an average of 18 per year. 
Costs have skyrocketed in recent years, increasing an estimated 17 
percent last year alone.
  What impact has this drug price increase had on senior citizens? It 
has been catastrophic for all too many. A survey completed in 1993 
reported that 13 percent of older Americans say they literally are 
choosing between buying food or their prescription drugs.
  Sadly, I hear the same story everywhere I go in my home State. 
Thirty-five percent of the Medicare population, equivalent to 13 
million people, have no prescription drug benefits of any kind under 
any kind of insurance plan. Seniors sometimes fail to realize that the 
Medicare program itself contains no prescription drug benefit.
  I recently requested a South Dakota study of prescription drug prices 
for seniors in our State, a study that I asked the Government Reform 
and Oversight Committee of the other body to conduct, comparing the 
prices our seniors pay compared to favored customers such as HMOs, the 
Federal Government, and large insurance companies.
  I ask unanimous consent that the detailed summary of the study be 
printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

Prescription Drug Pricing in South Dakota: Drug Companies Profit at the 
                       Expense of Older Americans

(Minority Staff Report House Committee on Government Reform U.S. House 
                   of Representatives, July 31, 1999)


                           executive summary

       This staff report was prepared at the request of Senator 
     Tim Johnson of South Dakota. In South Dakota, as in many 
     other states around the country, older Americans are 
     increasingly concerned about the high prices that they pay 
     for prescription drugs. Mr. Johnson requested that the 
     minority staff of the Committee on Government Reform 
     investigate this issue. This report is the first report to 
     quantify the extent of prescription drug price discrimination 
     in South Dakota and its impact on seniors.
       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 presents 
     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 prescriptions 
     drugs than are the drug companies' most favored customers, 
     such as large insurance companies health maintenance 
     organizations, and the federal government. The findings show 
     that senior citizen in South Dakota paying for his or her own 
     prescription drugs must pay, on average, more than twice as 
     much for the drugs as the 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, governmental, and 
     institutional customers with market power are able by 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 to the 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 older Americans.
     A. Methodology
       This study investigates the pricing of the five 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, HMO's, and certain federal government 
     purchasers, 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 throughout South Dakota. 
     These prices are compared to the prices paid

[[Page 22659]]

     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 pay inflated prices for commonly used 
     drugs. For the five drugs investigated in this study, the 
     average price differential was 121% (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. In dollar terms, 
     senior citizens must pay $50.33 to $94.12 more per 
     prescription for these five drugs than favored customers.

 TABLE 1.--AVERAGE RETAIL PRICES IN SOUTH DAKOTA FOR THE FIVE BEST-SELLING DRUGS FOR OLDER AMERICANS ARE MORE THAN TWICE AS HIGH AS THE PRICES THAT DRUG
                                                      COMPANIES CHARGE THEIR MOST FAVORED CUSTOMERS
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                      Retail       Differential for S.
                                                                                                       Prices for   prices for   Dakota senior citizens
            Prescription drug                     Manufacturer                       Use                favored     S. Dakota  -------------------------
                                                                                                       customers     seniors      Percent       Dollar
--------------------------------------------------------------------------------------------------------------------------------------------------------
Zocor...................................  Merck.......................  Cholesterol.................       $27.00      $100.44          272       $73.44
Prilosec................................  Astra/Merck.................  Ulcers......................        59.10       110.82           88        51.72
Norvasc.................................  Pfizer Inc..................  High Blood Pressure.........        59.71       110.04           84        50.33
Zoloft..................................  Pfizer, Inc.................  Depression..................       115.70       209.82           81        94.12
Procardiz XL............................  Pfizer Inc..................  Heart Problems..............        68.35       121.88           78        53.53
                                                                                                     ---------------------------------------------------
    Average price differential..........  ............................  ............................  ...........  ...........  ...........         121%
--------------------------------------------------------------------------------------------------------------------------------------------------------

       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 
     South Dakota was 1,469%. An equivalent quantity of this drug 
     would cost the manufacturers' favored customers only $1.75, 
     but would cost the average senior citizen in South Dakota 
     over $27.00. For Micronase, a diabetes treatment manufactured 
     by Upjohn, an equivalent dose would cost the favored 
     customers $10.05, while seniors in South Dakota are charged 
     an average of $47.24. The price differential was 370%.
       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, government buyers with negotiating power, and 
     HMOs. Because these customers typically buy in bulk, some 
     difference between retail prices and ``favored customer'' 
     prices would be expected.

                        TABLE 2.--PRICE DIFFERENTIALS FOR SOME DRUGS ARE MORE THAN 1,450%
----------------------------------------------------------------------------------------------------------------
                                                                                                        Price
                                                                           Prices for     Retail    differential
      Prescription drug           Manufacturer               Use            favored     prices for     for S.
                                                                           customers    S. Dakota      Dakota
                                                                                         seniors       seniors
----------------------------------------------------------------------------------------------------------------
Synthroid...................  Knoll                 Hormone Treatment...        $1.75       $27.46        1,469%
                               Pharmaceuticals.
Micronase...................  Upjohn..............  Diabetes............        10.05        47.24          370%
----------------------------------------------------------------------------------------------------------------

       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 five prescription drugs was 121%, 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 prescription drug prices paid by seniors in 
     South Dakota, 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 
     the pharmacies in South Dakota 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 South Dakota are actually below the 
     published national Average Wholesale Price, which represents 
     the manufacturers' suggested price to pharmacies. The 
     differential between retail prices and a second indicator of 
     pharmacy costs, the Wholesale Acquisition Cost, which 
     represents the average price pharmacies actually pay for 
     drugs is only 13%. This indicates that it is drug company 
     pricing policies that appear to account for the inflated 
     prices charged to older Americans and other customers.

  Mr. JOHNSON. Madam President, the results of the South Dakota study 
are consistent with studies in other States finding that seniors in 
South Dakota pay inflated prices for commonly used drugs. In fact, 
seniors are paying twice the amount per prescription compared to the 
price the pharmaceutical companies sell their drugs to their favored 
customers. In fact, we found some individual prescriptions where the 
price differential was as high as 1,469 percent for the same drug. 
These price differentials are far higher for prescription drugs than 
for any other consumer good.
  The average price differential for the five top selling prescription 
drugs for seniors is 121 percent, while the price differential for 
other items considered daily essentials for the consumer is only 22 
percent.
  The study also indicates that pharmaceutical manufacturers--not the 
drugstores, not the pharmacies--appear to be responsible for this huge 
differential. South Dakota pharmacies have relatively small mark-ups, 
between the prices at which they buy the drugs and the prices at which 
they sell them.
  The question is, Where do we go from here? There is talk about a 
Medicare add-on for prescription drugs. I hope we can go down that 
road. Quite frankly, a bipartisan agreement about how to pay for it and 
administer it simply has not been reached. In the interim, there are 
alternatives.
  The Prescription Drug Fairness for Seniors Act of 1999, which I have 
sponsored with Senator Kennedy, will provide a mandate--without the use 
of tax dollars, or any new Federal bureaucracy--that the pharmaceutical 
industry sell prescription drugs at the same price to Medicare 
beneficiaries as they sell to their favored customers. No more 
discrimination. If the Prescription Drug Fairness for Seniors Act was 
enacted, we could reduce the cost of prescription drugs available to 
seniors by approximately 40 percent. There would be no bureaucracy, no 
tax dollars, and a huge benefit for seniors all over America. Our 
pharmacists would use the existing pharmaceutical distribution system 
and not create any new bureaucracy.
  It is estimated that we will reduce drug prices for seniors by 
approximately 40 percent. There will be no more devastating choices 
among groceries, rent, and prescription drug costs.
  I am pleased our bill is gaining endorsement and currently has the 
support of 10 of our colleagues, including Senators Daschle, Dodd, 
Dorgan, Feingold, Hollings, Inouye, Leahy, Kerry, Wellstone, and 
Bingaman. Earlier this year, Representatives Tom Allen, Jim Turner, 
Marion Berry, and Henry Waxman were joined by 61

[[Page 22660]]

of their colleagues when they introduced the House version of this 
bill, H.R. 664. They have now over 120 cosponsors.
  Several organizations endorsed our legislation, some of which include 
the National Committee to Preserve Social Security and Medicare, TREA 
Senior Citizens League, Consumer Federation of America, and Families 
USA Foundation. Many South Dakota groups have also endorsed our bill, 
including the South Dakota Coalition of Citizens with Disabilities and 
the North Central Chapter of the Paralyzed Veterans of America. We now 
have well over 30 organizations actively supporting this legislation.
  Currently, there are several prescription drug proposals in Congress. 
We ought to have hearings on this issue, and we ought to go forward as 
aggressively as we can.
  Madam President, there is no need to wait. We can act on this now. We 
can give seniors now the benefit of this 40 percent reduction in 
prescription drug costs that they deserve and need.
  What an irony it is that so many of our seniors wind up not taking 
their prescription drugs in order to save money and then fall ill with 
an acute illness and wind up in the emergency room, and then Medicare 
picks up the tab. Wouldn't it be better if we can find a way to make 
sure seniors can afford the prescription in the first place to avoid 
that kind of acute illness, that emergency room visit? The taxpayers 
will gain, the dignity of the seniors will gain, their physical health 
will gain. All Americans would be better off with the immediate passage 
in this Congress of the Prescription Drug Fairness for Seniors Act of 
1999.
  I yield back such time as may remain.
  Mr. BYRD addressed the Chair.
  The PRESIDING OFFICER. The Senator from West Virginia is recognized.
  Mr. BYRD. What is the situation regarding time?

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