[Congressional Record (Bound Edition), Volume 146 (2000), Part 17]
[Extensions of Remarks]
[Pages 25774-25775]
[From the U.S. Government Publishing Office, www.gpo.gov]



STARK PROVIDES FURTHER EVIDENCE OF NEED FOR FDA INVESTIGATION INTO DRUG 
                       COMPANY PRICE MANIPULATION

                                 ______
                                 

                        HON. FORTNEY PETE STARK

                             of california

                    in the house of representatives

                       Tuesday, October 31, 2000

  Mr. STARK. Mr. Speaker, I am today submitting for the Record a letter 
I sent to Dr. Jane E. Henney, Food and Drug Administration 
Commissioner. This letter provides additional information recently 
discovered during ongoing Congressional investigations into drug 
company price manipulation and supplements my previous two letters to 
Dr. Henney.
  Recent congressional investigations have collected evidence that 
certain drug companies consistently inflate prices and engage in other 
improper business practices in order to create windfall profits from 
Medicare and Medicaid reimbursements. In response, drug companies have 
stated that such drug inflation has been consistent with, and perhaps 
even required by, flaws in the reimbursement system's reliance on 
Average Wholesale Price (AWP). Further, drug companies contend that 
AWPs are meaningless numbers.
  However, as the letter below and its accompanying exhibits 
demonstrate, drug companies do indeed rely upon AWPs to advertise their 
drugs. And, in fact, drug companies often advertise truthful drug 
prices when there is no Medicare reimbursement available. The evidence 
uncovered suggests that contrary to drug company statements, it is not 
a flawed reimbursement system that leads drug companies to inflate 
their prices. Instead, it is drug companies' dishonest pricing based on 
their desire to create a profit for prescribing physicians seeking 
Medicare or Medicaid reimbursements.
  My reading of the Federal Food, Drug and Cosmetic Act and its 
corresponding regulations suggests that the FDA should pay particular 
attention to these misleading drug company actions. And I again request 
that the FDA conduct a comprehensive investigation into such drug 
company business practices. My third letter to the FDA regarding this 
issue follows:

                                    Congress of the United States,


                                     House OF Representatives,

                                  Washington, DC, October 31, 2000
     Dr. Jane E. Henney,
     Commissioner, Food and Drug Administration, Rockville, 
         Maryland.
       Dear Dr. Henney: I write to provide essential, additional 
     information to you about price manipulation by some drug 
     companies arising from ongoing Congressional investigations. 
     Such drug company price inflation exploits the Medicare and 
     Medicaid programs. This is the second supplement to my letter 
     to you of October 3, 2000.
       Recent media reports of statements by certain drug company 
     executives reveal a concerted effort to continue to mislead 
     the Congress and the public about the nature of their 
     companies'actions. Specifically, the drug companies have 
     represented that their conduct, including-their inflated 
     price reports that have resulted in admittedly excessive 
     Medicare reimbursements, has somehow been consistentwith, and 
     perhaps even required by, flaws in the reimbursement system's 
     reliance upon Average Wholesale Price (AWP). This logic is 
     premised on the erroneous contention that the AWPs associated 
     with their drugs are meaningless numbers that should not 
     reasonably be relied upon as an indicator of wholesale 
     prices. Such statements are in themselves deceptive.
       The evidence developed during the course of the 
     Congressional investigation reveals that it is routine for 
     the drug industry to advertise a drug product's price in the 
     AWP

[[Page 25775]]

     format and to encourage the consideration of AWP as one 
     factor when evaluating competing drug products. Indeed, the 
     drug companies often compare their drug's AWP with that of a 
     competitor in an effort to demonstrate their drug's 
     superiority from a cost perspective and to influence 
     physician prescribing decisions. Such advertisements are 
     directed at prescribing physicians, pharmacists, and other 
     health care professionals and take many forms, such as direct 
     contacts, flyers, and trade publications such as the Red 
     Book, Drug Topics and Medical Economics which are each 
     published or updated monthly.
       When there is no inflated Medicare reimbursement available 
     for the prescribing physician, companies often advertise 
     truthful AWP prices. To illustrate this, I have attached, as 
     Composite Exhibit ``1``, copies of advertisements by Rhone-
     Poulenc Rorer (``RPW') which accurately communicates its 
     price of Dilacor XR in the form of AWP and compares the 
     higher AWP price of the competing drug Cardizern. RPR then 
     emphasizes that the physician should prescribe Dilacor over 
     Cardizem in order to save the patient money:
       ``Now DILACOR XR provides potential cost savings when 
     angina patients are prescribed diltiazem.''
       Attached as Composite Exhibit ``2'' are examples of Bayer 
     Pharmaceutical advertisements for its drug Cipro where the 
     drug company again accurately describes its price in the form 
     of AWP and touts the cost savings to the patient in 
     comparison to five competing drugs. Bayer explained it as 
     follows:
       ``New CIPRO Cystitis Pack reduces the cost of branded 
     therapy''
       It is important to note that both RPR and Bayer use 
     accurate AWPs to urge physicians to consider the cost to the 
     patient when exercising medical judgment in selecting from 
     competing brand drug therapies. Price, as expressed in the 
     industry standard format of ``AWP'', is clearly an important 
     characteristic that is considered in evaluating drug 
     products. Indeed, Bayer's AdalatCC advertisement attached as 
     Exhibit ``3 ``, which features the popular ``Dragnet'' star 
     Jack Web, drives home this point:
       ``Just the Facts
       Powerful blood pressure control
       Comparable to Procarida. XL or Norvasc
       At a more affordable price'' (footnotes omitted).
       Footnote 6 of the ad's accompanying materials cites the Red 
     Book--indicating that the AWP is considered a relevant 
     benchmark when evaluating the drug's price.
       Composite Exhibit ``4'' demonstrates that physicians seek 
     the lowest drug prices when there is no financial incentive 
     to utilize the highest price drugs. PDR Generics provides 
     pricing information on prescription drugs in ``one 
     comprehensive, authoritative volume.'' The accompanying 
     documents state the following:
       ``PDR GENERICS is the drug reference designed to help you 
     find the most cost-effective generic alternatives for any 
     prescription medication. . . .''
       Exhibit ``4'' also provides further evidence that AWP 
     prices are widely used as a reference tool:
       ``All detailed NDC and AWP pricing information is drawn 
     from the authoritative RED BOOK database, Pharmacy's 
     Fundamental Reference.''
       Ordinarily, drug companies ensure that their AWPs are an 
     accurate reflection of price when engaging in such marketing 
     and advertising activities. Clearly, such advertisements 
     would be misleading if the drug company were aware that the 
     published AWPs had no factual basis and could not be 
     realistically considered as a benchmark for prices. I 
     strongly believe that if any of the above ads used falsely 
     manipulated AWPs to fraudulently indicate that the advertised 
     drugs were less expensive when in fact the drug company was 
     aware that it is more expensive, FDA or FTC enforcement would 
     be warranted.
       Unfortunately, such AWP manipulation is at the heart of the 
     misconduct that Congress has uncovered in its investigation. 
     As I have noted previously, the acts are being committed by 
     some drug companies who know that the drug will be reimbursed 
     by Medicare and that a health care professional will profit 
     if the price is inflated. Advertising an AWP in the Red Book 
     that falsely overstates a drug's price is as misleading as 
     advertising an AWP that falsely understates the price. One 
     form of false advertising misleads third parties to pay more 
     for a drug and induces doctors, who submit the claim 
     themselves, to prescribe the most profitable drug. The other 
     form misleads the doctor into believing that a drug, to be 
     dispensed at a pharmacy and not claimed by the doctor, is 
     cheaper for the patient when it is not. I believe both 
     actions should be considered violations of the Federal Food, 
     Drug, and Cosmetic Act.
       AWP information is created by drug manufacturers for the 
     express purpose of influencing decisions about their drugs. 
     Although it appears most AWP representations are accurate and 
     are affirmatively used to inform about cost savings, some 
     drug manufacturers have chosen to inflate AWPs to exploit the 
     Medicare and Medicaid Programs and thereby expand sales. 
     Medicare and Medicaid relies on AWPs because the drug 
     industry employs AWP to communicate prices. Drug 
     manufacturers must not now be permitted to misconstrue the 
     facts revealed in Congressional investigations by contending 
     that the reimbursement system is flawed when they themselves 
     provided the misleading information.
       Following up on my last two letters on this same issue, I 
     reiterate that my reading of the Federal Food, Drug, and 
     Cosmetic Act and the corresponding regulations suggests that 
     the FDA should pay particular attention to these misleading 
     drug company actions. Accordingly, I request that the FDA 
     conduct a comprehensive investigation into drug company 
     business practices that includes the additional exhibits 
     referenced above.
           Sincerely,

                                                   Pete Stark,

                                               Member of Congress.

     

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