**HHS Importation Task Force**

**Public Meeting**

# Wednesday, April 14, 2004

# Natcher Auditorium, National Institutes of Health

# Bethesda, Maryland

##### I. Opening Remarks 3

##### 

##### II. Presentations from Registered Speakers

##### Rick Roberts, Consumer 4

#####  

##### Rene Rodriguez, Inter-American College of Physicians & Surgeons 9 

##### Noel T. (Tom) Curb, SPC Global Technologies 10 

##### Peter Neupert, drugstore.com 12

##### Kurt Hilzinger, Healthcare Distribution and Management Association 19

##### The Honorable Jim Doyle, Governor of Wisconsin 23

##### Mark Barondess; Christensen, Miller, Fink, Jacobs, 

##### Glaser, Weil & Shapiro, LLP 34

##### Sharon Cohen, Biotechnology Industry Organization 37

##### Pete Sepp, National Taxpayers' Union 40

##### Bruce Kuhlik, Pharmaceutical Research and Manufacturing Association 43

##### James Green, King Pharmaceuticals 50

##### Flora Green, The Seniors' Coalition 55

##### Scott McKibbon, Special Advocate for Prescription Drugs, State of IL. 57

##### Ram Kamath, Special Advocate for Prescription Drugs, State of IL. 64

##### Lothar Dueck, Coalition for Manitoba Pharmacy 69

##### Joel Miller, National Alliance for the Mentally Ill 73

##### Panos Kanavos, London School of Economics 74

Lunch break

1.  Jeffrey Axelrad, Consultant 78

2.  Jack Sharry, Group Benefits Strategies 82

#### Bernard Kerik, Kerik-Kerik, LLC 84

#### Lew Kontnik, Consultant 86

#### Durhane Wong-Reiger, Consumer Advocare Network 88

3.  Louise Binder, Canadian Treatment Action Council 90

#### Gary Stein, American Society of Health Systems Pharmacists 93

#### Charles Hardin, RetireSafe.com; Council for Government Reform 94

#### Lynda Mitchell, Parents of Food Allergic Kids 96

#### Jim Rittenburg, Authentix 97

4.  James Love, Consumer Project on Technology 102

#### Raymond Keating, Small Business Survival Committee 105

#### Jamie Martinez, Latinos Unidos Health Access Alliance 108

5.  Nancy Martin, Pharm-D 112

### I. Opening Statement -- Task Force Chair, Vice Admiral Richard H. Carmona, M.D., M.P.H., FACS {#i.-opening-statement-task-force-chair-vice-admiral-richard-h.-carmona-m.d.-m.p.h.-facs .unnumbered}

Good morning, ladies and gentlemen. I would like to call meeting to
order and start the meting. I am Richard Carmona, the U.S. Surgeon
General. I would like to welcome you to this public meeting of the Task
Force on Drug Importation. Today we will hear from members of the public
who have indicated that they would like to make presentations to this
task force.

Secretary of Health and Human Services Tommy Thompson formed this task
force to explore whether and how drug importation might be conducted
safely and its potential impact on the health of American patients,
medical costs, and the development of new medicines.

On behalf of Secretary Thompson, I want to thank the members of the task
force for your willingness to work on this important issue. It's an
extraordinarily complex topic that challenges the best minds in the
field.

The past two weeks, we have held the first two listening sessions of
this task force. We heard presentations, in the first session from
consumer and advocacy groups, and at the second session from
pharmaceutical development and distribution companies. Those
presentations were very useful to this task force. I thank the
presenters not only for their thoughtful presentations but also for
their responses to our follow-up questions.

The safety and efficacy questions related to importing prescription
drugs into our country are very important to the nation's health.

As a trauma surgeon, the former CEO of a health system, and now doctor
the American people, I understand the critical role that prescription
drugs have in our public health system. The miracles of modern medicine
are often found in a pill. It's truly wonderful that science has brought
us medications that can unclog arteries, lower blood pressure, cure
infection, and save or enhance life.

Millions of Americans have come to depend on prescription drugs to keep
them healthy. The biomedical research that has led us to the development
of these drugs is truly awesome.

The task force is first and foremost about the facts and the science.
And we will go as far as the facts and the science will lead us. I thank
everyone, in advance, for keeping this in mind.

Together, this task force, the members of the public, and the
stakeholders are exploring whether prescription drug importation can be
done safely and effectively. And if so, what resources are needed. Our
mission, outlined in the Medicare Prescription Drug Improvement and
Modernization Act of 2003, is to determine whether there is a safe
structure for prescription drug importation.

As I did at our first two sessions, I want to promise all of the
presenters today and in the future meetings, the opportunity to be
heard. I expect this process to be completely transparent, with frank,
open, and honest discussion about the health implications of drug
importation. I expect that diverse ideas will be presented, and I ask
everyone to be respectful of that diversity.

These meetings are being conducted in an organized manner, in an effort
to produce the best possible information. As with previous sessions,
each of today's presenters will have up to five minutes for prepared
remarks. Please note, in the front is a timer; goes from green to yellow
to red. I'd ask speakers the speakers to be cognizant of it, when you
see the yellow light, you have about a minute left, and I'd ask you to
begin summing up at that point. After a presenter has concluded his or
her remarks, the task force members may follow up with some questions
for that presenter.

I ask each presenter to be mindful of the five-minute limit for
presentations so we can ensure that everyone has an equal opportunity to
be heard. In addition, the task force will welcome all written and
supporting materials that parties would like to submit.

Those materials, along with the transcript of each listening session,
will be available to the public, The Department of Health and Human
Services has developed a web site for the task force that can be reached
through www.hhs.gov

One last bit of business; is there anyone in the audience that would
require signing for any of their presentations this morning? Because we
want to make sure that's available. Nobody is identified; OK, thanks so
much.

With that, lets get going with today's business. I would like again to
thank my fellow task force members for their time and we will now
welcome the first presenter and that would be Rick Roberts. Mr. Roberts,
thank you and Mr. Roberts let me just mention for you and any of the
speakers, that you have the option to come to the podium on the stage if
you like, or use one of the three microphones \-- the one you're at or
either at the two aisles -- so, whatever makes any of the presenters the
most comfortable to you, please make the selection of where you'd like
to be.

## Presentations from Registered Speakers

[Rick Roberts, Consumer]{.underline}

Great, thank you, and I'm just going to move this, if that's OK, 'cause
I can't see the light from here and I want to try to stay to my time.

My name is Rick Roberts and I feel very fortunate to be here today. And
I'm glad to have the opportunity and I thank you for the chance to share
my experience, what I have learned through those experiences, and my
concerns about importation and reimportation.

I started college as an 18-year old in 1981 in San Francisco. I was
infected with HIV in the early 80's. As you know, HIV was later
discovered and in 1988, I became ill and was diagnosed with AIDS Related
Complex, which progressed to AIDS. I'm going to kind of fast forward 12
years from that time to the year 2000. Those 12 years were an
interesting time; had some ups and some downs, but in the year 2000 I
was diagnosed with AIDS wasting syndrome, although it doesn't look like
it right now, I was wasting at that time. And I had failed on a couple
of therapies and my doctor said our last try was going to be a drug
called Serostim recombinant human growth hormone. And that cost four to
six thousand dollars a month, and I was fortunate enough to have the
insurance company approve a 12-month supply.

I started injecting that and had very good results. More than half way
through my time of injecting Serostim, I noticed a stinging at the
injection sites that I hadn't noticed before, and some subtle
differences in packaging and in the amount -- or the dose -- of the
power itself. What... I wasn't alarmed. I've had lots of drugs change
size, shape, color. I just a note I wanted to ask my pharmacist, so I
went into the CVS pharmacy where I got my Serostim every month and I
asked the pharmacist. And, I told him what was going on and I asked him
if I was doing something wrong or if something had changed? And he
nonchalantly commented that "You should go home and check, because you
may have received some of the fake stuff."

So, I did go home, and by the time I got off the bus and got home I had
convinced myself I must have misunderstood what he said, because how
could that be? I went to the CVS pharmacy in my neighborhood and it was
the box just as it was supposed to be. I was wrapped in plastic, it has
the label on it. Fake stuff. I went online and, sure enough, found an
article in the *Boston Globe.* Three paragraphs saying that fake
Serostim could be found in seven different states. And that the FDA was
doing an investigation. Went to the FDA website, found the notice there;
went to Serono, the manufacturer's web site and they said were
cooperating with the FDA.

I called my doctor. She hadn't heard about this. Went in to talk to her
and she said, we have to find out if it wasn't growth hormone what it
was you were injecting, because we need to know if there's something we
should be doing if you have done some harm, we want to counter that \--
we need to find out. We couldn't find out. Nobody knew what was in those
vials. Which started, for me, a really difficult time of not being able
to sleep, I became very preoccupied. Couldn't focus; I teach at the
University of San Francisco, and found it really difficult to do what I
was supposed to do. I started having anxiety attacks. For 12 years, we
knew who the enemy was, we were fighting HIV. For the first time, I had
no idea what we were up against.

In my mind, though, I kept going to the thoughts that they had put
Hepatitis-C in those vials, and I had injected myself with Hepatitis-C.
And, that's what I thought. It took three months to find out that it
wasn't Hepatitis-C in those vials. I had been injecting HCG -- Human
Chorionic Gonadotropin \-- which is the hormone women make when they are
pregnant and it's used as a fertility drug. It's not meant to be
injected subcutaneously, and it's certainly not meant to be injected
every day. It does explain why I was an emotional wreck for a while. So,
I, though, discovered that I had received two different batches
perpetrated by two different persons or groups. The second batch, I
found out three months later, had contained that form of growth hormone
but, based on the contaminants, it was probably produced outside of the
U.S. and it was 1/6 the dose I was supposed to be receiving.

How does this relate to reimportation or importation? I had gone through
an American pharmacy. It turns out that this was distributed through the
secondary market, through a licensed wholesaler in Florida. As far back
as I know that it's been traced, who sold it to a licensed wholesaler in
Las Vegas, Nevada, who sold it to a secondary licensed distributor in
New York. This is much like money laundering to clear the pedigree,
because once they put it through an authorized dealer, the pedigree
doesn't have to be included in the next sale. And then it was sold to
the major distributors who had contracts with the major pharmacies and
that's how it got to the seven different states.

I have since worked with -- talked with the FDI, to the manufacturers,
the Nevada Board of Pharmacy the law enforcement agency for the state of
Florida (who investigates counterfeit medicine), and even the FBI. I
have testified against these bad guys. They are really bad -- they don't
care. They found \$47 million of bad medicine in Florida in one year:
cases of insulin, not refrigerated in the Florida sun. These are bad
guys, and they know what they're doing and they do it really well.

I have learned that the longer the distribution chain, the more likely
\-- or the more doors are opened for these bad guys to do what they want
to do which is to make money at the expense of sick people. So, I need
to sum up. I am afraid... these are my concerns: that as we elongate and
go outside the jurisdiction of the FDA, and we go with links in this
chain of distribution, that we create opportunities for the bad guys.

So, the safely issue, I don't think, is secondary or a smoke-screen, as
people have told me. I think it is a primary concern. My concern is
that, people like me, who may receive a counterfeit, what recourse do we
have? What do we have -- where do we find relief? Who would we find
responsible? If we're having trouble paying for our medicines -- and
I've been there, maxed out my credit cards buying AZT in the 80's, and
borrowed money to get my medicine -- I'm not going to going to be able
to afford an international tort lawyer to represent me in some other
country. Who will be responsible if this happens and why would we open
the doors that would allow this to happen? I don't know of any savings
monetarily or discounts that could be offered that would make it worth
jeopardizing people's health, or allowing the bad guys to do to you or
anyone in this country what they've done to me. Again, thank you. I feel
fortunate to be here, and thanks for listening to my story.

Carmona -- Thanks very much Mr. Roberts. Would you hang on just a second
in case any of our task force members have any questions of you?

Roberts -- Yes, sorry.

Carmona -- Thanks. We'll all get used to it as we go through the day.
Members, anybody have any questions for Mr. Roberts? Yes, Dr. Crawford.

Lester Crawford, DVM, PhD, FDA deputy commissioner -- I'd just like to
thank you for that testimony and for your courage in being here. Since
the event in the year 2000, obviously you have educated yourself about
this problem. Are there special steps you could share with the group
that you yourself take in order to ensure against this happening again?

Roberts -- Yes. I am now well-known to my pharmacy, I go to another
pharmacy. I go \-- it's a 24-hour pharmacy \-- I usually go after
midnight. They know me by name; they know I won't leave the counter
until I've gone through every prescription. I look at every drug before
I leave the counter, because once you take it away from the counter they
can't take it back. They're used to me calling with questions and asking
questions. And I question everything that's different. I have a bottle
of Lipitor at home that we can't track to the Lipitor recall and I'm not
going to take it. I don't know what the odds of getting three
counterfeits are, but I'm not going to take a chance. So, that's what I
can do, I just think the responsibility shouldn't fall on the patient.
Cause I don't know what else we can do except to ask the pharmacist or
our doctors. But I do recommend, if anyone feels anything different they
hadn't noticed before, or notices any changes, they should check, and
the FDA website is a useful place to look, too.

Crawford -- We would invite everyone to do that, on behalf of the FDA.
Thank you.

Carmona \-- Other questions?

William Raub, HHS deputy assistant secretary for public health emergency
preparedness \-- Just to follow up on that, when you went back and found
the drug with the burning sensation -- you said there were subtle
packing differences. Can you describe those and the quality of the
product in terms of the sophistication and the comparison?

Roberts -- Would you like to see them? I have them with me.

I would, I would. Did in fact, the pharmacist that gave it to you, that
gave you the product, did they in any way realize that the product was
counterfeit? Even when you brought it back and looked at it, could they
tell that it was a counterfeit product?

Roberts \-- I don't think so, and I'm glad to share it. I actually have
the counterfeit and the real. I understand how the pharmacist passed it
one. I don't think that they are necessarily looking for counterfeit all
the time, and you can tell for yourselves if you could be able to
identify the difference or not. And I certainly didn't; only because I
was looking at it so closely \-- each vial \-- because I was injecting
it, I noticed some subtle changes. But I don't think... I mean, it's
such a good counterfeit, I don't think the pharmacist would be able to
pick it up. What was surprising to me was that when I got home, the FDA
knew, the manufacturer knew and the pharmacy knew -- because they had
received a letter saying the product had been recalled and they had sent
everything they had on their shelves back. That's how he knew to tell me
to go home. But, nobody ever notified me. And, I've said this before,
when I've had a car part recalled, they have had to track me down,
notify me, track that part, remind me that I didn't get it fixed. But
for some reason, there's no policy like that for pharmaceuticals, so I
found out by chance. I have no idea how many people might think they
just failed on the Serastim, and got the fake stuff.

Carmona -- Any other questions?

Raub -- It would be nice if we could see the product, if he's got it.

Roberts -- I'll just point something out, if I can, and then I'll have
you take it, look at it. It comes in a seven-day supply box, it comes
with a diliant bottle and a powdered drug bottle. This, well, top one is
real; the bottom one is counterfeit. And you can look at the vials and
decide. After it happened, Serono put a hologram on the box to help
identify the real stuff, but within a couple of months, the
counterfeiters were able to make the boxes with the holograms as well
and there were two more counterfeits of this drug a year later with the
holograms on it. The one with the hologram, the way I can tell, is
because this blue is a little bit darker on the fake one. So, when you
get it, look really closely, and this blue that's a little darker is the
fake one

Carmona -- So what you're saying is -- I hadn't seen those before -- is
that those who made this provided countermeasures in effect to make it
look the real thing, and when we got a hologram on it, they also put a
hologram on it?

Roberts -- And there's another difference. You can tell that the labels
are slightly rounded on the corners on the bottle on the vials, that's
the real drug, and the more square corners are the counterfeit. They
weren't real good at cutting the labels out. But very small, subtle
differences, as you'll see. And, with laser printing and scanning, they
were able to -- they had the package insert and the instructions to the
patients, all that they were able to recreate and pass it off.

Carmona -- Yes, Ms. Willis.

Elizabeth Willis, chief of the Drug Operations Section, Office of
Diversion Control, US Drug Enforcement Administration -- Yes, Mr.
Roberts, you mentioned that the drug had gone through several layers of
the secondary distributors industry. Do you know how many layers it had
actually passed through?

Roberts -- The FDA may have more answers. When I testified in the case
in Las Vegas against the company in Las Vegas, their sole supply of the
medicine came from a company licensed under the name Rekcus in Florida.
R-E-K-C-U-S, which is that's "suckers", spelled backwards, that was
their license name in Florida. And, they were getting medicines from a
number of places; expired medicines that were supposed to be destroyed
that doctors were sending them from South Carolina so they could
reliable with new expiration dates. Things like that. They were getting
them from a lot of different places and some that were, apparently,
international. So, we're don't know exactly where these started but we
can trace it from Florida to Nevada to New York \-- the big three. And
the FDA is still on-going, so the FDA has a lot of things they say they
can't talk to me about.

Carmona -- Other comments, questions? No? Mr. Roberts, to echo what Dr.
Crawford said, we appreciate your time and also your willingness to
expose these very private parts of your life for the benefit to the
American public.

Roberts -- Yes, thanks for listening.

Carmona -- Before we move on to our next speaker, let me... I was remiss
in not introducing a new member of our task force. At the very far end
on the right, Tracy Hardin, an attorney with the Department of Justice.
Her predecessor left because she was promoted to a judgeship, I believe,
and Tracy was good enough to come and join us after being nominated by
the Department of Justice, so welcome and thank you for being with us.
Our next speaker is Dr. Rene Rodriguez, from the Inter-American College
of Physicians and Surgeons. Dr. Rodriguez, welcome and Dr. Rodriguez, if
you'd like you can use the podium on the stage or any of the microphones
on the floor. Whichever you prefer, sir, your call.

[Rene Rodriguez, Inter-American College of Physicians &
Surgeons]{.underline}

Thank you very much, sir, and good morning. My name is Rene Rodriguez
and I am a medical doctor and president of the Inter-American College of
Physicians and Surgeons. Since 1979, we have worked to promote
cooperation among U.S. Hispanic physicians. I am here today because this
great country, and some of its most vulnerable citizens are in grave
danger.

We have the safest and best medicine supply in the world but proposals
for prescription drug importation could dismantle this system. Those who
favor importation have good intentions: to lower costs and increase
access to medicine. But that they propose to do with an irresponsible
and unacceptable trade-off between price and safety. With foreign
importation, the U.S. FDA would not be able to exercise the same safety
control over prescription drugs that it does now. The drugs may be real
drugs or they may be counterfeit, they may be effective in treating
patients, or they may not.

Even worse, they may actually be harmful. The truth is, we don't know
which is which until someone has paid the ultimate price with his life.
While some think that imported drugs are somehow OK, because Canada has
tough domestic standards, nothing could be further from the truth.
Imported medicine -- you saw what happened already \-- are not
guaranteed to have been inspected by Canadian authorities who have
stated that they do not have safety responsibility for drugs exported to
the U.S.

Doctors know that, when they prescribe a drug for a patient, that they
will be able to get real medicine that really will cure the patient.
Right now, doctors have that confidence. If this misguided proposal
becomes law, no doctor will be able to have this confidence and the
health and safety of millions of Americans will be compromised.

The Inter-American College of Physicians and Surgeons plays an important
role in minority communities. And I ask you to consider this issue from
the point of view of minorities. Minority and low-income and other
traditionally underserved populations will likely get a disproportionate
share of these bad medicines. As state Medicare programs struggle to
save money, it is those who have the least ability to pay who will be
hurt the most. They will end up with a two-tier system, where people in
the suburbs get safe, FDA medicines, and people in the barrios get
medicines of unknown quality and origin. For these reasons, we believe
that importation drugs really will end up in the low-income areas, in
the barrios, and we believe they are a bad prescription for the good
medicine that we have in this country. Thank you, sir.

Carmona -- Thank you, Dr. Rodriguez, task force members, does anyone
have questions for Dr. Rodriguez. No? Dr. Rodriguez, thank you so much,
we very much appreciate your being here. Our next speaker will be Steven
Gibson, from the ALS Association. Is Steve Gibson present? OK, what
we'll do then, for a matter of administrative course in these
proceedings is, if someone is not present, they'll just move to the end
of the list. So if any of you know Mr. Gibson and he comes in, we'll
just take him at the end of the list. We'll move on to our next speaker,
who will be Mr. Noel Curb, SPC Global Technologies. Mr. Curb, are you OK
standing there?

[Noel T. (Tom) Curb, SPC Global Technologies]{.underline}

Yes, I came up here; this \[podium\] will help hold me up. I just
wondered, did ya'll start timing me when I started up the stairs? I told
the chairman that I'm from Texas, I can't introduce myself in five
minutes. I asked for 30 or 40 minutes for my comments. (Laughter.) I'm
going to parse this down, but it will be complete in the hard copy and a
CD for you guys.

My name is Tom Curb, I've been a resident pharmacist for 41 years with
more than 38 dedicated aspects of managed care pharmacy benefits related
to hospitals, HMOs, PBMs, retail pharmacy networks, development of
prescription claims processing, pharmaceuticals purchasing and as an
independent consultant on matters pharmaceutical.

My background and experience qualify me to allow me to make the
following comments and observations. The challenge before this
commission is to assess the potential for a cost effective and safe
system for the importation of Canadian prescription drugs.

I will describe such an importation program with documented
cost-effectiveness and patient safety. First, necessary elements must be
defined and addressed. Lowered drug cost is a given; informed Americans
know they can obtain cheaper drugs from outside the United States. The
effectiveness and safety, appropriate therapeutic response and patient
safety demand two primary considerations: product efficacy and real-time
electronic safeguards; the former being affected by accountability of
source, and the latter by applications of proven, technological edits.

Product efficacy. Dire government and industry predictions about unsafe
or substandard drugs from licensed Canadian pharmacies have proved
invalid. Documentation of more than 38,000 Canadian source prescriptions
subjected to the below-described safeguards reveal that there were no
reports of counterfeit drugs, substandard drugs, or adverse drug events.
These statistics are especially important because the majority of
patients had affiliated medical benefit programs and thus were subject
to consistent and routine physician oversight.

Real-time electronic safeguards. Although there is no validated evidence
of product-related death or injury to Americans importing drugs from
licensed Canadian pharmacies, tens of thousands of patients obtaining
drugs from within the U.S. system die or are seriously injured from
adverse drug events. To help prevent these, U.S. pharmacists are
required to maintain patient profiles with their drug utilization
histories that interface real-time with technologies that identify
potential medication-related problems. Also, prescription benefits
managers, or PBMs, require claims processors to maintain a central
profile of each member's drug utilization within the provider network,
and for the profile to be linked to similar patient-protective
technologies.

The primary purpose for these patient-protective technologies is the
prevention of adverse drugs events caused by drug-to-drug interactions.
An essential deterrent for which is a comprehensive patient profile.
Obviously, even within the internal U.S. system, applications of these
patient-protective measures are not universal. Many Americans do not
consistently trade at one pharmacy, and an out-of-network situation will
occur if a customer obtains a prescription from a non-technologically
linked pharmacy, or if a prescription is not submitted to a PBM claims
processor.

An out- of-network prescription permanently contaminates the patient's
profile with respect to that medication and all subsequent medications.
Without appropriate technological monitoring, imported prescriptions
will also meet this out-of-network criteria. Increasing public awareness
of cheaper foreign drugs, and ease of acquisition via the Internet,
cause perceptive health care providers to recognize an imminent danger
to their members' health from potential out-of-network prescriptions.

To alleviate risks due to omission of data about imported drugs from
members' drug history, and in an effort to fulfill their obligations to
protect members' health (and in many cases the plan's resources),
proactive benefits plans took preemptive actions to incorporate proven
protective measures into benefit's designs. Also, recognizing the danger
from data omission in customers' drug profiles, visionary retail
pharmacist retailers have tried to fill that obvious void. Facing the
increasing threat of reduced revenues, they offered to supplement their
in-house patient profiles with imported drug data, to inform their
importing customers or safer mechanisms, to advise them of the relative
cost of domestic versus imported medications and to answer customers'
questions about the products that they may choose to import.

I emphasize this technological aspect of a safe mechanism because some
regulators seem to misunderstand the process or they underestimate its
importance. Despite the irrefutable need for these universally acclaimed
and professionally endorsed safeguards \-- and ignoring evidence that
the lack thereof is a much greater threat to citizens than unsupported,
product-related concerns \-\-- the federal government, in concert with
state officials and regulatory agencies, is attempting to prevent
application of these safety measures to imported prescriptions.

Hopefully, theirs is just not another effort to placate a narrow but
influential constituency. For, by discounting the necessity of such
measures, regulators will create a preventable and yet grave and
imminent danger to American consumers. If regulators do not ensure to
these safeguards, they will have abandoned their mission to protect
Americans' health and, instead, create a deadly environment that is
diametrically opposed to the safer one of application of universally
endorsed and proven health care technologies.

Carmona -- Mr. Curb, would you please sum up now?

Curb \-- Yeah. Under the safe and cost effective mechanism, licensed
Canadian pharmacies would be certified or subject to an acceptable
professional criteria. In the absence of this reciprocity and our dual
licensure, Canadian prescribers would be credentialed based on accepted,
professional criteria that would include review of requirements. U.S.
prescription benefits plans, and all other PBMs, would be allowed to
coordinate with credentialed Canadian pharmacies to obtain medical and
drug data that have been supplied to them by their importing members,
and to electronically processed Canadian prescription claims for these
members. U.S. retail pharmacy would be allowed and encouraged to
establish cooperative relationships with Canadian pharmacies and/or U.S.
PBMs that would enable them to become involved in their customers
importation processes. The technologies, safeguards and processes that
could accomplish these programs have been developed, prototypes can be
demonstrated and positive results validated. For those 38,000
prescriptions that were mentioned earlier, the Canadian savings were in
excess of \$6 million, when compared to already-reduced prices in the
U.S. pharmacy network -- an average saving of \$150 per prescription,
more than 50 percent. I have answers to all of your specific questions,
but I guess you'll have to get them off of the CD.

Carmona -- We'll certainly look at your record that you've provided to
us. I appreciate it. Task force members, anyone have any questions for
Mr. Curb? Thank you, sir, for your testimony. Appreciate it. Our next
speaker is Peter Neupert of drugstore.com. Mr. Neupert.

[Peter Neupert, drugstore.com]{.underline}

Good morning, and thank you for the opportunity to speak today. I'm
Peter Neupert, Chairman of Drugstore.Com, a leading online of health,
beauty, vision, and pharmacy products. We were one of the first fully
licensed online pharmacies, back in 1999.

The Internet has empowered consumers to comparison shop for their
prescriptions. For example, Drugstore.com was the first to make all of
our prescription drug prices available online to any consumer. Because
we believe that empowerment is a positive thing. However, it is the same
medium, the Internet, that has made it so easy for unscrupulous,
unregulated and untouchable entrepreneurs to put U.S. consumers at real
risk for their health.

Since 1999, our safety and privacy claims have been substantiated by a
thorough audit, conducted by a trusted, independent organization -- the
NABP, the National Association of Boards of Pharmacies. Trusted
verification is especially important on the Internet, because the
consumer does not have the visual cues available in the physical word;
things like which neighborhood it's in, the cleanliness of the site, the
licenses, the orderliness and the like.

As cross-border importation of prescription drugs becomes more popular
and widespread, the problems will only get worse, exponentially. This is
the nature of the Internet; trends accelerate at a breakneck pace.
Consumer demand will create supply, while more marginal players that
exist will set up shop to tap into the bigger and more lucrative
markets. Many problems that exist with the current *laisse faire*
approach to cross-border importation will increase, from therapeutic
failures to life-threatening events; all will be exacerbated. An
uncontrolled free-for-all, without mandatory certification and
enforcement, can never claim to put patients' interest first.

By harnessing the Internet, we believe that Drugstore.com is onto
something quite important and possibly revolutionary. Today, we have
safely dispensed more than 2.5 million prescriptions to consumers in all
50 states. We leverage the power of the Internet volume to offer
discounts of 10-25 percent off prices of traditional brick and mortar
pharmacies. Moreover, we are providing important health information that
can improve health outcomes, and we have an e-med alert service that
proactively goes out and alerts consumers when the FDA has recalled a
drug, or any other agency has recalled a drug \-- which would solve the
problem noted by the first consumer this morning. And we do all of this
while conforming to applicable federal, state and local regulatory
controls. For the safety of consumers and the viability of the Internet
as a lower cost drug delivery channel, it is critical that all Internet
pharmacies -- whether here or outside the United States \-- play by the
same rules. Without appropriate standards and enforcement mechanisms in
place, opening our borders undermines the confidence in the safety and
reliability -- and affordability -- of the Internet distribution
channel. Health Canada, for example, does not regulate pharmacies
catering to U.S. citizens.

A spot check on the popular search engine, Google, identified over 250
websites that dispense drugs. Over 25% of those are outside the U.S. or
Canada, and those are only the ones that we could identify. Over 167 of
those 250 provide medications without a prior prescription, and over 40
more without a prescription at all. Many dispense compounds that are
illegal, or subject to special controls. The average consumer cannot
say, with certainty or any degree of confidence, which sites are safe
and which are not. Right now, the situation is "buyer beware."

(Displays TropicRx site.) Here's a site that I got in my email two days
ago. I venture to say that we've all received such things. This one is
particularly interesting because of all of the various things going on.
I would venture to say this site is not FDA-approved, although it says
it is, although the \[FDA\] logo is there. This site undermines the
doctor-patient relationship and patient safety by requiring no
prescriptions. It showcases the U.S. flag, but gives a Canadian address.
There are thousands more suspicious sites like this.

So, what do we do? I recommend that we adopt the uniform standards,
similar to the NABP -- VIPS program. Once such a uniform standard has
been adopted and introduced, I recommend the following three-tiered
approach to help enforce that standard.

One: make it illegal for on-line pharmacies to advertise on search
engines, unless they meet the approved certification standards and
prohibit search engines from accepting advertisements from on-line
pharmacies that are not properly certified. Two: stop credit card
payments to pharmacies that do not meet the certification standards, and
stop the funding at the source. And, third, motivate third party
shippers to refuse shipments from pharmacies that do not meet the
certification standards.

Buying drugs online should be a superior experience: convenient,
affordable and private. But in today's world, purchasing drugs on-line
is fraught with peril. I see the red light is on. I would say that all
Americans deserve a system they can trust, this means finding a solution
that combines safety with affordability. We deserve to be protected from
fly-by-night operations and unscrupulous providers that set aside all
safety concerns to make a buck.

Carmona -- Thank you, sir. Task force members, Dr. Raub?

Raub -- You mentioned mechanisms to reach out to customers in the event
of, say, a recall of a product or, by extension, the discovery of a
containment product. Would you elaborate on what that mechanism is?

Neupert \-- We harness the low-cost, two-way communications of the
Internet. We keep a database of our customer name and every drug they
received, even by lot number. So, if we get a recall, we monitor the FDA
website. If we get a recall, within less than 24 hours, we send an email
to each customer who has received anything from that lot number or from
that drug. We also do it for non-drug products, you know, we sell baby
products and things like that. If they get recalled, we also send
notices to those customers. We sent over 30,000 when, I can't ever say
it, when phenyl propylene was taken off from market for some reason, we
send out over 38,000 emails to customers within 24 hours.

Alex Axar, HHS general counsel -- Mr. Neupert, have you all done any
kind of comparison of prices available through your website versus the
prices that would be available through websites that offer drugs for
importation? And, by that, I mean particularly brands and generic drugs,
how they compare.

Neupert -- Absolutely. Typically, on generic drugs, we're cheaper than
foreign sources, because there's a much more robust generic drug market
here in the U.S. On brand drugs, my favorite example is that we
typically sell Lipitor for \$73; probably the traditional retail price
is in the mid-80s. Our foreign competition from Canada sells it
typically for \$32.

Axar -- And what would you say are the major safety concerns? Since the
way Drugstore.com is, if I understand your testimony, it operates, you
work solely with FDA-licensed and approved drugs and distribution
channels. What is your perspective of what the major risks would be with
imported drugs, where are the points in manufacture, distribution, where
in that chain where you would have the greatest safety concerns?

Neupert -- Well, I think that the major risk is that consumers don't
know who they are going to be doing business with. That, if you really
think of mass scale importation, it's going to happen largely on the
Internet. There's no physical way to make it happen from a consumer
perspective, and when you're doing business on the Internet, you don't
know \-- unless there's some uniform, certification standard -- if that
person is in Canada, even if you think they are in Canada, you have no
way to credential them. And there's no remedy, if it's not what you
think it is, there's no way for any U.S. authority to go out and deal
with it. In terms of the drug supply, if you could have some sort of
regulated system, certainly drugs manufactured in other parts of the
world are as of good a quality (if FDA-approved) as if manufactured
here. I think the issue is, how do you have a controlled system once you
leave the border? We have a controlled system, because it's the only way
we can ensure the end results. Once you leave the borders, how do you
end up with a controlled system? That, I think, is the ultimate
challenge.

Axar \-- Thank you.

Carmona -- Dr. Crawford.

Crawford -- You've basically called for a regulatory system geared
towards policing the Internet pharmacies; do you see a role for the
states in the U.S., as well as the federal government, or by the very
nature of Internet pharmacies is it only the federal government that
should be involved?

Neupert \-- In 1999 and 2000, I testified in front of Congress on this
very issue. States of course, currently certify pharmacies. We preferred
voluntary regulations at the time, we didn't see a particular role for
federal government at that time. I'd have to say that my experience
since 1999 suggests that that was probably the wrong approach. That
certainly, there is a role for states, but the issues about enforcement,
about location, about how do you solve all that. I think the Internet
has changed the rules. Bottom line, and that you need some national,
federal, specific certification capability with enforcement behind that.
And that... it's not just a problem outside the U.S., but inside it as
well. Of the 250, the over 40 that sell drugs without a prescriptions --
hydrocodine, OxyContin, Vicodin, all that stuff -- many of those are
inside the U.S. And, so I think that the Internet drug distribution
issue is a big issue both internal and external.

Jayson Ahern, assistant commissioner in the Office of Field Operations,
US Customs and Border Protection, Department of Homeland Security --
Actually, Dr. Crawford asked part of the question, but I was going to
ask if you could elaborate a little bit more on your three-step process
for certification of online pharmacies, particularly on the importation
aspect?

Neupert -- What we have been focused on is how do you control something
that has been, in effect, the Wild Wild West so far. And, try to do it
in a way that enables innovation and takes advantage of the low-cost
Internet business model while still providing consumers with some
confidence? So, we start by sating you have to have some sort of
national certification system that can be secure. When we designed VIPPS
with the NAPB, we had to make sure the shield -- the certification \--
couldn't be stolen by any entrepreneur and put up on their site just
like a fake state license could be. So it has to be a secure
certification, which means that the link is controlled by a single
person and that you get, through this certification process whatever set
of standards you want, but then it's controlled by a central server. So,
that's step one. Once, then, you have a definition of a what a good
pharmacy is, what a legitimate pharmacy is, then you can call the "arms
dealers to the Internet's ecommerce companies" and say, "You can only do
business with the good guys." It's unfair today to tell Fed Ex or UPS
that you shouldn't be accepting all of these packages coming into the
U.S. They can't tell who the good guys are from the bad guys. Visa,
MasterCard and the payment systems can't tell good guys from bad guys.
But once you have a certification standard, one that defines here are
the good guys, then you can tell the search engines, the payment systems
and the delivery systems that they can only do business with good guys.
And I think that is a potential way to control 90-95 percent of the
problems -- the no prescription issues, and the importation issues. And
that would work even if you want to make, to enable someone outside the
U.S. to do it, if they had the same set of rules. And that's the only
system that I've been able to think of, in five years, that would be
able to accomplish it.

Raub -- Mr. Neupert, on your slide that you put up, it looks like some
of the products that you have on that slide are pain control products.
And, you mentioned some other pain control medications, some of which
are controlled substances. You also talked about a survey that you did
in which you characterized, you know, 167 of 250 sites as not requiring
a prescription. Can you tell us what you are seeing from your
evaluation, from your expert evaluation of the Internet, in terms of the
types of products that people are trying to get to order? Is it a lot of
controlled substances and other products?

Neupert -- Absolutely. Go do a search of Vicodin at Google. You'll see
over 50 different websites that will sell you Vicodin without a prior
prescription. Deliver it overnight, to your door. It used to be, when I
started in 1999, it was all about Viagra; then it was about Zenecal,
then it was about some other things. It's very quickly accelerated, in
the last year, to OxyContin and Vicodin.

Raub -- Can you elaborate about why that is, when a consumer has the
alternative to go to a pharmacist or an on-line pharmacy, or a non-VIPPS
on-line pharmacy?

Neupert -- Well, our number one drug at drugstore.com is Propecia,
because we're low cost and it's a cash drug; no benefits, in general.
Our second big one is Lipitor, which would be traditional with other
pharmacies. The reason that you have so many illegitimate pharmacies
pushing controlled substances is that people want them. Bottom line is,
they don't want to go to a doctor to get a prescription, and they want
to be able to self- medicate and the Internet's a good way to
self-medicate and it's more convenient than trying to find a street
corner.

Willis -- In regard to the controlled substances, do you find that the
majority of them offered over the Internet are coming from domestic
sites or from foreign pharmacy sites?

Neupert -- It's difficult to tell exactly where they are coming from.
Many of the sites will hide their contact information. I spent a couple
hours trying to figure it out: called the 800-number, wouldn't identify
what site it was. You couldn't figure it out, you go to the domain
registration, couldn't figure it out because they use some third party
registration. I'd say it's about 50-50 right now. I'd say the problem is
probably bigger inside the U.S., because, frankly, there is very little
enforcement because it's hard to find.

Willis -- As a follow up, and you've answered part of that, how is a
consumer to know exactly where the drugs are coming from? While this
advertisement has the American flag and has a street address in Canada,
is there any assurance that the drugs are actually coming from Canada,
for the consumer?

Neupert \-- Without some certification system, there's no assurance. I
mean, I'm a professional and I've had engineers try to figure it out.
There is no assurance. And that's why I think you have to have some form
of certification, both for the benefit of U.S. citizens using U.S.
pharmacies, and for anyone who might try to take advantage of lower
prices outside the U.S.

Elizabeth Duke, PhD, administrator of HHS' Health Resources
Administration Services -- You've several times said, "some form of
certification". Do you have a picture in your mind of what that
certification system would look like and what it would take -- you've
identified it as a federal responsibility -- what it would take for us
to produce such a thing?

Neupert -- I think that the work that we did with the NAPB, building the
VIPPS -- the Verified Internet Pharmacy Site \-- is a good model. There
may be some additional things that people want to layer onto it. It's
basically what, the similar types of things you go through to get
licensed as a mail-order pharmacy. And what this goes as an extra step
is an on-going, regular audit to make sure you're up-to-date, and you
make certain agreements to follow all the rules from HIPPAA on through
whatever the state- of-the-art is with regards to pharmacy practices at
the time. We just went through our second audit, in November/December of
this prior year. They spent two days at our site, visited our
facilities, made sure our pharmacists were properly doing the right
thing, looked at our exception reporting, looked at all kinds of stuff.
It's that kind of thing. There are, today, 13 VIPPS-certified
pharmacies, largely because it's voluntary. But, when you think about
the work that has to get done to regulate the 50,000 pharmacies in the
U.S., I don't think it's more work than is already happening. It just
has to get transferred from the people who are doing it today to some
other agency in a way that has this secure capability that the VIPPS
situation does, on-line.

Duke \-- Thank you

Carmona \-- Dr. McClellan.

Mark McClellan, PhD, incoming Administrator for HHS' Center for Medicare
and Medicaid Services \-- Would this require international participation
to conduct the inspections abroad, to monitor the drug supplies abroad
and that sort of thing? I'm just trying to understand what additional
authorities in the U.S., but perhaps also ...

Neupert -- I understand your questions, and I'm not here proposing that
we accept drugs from overseas. I think this would be a good step for the
U.S., to improve its U.S. system. Should the Commission, in its wisdom,
say we want to do it outside the U.S., and we want to enable Canada,
then yes \-- those pharmacies should have the same rules that we have
here in the U.S. And that would require that whoever the authorities are
-- whether they're provincial or federal in Canada \-- accept the same
sort of standards and the same sort of oversight that a U.S. pharmacy
does. The next point, that I didn't mention is that there needs to be
some sort of a consumer awareness campaign; that there is good guys and
not good guys. And that is one thing that has never been funded, that
the VIPPS program never got off the ground, frankly, because as the
Internet bubble burst, we couldn't afford it.

Carmona -- Ms. Hardin.

Tracy Hardin, Department of Justice -- If importation was allowed, is
this something you would use? Would you use Canadian drugs in your
business to pass along greater savings to the consumer, or is this
something you would not want to be involved in it?

Neupert -- I've always, in participating in this debate over the last
few months, I've thought it was a mistake to have consumers try to
figure out how to import products from around the world. That, it would
make much more sense, if you wanted to allow importation, that you would
have commercial importation fit into all of the controls and safeguards
of the U.S. system. As the prior speaker mentioned, the DUR, the patient
profile, all of the sort of linked in networked claims, these issues
that happen, could occur if you allowed commercial importation. As
opposed to expecting consumers to try to figure out who the good guys
are and who the bad guys are throughout the world. And the one issue
that I'd like to mention in that regard is, if you empower consumers,
and encourage them to go off-shore to go shopping, I don't think that
there's any way to control it. To think that it's just going to stop in
Canada is just naïve. People are shopping around the world, and there're
going to go to where the lowest prices are, because, hey, if it's safe
to get drugs from Canada, why isn't it safe from New Zealand? Why isn't
it safe from Thailand? And they're not going to be able to tell the
difference. And if two million people have done it so far, and
everyone's telling their friends, or ten friends, how they saved \$100 a
month, there's going to be four million people this year and ten million
people next year. This is going to go like this, because it already has
from a very small base.

Carmona -- Any more questions? Mr. Neupert, thank you so much for
providing this information, particularly your comments on informing the
consumer, which has been a challenge for us. Because, in our first
meeting, I spoke about the aspects of health literacy, that is consumer
awareness. And, you know, to the average person, looking at a website
like this, you feel very secure. As you said, you see the American flag,
you see "FDA", and yet there's a whole sinister operation below that,
that has nothing to do with safety or efficacy. And we keep seeing more
and more of that, yet the American public has this false sense of
security by seeing their flag and seeing FDA and so on. And we are
struggling with how to breach that gap and instill that body of
knowledge into the American public so they will understand and recognize
that there is a risk. Thank you very much for bringing it to our
attention. Next speaker is Kurt Hilzinger, from HDMA.

[Kurt Hilzinger, HDMA]{.underline}

Morning, Mr. Chairman and members of the task force, and thank you for
allowing me to participate in today's important meeting. My name is Kurt
Hilzinger, I am President and Chief Operating Officer of
AmerisourceBergen Corporation. However, I am here today in my role as a
member of the Board and Executive Committee of the Healthcare
Distribution and Management Association.

HDMA is a national trade association representing full-service
distribution companies responsible for ensuring that billions of units
of medication are safely distributed to tens of thousands of retail
pharmacies, hospitals, nursing homes, clinics, and other provider sites
across the United States.

In our presentation last week to the Industry Roundtable, convened by
this task force, HDMA stressed that assuring patient safety is of
paramount importance when considering the feasibility of importation.
With this in mind, we focused on the top three safety issues we believe
must be addressed: product authentication, product liability, and
product availability. Each offer significant challenges that cannot be
overemphasized.

While these remain at the top of our list, I would like to turn today to
two additional safety issues HDMA believes are critical for the task
force to consider. Specifically, these are recalls and repackaging and
re-labeling.

I'll start with recalls. One of the key safety features incorporated
into U.S. policies and regulations is the current FDA managed system for
"recalls." Systems are in place today to facilitate domestic recalls
that are initiated by the manufacturer and processed by wholesalers and
pharmacies. When dealing with foreign imports, it will be critical to
ensure that the FDA has the authority and resources to apply the same
level of oversight to international product recalls as they have to
domestic product recalls. Foreign manufacturers should be held to the
same standards for evaluating when a product should be recalled as is
currently done in the U.S.

This leads to a number of questions, such as: Who will have
responsibility for initiating, regulating, and monitoring international
recalls? Will FDA have the jurisdiction and oversight over a foreign
firm's recall plan? How will post-marketing complaints and adverse event
reports be gathered and assessed? What will happen if foreign originated
product is recalled but its domestic counterpart is not: will this
require wholesalers and pharmacies to maintain separate inventories? If
so, this implies a whole new set of procedures and costs that should be
factored into your study.

Next is the issue of repackaging and relabeling. Imported products may
have to be repackaged to met FDA specifications. This, in turn, means
they should also have to be assigned a new National Drug Code or NDC.
This number is used throughout the U.S. health care system to identify
products in support of such wide-ranging activities as product ordering,
drug recalls, and reimbursement of pharmacies under public and private
sector insurance programs. The imported drugs may also have to be
bar-coded to meet the newly promulgated regulations and to enhance
distribution efficacies. They also should be marked as to the country of
production and be accompanied by patient package inserts that meet
FDA-approved language requirements. All of these steps are critical, but
they will result in additional time in getting drugs to the patient and
have costs associated with them that will need to be factored. In.

If a decision to move forward with importation is made, patient safety
must be the paramount consideration. Wholesalers are best positioned to
help maintain the safety and security of the national drug supply.
However, importing product from foreign sources introduces significant
challenges and must be addressed to ensure the broad safety of imported
products while maintaining the desired cost benefits for consumers.
Before the green light is given to importation, the three safety issues
HDMA outlined last week -- product authorization, integrity and
availability -- as well as the ones we raised today -- processing
recalls and repackaging and re-labeling -- should be thoroughly
evaluated by this task force. There are still other important issues
that remain to be addressed and discussed for your evaluation, but we
will cover those in extended remarks that we will submit to this task
force by June 1.

Thank you again for allowing me the time to speak today. I would be
happy now to take any questions.

Carmona -- Thank you. Any questions from the task force? Mr. Azar.

Amit Sachdev, acting FDA deputy commissioner for policy -- Mr.
Hilzinger, I'm not sure if you were here earlier and got to hear Mr.
Roberts' testimony about the counterfeit drugs that he received from a
CVS store in his neighborhood?

Hilzinger \-- I did hear it.

Sachdev -- Could you explain, from the distributor's perspective, what
you might know about how -- how could something like that happen in the
distribution system. How could someone end up going to a CVS that's here
in America and receiving a drug that's counterfeit, multiple counterfeit
drugs? It sounds like different drugs that he had purchased ended up
being counterfeit. How can that happen?

Hilzinger -- Well, there are a lot of ways that it can happen. As a
primary way it can happen, we, today, take returns from our pharmacy
customers in part for product recalls -- which obviously go back to the
manufacturer and their FDA guidelines -- but we take returns for good
product, for in-date product. We would like to believe that our pharmacy
customers today buy all of their pharmaceutical products solely from us,
but pharmas today are under tremendous pressure in their own businesses.
They do procure product from other sources; sometimes that product is,
in fact, counterfeit and when we take a return back from a customer, it
is very difficult for us to tell -- virtually impossible for us to tell
\-- if it is counterfeit or authentic. As witnessed by the product
packaging today. So, we have... we can... We do a superb job of
controlling product from the manufacturer down to our pharmacy, but
there is a reverse distribution function that we perform as well. And
our pharmacies will buy product from other sources than ourselves. There
is also an issue, obviously, with the number of distributors that have
been licensed in this country. Florida was an extreme example, with over
thousands of wholesalers licensed at the state level. And I think, you
know, additional regulations need to be put into place to control the
number of licensed wholesalers who are approved at the state level.

Carmona -- Other questions, Dr. Raub.

Raub -- You had mentioned the prospect of increased costs for the
wholesaler with respect to the recalls and the repackaging and the
relabeling. Could that be of a magnitude that would virtually wipe out
the theoretical savings of importation?

Hilzinger \-- Theoretically yes. I think we would need to know, you
know, what the model is that would be contemplated by the task force.
How broadly importation would be allowed in the U.S. If there are
multiple sources around the world from whom product could be welcomed in
to the United States, then it could be significant costs to repackage
and relabel the product to make sure it's safe for U.S. consumers.

Raub -- Of course, as one of earlier presenters testified this morning,
the longer the chain or, by extension, the more complex the web, the
potentially greater costs for you.

Hilzinger -- I would agree with that. I think the task force should be
assured that there will significant additional costs to reimport product
and repackage it to make sure that it's safe.

Raub -- Thank you.

Hilzinger -- Yup.

Carmona \-- Other questions from task force members? Ms. Hardin.

Hardin-- I was just wondering if you could give a brief description of
what liability issues distributors face in situations like the one Mr.
Roberts described with counterfeit drugs in the distribution chain, and
if you've given any thought to how that issue might change if
importation was allowed?

Hilzinger -- Well, we've not... in a world where importation was not
allowed, we've really not thought about our liability until we know what
kind of model will be approved by the task force and the government.
Clearly, we feel that, you know, we have a moral and ethical
responsibility to safeguard the supply chain as best we physically can
today. We do have, we have been asked to participate, we've been part of
the lawsuits, have been named in some of the lawsuits for situations
like that. And obviously, we have our own views as to what we can
control and what we can't control and we'll have to defend ourselves
accordingly. Historically, wholesalers and distributors have been
indemnified by manufacturers for most of our liability in the
marketplace. We provide a logistics and distribution function for our
manufacturing partner, that's our primary role.

Carmona -- Other comments? Mr. Azar.

Azar \-- We've heard testimony from others that for importation of
prescription drugs, that you can import dugs that are FDA-approved drugs
that meet FDA specifications. Your testimony appears to support that
type of implication if we go in that direction. But, others have
suggested that you could import drugs that are FDA-equivalent or like
FDA-approved drugs. Do you have a sense of how, of how much more
difficult, how that would compare to FDA-approved importation?

Hilzinger -- You know, you're out of my area of expertise. The industry
association is very comfortable with a closed system, where if we were
to have an importing situation in this country, it would come from an
FDA-approved manufacturing site, to an FDA-approved importer and then
obviously down to pharmacy. When you're dealing with FDA-equivalent
products, today I would tell you that our systems and our technologies
are not set up that we could determine the difference between an
FDA-equivalent and an FDA-approved. Now, unless of course there was ID
tagging of some sort and we could get very specific identification of
the source of that product.

Carmona -- Other questions? No. Thank you sir, appreciate it. Our next
speaker will be Governor Doyle, the Governor of Wisconsin. Welcome
Governor, thank you for taking the time to be with us.

[The Honorable Jim Doyle, Governor of Wisconsin]{.underline}

Thank you again Mr. Surgeon General and members of the task force. I
appreciate your giving me \-- and other members of the public -- the
opportunity to come and speak about an issue that is so important, and
certainly one that -- as Governor of the state of Wisconsin -- I hear
about daily from citizens from our state. Citizens who really are
struggling, as you well know, truly struggling to afford the costs of
basic medical care.

There is no doubt that medical science has yielded enormous discoveries
that have extended and improved the quality of our lives. But, it is
equally true that the skyrocketing cost of prescription drugs threatens
to deny many of our citizens in Wisconsin and across this country with
access to these lifesaving cures.

Like most Americans, like most people in Wisconsin, we are disappointed
that the federal government has not done more to address this dramatic
inflation, or to provide meaningful prescription drug coverage to those
who need it most. And we appreciate the work of this task force in
looking into this very important issue, and hope that the result is
going to be one that truly provides some relief to the citizens of our
state.

As I have often said, there is one thing the federal government could do
tomorrow that would make prescription drugs more affordable for every
American, and that's to allow the safe reimportation of U.S.-made and
--approved prescriptions from Canada.

Every day, I meet citizens of Wisconsin who struggle with the high cost
of these drug, and are often forced to make the inhumane and unbearable
choices between food and medicine, or skipping a dose here or there. I
know you are hearing testimony from citizens who are in that predicament
and I know that you have all heard those stories about people who are
making those difficult decisions.

But just across the border, Canadians can walk into their corner drug
store and buy prescriptions for a fraction of what we pay. These are the
same medications available here, but may be as much as twice or even
more for Wisconsin consumers.

Wisconsin has acted and we have been forced to take a lead. In February,
in response to overwhelming demand from the people of Wisconsin, we
launched a website which is on the screen --
[www.drugsavings.wi.gov](http://www.drugsavings.wi.gov/) \-- this site
empowers our citizens to order these lower-price prescription drugs from
pharmacies that our state has visited and has found to be safe,
reputable, and reliable. For example, just one of the most common pain
relievers, Celebrex, the state of Wisconsin for hundred doses, as the
state, with the discounts that we receive, we pays \$106.71, but through
our website, an individual can purchase the same drugs for \$72, a
savings of 58 percent.

The response to our website has been remarkable and I hope should
provide some measure to you of what the demand is out there among
American citizens. Over the last six weeks, we have had 87,000 visitors
to the website, an average of 2,000 visitors a day trying to find help
with affordable drugs. And here are some of the stories they have shared
with me.

Connie sent an email to tell me that the only way she and her husband
can afford the drugs he depends on is to buy them from Canada, since
there are no generic substitutes.

Cari is 48 years old, disabled and has no prescription drug coverage.
She hopes that the website will help her with the costs of the nine
prescription drugs that she takes.

Clare wrote to tell us that her husband is a transplant patient and his
anti-rejection medication costs \$1,000 to \$1,300 per month, depending
on the pharmacy used. Her husband is 65 years old and still working, and
she wonders how anyone except the wealthy can afford this medication.

Mary from Brookfield says that she has been ordering drugs from Canada
for over a year for herself and her husband. They are senior citizens,
they take multiple medications and just can't afford the high prices.

The emails come to me from Wisoncon and around the country make one
thing very clear to me, and I'm sure that it's clear to this panel \--
people are going to Canada. Whether we like it or not, people are going
to Canada. They are going in bigger and bigger numbers, because the
simple dollars demand it and it is the only option that many of them
have. We have, we hear from people not only from Wisconsin but from all
over the country, writing the same thing, emailing through the website,
saying, telling us that in many cases they have been going to Canada for
a year and a half. They appreciate the fact that some body has checked
the pharmacies out and has negotiated some prices and that they can deal
with those pharmacies.

Now, I can understand that the pharmaceutical companies don't want us
buying safe prescription drugs from Canada, because it cuts into
profits. But I really hope that the federal government gets on our side,
trying to help the citizens of Wisconsin.

This Administration has the authority -- right now -- to allow the safe
reimportation of U.S.-made and --approved prescription drugs from
Canada. And I hope that this task force will recommend that the
Administration use its authority to do just that.

The drug companies have waged an expensive, highly coordinated scare
campaign to try to convince people that buying from Canada is unsafe.
But do any of us really believe that the Canadian health system is more
dangerous than our own? If we were in Canada, and got sick, would any of
us really think twice about going to a Canadian hospital or a Canadian
pharmacy for prescription drugs?

If the FDA has concerns about the safety of these drugs, then I would
encourage the FDA to do what our state has done. Put some inspectors on
a plane, send them to Canada, and check out these pharmacies for
yourself. You will find what we would find, that the ones on our website
are reputable, long-standing, highly regulated pharmacies in whom we can
have confidence.

It's time, I believe, for the federal and state governments to stand
together on this issue, not do the bidding of the drug lobby, but stand
up for the people of our states and implement a safe system of
prescription drug reimportation. I have found it amazing in these recent
months that the FDA has time to send out press releases attacking out
website, it has had time to send staff to Wisconsin to hold press
conferences criticizing our efforts, but not to actually work with us to
put this system into place. It is a story of missed opportunities and
misplaced priorities, and it is a disservice to the people of this
country.

One thing is clear: someone has to stand up to deal with the incredible
soaring prices of pharmaceutical drugs. And somebody in this task force
is in the position to do it, to say that we are going to look out for
the people of the United States, the people of the state of Wisconsin.
U.S. drug manufacturers have threatened to blacklist Canadian pharmacies
and cause shortages in Canada if they move ahead with reimportation. I
have asked Attorney General Ashcroft to investigate these companies for
violations of anti-trust laws.

But, unfortunately, no action has been taken. And, unless some action is
taken, the 25 largest on-line Canadian pharmacies have said that they
may not be able to do business with citizens of Wisconsin or any other
state.

Even more recently, we have heard that several merchant credit card
payment processors have been scared off from providing their e-commerce
credit card services to Canadian mail order pharmacies. Three weeks ago,
Visa and MasterCard announced that they will not service Canadian mail
order pharmacies because they have been under pressure from the FDA to
cease their support of the payment processing. They cited pressure from
the FDA and have warned their member financial institutions to avoid
so-called "illegal" transactions.

The simple fact is this: people in Wisconsin -- and all over America --
need relief from the high price of prescriptions drugs. Reimportation
holds the promise of significantly lower prices, and expanding access to
life-saving medicines. It's time for the federal government to stand
with us against to move past the scare campaigns and heavy handed
tactics, and to start being on our side in making prescription drugs
affordable for all Americans.

Not only does the federal approval of prescription drug reimportation
holds the potential for huge savings for citizens, it has huge savings
for Wisconsin taxpayers. Our state spends more than \$700 million
annually on prescription drugs for Medicaid recipients, employees,
inmates and others in our state institutions. If we could just save a
fraction of that amount by purchasing drugs from Canada with federal
approval, it would mean savings to the taxpayers of our state in the
tens of millions of dollars.

Again, I truly thank the task force for your attention to this matter.
As I said earlier, this is happening. No matter what I do, as the
Governor of a state, no matter what you do, as the task force, people
\-- particularly in the Northern states and I assume this is happening
all over the country, but particularly in the Northern tier states --
are going to Canada. And they are going to Canada in increasingly large
numbers and nothing is going to stop that, given the price differential.
It is going to happen, it is going to happen in greater and greater and
greater numbers. And I am proud of the fact that we in Wisconsin have
taken some steps to protect our people.

We have checked out the pharmacies that are on our website, and I feel
confidant that if the FDA goes to those pharmacies, you will come away
fully satisfied with the safety of the prescription drugs that come from
those pharmacies. They are exactly the same drugs that people are buying
at pharmacies in Wisconsin at prices that are 30, 40, 50 and 60 percent
higher than what they can purchase through Canada.

So, again, I thank you very much for your attention to this. I look
forward to the findings of this task force. I hope that you are going to
help work with us to provide some relief for the taxpayers of the state
of Wisconsin. Thank you very much.

Carmona -- Thank you, Governor. Governor, would you have a moment to
answer some questions from the task force?

Doyle -- Yes.

Carmona -- Dr. Crawford.

Crawford -- Thank you, Governor. Taking into account that the past two
Secretaries of Health and Human Services -- Secretary Shalala and
Secretary Thompson -- have been unable to guarantee or assure the safety
of products coming in from Canada, and none of us want something like
this to be a permanent solution to a permanent problem, what do you see
as the long-term solution to this? I mean, what you're doing, and what
other states are contemplating, and some municipalities, may not, with
all due respect, get to the root cause. Could you enlighten us as to
what you see that as being?

Doyle -- Well, I believe pretty much in the marketplace. I believe that
what we're doing in Wisconsin and what I hope that reimportation will
do, is actually to bring competition in a way such that the drug
companies will have to start moving the prices down in the U.S. I would
strongly prefer an internal system in which we are working not through a
website but through Wisconsin pharmacies, but one where there real,
competition in place. And world-wide competition. I mean, the fact is,
if you believe the drug companies \-- and I think that given the amount
of money being spent on advertising it's little hard to believe it, but
if you believe the drug companies \-- we as American consumers are
footing the bill for all of the research going on, essentially, in the
world. And, I think what has to happen is that they have to see that
there is not a safe haven for just whatever profits they want to make in
the U.S. That's what Canadian reimportation does. It introduces real
competition into the marketplace, and it's going to make the drug
companies have to find a better structure of pricing world-wide that
will help American consumers. People in Wisconsin shouldn't have to pay
for all the advertising and all the research in the world. And that's
why I believe what we are doing here is trying to introduce a level of
competition into the marketplace.

Carmona -- Dr. Raub.

Raub -- When your inspectors go on a visit with pharmacies in Canada, is
there an involvement with your counterpart provincial officials or with
Health Canada?

Doyle -- The involvement; there was some contact, but primarily this was
our inspectors going right to the pharmacies and making same kind of
inspections of the pharmacy that they would of a Wisconsin pharmacy.

Sachdev -- Governor, I have a follow-up question. The witness before you
testified about concerns with regard to what would happen in the event
that there were adverse events that resulted from purchasing drugs from
a Canadian pharmacy where U.S. domestic authorities don't have
regulatory authority. What is the state in terms of its responsibility
for that possibility?

Doyle -- Well, obviously, this is where we'd like to have the FDA
involvement and a national agreement between the U.S. and Canada. I
mean, Wisconsin can't do what the federal government can do in the
relationship with Canada. Our recourse would be, and I don't think this
will happen, because I feel quite confident with the pharmacies that we
have chosen, but we would take the pharmacy off the list. But we do not
have... again, this is why it is so important for the FDA to get
involved in this -- the ability to have the government to government,
U.S.\--Canadian government kind of arrangements that would help ensure
the effectiveness of system. But, I do believe, again, if anyone went to
look at the three pharmacies that are on our site, that they would walk
away from those pharmacies with any significant concerns that they
wouldn't have with any American pharmacy.

Sachdev -- As a follow-up to Dr. Raub's question, on the comment you
just made. So the, what you're suggesting is that, if there were a
product that was purchased from a Canadian site that was problematic in
that there was an adverse event seen, the state would investigate and
take down the website. Would it do so with the Wisconsin Board of
Pharmacy? And, to what extend was the Board of Pharmacies involved in
assessing these Canadian sites?

Doyle -- The Board of Pharmacy does not have jurisdiction, obviously,
over a Canadian site, would not have jurisdiction over taking it down.
They were not involved because they have no jurisdiction in Wisconsin
over a Canadian pharmacy.

Ahern -- Governor, a couple of very quick questions about the
certification or the inspection on the three pharmacies in Canada. First
part is, how did you select those three for inspection by your state
officials? And, tow many did you actually consider and why did you
discount the others and just focus on the three that were inspected?

Doyle -- I can get you the exact numbers of how many we considered. Part
of this, I give due credit to the state of Minnesota, which had done
some of the preliminary work, and obviously we were able to benefit from
the work that they had done. Still have a number of them soliciting us
to get on the website, as you can imagine. There are a variety of ways
that these came to us and, again, I'd be happy to provide the task force
with that information. And we have looked at a number of them, and did
not include every one we looked at in making the decision about what we
were going to put on the website. We may still add more to website as
well, further inspections are made.

Ahern -- Were there any pharmacies that were either contemplated for
inspection that were dismissed because of concerns, and was that posted,
and would they be posted; kind of "buyer beware" outreach?

Doyle -- We would not post ones we had concerns about.

Carmona -- Mr. Azar.

Azar -- Governor, thank you for your testimony. As I understand it, you
had found that these pharmacies that you posted on the website, that
they are safe, reputable, and reliable. That was your testimony, right?
And that the consumer can buy the same safe prescriptions that we have
here in the U.S., also, is what you have concluded?

Doyle -- Well, in fact, the ones that we list, if anyone uses the
pricing on the website, are all named prescription drugs, that are
manufactured and approved in the U.S. We don't have any prescription
drug on that list that is not a prescription, named drug in the U.S.

Azar -- And again, because we don't know what your inspectors did with
these pharmacies, how do you all know that the particular drugs were, in
fact, manufactured in the U.S. as opposed to manufactured elsewhere? The
drugs that would be bought on these Canadian pharmacies

Doyle -- Our inspectors looked at the drug lots and so on, as they went.
I suppose people could have been hiding bad drugs in back rooms, and so
on. I mean, it's the same thing that we do in Wisconsin, and we rely on
the representations that were made. We also looked historically at these
companies, these pharmacies, we looked at what their history was, the
extent to which the Canadian and provincial governments in the state
relied on them for their various prescription drugs programs. I mean,
all of those things were looked at -- these are good, reputable,
long-standing pharmacies in Canada.

Azar -- So, the state of Wisconsin is very confident that these drugs
are safe for importation into the U.S. for people? Like you, I'm a
lawyer. So, I went to your website, and on your website there is a
disclaimer. And the disclaimer says that the state of Wisconsin, as well
as its officers and employees makes no representation as to the legality
of the importation, or reimportation of pharmaceuticals from Canada. And
it expressly disclaims any and all liability for such importation or
reimportation or the use of any product so acquired. And then, there's a
separate lengthy list of disclaimers: a disclaimer of liability, a
disclaimer of warranties and accuracy of data, a disclaimer of
endorsement, a disclaimer of for external lengths and a disclaimer of
duty to continue provision of data. I'm just wondering, if the state of
Wisconsin is encouraging people to buy these drugs from these
pharmacies, why there would be the need for these types of disclaimers?
Because it seems like your lawyers must have decided that there is some
significant litigation risk to the state here, from people getting
unsafe drugs, and that they needed to put these disclaimers on there. I
just wanted to get a sense from you, of why there needs to be these
types of disclaimers if things are so safe.

Doyle -- In the first place, we are not encouraging people to buy drugs
from this website or any other. What we have done is to provide them
with alternatives that they have been demanding in Wisconsin. If they
buy from this website, or using the prices on the website from those
pharmacies, they make the purchase themselves. It's a direct purchase
from the consumer to the pharmacy. And, we don't assume any liability
for purchases that are made in Wisconsin pharmacies. The state does its
best to regulate that, as the FDA does. But, go to the FDA website and
count the number of disclaimers on the FDA website. This is... we do not
pretend be at the site of every drug purchase, making every... looking
at every single drug and testing every drug, making sure it's exactly
what it is. What we have done on the site is to say, these are three
pharmacies we have visited, that are reliable, reputable, long-standing
pharmacies, and that these are drugs that are approved in the U.S.
That's what we tell people, and they will make their own decisions if
that is what they are going to purchase or not. The FDA certainly
doesn't, the state of Wisconsin does not accept liability for every drug
purchase that is made in the U.S. by a consumer in a pharmacy.

Azar -- I know you weren't here earlier today, but Mr. Roberts, our
first witness today, testified about counterfeit drugs that he had
received for his AIDS treatment. And the question that he had asked that
I found fairly significant was, "Who will be responsible?". Who does he
go to, to get compensation, and is he going to have to hire an
international tort lawyer to go after compensation and trace down the
source of the drugs that he's gotten -- the counterfeit drugs? It's
something that I think consumers -- as we think about importation \--
are concerned about and very worried about. Another thing that has come
up, Dr. Rodriguez testified earlier today, and we had a witness at the
first hearing also, representing a Hispanic group also, that testified
expressing concern that, if we simply allow importation of drugs that
are not FDA-approved, that haven't been subject to the distribution
controls throughout the entire process, that we really would be creating
a two-tiered system of drug safety in America. One for people who can
afford the gold standard FDA drugs, and one for people who can't -- a
lower standard of safety for drugs. I was wondering because I think
position is that we ought to just let the importation of drugs as they
are now, occur, under the existing assumption that the drugs are safe,
so we ought to just let them in. What is your perspective on this idea
that there's a two-tiered system of safety?

Doyle -- We believe that the reimportation should be of FDA-approved
drugs, and every drug on our list is one that is FDA-approved. Now, you
may argue that the reimportation of that drug is not approved, but the
drug itself, you could walk into ... every drug on our list, you could
walk into an American pharmacy and purchase in an American pharmacy,
fully-approved by the FDA. I believe that the FDA has a very important
role in this, and that's why I'm here with respect for the FDA and the
process that you're all in. I believe, if we really get on this, and we
all work together to develop a reimportation system, we can do something
really good that's going to drive the costs down and answer many of the
questions that you're asking right now. But to just say, you know, there
are all these problems, and we're not going to do it, plays right into
where drug companies want us all, and doesn't help us with the basic
issue. That's why I am.. but, as I say, what we have on our list are
FDA-approved drugs.

Azar -- Thank you, Governor.

Carmona -- Dr. McClellan first, then Dr. Duke.

McClellan -- Thank you for testimony and I want to thank you as well for
your deep concern about the problems of drug affordability in the U.S.
This is obviously a major issue that all of us who are involved in
health policy for the nation should have at the front of our agenda.
And, clearly, this commitment is behind your work on the website. Just
following up on some of the other questions from other task force
members. I'm wondering if, in addition to the task force itself, if
there are other steps you are interested in pursuing -- in addition to
the website, if there are other steps that you are interested in
pursuing, beyond referring Wisconsinites to three Canadian pharmacies
that your staff has visited? I guess, on this point, I do think that all
of the drugs on that list are probably not FDA-approved, in the sense
that they were manufactured in U.S. facilities and subject to U.S.
manufacturing processes and the like. It may have the same name of the
drug, but very often, drugs that are sold in other countries are not
subject to the same FDA review for bioequivalence and evaluation of
whether the drugs meet -- have the same effects on the body as drugs
that are approved in other countries. So, I don't think that's generally
the case, but that's something we'd like to find out more about as part
of this task force effort. My question, though, goes to whether you
regard this as doing enough in itself, and whether there might be other
things that might be necessary. For example, bipartisan members of
Congress are interested in finding a way to give FDA and U.S. government
more authorities to assure the safety of imported drugs. Authorities
like requiring foreign sites to register with us; allowing inspections
to occur without advance notice and sort of the full level of government
authority that they can be done in the U.S.; steps like making sure that
the products that are coming into this country have a reliable pedigree,
something that we've heard a lot about from other presenters before this
task force. These ideas are more in line with what the U.S. has for food
inspection and food imports coming into the country, and they don't
really exist today for drugs. Is that, do you have any views on this
kind of legislation and whether it's an important part of assuring the
safety of imports and preventing that kind of two-tiered system that
we've heard about from other presenters?

Doyle -- Yes, let me just talk about, if I could mention the first and,
Dr. McClellan, I don't presume to have your level of expertise on this.
But, I will say this, the FDA could take care of that first issue for us
in three days as to whether these are American manufactured to FDA
standards. There are many Canadian pharmacies that are ready to give you
any assurance you want that they were manufactured in perfect accordance
with FDA standards. All it would take would be for you to go you there
and work it out. So, that could be done very easily and very quickly. On
the other steps, I'm willing to look at anything, but not if, if what
the condition is that you are going to prohibit people from going to
Canada. I mean, this has now been going on for ten, twenty years and
it's growing and growing. I think the American public, like the
Wisconsin public, would be very cynical about some of the efforts that
you have discussed which might be fine on their face. But, if the
condition that comes with them is that you are going to cut off the
ability of all of the people who are currently going to Canada, of their
ability to go there.

McClellan -- So, you wouldn't support legislation like that introduced
by Senator Kennedy or Senator Grassley? You think that would be too
restrictive, or?

Doyle -- Well, what you laid out. ... I'm interested in working on any
option, and working with you on any option that we can come up with.
But, what I'm saying is that legislation that conditions those options
on shutting off Canada for Wisconsin consumers, I couldn't support.

McClellan -- And, in terms of working with us, on other steps, in my
current role as the Administrator of the Center of Medicare and Medicaid
Services, we are trying very hard to implement some other new programs.
So, that will bring relief to seniors who need help the most, those who
are choosing between food and drugs, or rent or other urgent needs, and
taking the prescriptions they need. Staring next month, there will be a
new Medicare program that provides financial assistance and discounts to
all seniors with limited incomes who don't have drug coverage now. And
in addition can be used by seniors -- like those in your state -- who
qualify for Wisconsin's low income program, to add to that and make sure
they don't have to make that impossible choice between meeting their
medical needs and meeting their other basic needs of living. We are
launching a major website, we are engaged in a major outreach effort to
get people enrolled in these programs which can provide literally
billions of dollars through financial relief directly and through lower
prices for drugs right away. I'd be interested in finding out a way to
work more closely with the state of Wisconsin to get people enrolled in
those programs to help meet the needs that they have now.

Doyle -- We would look forward to that. And let me also say, we very
much appreciate your efforts and those of your new agency. We do, in
Wisconsin, I believe, have probably the best senior care program, under
a waiver, in the U.S. And it is really significant. Most of our low and
even low to moderate income seniors do not go to Canada, in Wisconsin,
because we have such an effective senior care program. Now I would like
to be able to buy those drugs for the senior care program from Canada,
it would sure save us all a lot of money. But the program itself, and
again, we have worked very well with your agency on that waiver and I
appreciated it -- it really is a life-saver for many seniors. One point,
though that -- I know you know this, but I want to emphasize it \-- this
discussion often quickly turns to seniors. And, at least low-income
seniors do have some options available to them. Many younger people have
nothing available to them and for their children and to themselves. And,
if we were just dealing with seniors, which is a huge issue, Canada
would be a very important option, but there are some other options as
well. For many of the non-seniors, there really is no option for them
right now, except Canada.

McClellan -- That's right. And we are concerned about that in our
Medicaid programs and our other state programs, to work with you on the
waivers, as you mentioned. And I think there's even more we can do to
make our dollars go further in helping those low-income populations
(other than seniors), through generic substitution programs, through
drug management programs and other steps to help states get lower prices
for their drugs through negotiation. We stand ready to work with you on
all of those steps and I am very pleased to hear about this interest in
collaborating in finding a whole set of solutions to people who most
need them. I agree with you that people in this country should not be
forced to choose between food and other needs -- especially those with
limited incomes, and I agree completely with you that we have an unfair
system of drug pricing around the world that is putting too much of the
burden on Americans. I am very much looking forward to working with you
on some of these other steps that can be taken to address these concerns
in addition to endorsing websites.

Doyle -- Does that mean all our waivers will be granted? (Laughter.)

McClellan -- Ah, we're doing all we can.

Carmona -- Dr. Duke?

Duke -- You have mentioned that your website directs the citizens of
Wisconsin to three drugstores that you found to be safe, reputable, and
reliable. The question I have is, as you said there are more firms that
would be willing to sign up for your website. Were the other 49
Governors to chose the same route, would there be sufficient supply of
drugs and drug stores available in Canada to meet that need?

Doyle -- Well, it depends on whether the American drug companies are
prepared to sell to the Canadian pharmacies. There will be as many drugs
available as they are prepared to make. Unfortunately, even while it is
now Wisconsin and Minnesota that have websites up, Rhode Island has
linked to our website, I believe New Hampshire has announced that they
are going to do it. I may be missing some here, but, even with those
limited number of states, the threats are already being made to restrict
the sale of drugs to Canadian pharmacies. You know we are dealing with
some pretty hardball tactics when you shut down MasterCard and Visa and
you threaten the supply of the Canadian drugs over this. But, you know,
I don't see that I really have any other choice. As I say, in Wisconsin,
people have been doing this for years and they are going to continue to
do it. We have actually introduced a way that they can have some
assurances on what the price is and they can have some assurance of the
pharmacies that they are going to. Again, the supply is going to be for
the drug companies to decide.

Carmona -- Ms. Willis.

Willis -- What you have described is at the state level. At a national
level, if this task force were to recommend importation of prescription
drugs, do you think it would be more feasible to have importation at the
wholesale level, direct to the retail pharmacy level, or direct to the
consumer? And, as a follow-up question, if you think it is most
effective to go directly to the consumer, would this importation pertain
to all types of prescription drugs, or should there be any restrictions
on the availability directly to the consumer?

Doyle -- My great preference for this is that you would approve
wholesale purchase, and then we could go back, in Wisconsin, to the way
I'd like it to be. I've often said that there are two sets of victims of
the situation that have right now that the drug companies are putting on
us. One is the biggest number, and the one I have to look out for most
importantly, are the citizens of the state of Wisconsin, the consumers.
But, the other is the pharmacists. They're not the ones -- they're just
caught in the middle in this thing. My preference would be, if we're all
sitting down with a goal, is that there would be Canadian importation;
that we would be setting up a system that every one of those drugs are
FDA-approved and it would be done at the wholesale level. That would be
my, if I could just sit down and design it, that's how I would do it.
But, right now, I have to make a very hard choice and it's not, in many
ways, a fair choice, between pharmacists in our state. And... by the
way, in our system, on our website, if you are filling out one of the
forms from our website, it is only for... it is not for the original
prescription. You have to go to a Wisconsin pharmacist and get an
original prescription; these are for refills. But, I would prefer that
that be done through Wisconsin pharmacists who are good, local
businesspeople who I would like to make sure are part of this. But, they
are caught in the squeeze. I can't say, my interest right now has to be
the consumer; that's who I have to look out for, as Governor of
Wisconsin.

Carmona -- Governor, last question. Clearly, it seems, you've thought
through this quite a bit and you are serving your constituents as best
you can under these difficult issues before you. Certainly, this is a
short-term remedy, assuming that it can be done safely as you say. Have
you given any thought to the long-term consequences of such a policy of
importation for the U.S., not just for your state, but for the U.S.
We're looking at this more globally; Southern states also might want to
be dealing with Mexico and other countries in South and Central America.
And so, the future consequences -- intended or unintended \-- of such a
policy, where we become more dependent on other countries for our
pharmaceutical supplies. Have you given any thought to that?

Doyle -- Well, I believe we can become significantly less dependent if
we introduced some competition here. And, I can't speak about other
countries; Canada's the one I know best. I will tell you, this whole
sell that's trying to be made, is not going over. People in Wisconsin do
not believe that the Canadian system is unsafe or unreliable. They just
don't believe it, as much as that stuff is getting put out there, it
just doesn't sell in a state like Wisconsin. You know, we know Canada
pretty well and we don't believe it. I believe that the long-term effect
of reimportation, as I said earlier, is really a market effect. It's
going to say to these companies that you have to respond to the consumer
demand to bring the prices down. If it means taking those ads off the
air \-- I which they are trying to convince me to go to my doctor to
convince my doctor that he should prescribe a drug to me \-- to help
lower the prices, then that's what they should do. They've got to start
responding to the consumer pressure. If what we're talking about is
always government responses, the FDA working hard at this, trying to
figure out ways to do it... what we have to do is to figure out ways to
put pressure on the drug companies to start bringing their prices down.
That, I believe, is the long-term benefit that comes from the policy
that we've adopted in Wisconsin and that other states are moving pretty
rapidly to. My guess is, by the way, that if you were to hold these
hearings six months from now, you won't be seeing two or three Governors
up here; you're gonna be seeing 30 or 40 governors up here. Only ones
that have major drug companies in their states might you not find here.

Carmona --- Thank you, Governor. I appreciate your testimony, thank you
so much.

Doyle -- Thank you very much, thank you all. I appreciate the work you
do. Thank you.

Carmona -- Our next speaker, Mark Barondess.

[Mark Barondess; Christensen, Miller, Fink, Jacobs, Glaser, Weil &
Shapiro, LLP]{.underline}

Good morning. My name is Mark Barondess and I'm sure that most of the
members of this Commission have no idea whatsoever who I am. I am an
individual who looks at themselves as someone that has what a lot of
people don't have. I have two living, loving parents; I have a great
wife; I have two wonderful children. And, I was blessed enough that I
was able to have an education and go to law school. And, today, I'm able
to represent some very famous people from Olympic gold medalists to
people that you probably watch on TV every single night.

So, that being the case, what could possibly be wrong? Well, what's
wrong is that I suffer every day with a disease -- the disease I suffer
with is called multiple sclerosis. Now, some of you obviously, as
doctors, know what that disease is, but for the benefit of people in the
audience, multiple sclerosis is basically your own immune system
attacking your nervous system. It attacks it to the point of affecting
the conductivity of the signals that your brain sends.

And when you're brain doesn't send the right signals what ends up
happening is that you can become cripple, you can lose feeling, you can
end up in a wheelchair. I'm not the type of person that likes to take
medications. I just, the idea of a prescription, I always want to know,
do I really need to take it? I found out that when you're diagnosed with
a disease like MS, you don't have a choice. You have to take the
medicine. I'm fortunate that there are various medicines available that
can help abate some of the conditions. The bad news is that the main
medicine that I have to take, I have to inject three times a week into
my stomach. Now, I don't know how many of you have every done an
injection into your stomach, but it can be the source of what I would
call considerable anxiety. It's not a fun thing to do, and not only
that, the type of medicine that I take gives you the sensation that it's
like a bee sting. So, I psyche myself up three times a week to get my
bee sting, and I know that another side effect of the medicine is that
I'm going to get a fever every week, three times a week, for four or
five hours a week following it. It's just not fun.

So, the last thing in the world that I want to worry about now, is
whether or not what I'm injecting into my body is real or whether or not
it's going to hurt me in some way. I'm frankly shocked that the
government is considering this issue of reimportation. I'm shocked that
we would consider, as a means of cost savings, to open up our borders to
what could potentially be one of the biggest terrorist threats this
country has ever seen. The drugs that come Canada are not coming *from*
Canada -- they're coming *through* Canada. With all due respect to the
Governor, if he's still in the room, I think he understands the basic
understanding of that and I would be more than happy to discuss it with
him, so that he can hopefully educate his own constituents as well as
himself as to what he's actually putting out.

In this particular day and age, we saw last night on TV, all the
concerns about terrorism. You can't walk anywhere in Washington, without
suffering and dealing with the effects of 9-11. Coming into this
building today, our driver had his steering wheel swiped, his trunk
swiped with the little bomb detecting mechanism, and we're going to open
up our borders to millions and millions of pills? Do you all remember, a
couple of months ago, a cow from Canada got in that had mad cow disease
supposedly. And everyone was up in arms, my God, how did the cow
actually come into the country? Imagine trying to trace the millions and
millions of pills, syringes, tablets and other medical devices that
would be allowed under this proposed legislation.

I don't believe that our citizens should have to place their own life at
risk in order to achieve cost savings. I think that there are options
that the government can explore to assist in medical programs such as,
Dr. McClellan, the new Medicare bill, the Medicaid bill \-- these are
all intelligent, effective ways to deal with the high costs of
medications.

I know I'm probably running short on the time, so I have to go to what
Governor Doyle was just talking about, and I don't mean to be so harsh.
But, I know, Admiral, you said to please be polite to the other people.
But, it was just intellectually offensive to me, in every sense, for
that gentleman to stand right where I was standing and say that he's not
encouraging people to go and buy drugs in Canada. When I've got a copy
of his website right here, the same one that Mr. Azar has, that
specifically says, "Since the federal government isn't going to take on
the drug companies and fight for more affordable drug prices, states
like Wisconsin will have to lead the way. This website gives the ability
to buy your prescriptions at significantly lower prices, directly from
the site."

Let me tell you, if that's not encouraging people to buy from your
website, what is? And then he proceeds to tell you that all the
medicines are safe. Well, I'm not going to read you the entire thing;
there are three pages of disclaimers. Three pages, where he specifically
says, we have checked out the pharmacies. Well, let me read you only one
sentence. "Although the data found in Wisconsin's access systems have
been produced and processed from sources believed to be reliable, no
warranty expressed or implied is made regarding accuracy, adequacy,
completeness, legality, reliability or usefulness of any information.
This disclaimer applies to both isolated and aggregate uses of the
information. The state provides the information on an "as is" basis."

Lemme tell you. If the Governor is not concerned about this issue; you
know I feel like President Reagan, "Tear down this wall, Mr. Gorbachev!"
Well, Governor Doyle, take off the disclaimer. If you really mean what
you're saying, take the disclaimer off. Make it so Mr. Roberts has
someone to go to -- if he gets the bad medicines from your "safe"
website that your pharmacists have gone and visited and performed the
same inspection in Canada that they would have performed in Wisconsin. I
mean, that is utterly ridiculous.

We cannot take the chance that we will be terrorized by someone who
infiltrates our medical supply system. Each one of you has information
today which says that these counterfeit drugs are out there and they're
dangerous. This isn't a Louis Vuitton purse, these are things you inject
into your body. They can kill you if they're bad. So, I would ask each
one of the members of this Commission to think to yourself, would you
want your own child taking this medicine? I mean, when your own child
had an ear infection, and needed amoxicillin, or whatever it may have
been, do you want to give your infant medicine you don't know for sure
if its' real or not. You think it is, but, you know, we'll see. And
then, finally, how many people in Wisconsin have to die before Governor
Doyle says, "well, maybe that's not such a good idea."? I'm glad I don't
live in direction, if that's the kind of direction the Governor is
taking. I apologize for being a little caustic, but it just got me.

Carmona \-- Thank you sir, as I said in the beginning, we want to have
open and frank discussions on both sides of the opinion, so we
appreciate your comments. Task force members, do you have any questions?
And thank you for the remarks, the terrorism angle is certainly
something to consider. I assure you that the burden of this rests with
us every night, when we go to bed and when we get up in the morning \--
recognizing the importance of the tasks that are before us. And foremost
in that is the safety and the health of the American public. And, I
appreciate your comments as it related to your understanding. We
recognize that this is extraordinarily complex and that's why appreciate
the frank comments like yours.

Ladies and gentlemen, we're going to take a ten minute break right now
and then reconvene in ten minutes and continue through our list.

OK, ladies and gentlemen, would you please take your seats. We'd like to
begin in a few minutes. Our next speaker is Sharon Cohen, from
Biotechnology Industry Organization.

[Sharon Cohen, Biotechnology Industry Organization]{.underline}

Good morning. My name is Sharon Cohen and I am Vice President for
Government Relations for BIO \-- Biotechnology Industry Organization. We
are very appreciative of the opportunity to talk with you today about
the issue of drug importation.

BIO members develop and manufacture life-saving prescription products
that

are often administered either intravenously or by injection. Most
biotechnology products are extremely sensitive to changes in
manufacturing parameters, temperature, light, pressure, shipping and
handling conditions.

Many biologics are actually clear liquids, and it is extremely difficult
to detect when products have been opened and thus contaminated, diluted,
exposed to improper handling conditions, or simply replaced with in a
vial with water or worse. Indeed, many of these things have happened to
our members' products over the course of the last several months. And
you've actually heard two very personal and telling stories from some of
the presenters today about these situations.

Because of the sensitivity of biotechnology products, the existing
importation provisions within the newly enacted Medicare law, as well as
new Congressional importation proposals, generally have exempted many
biologics from these provisions that would legalize the importation of
prescription drugs.

However, one need only look at the astonishing number of prescription
drug products entering the U.S. via the mail or inside containers every
day to know that the legality or exemptions merely could be words on
paper. For unscrupulous vendors, the fact that importing some of these
products is illegal, or unsafe, is no deterrent at all.

That's why notwithstanding the well-intended exemption for most of our
member companies' products, BIO continues to remain opposed to
legalizing of expanded drug importation. BIO believes, and we believe
that we share the views of most American patients, that the U.S. system
of drug regulation is the world's gold standard. In many other
countries, patients literally cannot know whether the prescription
medications they receive are pure, or adulterated, potent or
ineffective, real or fake. That reality is one that we have not had to
face in America until now.

In the recent blitz operations by the FDA and the U.S. customs and
border officials, they discovered that many of the products they though
were coming in from Canada actually had their origins from countries
where more than half of the drug supply is fake. Some of the products
were packaged in sandwich bags; some were labeled in foreign language;
some tablets were smashed and, more importantly, some of the shipments
that contained biologic products that should not have been imported
because of their unique handling and shipping requirements, and the fact
that these are necessarily administered by physicians. Some of the
products which required refrigeration were sent through the ordinary
mail with no refrigeration whatsoever.

The U.S. pharmaceutical marketplace is, undoubtedly, the most attractive
in the world. That is certainly the reason that it is attractive to
counterfeiters and other criminals whose goal is making money without
regard for public health or safety.

But the attractiveness of the U.S. market is also one of the reasons
that biologic innovation really thrives here in American and it's why
patients in America are often the first in the world to have access and
benefits from many of the innovative products that our companies make.

Today, the reason for gaining FDA approval is to gain entry into the
U.S. market. If products not approved by the FDA can enter the U.S.
market legally, there would be an extremely strong incentive to obtain
approval where it can be obtained most easily. And the FDA approval
system could quickly become an anachronism. The first consequences of
that must fall more heavily on patients than on product sponsors, but
extensive damage could be done to the drug research and development --
and particularly the biotech industry here in America.

Anti-counterfeiting technologies may not be the answer, and that's
especially true with respect to biologics because our products are not
packaged similarly to conventional pills and tablets. There are critical
questions as to whether or to what extent these technologies may
interfere with the effectiveness of the underlying product.

Two pivotal questions are really before this task force. One, do U.S.
consumers need the imprimatur of the FDA approval system as assurance
that their prescription medications are safe and effective? And, two,
would loosening the importation controls result in a reduction in
safety? BIO strongly believes the answer to both questions is yes. I'll
be glad to answer any questions.

Carmona -- Thank you very much. Task force members, any questions? Mr.
Azar.

Azar -- We've gone over this a little bit, but would you be able to
explain to those of us who are not biologics manufacturers, a bit about
what's unique about how a biologic is manufactured, compared to, say, a
normal, chemically compounded pharmaceutical, that makes it so that it's
no so easy for another company in Canada or China to simply look up the
what the formula is and just re-do it and ship it to Canada or the
United States?

Cohen -- I'd be glad to, and I'll try not to be overly simplistic. With
chemical compounds, it's almost as if you have a recipe for so many bits
and pieces that are compounded together. The old way of doing things in
a pharmacy. With a biological, it's actually a living material. This
material largely is derived either through genetic information or
tissue, recombinant technologies that can actually manufacture a
protein, an enzyme. These are actually living materials. These items
need to be stored, manufactured, handled in very, very unique ways. I'll
give you a couple of examples. We have some products that are so
photosensitive -- light can damage them -- that it has to be not only
packaged in a dark vial, if you will, but it has to be mixed and
administered in the dark, otherwise it becomes non-efficacious. Other
products require refrigeration; we're not talking about keeping it just
cool. There are some products that literally have to be kept so cold --
60 and 70 minus Celsius -- gaseous material that's liquefied by freezing
\-- that there are only a few entities in the U.S. that actually can
receive and ship them. Those materials are actually drop-shipped the
night before they are administered.

Carmona -- Other questions?

McClellan -- In terms of thinking about biotech and how it's different
from other pharmaceuticals, and what not. There are some things, though,
that seem somewhat similar. It does seem that prices do differ across
international markets, particularly some of the countries that we would
think of that are already fairly prosperous, places like Australia or
Spain. Can you give us a little feel \-- because a lot of this
discussion of reimportation would not be happening if there were not
price differentials viewed as significant enough between countries --
can you give us a feel for how your industry makes those determinations
of pricing determinations. Of different prices in different markets?

Cohen -- Well, let me step back for a minute and say that today, in the
marketplace, anywhere from 50 to 60 percent of the biologics approved in
the marketplace today are for orphan conditions. These are for very,
very small patient populations, sometimes they may be extraordinarily
small -- you know, 1,000 individuals in the entire world that may have a
particular condition. In those situation, there is a greater chance, not
always, but there is a greater chance, for what's called "unitary
pricing". There are not as many opportunities for price differentials
and that's obvious because of the small patient populations. Foreign
countries, as we know, do have a variety of price control mechanisms
which are imposed and that results in, largely, the differential.

Mike O'Grady, HHS assistant secretary for planning and evaluation -- Are
there any countries where that sort of price control are so low that you
don't offer ...?

Cohen \-- Yes, I don't want to name countries, *per se*, but that is
accurate. There are some where the price is not at all relevant to meet
the need. The actual research and development costs, plus the
manufacturing expenses \-- and they are extraordinary with respect to
biologics, you need to maintain very different facilities than you do
with making a pharmaceutical compound.

Carmona -- Other questions. I have one, then. It's been said that the
U.S. bears the burden of the most of the development costs, the overhead
for bringing a products to market and so on. That being the case, and
with an inequitable distribution of pricing and the ability of some
countries to control and, if you will, be free riders for what the
Americans provide to the world, did you have any suggestions as to how
that could be remedied.

Cohen -- Well, I guess that begs the question of, you know, we've heard
Dr. McClellan talk about this before, the issue of this being a trade
problem. And are there opportunities through trade negotiations to
resolve some of these issues? I think that that's an important endeavor
that should be looked into.

Carmona -- Thank you very much.

Cohen -- Thank you.

Carmona \-- Our next speaker is Mr. Pete Sepp, National Taxpayers'
Union.

#### Pete Sepp, National Taxpayers' Union 

Thank you. I greatly appreciate the opportunity to be here. I'd like to
discuss the dimensions of importation from the economic and fiscal
angles here, rather than the safely angle, because that's what the
National Taxpayer's Union concerns itself most with.

As you may know, we have long opposed certain government laws and
regulations that would manipulate free-market innovation across the
board, not just in the pharmaceutical industry. That includes price
controls, rationing, and weakened patent protections. And, to our mind,
importation proposals are only the latest in this long line of
burdensome mechanisms.

I say this for three reasons. We believe that the cost savings from
importation may not be as great as advocates suggest. The Congressional
Budget Office, for example, in July of 2003, determined that Canadian
imports of drugs would not produce any significant savings to consumers
or taxpayers on a nationwide basis. They did a second analysis in
October of last year, suggesting that the savings would be roughly 0.8
percent to all payors, government and private, totaling about \$40
billion. This seems like great sum of money, but of course that's over
an extended period of time in a sector that comprises roughly
one-seventh of our Gross Domestic Product.

For all of that, it's quite little in our opinion. The result of
importation would be, in our opinion, to starve U.S. drug innovators of
the vital capital they need to continue their role as world leaders in
development. It's not always popular to state that. It's very easy to
say, "Drug companies are making obscene profits." Well, however cheap it
is to manufacture pills, someone has to undertake the tremendous risk to
formulate a drug breakthrough in the first place. In a truly free-market
economy, those odds only make sense when risk-takers can reap the
rewards from their hard work. That happens most here, in America; we
call it an island of drug pricing freedom.

The third reason, the free-market drug development environment, which
occurs here. is already saving taxpayers a great deal of money. We heard
from Governor Doyle that he's trying to look out for the taxpayers of
his state and hopes that, perhaps, a nationwide plan will do the same
for taxpayers across America.

That overlooks the point that drug therapies already exert downward cost
pressures on state, local and even federal health care programs. We
commissioned a study by Bill Orzechowski and Robert Walker a couple of
years ago on the issue of patent protectors for drug manufacturers. They
quote a study by Frank Lichtenberg, for I believe the National Journal
of Economic Research . He concluded at the time that a \$1 increase in
pharmaceutical expenditures is associated with approximately a \$4
reduction in other expenses, like surgeries or therapies.

Even so, if you factor out that kind of cost reduction, there is also
the benefit to the overall economy of increased productivity from better
worker health. And Lichtenberg said that a one-time \$15 billion
expenditure of drug R&D saved about 1.6 million life years, per year,
whose value to the economy is 27 billion dollars. So, this kind of
development is already working to provide savings to taxpayers and help
keep our economy productive.

I'd like to close with just a personal anecdote about how I think the
pharmaceutical revolution is helping not only taxpayers but also
consumers and patients. Fifteen years ago, my dad went to the doctor
complaining of fatigue and chest pains. Doctors found that all of his
arteries were blocked, he was in urgent need of a bypass \-- had to get
it right away. He went through the procedure; nearly died twice, once on
the operating table and once after recovery.

Well, if you fast-forward 12 years, the grafts that were implanted from
his leg began to fail \-- he needed another bypass. So, they provided
him with a very strict regime, leading up in the weeks leading up to the
surgery, of prescription drugs, a whole mix of them to help cope with
surgery. They had a recovery regime, too, that was very dependent on
drugs. Here, my father is 12 years older and he sails through this
bypass and he's out of the hospital in two or three days, as opposed to
a three-week recovery that nearly cost him his life 12 years earlier. I
realize that surgical procedures have advanced over that time, but I
credit a lot of the reason to my father's survival and recovery \-- over
that period of time, over two operations \-- to the development of
pharmaceuticals, most of which is based here.

And, so I close by saying that Americans won't get a second chance.
Prescription drug importation proposals undermines the cost savings or
cures that we're all depending on. And, I don't think my father will get
a third chance, either. So, that's it; I thank you. I'll be happy to
answer your questions.

Carmona -- Thank you. Questions? Dr. Raub?

Raub -- How would you help Governor Doyle and the other Governor's
bridge from macro analysis that says this importation might not be such
a good idea, even economically, to the individual cases he deals with of
his constituents -- who he deals with -- saying "I can save \$100 a
month by going across the border."

Sepp -- I think we need to do more research on a state-by-state basis,
perhaps building on Lichtenberg's research and those of others, showing
how the state programs themselves are experiencing better cost savings
by shifting to drug therapies. If we can demonstrate to them that, look,
this is already helping your programs, this may already be taking some
of the pressure off of your programs, I think that might sway some of
them.

Sachdev -- Thank you for your testimony. In your written statement, you
describe a study that you all did at the NTU, of the Illinois plan, and
you identify savings of between zero and .8 percent, in comparison with
the savings that were estimated by the Illinois Governor's office. Can
you discuss the differences in these numbers and how you arrived at
these calculations from what was presented in the plan?

Sepp -- Well, we relied primarily on the CBO methodologies, the July and
October 2003 studies. And applied those scenarios to some of the
conditions outlined in the Illinois importation plan. So, we were able
to compute, based on CBO estimates, some different cost savings and I
believe that the savings we came up with was 99 cents per enrollee per
month, based on the number of workers and retirees in the Illinois state
employees' program. I'm sure you'll hear different opinions on the cost
savings involve here. I think our point is that there may be a range of
cost savings associated with these programs, and the range may actually
begin zero. And, as such, we need to consider that and weigh it against
the possible costs of restricted development and discoveries we never
had. That's sort of the point that Walker and Orzechowski made in their
study of patent laws is, you can't miss something that you never had in
the first place. And that's the paradox of so many developments in our
free-market economy. If we stifle the development, we never realize the
benefits from it. So, it's much easier to have a clamp-down on prices,
demand, whatever, and simply say "Well, we're doing the best for
consumers", but never thinking about the things consumers *could* have
had if those mechanisms weren't in place.

Sachdev -- To follow up, and I do expect that we will hear testimony
today, later on, about the Illinois plan. So, what I don't understand is
that, you're suggesting that the range that we're talking about is from
0 to 1 percent, to 40 percent which, to me, strikes me as a very large
discrepancy. Can you describe what accounts for the differences from
zero to 40 percent savings?

Sepp -- I think that would require a pretty detailed analysis of the CBO
reports and that might be the topic of a whole hearing in an of itself.
But, I would think that we have to count \-- and account for -- some of
the economic opportunity costs that come with reducing prices and profit
margins to the point where additional R&D expenditures on the part of
pharmaceutical companies become less enabled, and almost prohibitive.

Carmona -- Mr. Azar.

Azar -- To follow up on what Mr. Sachdev was just asking, and I don't
know if you have this information. After listing to Governor Doyle and
other witnesses come in and talk about the savings that consumers might
get by taking advantage of the Canadian price controls on drugs, the
bipartisan Congressional Budget analysis, I think, to many people will
be, I think, surprising. That, at least according to the Congressional
Budget Office, there wouldn't be widespread, significant savings from a
wide scale, mass importation policy from Canada. Do you have
[any]{.underline} idea what the major elements of the analysis by the
Congressional Budget Office that would leads to that conclusion? When
we're hearing this anecdotal evidence of individual savings...

Sepp -- Well, I believe that some of the elements include the additional
regulatory cost burdens on the federal government and the private
sector. Also, some of the burdens that would result from lost
opportunity and R&D, but I'm not familiar enough with all of the CBO
analysis to give you all of those points. But, most of them are
summarized in the analysis we did, *Issue Brief 147*, called "Planning
to Fail", which is on our website, [www.ntu.org](http://www.ntu.org/).

McClellan -- It might be helpful if the National Taxpayers' Union could
submit that analysis as part of the public record really, because I'm at
least curious about the basis for this analysis.

Sepp -- Sure, happy to.

Carmona -- Dr. O'Grady

O'Grady -- One kind of question, but also to continue this discussion a
little bit. I haven't seen the CBO analysis, but I've seen other
analyses. And, often what underlies them is a notion that an individual
is going across the border and purchasing is one thing, but if you're
talking about something where the American market is so much larger than
the Canadian market, if you really did go to the weighted average price
of this new, merged market, that it just -- the American prices in
effect overwhelm it and therefore you are not in a situation where you
are seeing those kinds of discounts. Now, whether the CBO followed the
same kind of methodology or not... now, I wanted to bring it up in terms
of, in light of your testimony, that I wanted to get, wanted to
understand what I believe are the trade-offs that you are pointing out.
If this were successful at dropping prices significantly, then there
would be the concerns about stifling of innovations. But, if the other
side of that is, there's very little net effect over the system, over
both countries, there's really very little effect, I'm not sure I see a
stifling of innovation at that point. It the CBO is right and it's
really the minimal savings involved.

#### Carmona -- Other questions? Thank you sir, we appreciate your testimony. Our next speaker is Bruce Kuhlik, Pharmaceutical Research and Manufacturing Association.

#### Bruce Kuhlik, Pharmaceutical Research and Manufacturing Association

Thank you, good morning. I'm general counsel of PhARMA, we represent the
nation's pharmaceutical and biotechnology companies. Last year, our
members spent more than \$33 billion dollars in research and
development; they have more than 1,000 new treatments in the pipeline.

I'm going to limit my comments this morning to a couple of key issues
relating to the safety of imported medicines. These questions are vital
to the health of all Americans, since the schemes that are being
proposed would put imported drugs into any pharmacy in the U.S. where
our families, friends, neighbors and others could be given unsafe,
unapproved, substandard and in effective medicines without even their
knowledge or consent. I want to thank you for hearing our concerns about
these approaches.

I'm going to make three points this morning. First, importation is
inherently unsafe. It violates the fundamental public health principles
on which U.S. drug regulatory system is based. Second, the purported
safeguards offered by importation supporters are a totally inadequate
substitute for the genuine protections established by Congress and
implemented by the FDA. And, third, there are better solutions already
in place to enable more Americans to gain access to affordable
pharmaceuticals. We should be looking toward these programs, rather than
the false promise of importation, to improve the health of all Americans
with safe and effective medicines.

The FDA comprehensively regulates the safety, effectiveness,
manufacturing, distribution and quality of prescription medicines,
pursuant to extensive authorities granted to it by Congress under the
FD&C Act. Two basic principles underlie this system. First, the burden
of proof is on the manufacturer to prove that its medicines are safe and
effective. This burden must be carried in advance by obtaining FDA
approval before a prescription medicine is marketed, and it must be met
continually thereafter. Americans can take their medicine with
confidence because they know that the FDA -- an agency devoted to
protecting their health and well-being -- has affirmatively determined
that these medicines are safe.

The second principle is that safety can only be assured over time
through controlled manufacturing and distribution systems that build
quality into the product. It is a fundamental tenant of FDA regulations
that quality cannot be tested into the product. In other words, that
chemical analysis alone is inadequate to ensure that a product is safe
and will work as intended.

The proponents of propositions to importation propose to violate both of
these principles. They assume that products are safe even if they are
not outside the regulatory jurisdiction of the FDA, or even are never
subject to that jurisdiction in the first place. They suggest that we
should assume that importation will be safe, even without full FDA
oversight, unless or until we have proof that Americans have died or
been seriously injured under their proposed systems. We have walked that
path before, and it has led to public health tragedies, such as the
elixir sulfonamide poisonings, that led to the enactment of the review
system for new drugs in 1938. In that case, a company used ethylene
glycol, better known as anti-freeze, as an inactive ingredient in a
sulfur drug, causing more than 70 deaths. We now wisely ask for proof of
safety first, not proof of harm later.

They also suggest that tests at the border can distinguish genuine
products from counterfeits, and safe products from those that are
adulterated. Again, the FDA has opposed this approach and imposed
extensive requirements on domestic manufacturers to ensure that quality
is built into their products, precisely because of the limitations of
end-product testing. FDA oversees the entire process from chemical
synthesis of active ingredients, the inactive ingredients, and requires
the manufacturing steps for the drug product through its packaging,
quality control checks, storage and distribution. Americans considering
the possibility of importation need to know that product testing alone
-- at the border or elsewhere -- cannot possibly substitute for this
comprehensive regulatory system designed to protect them.

My second point this morning relates to the illusory promises of safety
that have been offered by importation proponents. They suggest, for
example, that an importation scheme would be safe if limited to Canada.
However, drug products that are not intended for use in Canada fall
outside the scope of Canadian health regulations as long as they are
properly exported. Health Canada itself, the Canadian FDA, has made
clear that it does not regulate the safety and quality of these
projects. We should be under no illusion as to what a so-called "Canada
only" importation scheme really is -- which is an invitation to
trans-shipment of sub-standard products from Third World and other
countries. Suggestions that FDA could ensure safety through foreign
inspections are totally unrealistic; approaches that will work for foods
and illegal narcotics (such as visual inspections and field tests)
simply would not work for complex prescription drugs. Substandard and
unsafe drugs cannot be detected by appearance or smell, for example, and
there is no technological silver bullet against counterfeits or to
guarantee the accuracy of a chain of custody.

I want to go to my final point this morning, which is that Americans do
not want imported drugs; they want access to safe and affordable ones.
There are numerous public and private assistance programs already in
place to help people obtain the medicines they need. Last year alone,
PhARMA's members provided free medicines to more than six million
patients through company assistance programs. Other help is on the way,
such as through the Medicaid and Medicare Assistance Act, drug discount
cards, and drug coverage. PhARMA's members are exploring other ways to
help. We urge everyone to look for solutions within the framework of
public health protections that have served us for so well for so long. I
know I'm out of time, I'm happy to answer any questions. If you care to
indulge me, I'd like to specifically address some of the points raised
by Governor Doyle where, I think it's fair to say, we have a difference
of opinion.

Carmona -- Thank you, Mr. Kuhlik. Task force members, questions? Dr.
Raub.

Raub -- Thank you, in your oral statement, you made the important
distinctions between products intended for use in Canada, versus those
that would be for transshipment and therefore not subject to the same
degree of regulation. But in the written summary provided by your
assistant general counsel, includes a sentence that says that "foreign
drug agencies devote their limited resources to regulating products
intended for use in their own countries, not for those being shipped
abroad." The implications of that is that no one else's pharmaceutical
regulatory capability matches that of the U.S. Is that the intended
sense?

Kuhlik -- Well, certainly the FDA is recognized as the gold standard.
Products that are intended for use in Canada are regulated by Health
Canada. A principle concern we have is the trans-shipment concern that I
mentioned and others have mentioned. Those products aren't subject to
regulation by anyone until they come into the country.

Raub -- I understand, but I think the interpretation of the sentence
goes broader. I read it as suggesting that Canadian regulation for its
own use is not up to the FDA, that that U.K regulation for its own use
is not up to the FDA. Is that...

Kuhlik -- Each country regulates for its own population. We've certainly
never said that, in the U.S., for example, that approval in Canada is
tantamount or the same as FDA approval. There may be circumstances where
similar requirements are imposed, but we've always counted on the FDA do
to what's right for the American people.

Carmona \-- Other questions, Amit.

Sachdev -- Mr. Kuhlik, if I could start with a request and not a
question. The request is that \-- since the entire importation debate
revolves around pricing in America versus pricing of drugs in other
countries -- if the task force could get some information about the
pricing regimens in other developed countries. How prices are set, or
the extent to which they are allowed to be determined by the free
market? I don't know if your information has access to at least some
comparative information on this. I think that would be helpful for us to
know about.

Kuhlik -- Thank you. We certainly intend to submit information on that
to the docket in our written comments. The short answer is that
government price controls are endemic throughout the rest of the world.

Sachdev -- The other point; this is a question that I had asked at the
other, previous, task force. At least almost everyone has seemed to
assume that, if we were to permit the reimportation of drugs into
America, only those that meet the FDA's gold standard of safety and
effectiveness should be permitted into this country. That would, of
course, include not just the product's composition being safe and
effective and being subject to a new drug application; but also that it
was produced according to good manufacturing practices, which is a very
extensive regulatory regimen throughout the entire manufacturing process
as well as the chain of distribution all the way up to the pharmacy and
then to the consumer. If we have a have a regimen like that, for just
one country -- Canada -- for Canadian importation, does that not require
voluntary cooperation by the pharmaceutical manufacturing industry and
the pharmacies, and the distribution entities in Canada -- many of whom
we may not even have domestic jurisdiction over. To be willing to
cooperate with that type of inspection regimen and regulatory regimen.
Not to say that Health Canada wouldn't also do that, agree to let us be
inspecting and regulating there to get them into this country? And would
your member companies be willing to cooperate with such a regimen to
ensure that anything that came into the country would conform to the FDA
gold standard?

Kuhlik -- I think, you are asking a very important question and,
essentially, when you get to the root of it, the only way to have an
assurance that the products that are coming into the U.S. are fully
approved and meet all of the various requirements (from manufacturing,
testing, distribution, quality control and all the rest of it) is to
ensure that they are within the jurisdiction of the FDA the entire time.
Which is obviously impossible once those products are in foreign
countries. In the Canadian government and Health Canada want to change
their regimen to conform precisely to the U.S. regimens, so that only
the U.S-approved products are available there, and they will inspect and
they will enforce, and they'll make sure there's compliance... you might
have a different system. But, again, I think that there's this very
basic misunderstanding (that you heard earlier this morning) about what
is and isn't an FDA-approved product. Just because brand product X is
approved in the U.S., and the same brand is available in Canada, doesn't
mean that that product, in Canada, actually meets FDA requirements. And
there's no simple way to know what the significances of any differences
are. Just last week, FDA published 40 pages of small type, three columns
in the *Federal Register*, about what kinds of regulatory requirements
manufacturers need to go through in the U.S. whenever they make a change
in their manufacturing process, of whatever significance it is. A change
in mixing time, a change in mesh size, a change in active ingredient or
inactive ingredient, a change in suppliers. There are all kinds of
levels of controls the FDA puts in place because these products are so
complex and have such a potential for harm or for a lack of efficacy if
you don't follow these rules. So, to simply say there may be differences
but they are diminimous, I think flies in face of everything everybody
knows about the science and manufacturing regulation of these products.

Carmona -- Other questions, Dr. Duke.

Duke -- You mentioned in your remarks that there are many efforts in the
industry to provide assistance for those who do not have access to
drugs. The Governor, in his comments, talked about the issue of the
non-senior working poor. It might be helpful to the commission if we
knew more about the kinds of programs that are being provided for that
segment of that population.

Kuhlik -- We'd be delighted to do that. We have a website called
HelpingPatients.org which provides an easy way to access these programs;
they are geared toward the needy, not necessarily simply the elderly
needy. And, I think that if people had more, if there were more broadly
aware of those programs -- they already take wide use of them -- that
would be a very good thing.

Carmona -- Ms. Willis.

Willis -- You and several other people have talked about the negative
impact that importation would have on R&D. Can you explain exactly why
the impact is a negative one on research and development, and would
importation not encourage R&D in other countries?

Kuhlik -- The key facts about pharmaceutical R&D are that they are
extremely expensive, very long-term and very risky. And, they typically
-- in most products \-- are much, more than the cost of manufacturing
the pill. What other countries have done through their price control
regimens has been to try to step away from financing all of that R&D.
\$800 million or more per drug; only three drugs out of 10 that actually
make it to the market actually recover R&D expenditures. Only 1 product
out of 5,000 that's initially tested in the laboratory ever makes it to
market to begin with. We've got here, I think a previous speaker
referred to it as an "island of pricing freedom", I would characterize
the U.S. as an island of competition. We do have competition here. We
have very large purchasers who negotiate on behalf of tens of millions
of covered lives on pharmaceuticals. Importation is not importing
competition; its importing price controls that are specifically designed
not to finance the R&D enterprise. If that's shut down here, there's
nowhere else for it to go.

Carmona --Dr. O'Grady.

O'Grady -- A couple questions. One having to do with a follow-on of Mr.
Azar's request for a kind of... you talk about price controls overseas;
I'd like to also know, again, along the lines of what asked I asked Mrs.
Cohen. Are there specific drugs that are not being offered to consumers
overseas because of the price controls that their countries impose?
Because I certainly understand and am very supportive of the notion of
competition and innovation and whatnot. But, what I haven't seen is, is
what it is that the average consumer in Australia, or Spain, or France
is not getting access to because of the price controls that their
countries have imposed upon? And certainly, I understand the free rider
argument, and it makes sense, but what can you do to convince us that
that their price controls haven't worked? They seem to get all the same
drugs that our people do, and they seem to get them at a much lower
price.

Kuhlik -- We'll provide comprehensive information on this, as much as we
can. Obviously, individual companies make individual decisions on this.
But, I'd like to point out that foreign governments impose a variety of
controls that work together in ways that very substantially reduce
access to products. They have the price controls themselves, they have
the fourth hurdle in many countries -- where you can't get to market at
all, even after safety agency has completed it's review, where you can't
get to market until there's a pricing determination that lasts for many,
many months and sometimes longer. Even when products get to the market,
foreign governments impose many more controls on access, on the
provision of information to patients, step therapies and things of that
nature where patients can't get the drugs, even if they are on the
market. Finally, these governments have a variety of other tools, such
as the threat of compulsory licensing, to say that if you do not do what
we tell you to do, we'll get it from somewhere else.

O'Grady -- Ok, and I guess I understand the intellectual argument. At
the same time, the Governor's point, it's hard to tell that little old
lady or that little young lady in Buffalo that, somehow, by going to
Toronto, somehow she's taking her life in her hands. Now, I understand
the concerns, and our colleagues at the FDA's concerns. But it's still
not persuasive, I guess.

Kuhlik -- Well, I think the safety concerns ought to be. I'd like to
point out that in our view, the reasons that these concerns exists with
concern to pharmaceuticals, as opposed to (for example) physician
services, hospital services, medical imaging, other services and the
like, is the lack of comprehensive coverage for these products as
compared to others. Remember, pharmaceuticals only represent about 10
percent of all health care expenditures, but for people without
prescription drug coverage, they are obviously a much greater
out-of-pocket expense. I think if we can do more along the lines of the
Medicare drug benefit; other approaches to seeking coverage for
uninsured Americans, these are much better solutions than the safety
roulette.

Carmona -- Amit?

Sachdev -- The Secretary was tasked by Congress to look at 11 specific
questions and we, as a commission and task force have been asked to shed
light on that through these proceedings. We've heard a lot of testimony
that touches on many of these issues, but one area in particular that I
think it would be very helpful to hear from you and your companies, and
that is to assess the impact on drug R&D, and the associated impact on
patients and consumers, if importation is required or mandated. That's
information that I think would be very important to receive from you and
if you have any initial thoughts on that, I'd be glad to hear that now.

Kuhlik -- We certainly plan to do that. Again, when you look at
importation as a scheme to import foreign price controls, that are
designed not to carry the burden of R&D expenditures and investment
s---I think the only conclusion you can draw (and we'll try to put as
much meat on the bones as we can) is that is going to be substantially
less R&D and substantially fewer new medicines available for patients.

Carmona -- Mr. Azar.

Azar -- I certainly understand the R&D concerns that you've addressed.
But, is there any even narrow importation system that could be
constructed from one or more countries that, at least from the
pharmaceutical manufacturers' perspective, would at least satisfy safety
concerns?

Kuhlik -- I'm glad you asked it in that way because safety remains our
principle concern. We have yet to see any type of proposal that would
provide the same kind of assurance for the safety of Americans that you
get through the closed FDA system. Nobody has been able to come up one
and frankly, I can't even logically conceive of how you would do it
given that products are manufactured with the intent that they be
distributed in particular countries. How will you know -- how can you
possibly know -- whether these products meet FDA standards once they are
outside this country? You can't.

Carmona -- Dr. Crawford.

Crawford -- Yes. Much has been made of fact that the U.S. free-market
system fuels R&D of pharmaceuticals. If, somehow or another, that
profitability was compromised, so the U.S. no longer contributed to the
pool of funds that in fact drives the R&D enterprise, could that
enterprise be taken up by any other entity, such as the government?

Kuhlik -- I don't' see how it would. The NIH, obviously, does a fabulous
job of basic science, and elucidating basic mechanisms of disease and
pathways and markers and the like that help the companies do work that
they need to do to turn those scientific principles into the reality of
a safe and effective medicine. It's a process that takes 8, 9, 10, 12
years; it's fraught with risk and uncertainty and the like. It's not a
simple matter; I don't know how the government would finance that over
the period of time that's needed to do it. Certainly, there isn't an
experience with the government taking over some other part of the
economy that would give me any confidence that they would do a good job
on that.

Carmona -- Any other questions? Thank you, sir, we appreciate your
comments. We look forward to your other remarks that you'll provide to
the docket. Our next speaker, James Green, King Pharmaceuticals.

#### James Green, King Pharmaceuticals

Good afternoon. My name is James Green. I'm the executive vice president
of corporate affairs at King Pharmaceuticals. King manufactures and
markets prescription pharmaceutical products that cover a diverse range
of categories. We appreciate the opportunity to provide you today with
King's perspective on the importation of prescription drugs.

Foremost, we share your concerns about the safety of imported drugs.
Over the last two years, our customers -- our patients -- have
increasingly begun to fill their prescriptions through Internet site
with products of unknown integrity, and unknown origins. Many of King's
products are maintenance drugs, that is drugs that are intended to
maintain patients with chronic conditions -- such as hypertension or
hyper-thryodism -- within a healthy, normal range. These conditions are
often a symptomatic, and a patient who receives a substandard drug may
be at serious risk of harm, and may not even know it. Such a situation
is of grave concern to us.

In a moment, I will show you some examples of the types of products that
are being imported into the U.S. in place of King's FDA-approved
products. But, before I do that, I must emphasize this point, and that
is that the measure of the safety of imported drugs should not be
whether we can point to examples of sudden, adverse events, or acute
toxic reactions. When U.S. patients look outside the U.S. for their
medications -- particularly for these maintenance drugs -- the risk of
harm may escape immediate detection. And it may not even be recognized
until the effect is irreversible.

That said, we want to share with you our own investigation of imported
drugs. In particular, we attempted to purchase two of our leading
maintenance drugs, Altace and Levoxyl, from non-U.S. pharmacies. We
attempted 22 such purchases, finding significant problems with *every*
drug we received. The slides that follow will illustrate some of these
problems.

King's product Levoxyl is one of several levothyroxine sodium products
for the treatment of hypothyroidism that's approved by the FDA. When we
purchased Levoxyl from CrossBorderpharmacy.com, we received this bottle
of Synthroid instead. The label clearly said that Synthroid was not
interchangeable with other brands and, on the other side, the label
falsely states that Synthroid is the Canadian equivalent for Levoxyl.
Synthroid and Levoxyl are narrow therapeutic drugs. That means they must
be precisely dosed and the same dose must be delivered to the patient
each time. Synthroid and Levoxyl are BX-rated in FDA's orange book,
indicating that patients who switch brands cannot expect to receive the
same therapeutic effect. And here, in this particular care, we have
Cross Border Pharmacy.com, who has overwritten the FDA's judgment and
deemed the two brands equivalent. Not sure if you noticed on that slide,
at the end, that the prescription was filled by Total Care Pharmacy, and
on the back side of that bottle where it says it's the Canadian
equivalent, and that's one of the pharmacies that appears on the state
of Wisconsin's website.

The next slide shows some of the products sent to us when we ordered
Levoxyl. Again, none of these products is interchangeable with Levoxyl;
the patient may think he is receiving Levoxyl, or a drug that is
clinically equivalent. Instead, he is putting his carefully structured
dosing regimen at risk.

Some websites provide blatantly false misinformation about Levoxyl. For
example, MedCenter Store claims on its website that Levoxyl is known as
Synthroid in Canada. Often when the patient proceeds through an on-line
pharmacy, it is not until the very last screen that the patient is told
that the patient will get a product other than Levoxyl. Clearly, this is
a very dangerous bait and switch scam.

We also attempted to order King's product Altace, an ace inhibitor
indicated for the chronic treatment of hypertension and to reduce the
risk of stroke, heart attack, and cardiovascular death. As you can see,
the product we received is not an FDA-approved drug, and is not King's
Altace. You can see King's Altace there on the left, the green and
white, and there on the right is the product we received. Importantly,
because hypertension is a symptomatic, a patient taking the product we
received would not know if he is getting the intended therapeutic
effect. Also note that the letter that the letter that accompanied this
order stated that "your medication may appear different in shape, color
or packaging from those you have received in the previously; please be
assured that the products are the same and have been manufactured at an
FDA-approved plant." The drug we received has a different color and
markings, and was manufactured in a site other than the sites where we
manufacture King's Altace. How can the products be the same, if
everything is different? Additionally, because there is no lot number,
and no identifying information on the bottle, it is impossible to
identify who manufactured this product, and where it was manufactured,
much less under what conditions.

In another purchase, we received a drug that we did not even order.
After ordering Levoxyl and Altace by their brand names, on
discountmedsonline.com, we received a drugs known as Eltroxin from Fiji,
and Tritace in a handwritten package (shown here on the right) shipped
from Pakistan. It gets worse, look to the left. There you see this green
package; in the second Pakistani package, we discovered this green
labeled box of steroids that we didn't order.

This brings me to a final concern. An important driver in this industry
is the ability to contractually leverage the discovery, manufacturing,
and market resources of other companies. Some contracts often include
negotiation of U.S. rights and companies like King negotiate for these
rights with the expectations that U.S. patents and contractual rights
will be protected, to protect our investment. For example, King's
ownership of Altace is limited to the U.S. and Puerto Rico. The
importation of substitutes of King's Altace undermines our intellectual
property and contract rights. And, we urge the task force to take this
into consideration as an integral pointing the value of drug
development.

To add another perceptive, King is headquartered in Bristol, Tennessee;
our products are manufactured in more than a dozen U.S. sites including
Bristol, St. Petersburg (Florida), Kansas City (Missouri), Rochester
(Michigan), and Middletown (Wisconsin). If this fundamental business
model is put at risk, we could easily see imported drugs resulting in a
loss of U.S. jobs.

In summary, what we have learned from our investigation indicates so far
that importation is likely to compromise patient safety, increase
patient confusion, undermine U.S. intellectual property and contract
rights, and lead to the export of U.S. jobs. I want to thank you for the
opportunity to present today, and want you to know that we are at your
disposal as you discuss these issues. We would be happy to meet with you
privately to discuss our own, on-going investigations.

Carmona -- Thank you, Mr. Green. Task force members, questions? Thank
you sir, appreciate it. Oh, wait a second.

O'Grady \-- I'm sorry, I was a little slow. One question. I'd like to
repeat Mr. Azar's question from before -- can you think of any
importation regimen that would be viable and still have the sort of
safety and efficacy concerns that we've always had in this country?

Green -- No, I cannot. I can't imagine a regulatory structure that we
could put in place that could do that. As you can see right now, what's
not supposed to be happening, is happening. If you put some sort of
regulation in place to allow the importation of these drugs, I can't see
how you are going to prevent the importation of unapproved drugs, or
counterfeit drugs. I just don't see how you can do that; I don't think
you have the resources to do that.

Carmona -- Mr. Azar.

Azar -- One more question, if you don't mind. This issue of different
licensing arrangements in different countries is a perspective that had
not occurred to me, and how an importation regimen could be disruptive
of these licensing arrangements that are country by country. If you have
information about how prevalent these types of different country
licensing and manufacturing arrangements are, that would be helpful and
also any information about why that's a beneficial practice. That would
be helpful. Obviously, you think it's a good thing; if you have any
information about why it's a good thing that should not be interfered
with, I think that would be helpful information also. If you or the
pharmaceutical manufacturers' association has that information, that
would be useful.

Green \-- I'd be happy to see what kind of information we could provide.

Carmona -- Amit.

Sachdev -- I have a bit of a technical question, just to make sure I
understand your presentation correctly. The slides we were given don't
exactly match the slides you presented so I want to make sure I got it
right. You said that one of the pharmacies that you bought a product
from was Total Pharmacy, which is one of the pharmacies that is on the
website in Wisconsin -- and you bought a product that was said to be the
Canadian equivalent. Can you just quickly go over that specific case for
us so we can have that right?

Green \-- In that particular situation, again, we ordered that product
on-line through an Internet website (that was Crossborderpharmacy.com)
and that was the spinning bottle where we showed you all sides of the
bottle. Of course, on the front side of the bottle it said that it's not
interchangeable with other brand, then you turn it around and you see
that the label by the pharmacy that filled the product -- when you turn
that bottle around -- it says that it was filled by this Total Care
Pharmacy, which is one of the pharmacies listed on the Wisconsin
website. And they have this statement, you can see right here on the
right, it says to "take one tablet daily" and in parenthesis, "Canadian
equivalent of Levoxyl". And this is put on the label that Total Care
Pharmacies obviously put on the bottle when it filled the prescription.
So, we ordered it through this Cross Border Pharmacy.com, but
apparently, from the bottle, it was filled by Total Care.

Sachdev ---So, what did the consumer actually get? I mean, obviously,
you bought it, but what would a consumer be getting? What product?

Green \-- It appears to be Synthroid; Synthroid is another branded drug.
Both of these products are BX-rated in the FDA's orange book, meaning
that there has been no determination that they are therapeutically
equivalent.

Carmona -- Other questions, yes, Ms. Willis.

Willis -- Given the situation you just explained, the individuals
purchasing over the Internet, do you have any suggestions as to steps
that could be taken to protect consumers in this situation, in going
onto the Internet and purchasing their pharmaceuticals?

Green -- I can't imagine, again, it kind of gets back to the question I
was asked before \-- what kind of regulatory structure do you put in
place to protect consumers? And the thing is, you can try to establish
legitimate pharmacies through whom you can purchase, but once you open
the door and have this stream of drugs coming in, how do you control the
stream? Already we can't control that stream. So, I can't imagine any
kind of regulatory structure that would be able to do that particularly
with products coming in from all over the world.

Carmona -- A question on the CrossBorderPharmacy drug that's right
before us, the equivalent. Do you have any history, more history as far
as where it was manufactured, where it was repackaged, any specific
information as we go along. Have you gone back that far?

Green -- I'm not aware of that myself, especially; we might have more
information that we could provide to you as far as this specific
prescription that we had filled.

Carmona \-- If you have it, it would be interesting, because we're
hearing so many stories of manufacturing in other locations, packaging
and repackaging and distribution and there are so many opportunities to
contaminate the system, so it would be very helpful if you have that
history.

Green \-- I will check into that and certainly provide you with that.
Our investigation is on-going, so we may be able to develop that
particular information.

Carmona -- Other questions? Mr. Ahern.

Ahern \-- It's kind of surprising, you didn't think you were going to
get any questions! But this one will be very simple. You made reference
to the exporting of jobs if we allow importation to occur. Certainly,
we've talked about health, safety, pricing and those views. But, have
you done any analysis that could show as far as, if importation was
expanded, what that impact might be on domestic jobs?

Green -- As far as trying to put a number on that, no I haven't done
that. However, I know from King's perspective, as I mentioned in my
presentation, all of our products are manufactured here in the U.S. All
of these others -- I don't know about Synthroid, but \-- many of these
other so-called levothyroxine sodium ones are not approved products in
the U.S. and are manufactured, I would assume, outside of the U.S. by
someone else. And, if you are allowing these products to come in through
the back door, through importation, you're going to have those products,
instead of being manufactured here in the U.S., be manufactured
somewhere else, and there's going to be a loss of jobs that results from
this.

Ahern \-- Do you know of any studies that have been done on this?

Green -- I am not aware of any, but I can check into that and see if we
have any information; I'd be happy to provide that to you.

Carmona \-- Thank you; other questions? Yes, Dr. Duke.

Duke -- Do you have any data on the volume of counterfeit drugs or
improper substitution of your drugs today? You are hypothesizing that
there would be a vast increase, but we don't have any baseline data. Do
you have that?

Green \-- I don't have any data like that today, but I'd be happy to see
what I can do to provide you with that.

Duke -- That would be helpful.

Carmona \-- Thank you sir, we appreciate your comments.

Green -- You are most welcome, thank you.

Carmona -- Our next speaker is Flora Green, the Senior's Coalition.

[Flora Green, The Seniors' Coalition]{.underline}

Good morning, afternoon. I'm pleased to be here. You know, I represent
many, many seniors, our group represents over 4 million seniors and I
enjoy that classification. I am in my wonderful 82^nd^ year. I spend
much of my time visiting with seniors and talking about the problems
they are facing. And they are multiple in many ways. Since I only have a
few minutes, I'm going to be kind of blunt about some of the things I
say.

First, let me say that proposals to permit the reimportation of
prescription drugs, ostensibly to allow seniors on fixed incomes access
to drugs they need at a cheaper price -- is simply political mumbo
jumbo. We could make a lot of things cheaper for seniors -- and for
every American, for that matter \-- by allowing for importation of a
wide range of products at prices set by socialistic government
regulators. But, we don't do that, because we here in America believe in
a free market economy where competition sets prices. Preserves quality
in the context of an economic system that rewards innovation. We don't
permit importation of goods and services subsidized by foreign
governments into America because it unfairly undermines the
competitiveness of American companies and jeopardizes the working
families who rely upon these jobs to make a good living.

You know, the same political do-gooders who promise seniors that drugs
will be cheaper if we import Canadian drugs will be the very first to
rail against the unfairness of importing products that are unfairly
subsidized by foreign governments. They pontificate that they want to
protect working families. Well, what about the health and safety of
American seniors, and our families? Because time's short, I will only
have to state that these politicians are hypocrites. And any one of you,
who needs help in understand, just read my complete testimony.

There's another major point that I would like to make: foreign
governments like Canada, Great Britain, France, Germany and Italy and
many others have, for decades, been artificially suppressing the prices
that they allow drug manufacturers to charge their citizens for needed
medications. Let's make no mistake, these governments know that in doing
so, it will force these drug manufacturers to increase the prices they
charge American consumers for these needed drugs, because that is the
only way these drug companies will have the incentive to fund research
into new, breakthrough drugs.

I enjoy a great benefit from Fosamax; this has stopped my bone loss. I
had a serious fall recently, and because I was able to enjoy the
benefits of Fosamax (which certainly came at great expense to somebody),
I didn't have any broken bones. And I attribute that solely to this
great advantage that I have. America has let these countries get away
with these unfair subsidies, paid for by the American consumer, that
these foreign governments gladly provide to their citizens. It is adding
insult to injury to now allow the very government that has been ripping
off American seniors \-- and all American patients \-- to benefit by
increasing the volume of drugs purchased in their countries for shipment
to the U.S. Let all of those politicians who claim to want to protect
seniors from high prices to start with making Canadians (among many
others) pay their fair share of the drug costs.

I would also like to give you the highlights of some points that the
task force should look carefully at in my testimony. Canada refuses to
certify the safety of drugs that would be imported; that's because their
borders are like a sieve and they import drugs from countries and
facilities that are not FDA-approved manufacturing sites or FDA-approved
raw material sources for those drugs. The drugs may be cheaper, but
under existing conditions, you have to assume unacceptable and
significant risks if you take them.

The key to verifying the safety of drugs is for them to require that all
raw materials originate at FDA-approved manufacturing facilities and
that they are handled and shipped under FDA-approved protocols. That
would require that all shipping and distribution systems must be secure
and utilize state-of-the-art tracking technology to protect their
product from contamination or introduction of counterfeit or adulterated
end-products. All medicines should only be handled by FDA-approved
pharmacies that use FDA-protocol in the handling of medicines. The U.S.
government could establish a safety validation system to assure these
drugs that these drugs are not counterfeit, adulterated or improperly
shipped \-- that would cost hundreds of millions of dollars just to set
up and maintain. You can do the math just as well as I can; if the
safety validation system costs as much, or more, than the cost savings
than the imported, price controlled drugs, then why do it?

The public policymakers who advocate for importing these
price-controlled drug products must account for the safety and economic
issues outlined herein that will adversely impact the economic and
health and well being of American seniors. My children and my 19
great-grandchildren thank you. You have my written statement.

Carmona \-- Thank you, very much. Task force members, any questions?
Thank you so much for your honest remarks, madam. Our next speaker,
Scott McKibbon, Special Advocate for Prescription Drugs, State of
Illinois.

[Scott McKibbon, Special Advocate for Prescription Drugs, State of
Illinois]{.underline}

Thank you task force chair, Vice Admiral Carmona. My name is Scott
McKibbon, I am a Special Advocate for Prescription Drugs, for the state
of Illinois. I have 15 years experience consulting for prescription
drugs and medical plans, and I'm here to address the question that
affects the lives of millions of Americans every day. How can we safely
reduce the costs of prescription drugs in this country? This is not an
issue of dry public policy. Every day, people in Illinois and around the
states, people with chronic diseases, disease that can be effectively
controlled with medication, are forced to choose between filling their
prescriptions and paying for the necessities of life. As a matter of
public policy, as a matter of public health, I believe the FDA must act
as swiftly as possible to give those citizens access to the safe,
affordable prescription drugs they need. And, I can assure the FDA and
the people of the U.S. that we can implement a well-regulated program
that will allow people to benefit from lower prices without sacrificing
their safety.

Seven months ago, Illinois Governor Blagojevich called together an
interdisciplinary team to study the feasibility of implementing a
program to purchase drugs in Canada for Illinois state employees and
retirees. The problem was clear: last year, the state of Illinois and
the people covered by its health programs, spent \$2.1 billion dollars
on prescription drugs. That amount is expected to increase by 15 to 20
percent every year. In Canada, the prices for prescription drugs -- as
you know -- are 40 percent lower than they are here. So our team went to
Canada to find out for ourselves whether we could access those lower
drug costs and still keep people save.

We met with provincial officials, pharmacists, and executives of mail
order and Internet pharmacies in Windsor, Winnipeg and Toronto. We
visited warehouses and pharmacies. And we found that the Canadian
prescription drug supply is just as safe -- and in some ways, safer \--
than it is here at home. We found that the provincial regulatory systems
in Manitoba and Ontario are substantially similar to consumer
protections in Illinois. Although the text of Canadian statutes and
regulations is not identical to the FDA's, they are roughly comparable
to our own.

When we compared costs, we found that the state of Illinois and the
people covered by it's drug plans, could save up to \$91 million by
purchasing prescription drugs from Canada. My colleague, Dr. Kamath,
will go over highlights of our plan design with you. And, we would be
more than happy to go over them and any points that require
clarification, with you.

But, in the short time I have left, I'd like to take a moment to talk
about safety. In its opposition to Canadian drug imports, the FDA has
frequently raised the concern about counterfeit drugs entering the U.S.
drug supply. I am also concerned about counterfeit drugs, but I believe
it is the current system that puts consumers at risk. The soaring prices
of prescription drugs have created a real profit motive for unscrupulous
individuals who are willing to take advantage of people's desperation.
That's why our email accounts are cluttered with come-ons from
fly-by-night operators offering low-prices for superfluous prescription
drugs. Again, we saw much evidence of that today. If we can cut the
costs of prescription drugs, I believe we can greatly reduce the risk
posed by counterfeit drugs. It's not worthwhile to counterfeit a \$1
bill.

I wish we had more time to tell you in detail about the many safeguards
in the Illinois plan to give people in our state access to affordable
drugs they need. But, I think I can sum it up pretty succinctly. The FDA
is required by law to protect the health and safety of the American
people. As you assess the safety of our proposed plan, consider this,
when we designed this plan, I had five people in mind \-- my wife and my
four children. They will be covered by the Illinois drug reimportation
program. I am so certain of our program's safety that I am willing --
indeed, I am eager \-- to work with FDA to launch this program and to
begin importing safe, affordable prescription drugs from Canada for my
own family and for families all across Illinois who desperately need
them.

Thank you. If, the chair would, my colleague would like to come up and
present; he has five minutes. As far as Q&A, we can do them now, or it
might be easier for us to do them as a group....

Carmona -- We'll do it right now, ok, for the task force. Task force
members, any questions? Dr. Crawford.

Crawford -- Again, getting back to the root causes of the problem that
you seek to address here. Would you favor a system of cost controls on
prescription drugs in the U.S? If there is a cost problem,

McKibbon -- Other than the one we have now, you mean?

Crawford -- Well, obviously, you are trying to solve, through these
means that you describe, a cost problem with drugs, particularly for
seniors and Illinois citizens. So, if there is a price problem,
shouldn't you address it head on, rather than bringing these products
in?

McKibbon -- Well, we want to address all of these issues. As you know,
doctor, there are many classes of ways that drugs are priced in this
country. There's hospital class trade, there's Medicaid, there's many of
those things. And, what we've advocated in this program is to allow the
citizens of Illinois access to the market, and that is a market in
Canada, which currently doesn't exist. We have made numerous requests to
request a waiver to do such as that. In fact, that's why you are here
today, because Congress has mandated that a study be conducted. Our
governor and other governors have made numerous requests in writing and
finally had to go so far as to file a citizens' petition to compel the
FDA to answer the questions. So, we want to work within the system. We
have not, as you know, but up a website. The Governor, as a former
Congressman, wants to work within the system and has pledged to do so.

Azar -- You actually didn't get to the answer to Dr. Crawford's
question, which I thought was an interesting one. That the whole
concern, and the concern of many individuals, is the cost of drugs in
America. The solution that a lot of people seem to be proposing is to
import drugs from, say, Canada, to take advantage of the price controls
that the Canadian government imposes -- where they set the price that
can be charged for a drug, rather than a competitive market setting it.
So, the question was, why doesn't \-- does the Governor of Illinois
favor setting price controls, in Illinois, for pharmaceutical drugs?

McKibbon -- Right. The Governor has said in numerous press conferences
that he wants the citizens of Illinois to have access to Canadian drug
prices. And, I can't give you a better answer than that. You'd have to
address that question to the Governor.

Azar \-- So, the Governor of Illinois favors price controls and setting
the price of drugs. What impact would that have on either access to
drugs for Illinois citizens, or research and development?

McKibbon -- Well, those were your words, not mine, and as I said
earlier, if you'd like to address those questions to the Governor, I'm
sure that he would love to sit down (as he's offered on more than one
occasion) with Secretary Thompson and go ahead and have that kind of a
dialogue. The question on R&D, and other speakers have addressed it and
Dr. Kamath will that also in his remarks. We believe that R&D occurs, it
is occurring, it occurs not just in our country but in other countries
as well, and that we can import these drugs from Canada, our largest
trading partner, and do so in a safe and effective manner.

Azar -- But if R&D is occurring in other countries right now, is it
occurring because there is the availability of America, where the free
market actually allows the prices to be set by supply and demand, rather
than being price fixed? And, if you take away that, will R&D continue to
occur in other countries? Don't we have the need, as Dr. Carmona
mentioned earlier, to think about the long-term impact -- not just the
short-term issue of the cost of drugs?

McKibbon \-- All things have to be considered. At those 15-20 percent
trend rates per year, our costs are going to double... without our
revenues doubling by 15-20 percent per year. Are we going to be able to
continue to pay those prices? The answer is no. Our state, when our
Governor came in, he inherited a \$5 billion budget deficit; we're now
at a \$1.5 billion deficit. Can we continue at a 15-20 percent drug
trend? The answer is no. It's obviously a complex question; otherwise
the 13 of you would not be sitting here and we wouldn't have taken the
time and energy to present. So, it is going to be a situation where we
can sustain the cost, and we also have to sustain the R&D, there's no
doubt about that.

Carmona -- Other questions, Ms. Carbonell?

Josefina Carbonell, HAS assistant secretary for aging -- Mr. McKibbon,
if importation is permitted, what liability protections -- if any \--
will the state Illinois take in administering its drug programs for
state employees and retirees?

McKibbon -- Sure, well, that's a good question and I'll admit right away
that I'm not an attorney. There were several attorneys that did follow
and work on this particular project. We've said repeatedly, in our
waiver request to Sec. Thompson and in our citizen's petition, that we
would not require anyone in our program to sign a blanket waiver. We
have talked about those kinds of issues with the pharmacies we visited
-- in Canada -- and, as far as the attorneys would say and, again, I'm
just going to give you the answer that I have heard them say and use, is
that the liability protections that the citizens and the members of our
plan have are consistent. There is nothing that we would ask them to
waive. They do have their rights, both in the U.S. and, if the situation
occurs as described by your very first witness, or if were to occur in
another locale. So, that's the way we look at it. There isn't any
increased liability. The other thing I would say is that we have
attempted on numerous occasions to work with the FDA. The Governor does
not want to do anything to violate federal law. So, we presume that any
system that is done, and any importation, is sanctioned and approved by
virtue of a waiver or by virtue of a change in federal statute or some
other mechanism.

Carmona -- Thank you, sir. Other questions? Dr. O'Grady.

O'Grady -- I have one in terms of the way your system works and the way
that you did your analysis kind of leading up to it. We know, with drug
prices in U.S. anyway, there is a wide variation in what different
groups pay for... full retail, different types of discounts. Now you
have a population where, it sounds like, anyway (and correct me where
I'm wrong), you're hoping to offer these sorts of this access tests to
certainly people who have no insurance coverage, but is it also state
employees who would be involved? I mean, you mentioned yourself, I kind
of assume...

McKibbon -- Right, doctor. What we studied was state employees and
retirees; we have very comprehensive data from our PBMs on what the
costs were. We know exactly what the co-pays are and we know exactly
what the ingredients are. That was the basis of our study. So, when we
put out an estimate of savings, it is on a very selected list of drugs
and Dr. Kamath will speak more to this when he comes up -- but a very
selected list of brand name medications that we found clinically
appropriate for inclusion in the program. And, we can calculate, cause
we had the data from our various vendors, how much those drugs were and
how much it would be if we purchased those exact same drugs in Canada.
And that was the basis of the work that we did. Certainly, you know,
I've been asked many times, "How will that be translatable to a general
citizen?" Certainly, if we set up a system in Illinois that was designed
to save the taxpayers' and the employees and the retirees money \-- in
the form of no copay, which is what we proposed in our program, going
from a co-pay of currently \$28 for a non-formulary branded drug to zero
(which was what we suggest in the program) -- as well as some savings to
the taxpayer \-- that if we set up a system that was safe and effective
in that way, then certainly, we don't want people to access the Internet
it in an unregulated way, either. We feel that safety is important and
that we can extend those same types of inspected programs and
pharmacies, if indeed we are able to do so, to the general population of
our state.

Carmona \-- Dr. Duke?

Duke -- Well, I'd like to build on that, if I could. In the sense that
the state Medicaid program and one of the issues of one of our earlier
speakers talked about the issue of the non-senior working poor. If I
understand your system, you require one month of an Illinois retail
pharmacist review and filling of the prescription on a restricted list
of drugs. My question actually has two parts. One is the impact on small
businesses in your state; in the sense that you are asking them to do
the up-front work for a system that, in a sense, then takes away their
work in the future. And, you're sort of creaming the market, in the
sense that you are taking a restricted list of drugs and leaving that
business line to then be filled by a now weakened small business
community.

McKibbon -- Actually, a very excellent question and I will answer it to
you specific to the study and also in the waiver request. The waiver
that we made, and the Governor on numerous occasions has supported House
Bill 2427, which was the Gutknecht bill, which would have allowed retail
pharmacists and wholesalers to bring their product in. And, indeed, we
would continue to want to do that, if that was available. Were it not
available, and we would use what we continue to call in our report the
Canadian mail order system, Dr. Kamath will speak about a couple of the
safety components of this in more detail. One of the things that we
suggest in our program is an Illinois primary care pharmacy model for
safety purposes. In that, we would pay a retail pharmacy to manage the
total pharmacy care for that particular patient. So, that every time a
scrip were to go through he domestic mail order system, or the Canadian
mail order system, that that primary care pharmacist would be paid an
amount to help manage that patient. And that primary care pharmacist
would have access to the patient data for all the fills -- the domestic
fills and the non-domestic fills. So, that is one way, actually, that
we, in talking with the Illinois retail pharmacists association, the
Deans of the Pharmacy school, with the retail pharmacists and with
members of the Board of Pharmacy (and again, Ram as a pharm MD will talk
to this in more detail), we found that to be a way to take some savings
that were going to be generated in our program and put it back into the
domestic system. Because, as you all know, there have been an immense
number of prescriptions (particularly maintenance prescriptions) that
have shifted to mail order. So, that, indeed, even in the way we put it
in our report, often times, the first fill -- which is, as you all know,
is the most expensive fill -- is done at retail setting. And then, the
mail order facility, owned by a PBM or another entity, then picks up the
delta. So, in our report, our model and our proposal (and again, this
was just for the employees and the retirees that we developed this for),
we would take some of those savings and put them back into the system on
the retail side.

Carmona -- Sir. We heard earlier from Governor Doyle about a program
that he set up that he feels fairly secure with. That he had no problems
with his citizens accessing those pharmacy companies in Canada. After
his testimony, we heard testimony from another gentlemen that showed us,
in fact, one of those pharmacies did provide medications that were
either repackaged or were something that they were not supposed to be.
So, there were a lot of issues that were brought up. How can you ensure
the your citizens in Illinois are safe?

McKibbon -- That is a very good question, Admiral. And, I think that
Governor Doyle and Governor Blagojevich had done a great job, and I know
that it's a passionate issue for both of those gentlemen, as well as my
Governor. When we selected our sites to visit, we went out and, of
course, as Governor Doyle has gotten, we were beseeched with requests to
visit. We had 11 people go on this trip; we spent four days in three
Canadian provinces. We selected the pharmacies that we were going to
visit based on information that we had been given, and research that
they were able to do by our team in advance. What we found was that, the
sites that we went to go visit had been operating in a way for a number
of years. And, in a couple of cases, the city of Springfield,
Massachusetts, for example, had been using with success. We went and
looked at those pharmacies. There was also another program that had used
a facility in Toronto and that we were aware of had a good safety
record. Those were the pharmacies that we went to go see. When we
visited those pharmacies, we took our chief pharmacy inspector from the
Illinois Department of Regulations, which is the regulatory agency in
our state that regulates pharmacy. The prosecutor (who by state statutes
has to be both a pharmacist and a JD), Dr. Kamath, who's a pharm-MD, a
gentleman from our public health department who is also an RPH. And, we
basically turned these guys loose and said "Pretend it's Peoria, as
opposed to Manitoba. Do what you would do in any state facility. You get
to go for as long as you want, get access to anything you want, and have
at it." And they did. And, when they came back, they were able to write
the report in such a way that we felt that, as I articulated in my
comments, that it was equal to or superior the practice pharmacy in my
state.

Carmona -- Ok, my concern is that we heard a similar presentation by the
Governor, by the assurances and yet we had, apparently something that
slipped through with the same type of assurances that said, we checked
it, we sent our best people, this meets the standards. And yet, we have
a medication -- again, apparently -- based on the testimony after the
Governor, that got through. So, aside from the economics, I want to deal
with the safety now.

McKibbon -- I think that's a very good point and when we met with the
Manitoba provincial officials, for instance, we talked about a lot of
things. We talked about supply, effectiveness, about inspections. In
fact, our folks talked on a colleague-to-colleague basis about how can
we make both systems safer and more efficient? And we continue, to this
day, to have concerns with the Manitoba provincial folks, who would be
our contemporaries in the state of Illinois. So we agree with you,
Admiral. Safety is paramount for all of us; it's paramount for my wife
and kids; it's paramount for the governor, for his wife and his two
young daughters. And, we would do what we think is reasonably
appropriate for safety.

Carmona -- Other questions, Mr. Sachdev?

Sachdev -- To follow up on the comment that you just made and ask a
question... We've heard a lot of testimony and heard you testify that
you felt confident that the drugs being purchased from Canadian
pharmacies are as good as the ones purchased in this country. But we
also know -- what we've heard in prior testimony is -- that the
government of Canada (Health Canada in particular) has said that they
have a different regimen for regulating products that are intended for
export from Canada than for import. And so, products that Canadian
citizens are getting from licensed Canadian pharmacies are not
necessarily going to be the same, and Health Canada can't vouch for
safety of the products that are being intended for export back to the
U.S. market in the same way they would for those products. So, that
question has raised concerns for us about trans-shipment and, in
particular, whether they can (in the context of importation into Canada
for export), whether the Canadian regulatory entities \-- whether it be
the provincial pharmacy regulators or the Canadian government \-- can
adequately police trans-shipment? How do you see that concern?

McKibbon -- Yes, we see that concern. We would not advocate the
trans-shipment. I will tell you that, as we went up and took pictures
and picked bottles off of shelves, we saw "manufactured by Abbot" which
is a manufacturer in our state, we saw "manufactured by Taft",
"manufactured by Takeda". We looked at those things and we don't
disagree with respect to trans-shipment. The Governor and we have said
all along -- and I don't want to get into semantics about whether it's
an FDA-approved facility or it's a Health Canada-approved facility. I
believe Health Canada has been very clear about their certification for
their own citizens, that they have not found issues. I know CRS (the
Congressional Research Service) did a memo in May on comparing the
systems. So, that I'd just suggest to you that, as we went up there and
took a look at it, it would be product that would be approved and made
in the equivalent of an FDA facility. We looked at the list and we
restricted it to 92 products that we felt were appropriate -- we're not
putting generics on the list that were not available in this country. We
were being sensitive to the patent laws and those kinds of things, so we
were very careful. As far as we were concerned.

Sachdev -- And can you also, just as a follow up, check for us, was one
of the pharmacies that you looked at the Total Care Pharmacy that was on
the Wisconsin website?

McKibbon \-- No. We did not look at Total Care. No, they were not on. I
can put up the list, these are the list of the pharmacies that we went
to look at, on your screen now. And Total Care was not one of those
pharmacies.

Carmona -- Thank you. Any other questions? Thank you, sir, appreciate
that. Let me just make an administrative remark right now, that we have
not forgotten about lunch. I know my task force members are probably
wondering, but I am concerned because I have been told by staff that are
some of you who have planes or special transportation arrangements this
afternoon. So, that's why I decided to push through. We've got three
more, and I'm going to cut lunch to half an hour. I'm going to ask the
task force members, we had originally scheduled it for an hour, I'm
going to ask them to cut it to half an hours so we can get to all of our
speakers, because that's what we're here for. So, we will expedite it as
much as possible. So, I think we have Dr. Kamath now, as our next
speaker, and he is also a special advocate for prescription drugs in the
state of Illinois.

#### Ram Kamath, Special Advocate for Prescription Drugs, State of Illinois

Mr. Chairman, members of the task force. My name is Ram Kamath; I am a
special advocate for prescription drugs for the state of Illinois. I am
a doctor of pharmacy with 20 years of experience in the pharmaceutical
field. As a pharmacist, I know the power and the dangers of prescription
drugs. The right drugs have the ability to save lives; the wrong ones,
or the right drugs taken the wrong way, can have disastrous
consequences.

However, affordability plays a major role. A prescription drug that is
not affordable and not taken by the patient, is not effective. We do not
know how many diabetics skip their medications today and, as a result,
lose a toe or go blind. A growing body of research suggests the scope of
the problem. For example, the journal *Diabetes Care*, published a study
of older Americans with diabetes. In a national survey of 875,000
people, 19 percent had to cut back on their medications at least during
the last year to save money. 28 percent reported that they had forwent
their medication so they could save money for food or other essentials
to pay for drugs; 7 percent reported skipping their doses at least once
a month for financial reasons. This is frightening to me. I firmly
believe that a milligram of prevention is worth thousands of dollars of
cure.

Our Canadian drug reimportation program has the potential to extend and
even save lives. Our plan will give the people of Illinois access to the
exact same medicines \-- by the exact same manufacturers \-- at a
significantly lower cost. The drug supply in Canada, we feel, is safe,
and in some ways is even safer than it is here. Canadian manufacturers
ship drugs in stopped bottles, bottles that are manufactured and sealed
by the manufacturer, sent to wholesaler and sent to the retailer,
directly to the patient's home. This means that the consumer receives
the product in bottles sealed by the manufacturer. This substantially
reduces the risk of human error in dispensing. In comparison, as we
heard this morning, prescription drugs in the U.S. can go through
several layers of wholesalers, retailers and packagers from Florida to
Nevada to New York before reaching the consumer.

This difference in the supply chain is one of the reasons that our
proposed pilot deserves the FDA's approval and attention. We designed
this program, top to bottom, with patient safety in mind. Under our
program, the patients would be required to submit their medical
histories, allergies, lists of drugs they are currently taking, to the
pharmacy prior to receiving the drugs. The list approved for import will
be restricted to those that are clinically appropriate and unlikely to
spoil during transit. Customers will not be allowed to import
habit-forming pain medications, generic medications that are a lower
cost here, or antibiotics for acute illnesses.

After receiving a prescription from a U.S. organization, the drug needs
to be filled in a local pharmacy for one month. Then, only, they can be
imported from Canada. I would like to stress that each patient will
select a primary care pharmacy to manage his or her total drug therapy
obtained from domestic or non-domestic sources. This is an important
safeguard of our plan. With the soaring prescription prices in the U.S.,
it makes sense for consumers to shop around for the lowest price. As a
result, the patient may be buying five different prescriptions from five
different pharmacies within the U.S. This increases the risk of adverse
drug interactions. Our plan to create a primacy care pharmacists reduces
that risk. We also provide a toll-free number where a pharmacist would
be available 24/7 to address any questions or concerns.

Finally, our plan would be completely warranted. If consumers are not
comfortable, they would be free to continue getting their prescriptions
from a local pharmacy. We are confident that our drug reimportation plan
will decrease patients' out-of-pocket expenses and reduce costs for the
taxpayers of Illinois. And we are fully confident that our program will
give access to safe, reliable prescription drugs that they need. I look
forward to working with the FDA to make our plan a reality. Thank you
very much.

Carmona ---Thank you, sir. Task force members, any questions? Dr. Raub.

Raub -- Thank you, just one quick one. Do you feel confidant that the
costs associated with the patient pharmaceutical oversight, the call
line, and the others, won't soak up the savings?

Kamath \-- We considered the cost for the primary care pharmacist and
that cost was taken into consideration in our calculations of cost
savings. We feel that a pharmacists should manage all of the
prescriptions a patient is taking, and not just the ones that are filled
in his store. Because some of the current systems don't talk to one
another here. If you buy a prescription from a pharmacy that is within
the network, then you buy a prescription out-of-network, those systems
don't talk to each other. And, you know, if there is a significant
interaction, it can be missed. Whereby Internet technology has given us
the accessibility of email and can provides all to a pharmacist that is
designated by the patient. It may be his local pharmacist. So, this
pharmacist will have all the information, can check for all the
interactions, and adverse effects, and warn the patient accordingly.

Carmona -- Other questions, Mr. Reilly.

Tom Reilly, public health branch chief at the White House office of
Management and Budget -- Why the need for the no first fill in the first
month in the Illinois retail system, if the Canadian system is the
equivalent?

Kamath \-- Safety. As a clinician, I know when a prescription is given
to a patient and taken to their pharmacist, the patient may encounter
some adverse reactions; all drugs do not suit all patients. There may be
having a condition, the drug might help them, but if you might have an
adverse event or reaction. Say, all statins, Lipitor, all of them, in
some patients it can cause muscle pain. These are chronic medications,
but somebody may take it and then feel, "This is causing me too much
pain," then go back to his doctor and be switched. So, we want to avoid
those situations. Once the patient receives that prescription at least
for one month, and the physician is confident that the patient is
comfortable with it, then and only then can they get in refilled Canada.

Carmona -- Dr. O'Grady, did you have one?

O'Grady -- yes, I've got a couple of questions and was hoping you could
provide the task force with information on, having to do with, as you've
done your analysis of this, and you've looked at the various sources of
what people are currently paying -- whether it's state employees or
state Medicaid program, or your uninsured folks -- that we could start
to get a feel for just... your analysis of what you think the effective
net discount would be among different subpopulations.

Kamath -- Our analysis was limited to state employees, where we can get
full cost information from our PBM. We compared net-net, what the state
is paying today, for the top 400 drugs. And we took out all of the drug
antibiotics, generics, everything we took out, then it was just the
brand name drugs. There are 91 drugs listed in our report. Just those
drugs, how much would it cost us from our current vendors? And then we
said, if we were to buy the very same drugs, from Canada, on that same
date, how much would it cost us? And then we came up with our savings
numbers, and that's what we reported.

O'Grady -- But, is there something that would block you -- other than
time and resources -- to comparing what you would pay under the Medicaid
program?

Kamath & McKibbon -- Yes, we could do that. We could do it and we
certainly have access to the Medicaid data. I will say that in our
particular case, in our state we get supplemental rebates as well as the
over 90 rebate. I don't believe, quite frankly, doctor, that we would
save very much money by moving many of those drugs over to Canada, so we
didn't study that. I mean, intuitively, we knew that between the over
--90 rebates and the supplemental rebates that we've been successful in
negotiating, that that wasn't the focus. With respect to the uninsured
and other populations, yes, we were the first state to get a waiver for
this. And we know how much, and those folks are getting access. In our
program, we have 186,000 who are under 200 % of FPL \-- we also have a
state-only program for those that are between about 200 and 240, where
we spend about \$175 on ten disease states. We have information on those
individuals and we also have some linked information about the
uninsured, because we initiated our own discount club buying card as of
January 1, so we know how much those folks are savings. So, again, if we
could work together with the FDA, we would gladly share that kind of
information.

O'Grady -- Right, I guess my only point is that I'm trying to get to the
point of the analytic aspect of what the net effect is? Is it basically
that you can take your state employees and your retirees and you get
them... when you take into account all of the appropriate kind of
netting out of costs... have you got them down to about what you pay for
your Medicaid population? And that was more of an analytic issue of
whether you were looking to sort of.... As a follow up to that, some
notion is, are there other mechanisms that are on the table that would
not have this sort of safety issues \-- that I know you're not concerned
about but I know that our FDA colleagues are fairly concerned about --
that would allow you to look at this same bottom line?

McKibbon -- One suggestion was that we could extend the Medicaid pricing
and the supplemental rebate negotiations that we have been able to do
for the Medicaid population to the state employees and retirees. Yes,
that would absolutely be a savings. Would it be equal to the Canadian
amount? We haven't run that calculation, but it would be an interesting
calculation to do.

Carmona -- Other questions on this side? Yes, Mr. Reilly.

Reilly -- You had, these are projections, I guess, an estimated net
savings of \$90 million in a year. What are the gross savings and then
the cost? Do you have that and can you provide that? And does that the
work you've done up-front work, you know visiting and inspecting the
pharmacies? Does it presume an on-going revue of the pharmacies that you
deal with in Canada?

Kamath -- The total cost for our trip was something like less than
\$12,000; that was not considered as a savings.

Reilly -- Right. But they can change; do you envision some regulatory or
some oversight over time?

Kamath -- Yes.

McKibbon -- As I said, earlier, when I did my remarks, the Department of
Professional Regulations, if we were to put together a pilot program,
would go ahead and do inspections on a periodic basis. With respect to
our staff time, we didn't net those costs into the savings projections,
but we did have, as I said earlier, the ingredient costs, the co-pays.
We did factor in primary care pharmacy costs, certification of primary
care pharmacists and setting up the system to do that. So, we can
provide some additional information.

Carmona -- I think we have one... yes, Dr. Sachdev?

Sachdev -- Yes, you mentioned a department, I've missed the acronym
there, but is the Illinois Board of Pharmacy involved in what you're
proposing and have they taken a position on it? But, also, in the system
that you set up, what would be the role of the Board of Pharmacy in
policing the drugs that were coming in?

Kamath -- The Illinois Board of Pharmacy is an advisory committee to the
Department of Regulations, and we continue to seek their advice and
guidance, if we are allowed to proceed in this direction.

Sachdev -- Have they so far given you any advice or guidance on this
program?

McKibbon -- No. We met with individual Board of Pharmacy members, and
there's a gentleman by the name of Phil Burgess, for instance, from
Walgreens. We went into our stakeholder's discussions and tried to meet
with anyone and everyone that we thought was important to meet with. I
mentioned earlier the Illinois merchants association; we met with
Walgreens, which is also a very large drug store and employer in our
state; we did met with pharmacy groups and pharmacists' groups, deans of
boards of pharmacies, so in our appendices, there are various letters of
support or endorsement from some of these folks.

Sachdev -- But the Board of Pharmacy, as I understand it, is the primary
pharmacy regulator, is that correct?

Kamath & McKibbon -- Not in Illinois. The Department of Professional
Regulations in our state has the statutory responsibility to regulate
the pharmacies. The Board of Pharmacy is an advisory group to the
director of the Illinois Department of Professional Regulations.

Sachdev -- So the Board of Pharmacy would not have a direct role in the
program you have designed for importing drugs from Canada?

Kamath -- we have not met with the Board, but we have met with a number
of members, and the Board given us any official recommendation, whether
pro or con, for this situation.

Carmona -- Sir, last question. We have heard testimony today and
previously from groups that favor importation that it is safe, that
there have been no deaths, no deaths or complications because of
importation. What is the evidence? How do you keep track of adverse
reactions to medications? For example, if we have a patient on heart
failure who gets a knock-off drug that's sub-standard, not therapeutic
or something, and the heart failure is worsening., the heart patient is
probably not going to be looked at as an adverse drug problem, but
probably as a patient who's not getting better. Or, a diabetic who all
of a sudden become brittle. I mean, how do we actually know the
magnitude of the problem, because even if death -- which is the
worst-case scenario occurs -- it may not be attributable to the
pharmaceuticals that the patient was taking.

Kamath -- Right, I agree, with you sir. But, those patients, those
diabetics. In my previous position, I set up a diabetes care clinic and
I encountered these diabetic patients coming every day to the clinic who
could not afford their medicine. If the medication was taken and it was
not effective, the patient will definitely do worse. But, in the first
place, if he or she cannot afford the medication that would be even
worse. And those were the situations I was encountered with, my patients
coming to the clinic. Those who say "You know, I see their HBNC going up
and I asked them what happened?" "You know, I can't afford this drug and
I was not taking it." You know, this is what happens; you see them
worsening, day by day, losing control, going blind, having an MI. All
the sickness.

Carmona -- But sir, that wasn't the question. I'm understand the cost
issues, I'm trying to do the safety side now. I used those as examples.
What system, what metric, what outcome measurement do we have to know?
We hear these sweeping statements that say, there have been no deaths,
there have been no adverse outcomes. But, you know, just trying to be
effective, impartial physician looking at this, where's the evidence? We
don't have a system to be able to make those statements. So, I'm
wondering how do we, if we consider importation, how do we inject that
into a system to ensure that patients are safe and we, in a timely
fashion, pick up any adverse outcomes that would lead us to an improper
medication.

Kamath \-- It would be the same as with the domestic supply. I mean, I
do not know of any metrics today to measure what you are asking to be
measured. So, in what way, will the Canadian importation supply be
different than the domestic supply today? Under both situations, we
don't have the metrics to measure what you're asking us to measure.

Carmona -- Ok, thank you. Dr. Crawford.

Crawford -- We do maintain surveillance programs and reporting systems
like (technical) and so on, within the U.S. What the Surgeon General's
comment probably referred to is that no government assumes the
responsibility for monitoring the products that are so-called
"reimported". And that is a concern. We heard testimony earlier today
about even the fact that there is more or less an open border to some
states \-- cannot have escaped the attention of terrorists and
counterfeiters. So, you know, we're not trying to make it dramatic or
trying to seem draconian, but these are sources of grave concern.

Carmona -- Thank you sir, appreciate your remarks. I have a question
now, I have some other information on travel. Is Mr. Lothar Dueck, I
believe it is, Coalition for Manitoba Pharmacy, is he here? Are you
still under a flight restriction this afternoon?

Dueck \-- I need to leave by 2 pm.

Carmona \-- Why don't we take you next, sir, OK? If there's anybody else
in the audience, we don't want you to miss flights or unique travel
arrangements you many have. If you could please let one of the staff in
front know right now, so we can alter the schedule a little to
accommodate you, because we desperately want to hear from all of you. We
don't want anyone leaving because we couldn't accommodate you.

#### Lothar Dueck, Coalition for Manitoba Pharmacy

Good day and thank you for the opportunity to speak today. My name is
Lothar Dueck, I'm a community pharmacist in Manitoba, a small rural
community a few miles from the border with Minnesota. I also am
president of the Coalition for Manitoba Pharmacy, a community
pharmacists' organization that opposes the cross-border Internet
pharmacy and drug reimportation from Canada to the U.S.

I am here today to explain that importation of drugs to the U.S. is
harming Canada's health care system, extremely risky for American
citizens, and not a viable policy for the U.S. Let me begin by saying
that I am I am astonished by the insensitivity of American politicians
who promote schemes to divert Canadian drugs south of the border to meet
the needs of Americans. Canadian doctors and pharmacists are extremely
sympathetic regarding the need to find a way to make prescription
medications more affordable to American patients, particularly those
without comprehensive drug plans and insurance.

But, health professionals in Canada are shocked that many U.S.
politicians at all levels of governments are telling Americans to ignore
their laws and purchase drugs in Canada. The U.S. has the richest, most
productive and innovative economy in the world. Resolving this issue
should not be beyond you.

Thoughtlessly appropriating Canada's drug supply and pharmacy care is
not the answer to your problems. Those leaders who cheerfully promote
reimportation of Canadian medicines should be ashamed of themselves. In
2003, Americans bought approximately \$1 billion in Canadian drugs
through Internet pharmacies. This is a drop in the U.S. market, but it
is a huge proportion of the Canadian drug supple. In fact, last year,
more than 40 percent of the entire supply of the province of Manitoba's
drug supply was diverted to U.S. This is causing dangerous shortages in
Canada. According to a survey sponsored by the Coalition, more than 80
percent of Manitoba pharmacies reported having a harder time finding
sufficient drugs to treat our Canadian patients.

In December 2003, the largest wholesaler in Manitoba ran out of a number
medicines; suddenly it was not possible for pharmacists to order drugs
to treat conditions such as depression, influenza, and asthma. Shortages
of prescription drugs used to be rare occurrences, as when a
manufacturer had a production problem. But, we have never seen such a
severe shortage before. In addition, Manitoba is facing a critical
shortage of pharmacists who care for patients in our province. Because
it is so much more profitable to ship drugs to Americans, rather than to
dispense them to Canadians, now more than 20 percent of community
pharmacists in Manitoba have become in Internet pharmacies rather than
devoting themselves to caring for Manitoba patients. This is desperately
straining the ability of remaining community pharmacists to offer proper
care to their Canadian patients.

Cross-border drug-sellers buy Canadian drugs at Canadian prices, which
are controlled by the government federal Patent Control Review Board. On
the Internet, sellers buy huge quantities of Canadian drugs at
controlled Canadian prices, and then sell them at a large markup to
Americans. In short, U.S. demand \-- with the help of opportunistic
politicians -- has made it more profitable for Canadian pharmacists to
sell drugs to Americans than to care for their own patients in their own
community.

Today, thanks to the U.S. drug diversion, Canada is experiencing sudden
prices inflation. Because of the growing cross-border diversion, many
drug makers have raised their Canadian drugs by as much as the price
control system will allow. Some of them have increased drug costs for
first time in decades of stable drug prices. Have any American drug
importation enthusiasts bothered to ask what impact drug importation is
having on Canada? The results have been shortages of medicines and
pharmacists, higher drug costs for all Canadians, and new drugs not
being available to Canadians because of the reimportation.

That is not fair and it's not right. American reimportation proponents
have also dismissed concerns of the FDA with respect to the safety of
cross-border drugs. They do so at the peril of American patients. The
safety concerns are real, and I will tell you why. Recently, Internet
pharmacies in Manitoba were caught promoting the sale of drugs from
foreign countries to Americans. These medicines neither been approved by
the FDA or Health Canada. Neither country has any way of verifying the
quality of these drugs, or even if they contain any active agreement at
all. Reports from Prudential Financial and the FDA have shown major
increases in trans-shipment of drugs from countries such as Pakistan,
Bulgaria, and Argentina. These drugs may enter Canada before being
shipped to the U.S., but they entered the Canada drug verification
system. Health Canada does not guarantee their safety.

When I hear U.S. Governors saying "If Canadian drugs are unsafe, where
are the dead Canadians?" I respond by saying that Canadians are safe
because we don't take foreign, unregulated drugs. Our government won't
permit it. If those drugs are not good enough for Canadians, why should
you assume that they are good for Americans?

And a final point I want to make is that politicians who tell the
American public that they can simply solve their problems by buying up
Canada's drug supply system are misleading you. It may make for popular
political sound bites, but its' nothing close to a workable policy.
Canada's drug supply policy is starting to break down, while we're
supplying less than one-half of one percent of the U.S. drug demand. Any
increase in Canada's drug diversion will -- or even the continuation in
the current rate \-\-- will result in American patients with chronic
disease not receiving their prescriptions from Canada. Maybe *through*
Canada, but not *from* Canada. Then you can expect to see an increases
in adverse events for U.S. patients, this is what happens when patients
don't get the drugs they need. Canada is less populous than California
alone; we simply can't take the strain of you buying our medicines. Drug
makers ship enough medications to meet the needs Canadians; they do not
ship us enough to meet the U.S. needs....

Carmona -- Sir, would you sum up now, please?

Dueck -- Yup. Drug reimportation supporters are leading you down the
garden path. There is no panacea, so solution to be found in poaching
from Canada's drug supply. This is not a workable policy. Canadians are
sympathetic to America's challenges about prescription drugs, and I'm
sure that America can solve this problem. Thanks for allowing me to
speak.

Carmona -- Thank you sir, any questions? Yes, Dr. Duke.

Duke -- Given the extent of the shortages of the drugs and pharmacies,
in Canada, is the Canadian government considering putting any
restrictions on the Canadian pharmacies filling American prescriptions?

Dueck -- Well, this is a political question as well. We have talked to
our counterparts at Health Canada and they say they are monitoring the
situation. I wish they would come up a little more firmly and say, yes,
we need to protect the Canadian health care and our health care system.

Carmona -- Thank you sir, oh, I'm sorry, Mr. Azar.

Azar -- I was wondering \-- even the states and regimes that are
involved in importation of drugs from Canada, you heard the
representative from Illinois saying that they did not favor
transshipment of foreign-made drugs that would just get passed through
Canada in an unregulated manner. What is... you're obviously a
pharmacist in Manitoba and you consider that the drugs you sell in your
pharmacy are safe for Canadians to consume. Is there any more limited
regimen of importation into America that could be designed that would
really simply take drugs from storefronts like yours and send them into
America that would be safe and would be sustainable?

Dueck -- I'll tell you what's happening in Canada. Drug manufacturers
are putting extreme pressure on the pharmacy and actually limiting
amount of medication that's being sent to Canada. Pfizer actually shut
down a wholesaler in December, or in the beginning of January, and said
that they are not sending any more products to that wholesaler, because
they are shipping them to Americans. All major manufacturers have sent
letters to the pharmacies saying you shall not knowingly dispense or
sell medications to anyone who will export them, or to customers who
come up to buy medication. You should not be doing it. So, the drug
supply is drying up in Canada and I don't know how we can ensure that
the drugs that are coming through Canada are coming from Canada. The
Internet pharmacies announced today that they will be having to source
drugs from elsewhere in the world, because the Canadian drug supply is
drying up.

Reilly -- Do you have any view on the comment that Americans are
subsidizing the R&D costs of drug manufacturers while the rest of the
world -- including Canada -- benefits from the innovation?

Dueck \-- The U.S. and the rest of world have different health care
systems. In the rest of the world, the government is the health care
system and the payer of all health care costs. In the U.S., it's an open
market system, so the drug companies have agreed to do business in the
countries, under the terms that they have made for the arrangements, and
I guess the countries that are price controlled are kind of, you know,
we don't have the first line drugs as soon as you do in America. Right
now, we don't even have new drugs that are licensed in Canada, because
of the reimportation and the price issue, because we are going to be
selling them in Canada. So, yet, Canadian health care is going to be
suffering because of our price control system to some degree.

Carmona -- Other questions? Anybody? OK, thank you, sir. Our next
speaker is Joel Miller, National Alliance for the Mentally Ill.

#### Joel Miller, National Alliance for the Mentally Ill 

Thank you Mr. Chairman and members of the task force. I am Joel Miller,
acting director of the policy research institute at the National
Alliance for the Mentally Ill, known as NAMI. NAMI is the grassroots
advocacy organization representing hundreds thousands of people with
serious mental illness, major depression, schizophrenia, bipolar
disease, and other major disorders. And we have over 1,000 affiliate
organizations across the country.

Late last year, we established a task force to develop policy
recommendations on importation. I would like to preface our task force
position by making the following points. First, significant progress has
been made in discovering new and effective treatments for patients with
serious mental illness. Second, these advancements have enabled persons
with serious mental illness to improve significantly and to remain in
their community and with their families, leading productive, rewarding
lives.

But third, having said those things, we are very concerned that, unlike
many medications that treat other chronic illnesses, medications that
treat serious mental illnesses cannot be used interchangeably. Each
psychiatric medication has a very different mechanism of action, and the
brain is such a complex organ, and mental illnesses are so complex, that
they affect each person's brain differently. So we are extremely
concerned that if medications are modified accidentally or
inappropriately in any way, or people with serious mental illnesses
receive mislabeled medications through reimportation, the side effects
will likely be very serious and worsen the patients' condition.

In addition to those specific issues, the task force also has other
observations that the task force looked at with respect o psychiatric
medication, a couple of other observations guided the task force's
discussion. First, an important issue is not safety standards across the
U.S.-Canadian border, but a lack of safety standards for products coming
into Canada from other countries where there may not be product of
origin label requirements.

Second, the importation of medications by wholesalers, as envisioned
under various Congressional proposals is different from Americans going
to a licensed pharmacist in Canada. It is our understanding that
wholesalers would not have to meet either American or Canadian standards
for licensure requirements. And third, over the next couple of years,
several atypical antipsychotic medications will become available in
long-lasting, injectable forms. These new technologies will require
special handling and storage in accordance with standards set forth by
the FDA and the manufacturers. The FDA must have been given the legal
and regulatory authority to ensure that these products meet these safety
standards, before reaching U.S. consumers.

Based on those considerations, NAMI's official policy is that -- based
on safety and quality concerns raised by the FDA -- we support the
provision in the Medicare Drug Benefit Law, whereby only medications
from Canada should be imported and medications must be certified for
their safety by HHS. Second, although NAMI supports the safety provision
in the Medicare law, we recognize that individuals -- especially in the
border states to Canada \-- will go across the border to purchase them.
Individuals who seek less expensive medications at Canadian pharmacies
and return with reasonable quantities of their prescription drugs should
not be prosecuted by FDA. And finally, NAMI has grave concerns about
importation through Internet-based pharmacies. The importation of
medications through these operations compromises the public health and
safety. Safety and efficacy must remain the most important concerns, and
prescription medications used by consumers with serious mental illness.
Thank you.

Carmona \-- Thank you, sir. Task force, members, any questions? Thank
you very much, sir. Is Jeffrey Axelrad still in the audience? Sir, do
you still have a time constraint. I know that we're a bit over. Are you
able to wait until after the lunch break; we have one more speaker and
then we're going to take that half hour for lunch, but I was told that
you might have a problem.

Axelrad \-- Yes. I have to teach eventually, but I can wait until after
lunch.

Carmona -- Ok, sir, I appreciate that very much. Then we'll go to Panos
Kanavos, London School of Economics.

#### Panos Kanavos, London School of Economics 

Mr. Chairman, distinguished members of the panel. Thank you very much
for giving me this opportunity to share with you the results of my
research on drug reimportation and the economic impact of drug
importation in Europe. My name is Panos Kanavos, and I am a professor of
international health policy at the London School of Economics, in
England.

Let me start by saying that the freedom of the movement of goods within
the EU provides the legal justification for parallel our trade. And
within, of course, that context, what we set out to do was to quantify
the economic impact of parallel trade in six major destination countries
\-- among them Germany and the UK: the third and fifth largest Pharma
markets, respectively.

And it is by focusing on six widely used product classes, among them
lipid-lowering, and peptic ulcer medicines accounting for approximately
22 percent of the branded retail market. We also sought to apportion the
benefits to individual stakeholders, namely health insurance, patients,
industry, Pharma distributors, and pharmacy. And you can see the
research endpoints on the right hand side.

This slide gives you the justification for parallel trade in the EU,
with prices in euros. And you can see, for example, that Fluoxetine
sells in Germany for 104 euros, that is branded Fluoxetine (or Prozac),
and that the lowest price in the European Union, in Spain, is 65. So,
the German price is almost twice the size. In the U.K., Simvastatin (or
Zocor) sells for 47 euros, but you can acquire it more cheaply in Greece
for merely 18 euros. So, the UK price is nearly three times as high.

Of course, we set out a series of economic hypotheses to test our
objective, as you can see here: including price competition, including
aggregate welfare effects, including patient benefits, and of course the
impact on industry. Let me share with you the direct benefits on health
insurance, pharmacy, patients, parallel importers and the industry.

So, of course, the size of price differences suggests that there are
significant benefits to be had from parallel trade, so patients and
health insurance organizations are going to benefit significantly. But,
what I aim to do is to show you that this is not the case, and I have
the evidence based for that. It also casts doubt on the arguments put
earlier by the Governor of Wisconsin.

Let's look at the allocation of benefits and the impact on patients.
First, patients do not benefit from parallel trade in Europe. So, in
four of the six countries -- Germany, UK, Sweden and Netherlands -- the
benefits are zero. In countries like Norway and Denmark, there are
marginal benefits to be had.

Let me show you the allocation benefits. Looking at patients, zero
benefits; looking at pharmacies. Zero benefits in the majority of cases,
or 0.3 percent of the market in Norway and 1.2 percent of the market in
the Netherlands.

Looking at health insurance organization, the benefits accruing to
health insurance organizations are very modest. 0.3 percent of the
market in Norway; 0.3 percent of the market in Germany; and slightly
higher in the UK: 2.8 percent. And, of course, these are a proportion of
the total branded medicines market. If you include generics, the savings
are significantly lower as a proportion of the total pharmaceutical
market.

The question of course remains: who are the main beneficiaries from
parallel trade? We've estimated with accuracy that the main
beneficiaries are the parallel distributors with a ratio of 22.7 percent
of benefits in Norway, five and a half times more of the benefits in
Germany than for the health insurance organizations. In the UK, it's 8.4
times, and the average total impact is 6.5 times more for parallel
distributors than for health insurance organizations.

So, we also looked at the indirect effects; that is, the extent to which
there is a competition effect within and across countries. And we find
no statistical evidence of that over a seven-year period. And, of
course, that led us to conclude that, whereas the pecuniary benefits may
accrue to patients if they themselves fill their prescriptions in a
lower-price country, when distributors are the main actors of
reimportation, these financial benefits are eliminated for patients and
accrues entirely to distributors. Payers may benefit, but only modestly.
And, finally, Mr. Chairman, there is evidence of product shortages in
some countries, in the pursuit of profit by parallel distributors in
destination countries such as German, the Netherlands, the UK and
Sweden.

Thank you very much for your kind attention. Any questions, I'll be
happy to take.

Carmona -- Thank you. Questions, Mr. Sachdev?

Sachdev -- This is very interesting; I don't think the task force has
seen these numbers def in this way. Can you give me some more
information about why you think it is that the people doing the parallel
trade -- the parallel trade importers -- are the ones seeing the most
benefits?

Kanavos \-- They realize there are significant price differences between
countries, and they are near monopolists. Because they can source from
the cheapest, or the second or third cheapest country and sell, and
therefore undercut just by a small margin, the locally sourced product
in a destination country. So, if you looked at one of the earlier
slides, the prices for the branded Floxetine -- in other words for
Prozac -- the parallel imported Prozac is just under the branded locally
sourced Prozac produced and distributed in Germany. If you look at the
price at which they acquire Prozac in Spain, or Italy or Greece,
obviously the price differences are huge. In that sense, they are near
monopolists. They have, of course, no incentive -- absolutely no
incentive \-- to lower the cost and offer health insurance organizations
significant benefits. The incentive is simply not there. And, the
information and evidence base from the national government perspective
may be -- at times -- very limited. Parallel traders may claim they have
incurred significant cost, but the question is (and we actually managed
to estimate these very crudely) how much does it cost to put a truckload
of medicines on the road? We know pretty much what the costs are for
filing a drug application for parallel imports. They do not exceed 2000
euros, per drug; if you are looking at European centralized
administration (garbled), the fee for the regulatory process is in the
region of 3.4 thousand euros per product. So, you're talking about
relatively modest costs and, of course, in terms of repackaging and
labeling, we have seen products imported from Spain and offered in the
UK or Germany in precisely the same packaging and form as they are in
Spain. Now, this is partly allowed by European legislation.

Sachdev \-- As a follow- up, can you comment on -- if you can -- on what
you think would be the impact in this country of legislation to legalize
importation? And, would you expect that we would see similar types of
breakouts.

Kanavos -- Let me comment on it from an alternative perspective. There
is nothing stopping a British patient (or a German patient) from taking
a bus and going across to France and filling a prescription at a
significantly lower cost. The potential to realize pecuniary benefits is
there. If you legalized importation, you'd have to take into account how
wide you want it to be. If it's only Canada, can the supply meet the
requirements of the U.S. market? If you allow from third countries,
either directly or through pharmacies, I have serious reservations about
the impact. We only allow reimport from 15 (going up to 25 with the new
members) members of the EU. So, a phenomenon like importation, we can't
do it from Fiji, or from Costa Rica, or from Thailand. So long as there
is a valid licensing, the license holder has to be located in Europe.
With regards to pecuniary effects, you would need to consider the
incentive structures for those who actually perform the importation;
what are the incentives they face, and whether the governments -- as in
one of the early slides I showed you -- whether governments have
incentives in place to allow them to benefit out of this process. In the
UK, we have more savings, in Germany we have negative savings; in all
other countries, we have zero savings. So, really you would need to
consider the incentive structure and really the policies that states, in
your case, do have in place to benefit from this process. It is not
directly to be shown that the patient and the system will benefit from
all this.

Carmona -- Thank you. Other questions or comments? Dr. O'Grady.

O'Grady -- In terms of the applicability of your research to the
American situation, two things came to mind based on your comments. One
was, you know you have quite a bit of a lack of competition with the
existence of wholesalers in European markets, which I don't think holds.
We do have a fair amount of competition and therefore the idea that one
particular provide could retain all profits without other people
entering into that market and whittling it down is somewhere unlikely.
The other thing is \-- and correct me if I'm wrong, my experience in
European markets is not total \-- when you talk about the insurer,
you're almost always talking about the government. And, when we talk
about cost sharing policies, and again correct me where my
interpretations are I'm wrong, the prices are quite a bit lower. I mean,
there's a price sensitivity that you've heard testimony about that you
see among American consumers (especially the elderly and uninsured) that
you wouldn't (or at least I have the impression that you wouldn't) see
among European consumers. So, when you say, there's really no reason ...
the notion of going from Buffalo to Toronto, you can't go from London to
Calais and load up... at that same point when you brought up about
incentives. If the Europeans are already paying so low a price, for
them, it's probably not even worth the bus fare, for someone in America,
might be worth a fair amount.

Kanavos -- For the European consumer, I think you're right. I was
primarily referring -- to try to make it analogous to U.S. situation --
to the private market. So, if you're not -- and the drug is not covered
by health insurance (and there are, increasingly, several cases where
that sort of thing occurs), then it makes it worthwhile for the patient
to go across the border. In fact, we've seen these phenomena,
particularly in the near-border areas. Now, with regards to who
benefits, and whether there is competition, we also need to see the
extent to which there is competition and the prices are significantly or
vastly different between nations. And, in fact, what we know, because of
price regulation and other regulatory practices, is that prices in the
European Union are vastly different among member states. But despite
this, we do not have competition. To give you an idea, we know who the
wholesalers are, the parallel distributors, and the largest German
wholesaler has approximately 63 percent of the German market. Across
borders, there are approximately between 20-25 parallel distributors, so
really you would have to consider the pricing structure, and also the
availability of product. So, if it is not very available in Portugal,
can you get something similar from Greece, from Finland, or Spain, or so
on and so forth? And that does not necessarily require huge costs, but
the greatest difficulty that wholesalers would have in this particular
process is laying their hands on inventory. There's also another case,
and might be interesting, when you translate it into the U.S.
environment, is really the extent to which drug manufacturers can
exercise some kind of vertical control over supply and the distribution
system. We had a benchmark legal case in the European Court of Justice,
which is the equivalent of the Supreme Court, effectively, in the
European Union, suggesting that, if done with caution, manufacturers are
allowed to control -- smartly \-- the supply. I've showed you data for
2002, and I suspect that parallel trade for individual products is
significantly lower for some in 2003, compared to 2002. So, lots of
different issues. And reverse incentives, because we've seen parallel
importers not necessarily distributing themselves, but using legal
wholesalers and the legal channels -- so to speak -- to distribute
products in any of the six countries we examined. It's a tricky market.

Carmona \-- Thank you sir, any other questions? No. I thank you very
much for your comments; I really appreciate it. We will adjourn now for
lunch and I've just been told that the cafeteria there is open until
2:30 so we're running tight. I'd ask for task force members to please be
back in 30 minutes so we can begin. Thank you very much.

(Lunch break)

Ladies and gentlemen, we're going to go ahead and get started. Thank you
so much for working with us on the schedule. As I said, I know we ran
over but we want to keep this as open and transparent as possible, to
make sure we get to all of the issues before us. Our first speaker this
afternoon will be Mr. Jeffrey Axelrad, who is a consultant. Sir, thank
you for accommodating us.

[Jeffrey Axelrad, Consultant]{.underline}

I appreciate the opportunity you are providing to discuss the serious
monetary, liability issues that would attend non-manufacturers
importation of drugs into the United States.

My experience may be helpful to the task force's consideration of
liability issues. For more than three decades, I was an attorney at the
US Department of Justice. For more than 25 years, I was the torts branch
director responsible for most federal tort claims act litigation,
including medical and medicine litigation. Currently, I am an adjunct
professor at George Washington University law school and I am also a
consultant to PhARMA. My views, however, are entirely my own.

Very substantial liability concerns would exist for any entity in the
U.S. pharmaceutical distribution system that facilitated importation,
specifically, those entities would subject themselves to the full
panoply of state law remedies associated with the sale of drugs.

An importing party may not be able to prove a defect was the
responsibility of the manufacturers. Importation may well bar an
importing entity from establishing a direct causal link between the
manufacturer of a drug by a US manufacturer and the drugs subsequent
alleged cause of an injury to an individual. The importing party,
consequently, may well be solely responsible for any damages suffered as
a result of importation. At a minimum, the importing entity would likely
be embroiled in litigation claiming that it is liable to pay a share of
the damages. This conclusion follows from established tort law
principles.

The black letter law is that one engaged in the business of selling or
otherwise distributing a product, who sells or distributes a defective
product, is subject to liability for harm to persons or property caused
by the defect. Product sellers have same legal responsibility as
manufacturers, under strict liability. Any seller or distributor of a
drug falls within these principles.

The principles applied establish a theory of liability if a seller
causes a stale, counterfeit or mislabeled prescription drug to reach a
customer and the customer is harmed. Objectively, the FDA would consider
whether it is feasible to guard against harm to our citizen from
importation of stale, counterfeit and/or mislabeled prescription drugs.

My point is somewhat different. It is that the persons selling or
distributing imported drugs not only need to exercise care to ensure
that they are not part of any chain that distributes any imported stale,
counterfeit or mislabeled drugs. But, also that they could be strictly
liable if they sold or distributed such a defective product. Even one
bad outcome can result amount to millions of dollars of liability, as I
learned all too frequently in my years at the Justice Department career.
Liability of a seller or distributor of a stale, counterfeit or
misbranded drug is straightforward. That species of liabilities would
not be sole source of litigation that would arise from drug importation
for non-manufacturers for sales and distribution.

Sellers and distributors might also be liable for the consequences of
*good* drugs that have rare or harmful effects on a handful of users. A
plaintiff's lawyer would want to sue all potential partners, if the
lawyer is pursuing a product liability claim. A drug manufacture would
presumably deny knowledge of distribution starting in another country
over which it lacked either sufficient knowledge or control.

Moreover, it might be difficult to ensure jurisdiction over the foreign
participants in the distribution chain in a suit filed in our country's
judicial system. A prudent plaintiff's lawyer representing an injured
individual, is likely to target the seller or distributor as a defendant
or defendants. Joint and several liabilities add to the US seller or
distributors liability. Although the law pertaining to joint and several
liability varies form state to state, in many states, one liable entity
may be required to pay all of a plaintiff's damages, even if other
defendants or absent foreign parties are primarily responsible for a
plaintiff's injuries.

In a worst case scenario, a seller who is one percent responsible for an
injury can be held legally liable to pay 100 percent of the damages. If
a defective imported drug is sold, the defendant may have to bear the
burden of defending and potentially paying judgments in suits claiming a
drug is defective because it included inadequate warning or labeling
defects do due to application of joint of several liability. Responsible
distributors and manufacturers may reasonably shy away from this
substantial and potentially huge liability. As a consequence, it is very
possible that major sellers and distributors of imported medicines might
be the least responsible product sellers.

Irresponsible sellers may not make a careful effort to provide adequate
product information or guard against potentially stale or counterfeit
drugs. Moreover, some sellers might be judgment-proof parties. All this
could create a substantial domino effect, creating tort liability
against the only available and viable distributor or product seller
defendant within the jurisdiction of the court. For each of these
reasons, liability concerns do exist. Clearly, the concerns are real and
very significant.

A notice for this public meeting also asks, if liability concerns do
exist, what liability protection should be implemented? Federal
legislation immunizing sellers and distributors from suit when they sell
imported prescription drugs would be the surest way to protect from
liability. Presumably, to avoid any such legislation from being entirely
irrational, all prescription drug sales -- not just imported drug sales
-- would need to be immunized from suit. I want to be clear. I do *not*
advocate the legislative proposal that I have just outlined. The
approach I have just outlined would eliminate and all effective tort
remedies for injured persons. I am merely addressing the question the
notice for this public meeting asks. I would be happy to answer any
questions.

Carmona -- Thank you. Task force member, questions? Mr. Azar.

Azar -- Professor Axelrad, thank you very much for your analysis. I
don't know if you got to hear, earlier this morning when we were
discussing with Governor Doyle the disclaimers that he has put on his
website with access to Canadian portals and pharmacies selling drugs
here in America, but could you give some perspective on the efficacy of
such a disclaimer? Would this be sufficient to immunize a seller or
distributor of imported drugs from this sort of liability you were just
describing?

Axelrad -- Yes, I'd be happy to. My glib initial answer is that it would
have the same effect as any waiver by any seller or distributor. The
Governor, if I heard him correctly, explained that the website merely
facilitates the citizens' use of the site to connect with a Canadian
pharmacy. If that raises an issue as to whether the facilitation that
the Governor spoke to, puts the state in the same position as a seller
or distributor. A jury would decide if they are sufficiently in the
chain, to be treated like a seller-distributor. But, to the best of my
knowledge, no state \-- and I can't say that I'm an expert in Wisconsin
law -- says that merely because someone hangs a sign up saying "Hey, we
don't want to be liable, please don't sue us", it doesn't have a legal
effect of eliminating tort liability.

Azar -- Another issue I wanted to get into is the duty to warn claims.
In, I think, our last hearing, which discussed counterfeit, we heard
testimony from people ordering drugs from Canada through the Internet,
and they arrived with Russian labeling. But that would be a most extreme
case. Others have spoken about labeling that's not quite what the FDA
requires for the labeling of food and drugs sold here in America. What
would be the liability impact for a seller or distributor for a product
that does not conform to the FDA's labeling requirements for
distribution here in America? Would this also subject them to strict
liability under that theory of failure to warn? Does strict liability
apply in that type of context?

Axelrad \-- Absolutely. A seller can be held completely responsible.
Unlike the typical situation where the drug manufacturer could be
brought in to answer for the bulk (if not all) of the damages, that
remedy for the seller to share the responsibility would not be
available. So, the seller would be betting the business, so to speak,
that no one has a viable product liability claim on sales of the
prescription medicine.

Azar -- And then, if I might, in one last area. When individuals buy a
drug over the Internet, or even from the neighborhood pharmacy, they
don't often keep the labeling after the fact, or even one of the tablets
as proof of exactly what they look at the chemical composition of it. If
you have large-scale importation with, as we've heard, substantial risk
of transshipment through Canada, counterfeit, knock-off products that
are labeled to pretend to be the real product \-- could you discuss a
little bit about the risk impact for drug manufacturers and insurability
of this risk? I guess my concern there would be that it seems like the
person would be under the belief that they took X product. And they
would sue the manufacturers of that product if there were an adverse
event, and the manufacturer would be in the position of having no
ability to prove or disprove that their product was the one that was, in
fact, taken. They would only have a prescription and an order for
something that purports to be their product. Is that something that's
such an indefinite, an unknowable risk that it could actually affect the
insurability and \-- hence -- fundamentally go to the stability and
viability of the pharmaceutical research and development industry?

Axelrad -- Well, manufacturers as a practical matter, sometimes, want to
keep themselves from being liable by saying that it wasn't their drug,
and that's' certainly a viable defense. Market share liability for a few
products had its hey-day, but that hay day has passed. So, the
individual responsibility premise of our tort law says that they are
only responsible for a product that *it* manufactures. If there is a
different chain, such as the one you describe, and the manufacturer can
show that it didn't have control -- that the chain was broken -- then
the ordinary rules of tort law would place the burden on the plaintiff
to show it was the manufacturer's product. While you're saying it would
be an increased liability for the manufacturer, I tend to think that the
manufacturer could established through evidence that the drug came from
another country, it would reduce the manufacturer's liability and that
would mean there wouldn't be the ordinary tort remedy against them if
there's a defective product, as there would be under a closed system.

Azar \-- Thank you, that's very helpful.

Carmona -- More questions?

Harden -- Mr. Axelrad, you mentioned that the surest way to protect from
these liability concerns is to provide blanket protections for importers
involved in the importation scheme. Is there a more limited method by
which we could address these concerns that would be more palatable?

Axelrad -- I can't think of one that would do the job. If you're talking
about protecting the sellers who are bringing in drugs. If the chain
from the manufacturer is broken, they are going to be absorbing a large
amount of potential liability, they are going to be the target
defendants in a lot of cases in which the sellers are not the focus of
litigation today. The kinds of claims that would come from good drugs
would be targeting them \-- as well as the claims from stale,
counterfeit and misbranded drugs. I think that these kinds of claims
would be the kinds of claims that would drive the most responsible drugs
out of the market. But, if it didn't, it would increase their costs, so
by the time that we're talking about the savings, the savings might well
disappear in the long run. Now, the first day a drug is imported,
hypothetically a high blood pressure medication. And the person takes
the drugs, whether it is a defective original drug or a counterfeit, the
person who takes the drugs isn't going to know. The effect won't be seen
for some time. And when they are seen, it takes more time for the
lawyers involved; and then it take still more time for the lawsuits to
be seen. So there is a delay here, and the persons who are originating
the idea of having an importation program such as I just outlined might
be gone from the scene, and other people might have to bear the burden
of all the consequences. My suggestion is hat, based on established tort
law principles, these consequences would likely follow from the kinds of
beginnings that what we're talking about.

Harden -- On a separate issue, in response to Mr. Azar's question, you
at least had implied that states such as Wisconsin might be taking on
some liability despite the disclaimers that they place on the website. I
guess my question is, would the U.S. under the FTCA, be assuming
similarly liability if it, through the FDA, blesses some sort of
importation regimen?

Axelrad \-- Probably not. The U.S. has a protection that states don't
have. Under federal law, not merely discretionary functions but also
misrepresentations are protected against liability. Most states don't
protect their governments against tort liability based on
misrepresentation. So, the outcome might well be different there. Buy,
if the U.S. is in the business of distributing -- or even approving the
distribution of medications \-- the liability of the U.S. in certain
circumstances has been established by the courts and applied by the
courts.

Carmona \-- Other questions, task force members? Thank you very much,
sir. We are going to take a couple of people out of orders because of
the time constraints and some people have travel constraints. So, the
next two will be out of order and then we will go back to the schedule.
Jack Sharry, Group Benefits Strategies, please.

#### Jack Sharry, Group Benefits Strategies 

First of all, thank you for taking me out of order. I do have a plane
that I'm going to try to catch a little bit later. I think I have to be
honest, I'm a little bit shaky, because after that last presentation,
with what I'm about to say, I'm bound to be indicted, or sued.
Certainly, I'll go broke, because my professional liability insurance
policy does not cover what I'm going to say. So, I'm going to be a great
target for any attorneys who are listening out there.

As I said, I am very impressed with the caliber of those who have come
up to speak, particularly with the credentials they have. As I said to
the Admiral, during the break, it took me 12 years to graduate from
college and then, when I looked at my badge here, they typed the name
"Jackie Sharry." The only person who calls me that is my 88-year-old
mother, but after that last speaker, I'm glad she isn't.

Well, let's get down to what I'm about to say. I would like to first of
all tell you that I am president of the largest municipal benefits
consulting firm in New England, Group Benefits Strategies, of New
Auburn, Massachusetts. I'm here today to provide information on whether
and under what circumstances drug importation could be conducted safely
and what its likely consequences would be on health, medical costs as
well as the development of new medicines for American patients -- as
requested by this task force.

My friends, the American consumer is poised and ready for creative and
innovative changes to our health care system. Years of complacency of
medical care and costs have drawn to a close. The high costs of medical
care and prescription drug coverage are now serious pocketbook issues.
To date, consumers have shouldered the burdens of three-tiered programs,
co-pays, deductibles and other cost-shifting strategies. Today they have
come to the realization that they -- the consumer -- are ready to become
actively involved in health care plan changes.

I'd like to take a couple of minutes to describe a new voluntary
prescription drug program designed to give health plan members access to
choices through a safe, cost effective drug alternative, which happens
to include a Canadian purchasing option. I'm presenting today
proactively, focusing on the positives rather than the negative bias
that has been directed either sometimes at the FDA or the pharmaceutical
industry. We accomplish nothing by negativity. We've invested a
significant amount of research and development into this program that is
cost efficient and assures patient safety.

Effective this very week, this past Monday, a 6,000 health plan member
client has hired Prescription benefit strategies to administer a program
that includes the Abacus Group of Cranston, Rhode Island. Abacus
provides an education platform; this is the first time since I've been
sitting here, midmorning, that I've heard the words "educational
platform". Designed to improve the safety of consumer medication use and
to promote cost effective purchasing practices. Ironically, Abacus,
under a federal grant from a sister agency if NIH, the AHCRQ, has
created a program called "my medication". This program has served other
employers in the US, however, this is the first time that this program
has collaborated with a Canadian prescription program through CanUSA.

In simplest form, the My Medication program is a consumer educational
tool accessed via the Internet or over a telephone. A member can access
website or call for personal attention, if preferred, to review their
prescription drug needs, their habits, possible alternative medications,
and to register for financial incentives as a reward for utilizing the
site on a voluntary basis. Through participation, the member's copay
will be waived. My Medication Advisor incorporates valuable educational
features into the process: the ability to access and communication with
a pharmacist; consumer education on drug safety, consumer medication
records (which is a mandatory element for the consumer to access the
program); and, very importantly, incident reporting by members, which is
a vital tool to measure and ensure program quality. And, as I said, the
incentive programs to motivate and rewards participants.

My Medication Advisory has been designed to address important safety
concerns of the American consumers and the federal government. Once a
member has provide the vital medical data, My Medication Advisory will
then guide them to the most cost effective maintenance drugs available.
The information will contains pricing for the existing PBM (in this
case, express scripts), and alternative U.S. PBM, intermediary
pharmaceutical inc. The idea is to provide access first and foremost to
a U.S. PMB for drugs. It's common knowledge that up to five percent of
hospitalizations are caused by improper use of medication, either from
the physician, the pharmacist, the subscriber. That equates to nearly
\$2 million in unnecessary hospital changes nationwide. And statistics
show that 65 percent of all prescription drug patients improperly use
their medications. 65 percent. My medication advisory, working with the
IPS, will encourage them to check the accuracy of the prescriptions,
even if it requires calling the attending physician.

Moving along, we did go to CanUSA, because we felt that their safety
mechanisms that they have in place are second to none, of those we had
investigated. Price is not primarily, safety is. Other drug companies
will have their products at much less cost than Canada, but -- again \--
safety costs money and that's the idea of this program.

There are several of my protocols that are in my presentation that I'll
skip over, but most importantly, and I'll end up this way: the shelf
life of Canadian prescription importation will be short, but the impact
will be long. I think that what the Canadian debate does is that is
raises the height of discussion on prescription drugs, which is at a
level we've never seen before in this country. It's that educational
model -- to teach people how to properly purchase medications, that will
save not only the consumer but will also reduce hospital costs and, in
my opinion, with the limited production that this CanUSA has, should
have no negative impact on pharmaceutical R&D. I think the
pharmaceutical companies will rise to the occasion and do what they
always do well. So, this program that we've launched -- we're not hiding
it -- it's small, much smaller than a state program. It has tools in
there to measure it. We would invite and hope that the FDA could be a
partner with us to see how this program works on a voluntary basis in
Massachusetts.

Carmona \-- Thank you, sir. Do we have any questions from the task force
members? Thank you, sir, for your presentation. The next speaker will be
Bernard Kerik, from Giuliani-Kerik, LLC. Mr. Commissioner, thank you for
being with us.

#### Bernard Kerik, Kerik-Kerik, LLC 

First, I would like to thank the task force for the invitation and the
opportunity to make these brief remarks. The purpose of me being here
today is to advise the task force that the former Mayor of the City of
New York, Rudolph Giuliani and Partners has been retained to conduct an
independent review of the safety issues related to the wholesale
importation of medicines from outside the U.S.

As many of you know, I am the former Police Commissioner for the City of
New York and as of recently was a senior advisor for the Minister of
Interior for Iraq and a senior advisory to Ambassador Bremmer on the
reconstitution of Iraq's interior ministry. Today, I'm the CEO of
Kerik-Kerik, and we'll l be working with the Mayor on this review.

The review includes documentation, site reviews, and we are making every
effort to speak to people and groups on both sides of the issue,
including those who support it as well as those who oppose the
importation. Although the review will be on-going over the next few
months, we anticipate having some preliminary findings this month, and
we would be anxious to share them with the task force, as well as
others. We are quite concerned about the growing support for wholesale
importation of drugs or the purchase of medicines over the Internet when
there are clearly so many unanswered questions regarding the safety of
such practices. There are many risks to the health and safety of
Americans with respect to the importation of drugs from outside this
country.

Together with Senator Norm Coleman, the Mayor and I made a recent visit
to the U.S. mail facility in Queens, and it was very disturbing. We were
amazed at what we observed; thousands and thousands of parcels
containing prescriptions, including controlled substances being shipped
through the US mail service. Many of the packages were such countries as
India, Pakistan, Brazil, and the Netherlands. Many of the drugs were not
FDA-approved, some expired, others did not have any dosage information
or were improperly packaged. Some that required refrigeration were
clearly not refrigerated and some were injectable. There was even one
highly sensitive cancer drugs that requires very close doctors'
supervision, being shipped through the mail directly to a patient. It
was obvious that, contrary to popular opinion, medicines being purchased
over the Internet are not just coming from Canada and -- based on visual
inspection \-- not FDA-approved.

It is not clear to us that we can have any confidence in where the drugs
are coming from and what's in them when they are purchased form these
sites. Based on what we are learning and what we have seen over the last
several weeks, I am very concerned that, if such wholesale importation
were to be permitted, it would make this country's medical supply
extremely vulnerable to terrorist interaction. It appears that it would
be very hard to ensure the quality of medicines that would be coming
from outside the U.S. As result, some terrorist organizations could
easily contaminate a portion of the medical supply. It might not take a
lot to do this and, based on my experience, I can see this being a real
threat. Do we really want to take that risk with our own health and
safety or the health and safety of our parents or our children?

There is also some evidence that some of the profits are being made by
drug counterfeiters have been used to fund terrorist activities, or
facilitate their activities. I have heard those in support of
importation say that the FDA and customs should be doing more to address
this problem. I can tell you that what I saw at JFK, and based on our
review, they are doing the best they can but the volume is great.

I think that the same people who are encouraging people to operate
outside the current law are contributing to this burden, in a very
irresponsible way. If the borders are opened further, I'm not persuaded
that a safe system can be designed that would again ensure the safety
and quality of the medicines being imported. Although we still have a
lot to learn from the safety perspective, it doe not clear appear that
the existing law can be changed. Unless we can ensure that it is done
safely and in a cost-effective and efficient manner, the law should stay
as it is.

The Mayor and I look forward to the opportunity to sharing our findings
with you on the task force we our review continue; thank you for the
opportunity to appear here today.

Carmona \-- Thank you sir. Task force members, any questions? Thank you
sir, we appreciate your being with us. We look forward to your report
also, when it's done. Our next speaker, which I think will be our last
out of order, due to time constraints, will be Mr. Lew Kontnik,
Consultant.

#### Lew Kontnik, Consultant

Thank you, Mr. Chairman. My name is Lew Kontnik. I have dealt with the
counterfeiting issue for about 15 years. I am the author of
[Counterfeiting Exposed]{.underline}, a book that deals with
counterfeiting in its many aspects. Last year, I published other
documents that addressed counterfeit pharmaceuticals and other aspects
of counterfeiting. And, I'm now serving as an anti-counterfeiting
advisor to a public information nonprofit organization, called the
Partnership for Safe Medicines. The website being www.SafeMedicines.Org.
That organization really is intended to go ahead and give consumers,
patients, some insights into the risks that we're talking about today.

What I really want to propose to the task force, to the panelists, is
that we're really talking about the wrong issue. And, I understand that
this is the only HHS task force on importation. But, to be honest,
having thought about it and written about it for some time, I don't
think that the issue is importation. The issue is price and
accessibility. And, I think there's another, very important issue \--
which is safety and counterfeiting.

So, what do I mean my that? Let's just go to a mass balance analysis of
the drug importation issue. The Canadian population is some 10 percent
of the US population; their demand for medicine is less than 10 times
ours, so the numbers don't work. There's no way to get there from here
\-- we clean their shelves in 23 days.

Plus, if we put in force some kind of management system, we're adding
expense and complications. Are there risks with importation, or is it a
red herring? We know that there are criminal attacks on our closed
system. We heard Ron Roberts describe that in personal detail this
morning. With the Procrit, Serostim, Zyprexa. But, we're talking now
about opening the system -- with an open system, we're open to attack by
all. And we've seen it happen already. Lipitor: millions of tablets were
recalled last year. Evra, you can put the birth control patch here or
here or here, if you watch as much TV as I do. And we know that some of
these imports -- well, the Lipitor, Evra, Viagra -- are coming from
overseas already. And, now, let's think about that \-- where are the
bodies? Where are the bodies? I don't mean to be crass, or hostile, but
we may see bodies in the form of new births in Evra context. Placebo
patches coming from Pakistan, although I don't endorse the idea that we
should be having to look for those bodies.

Is counterfeiting real? You've probably seen some of these slides
before. These are all some of the class of 2000, that have been
counterfeiting. But, counterfeiting is not unique to pharmaceuticals.
Every product, including White Out and Glad trash bags, in my
experience, in the counterfeiting arena, has been counterfeited. Brake
pads, auto parts. So, as we begin to think about importing products from
overseas, as these industries are already fighting again, we *will* be
importing the counterfeiting problems.

But there are security systems, aren't there? There are holograms, there
are watermarks, and so on and so forth. After all, the Bureau of
Engraving does this with money, right. We should be able to defend
against that. I think they're useful but they're not conclusive in terms
of this situation.

We have a closed system. Let's compare the money with pharmaceuticals.
With the money \-- how many manufacturers do we have? One, the BEP. They
control everything with absolutely high security. With pharmaceuticals,
how many pharmaceuticals do we have? Hundreds. How many packagers?
Thousands. In the money situation, we know that there are counterfeits,
despite the money going through the Bureau's scanning systems every day.
Who is going to check with pharmaceuticals?

The real issue is affordable access. The importation destroys the
system's integrity, increases its complexity \-- and we heard another
thing today that I think is critically important and I didn't understand
it until last night. And that is, it won't accomplish the stated
objective in any kind of massive way. What's that stated objective?
Decreased price, but we heard that the distribution system will get the
benefits of the arbitrage without the patients. Why is that? I can go,
in the micro sense today, and save money on the Internet or to Canada,
but when you bundle it into a business system you've gone to the macro
level where you have interposed financial institutions between the
savings and the beneficiaries. So, it doesn't accomplish its purpose at
all.

So, what I ask is, respectfully, that the task force say importation
cannot be done safely but we do need to address the issues of price and
access, safety and counterfeits. Thank you very much.

Carmona -- Thank you very much. Task force members, any questions? Thank
you very much. Our next speaker, we'll go back on the schedule. The next
speaker will be Durhane Wong-Reiger, Consumer Advocare Network.

#### Durhane Wong-Reiger, Consumer Advocare Network

Thank you very much, and we really appreciate the FDA is holding these
open hearings and especially appreciate that the FDA is allowing
Canadian consumers to come up and speak about our concerns about
cross-border Internet pharmacies have for Canadian patients.

I recognize that your mandate is to ensure, for consumers, that the
drugs that are imported are indeed safe. I guess, as a patient, I would
say to you the only way that you are going to convince patients that the
drugs are safe is to *insure* that they are indeed safe. And, I think we
all know the systems that are critical to ensuring that. The whole
system of clinical trials systems; millions of dollars spent by the
pharmaceutical companies to do so.

We know the reviews by the FDA in this country and by Health Canada in
our country. We know all of the systems that are in place to ensure that
drugs are dispensed properly; the system of recalls and for reporting of
adverse reactions. I think as we've heard today -- and for those of us
in Canada -- all of those will be bypassed if we open up for
cross-border Internet pharmacies. I think that overall, of course, the
concern that we have is, in fact, boiled down to safely. I think we've
heard several times now that the gap between what Canadians have \-- in
terms of drugs that are manufactured, sold to the Canadian pharmacies
and wholesalers -- can not begin to up what the American demand is or
will be.

I think what we've heard over and over is that that gap is going to be
made up from importers; some of those, quite obviously, importers that
we have agreements with. Some of them, of more concern, importers that
we *don't* have agreements with. Our concern, of course, is that at the
end of the day Canada will become nothing more than a drug broker. And I
will say that that is a thought that sends great chills through me.

I was the head of the Canadian hemophilia society for many years. I was
the president of the society during the time of the blood inquiry, when
we set up the commission to investigate how so many Canadians got
infected through tainted blood. One of the things that was very chilling
for us to learn was that, during that period of time, was that there
were blood brokers. Blood brokers who existed in the state and,
unfortunately, in Canada, who were allowed -- legally -- to purchase
blood from establishments which at that time could not sell directly to
the blood product manufacturers because they were considered to be not
safe. Brokers can, in fact, buy that blood and can resell it without
having to reveal the origin of that blood.

By the time the problem became apparent, and I, in fact, have to bow to
what the speaker before me said, there were thousands of people who were
infected. In fact, there were tens of thousands of people who were
infected. When you talk about cost savings, I was one of the people that
helped to negotiate the class settlement, \$1.3 billion class action
settlement for people who were infected through tainted blood. This is
something that, from a cost point of view is huge, but from a patient
point of view, we're going to be living with those costs for many years
to come.

So, I think the message is not to take a short sighted approach. Do not
look for bodies, the adverse events. I really appreciate very much the
Surgeon General's comments, can you tell if they are safe? Because one
of the things we learned from tainted blood is that we don't need to see
proof of harm. If we know that there's a risk there, there's a potential
for harm, then we must -- just as the speaker said to us \-- assume that
there is potential for harm and we must act accordingly.

I think the proof -- unfortunately \-- is very strong here. So, we are
hoping to be able to work cooperatively, as Canada and the US, to take
some real actions. I do agree that the issues are access and price. From
my point of view, I think it's a myth that Canadian patients have access
to drugs because they are lower priced. I think that most Canadians
would be astonished to hear that drugs are cheap. We're told over and
over again, we can't have access because the drugs are expensive. And,
quite frankly, if you cant' afford \$2000 for a medication, you can't
afford it for \$1,600. So, trying to buy it "a little cheaper" isn't
going to solve the problem for a patient with an expensive drug plan.

The problem for most Canadians is that, the way we get access to drugs
is, like most Americans, by having access to an affordable drug plan.
The nice thing is that, in Canada, we do, in fact, have provincial drug
plans that cover mostly seniors, those who are low-income. The rest of
us, of course, have private drug plans. Because our overall costs of the
health care plan are so much cheaper, the drugs have to be looked at in
the same perspective. We often say, if you really want to lower the
costs of health care in the US, you should send all of your patients to
Canadian hospitals. They're half of the costs. Want really cheap health
services? Send us all of your patients -- our physicians are wonderful,
at 1/3 the cost. And, I'll give you a real bargain, the cost of
administering the program is 1/8 of the cost that it is in the US.

Unfortunately, we know patients don't do that, in part because of access
issues. You have to be on a waiting list; I mean, I had an MRI that was
recommended, it took me 8 months to get the MRI. Most American patients
would not stand for that. I think there is a trade off here.

The other thing I just want to wind up with here is in terms of access.
I think what most Americans don't know is that you do reap the benefits
of R&D in this country. On average, it takes a drug two years longer to
get licensed and approved in Canada, because we do have a slower system
-- of course -- but also because drug companies wait to launch a drug in
Canada. They've told us point-blank, they don't recoup the costs as
fast; they will often wait until a drug is well established. I was at a
meting just recently where a major pharmaceutical company stood up and
said "We have had internal discussions to say we wont' launch new drugs
in Canada unless we can get price parity with the U.S. because the last
thing that we want to have happen is to put a major drug into Canada and
watch it come back in the U.S."

So, we pay the price for that. We used to say to patients, "Before you
get on that bus and cross the border to purchase the drug, you better
see if it's even available." Because it takes our drugs a lot longer.
And, we also don't get the R&D.

Canada is 1/10^th^ the size of the US, and we get 1/25 or maybe 1/100 of
the in vestment in R&D of the U.S. That's why our best scientists are
coming South, that's why we our best clinicians and physicians are
coming South. We lose them to they system too. So, I supposed if we're
going to be paying higher prices, we'd like to have a share of the R&D,
too. I guess there's no easy solution -- our system kind of works for us
the way it does, because those of those are the values we believe in.
The American system has some bumps and hiccups too, but I think that \--
if we work together \-- we can recognize the integrity of each country,
we can solve those problems and make sure what I hear you folks are
worried about, and what I'm concerned about -- and that is that patients
have access to the best medicines.

Carmona \-- Thank you ma'am. Task force members, questions? Thank you
very much.

Our next speaker is Louise Binder from the Canadian Treatment Action
Council. I guess it's *Louise*.

[Louise Binder, Canadian Treatment Action Council]{.underline}

Thank you very much for the opportunity to present,

Carmona -- Thank you -- my apologies for the introduction; the E was
dropped off your name on my list.

Binder -- Well, I was smiling when one of your earlier speakers was
concerned because he was turned into a Jackie; imagine my surprise when
I found out I'd had a sex change operation.

But I really do sincerely thank you for inviting my organization to
present to you today. I'm the chair of the Canadian Treatment Action
Council. And, our organization provides systemic advocacy for access to
treatment for people with AIDS in Canada. And, it's from that
perspective -- the Canadian patient perspective -- that I wanted to
ensure (and our organization wanted to ensure) that you understand the
implications from our side of cross-border Internet pharmacy.
Particularly, I wanted to make a few comments on the realities of the
availability of drugs from Canada to the U.S., about the realities
regarding the safety of Canadian drugs from our experience, and also
some of the social and economic context as it impacts the pricing
policies and regulations that we have in Canada. I trust that these data
will be of some help to you in your deliberations here today. I wish,
actually, in Canada, that we would have such open hearings on these
kinds of issues.

So, first, let's talk about availability. And, this was referenced
earlier. As you can see from this chart, Canadian sales \-- relative to
Canadian production -- make it very clearly that Canada can't meet its
own supply needs. So, imagine how impossible it would be to meet the
needs of the much, much larger U.S. pharmaceutical sales market. IN
fact, the drugs that we are already supplying you -- and they are
already meager compared to your needs \-- are already creating profound
drug shortages for some people. These are just two examples that have
been given to me, of shortages that people have provided.

I'd like to provide you with something that is more recent, which is a
list of 132 drugs that can no longer be supplied to Atlantic Canada --
I'm happy to leave this list with you of drugs that can no longer be
supplied to Canadians in the Atlantic Provinces. And many are related to
the fact that (these are for serious illnesses) and some of them are
related to the whole issue of the Internet pharmacies. In fact, we would
suggest to you that many of them are. So, any suggestion that there are
not drug shortages as a result of this practice, I think, are simply not
true. So, you are very welcome to this if it will be of assistance to
you.

As Ms. Wong-Reiger has told you in some detail, there are definitely
some implications for the safety of Americans resulting from these drugs
reaching the U.S. But, I'd like to make another point about sagely
that's true and it's related to professional ethics. When an American
doctor writes a prescription, he or she does so based on the basis of a
number of factors -- their knowledge of that patient. They also do so
based on their knowledge of the formulation of that drug in the US. Now,
when a patient decides to buy that drug through the cross-border
Internet pharmacies, that prescription is sent up to Canada, and a
Canadian physician (shamefully, in my opinion) who has never seen the
patient co-signs the prescription. And the drug is sent to the patient.

And the question is, what is that patient receiving? And the answer is,
not \-- even if this is not a counterfeit drug \-- it is not necessarily
the same formulation that the American physician prescribed. And I would
simply say to you that that is creating a profound risk for American
patients, because even if the medical ingredients are the same, the
binders in the formulation are often different. And therefore, that
impacts how the drug is absorbed in the body. And the Implications of
that are that the American patient may experience a very different
reaction to that drug, and it may really lead to serious toxicities and
adverse events. I happen to have HIV, and I can tell you that that's a
very complex disease to manage even face to face with the doctors --
because of the number of drugs I have to take to manage not only that
virus but also opportunistic infections that I have. There are many drug
interactions also just because of the way, personally, that I react to
drugs. I would be frightened to death to be managing this disease
through Internet pharmacies. And I would I suggest to you that Americans
with HIV would be frightened to death also, and people with any other
kind of complex diseases.

We mustn't forget that, the drugs that are being transshipped are not
being sold and distributed in Canada, they are except from Canadian
safety and quality inspections and that's a very, very serious safety
risk. And, if you don't believe me, perhaps you will believe Health
Canada, which has been telling Canadians since 1998 that personal use
importation is risky business, and it really is.

The last point I'd like to make to you is about the economic and social
context in which our pricing systems has been created. As you are well
aware, we have very different systems -- Canada has a publicly funded
system that -- in most provinces \-- includes some reimbursement for
some drug costs. We Canadian wait must longer for access to drugs,
including breakthrough drugs. I can remember buying a three month supply
of an AIDS drug out of my own pocket; because they were not yet
available in Canada, and taking them across the border. In the bad old
days. And, we have very different advertising and liability laws. And
cross border Internet pharmacies cherry pick one aspect of the Canadian
system out of context.

I wish that they would take the rest of our system too, including our
long waiting lines for surgeries, such as hip replacement surgeries. And
I wish they'd take our high taxes, and I wish they'd take our lower
Canadian dollar, not just our drug prices. Of course, as you well know,
Canada has a drug pricing system that not only limits the costs that
manufacturers can charge, but also has a direct impact on the amount of
R&D that's done in Canada. Which in turn limits job creation in this and
related fields; perhaps you'd like that as well.

I'd like to say, in conclusion, I trust I have given some valuable
information about the reality, which is that cross-border importation
via Internet pharmacy is not a long-term viable, safe solution to the
issue of ensuring access the pharmacies. It is clear to us that Canada
can neither ensure a sustainable supply for all Americans requiring
drugs, nor we ensure that those drugs meet the U.S. safety standards.
And we, as Canadian patients, commit to continue to pressure our
government to ban the practice cross-border of shopping on the Internet
for drugs. I trust that you will do so as well. Thank you very much.

Carmona \-- Thank you very much. Task force members, any questions? Dr.
O'Grady.

O'Grady \-- This list of drugs that manufacturers cannot supply and are
in shortage; there's not a lot of flexibility in some of these. I mean
some of these, I mean there are couple of insulins here. What happens
when a Canadian patient shows up at a Canadian pharmacy and they're told
there isn't any insulin? It's not... they don't have a lot of options.

Binder -- Well, exactly. And a friend of mine who's quoted here, Patty
Stewart, had this exact thing happen to her. She showed up at her
pharmacy in New Brunswick, and she needed her insulin for her diabetes.
And she was told, "We sold the last six vials to an American." And, she
was terrified, and her pharmacist starting phoning around, and literally
had to phone around not only within her own province but other provinces
to find somewhere to get her a vial of insulin and have it Federal
Expressed to her. She lived in a fairly isolated area. It's not an
isolated problem. I mean, this is no joke; these are people who may
certainly die because of drug shortages. And, you know, why would we
want to wait for that? Why would we want to wait for that from a
Canadian perspective and why would we want to send through to you drugs
that may not be appropriate for your citizens either?

O'Grady -- Do you know of any instances where folks \-\-- just for
availability concerns -- are coming through to the U.S. to get it at a
higher price?

Binder -- Well, of course, I did that once, as I mentioned to you
earlier. But that would be the only instance I could give you right now.

Carmona -- Other questions. Thank you very much. Our next speaker is
Gary Stein, American Society of Health Systems Pharmacists

#### Gary Stein, American Society of Health Systems Pharmacists

Thank you. My name is Gary Stein, and I'm the Director of Regulatory
Affairs for the American Society of Health Systems Pharmacists. ASHP is
the 30,000-member professional association representing pharmacists who
practice in hospitals, health maintenance originations, long-term care
facilities, home care agencies and other components of health care
systems. I'm pleased to provide you with ASHP's views on the importation
of prescription drugs into the US.

ASHP has a long history of advocacy Congress and federal agencies on the
importance of maintaining the integrity of the US drug distribution
system. For more than 50 years, the U.S. could boast the safest and
tightly regulated system for approving and regulating prescription
drugs.

Today, there are challenges facing that system. A growing illegal drug
trade, including counterfeit and rogue Internet sites, and efforts to US
markets to drugs from abroad, have all raised questions as to the FDA's
ability to respond to those challenges. In particular, the issue of the
safety of the drug supply is being obscured by the issue of allowing
individual citizens to purchase prescription drugs from overseas
pharmacies.

You might wonder how pharmacists who work in hospitals might have to
confront this issue. But, I receive callas from members say, "My
hospital administrator wants me to start buying drugs from Canada, how
can I show them that it's illegal to do so?" So, I send off regulations
and copies of laws, but I still get these phone calls.

The scope and volume of unapproved drugs entering the US has raised the
concerns of our members. That's why our House of Delegates will vote
this June to reaffirm the following policy: "to oppose importation of
foreign pharmaceutics, except in cases in which the FDA determines that
it would be necessary for the health and welfare of US citizens."

There's another factor to the importation issues that has not been
addressed adequately, and it relates to terrorism and our nation's
counterterrorism activities. The integrity of the drug supply and the
health of consumers are at significant risk if terrorists use more
lenient new importation rules to introduce harmful agents into the
country. Only two people previously have address this today. Is this
issue not being considered a priority because it hasn't happened yet --
do we have to wait?

The FDA's regulatory system has been the world's gold standard. To
ensure the safety of imported products, the FDA will need significantly
more resources to examine those products for quality, purity, safety,
and effectiveness. Since a significant amount of imported drugs are
imported via the Internet, the agency should ensure the adequate
regulation of Internet pharmacy sites. In addition, the FDA must have
the authority to ensure the same level of quality for imported as
consumers expect from drugs purchased at a state-licensed pharmacy.
There could be no added level of risk that ASHP's members would consider
acceptable.

In terms of financial impact, the FDA must thoroughly study the
financial impact of importation to determine if it would actually lower
costs for American consumers. Regulations put into place to implement
Section 1121 of the Medicare Prescription Drug Improvement and
Modernization Act of 2003 must not be burdensome to pharmacists or
wholesalers. If pharmacists are required to conduct extensive testing
and authentication of imported drugs, the majority of membership would
not be able to meet these requirements and still have cost savings to
pass along to American consumers.

ASHP appreciates the opportunity to comment to the HHS task force on
this significant issue, and we are ready to assist the Department in
dealing with the issue at any time.

Carmona -- Thank you, sir. Task force members; Dr. Raub.

Raub -- Do hospital system pharmacists now currently make any
significant use of Internet pharmacies?

Stein -- I know in addition to being plagued with advertisements for
Canadian drugs, they are also plagued with faxes daily for ordering
supplies through Internet pharmacies. In particular, drugs that might be
in short supply

Raub -- What I was trying to get a feeling for is that, given that they
are under some obligation to seek lower costs, is that modality under
significant use right now?

Stein \-- No, we haven't' seen that.

Carmona -- Any other questions? Thank you sir. Our next speaker will be
Charles Hardin of RetireSafe.com.

#### Charles Hardin, RetireSafe.com; Council for Government Reform

Thank you, Mr. Chairman, for the opportunity to testify on behalf of the
non-profit, non-partisan Council for Government Reform, Retiresafe.org,
and our more than 280,000 senior and near-senior supporters nationwide.
Founded in 1991, the Council for Government Reform and its grassroots
project (retiresafe.org), are dedicated to protecting the retirement
security of Americans of all ages. I am also pleased to speak on behalf
of our colleagues at the 60 Plus Association.

Prescription drug is an issue of concern to all Americans, and I would
first commend the FDA for its efforts to protect all Americans from the
many dangers of imported prescription drugs. The prospect of an
unregulated and potentially unsafe influx of drugs from abroad is
frightening. We all remember the Tylenol scare of the 1980s, when seven
people lost their lives because unscrupulous people tainted the nation's
supply of the popular drug.

The World Health Organization estimates that roughly six to eight
percent of the world drug supply is counterfeit. We've heard just a few
minutes ago, another organization that addressed that issue. We know
that neither the FDA nor the Canadian authorities have been able to
certify that drugs imported or reimported from Canada are safe for use.
On the grounds of safety alone, we strongly oppose any attempt to import
or reimport foreign drugs into the United States. It's like playing
Russian roulette with the health of Americans -- and that risky course
is not even necessary.

The best solutions are often found at home. Our Rx Challenge survey last
year showed that Americans can save hundreds, even thousands of dollars
a year by simply being good consumers and simply shopping around their
own home town for their prescriptions. The Rx Challenge proved that the
retail prices of commonly prescribed prescription drugs varied by
hundreds of percents from pharmacy to pharmacy in the same city. With no
more effort than just making a few calls, the study found that consumers
in Virginia, for example, could save as much as 53 percent on brand name
drugs. Certain generic drugs varied up to 559 percent. The Rx Challenge
proved that prescription drug purchasers do not have to cross the border
for discounts; in most cases, they only have to go across town. Further
information on this survey -- and I think it includes about a dozen
states \-- can be found on our website at
[www.retiresafe.com](http://www.retiresafe.com/).

There are also many other ways for consumers to save in their own
hometowns, including drugs assistance programs and samples from their
doctors. Virtually every major pharmaceutical company has a discount
drug or assistance programs. Insurance will often pay all or most of the
costs, and doctors will certainly try to help, if asked. Finally,
there's a great new prescription drug benefit option for Medicare
beneficiaries that the President signed into law in December. For the
first time, tens of thousands of seniors will have the option of drug
coverage. Beginning in June, seniors will have the option to enroll in a
privately provided discount program designed to save them as much as 25
percent off the cost of their individual prescriptions. This new
coverage is a better deal for America's seniors, providing the most
innovative, cost effective and safe prescription drugs developed,
manufactured, sold and distributed in America.

On behalf of the Council for Government Reform, Retiresafe.org and our
many supporters around the country, I thank you for your opposition to
the importation or reimportation of potentially unsafe prescription
drugs. Thank you, Mr. Chairman.

Carmona \-- Any questions? Thank you very much for your testimony, sir.

Our next speaker is Lynda Mitchell, Parents of Food Allergic Kids.

#### Lynda Mitchell, Parents of Food Allergic Kids

Good afternoon, and thank you for having me. I'm Lynda Mitchell, I'm the
facilitator of our organization's 2300-member support group for parents
of food-allergic kids. I have to say, I'm a reluctant participant for
having to need to be here regarding the this issue. Although I'm
presenting my concerns from the perspective of the parents of young
children rather than Medicare beneficiaries, the concerns I raise can
apply to Medicare beneficiaries in obtaining allergen-free beta-2
agonist inhalers.

I want to start by just telling you how I got involved in this issue.
Like I said, I got involved as a reluctant participant in the Canadian
importation issue. About a year ago, I went to my local CVS pharmacy to
pick up a prescription Serevent inhaler for my son, who is severely
allergic to milk, and found that it's no longer available in the U.S.
When I found out what the alternative is, it's a new type of inhaler
that's called a disckuss inhaler that can contain lactose and trace-milk
protein.

So, therefore, here I am faced with a child with severe persistent
asthma, and no choice for a lactose-free, long-lasting beta-2 agonist
inhaler. The current situation is that cow's milk allergy affects more
than 4.6 million Americans. And, for some of these Americans -- half of
them are children, incidentally \-- milk allergy can be severe and life
threatening. The smallest exposure to trace milk protein can evoke a
severe and life threatening allergic reaction: we're talking about 10
parts per million for some severely allergic individuals, which is an
exquisitely small amount.

In addition, asthma as we know is a nation's epidemic in this country;
it affects over 20 million people in the U.S., over half of them as well
are children. Once again, poorly controlled asthma can be severe and
life threatening as well. Now, the NIH has guidelines \-- NAEPP --
National Asthma Education and Prevention Program guidelines that include
best-practice treatments for asthma maintenance. And, one of the
medications that recommended for optimal treatments for asthma
classifications is a type of drug called a "long acting beta-2 agonist
inhaler". And that's used in conjunction with an inhaled corticoid
steroid.

The current situation is that, due to the Montreal protocol, which is
being examined by the FDA (this is the CFC issue) whereby medications
that use chlorofluorocarbon as a propellant are being replaced by
CFC-free devices. Because of this whole issue, there are no longer any
long-acting beta-2 agonist inhalers in the U.S. The only ones that are
available are disckuss inhalers, like I mentioned earlier, that can
contain lactose which is a milk protein, and trace milk protein. If you
look at the product insert for the product, the manufacturer will say,
"This contains trace milk protein."

A recent letter to the editor in an allergy journal, just in April, has
shown that when an analysis was done of these inhalers, that it did
contain enough protein in some batched to involve allergic reactions,
including life-threatening anaphylactic reactions in some individuals.

However, the same manufacturers that have stopped producing them in the
US because of the Montréal protocol still product them in Canada for the
Canadian market. And so, right now, as the parent of a child with an
anaphylactic milk allergy, I am faced with two options. He's also
severely asthmatic. I can either choose a sub-optimal product for
maintenance for him, because of the lack of a long-lasting product that
is a lactose-free, long-acting, beta-2 agonist inhaler. Or, by going to
Canada and purchasing the same product -- out of pocket -- the same
product made by the same manufacturer that used to produce them here,
but no longer does so.

I just want to bring this to the attention of the panel. There are
safety and efficacy issues that imply poor health outcomes for
importation of Canadian prescriptions. But, this is an example of
reverse, where the lack of available medicine in the US may produce poor
health outcomes. I just want to point out that there could be exceptions
and hardship cases that should be taken into consideration when you are
putting together a revised policy on importation.

Carmona \-- Thank you ma' am. Task force members, any comments? Thanks
for your comments. Our next speaker is Jim Rittenburg, Authentix.

#### Jim Rittenburg, Authentix

I'd like to thank the Surgeon General and task force for allowing me to
speak today. My name is Jim Rittenburg; I'm with Authentix. Our company
provides authentication technologies to the pharmaceutical companies.
We've been involved in inserting technologies for several of the
pharmaceutical companies in response to some of the recent high-profile
counterfeiting situations that have occurred.

Drug counterfeiting is recognized as a global problem. I think anyone
who is familiar with what's going on in this situation can't argue with
that. The World Health Organization has published studies, as well as
have a number of other independent sources, on the level of
counterfeiting around the world. We know that there are some countries
where well in excess of 50 percent of what's on the shelf are
counterfeit.

The incidence of fake drugs in the U.S. has been very low, and that's
because of the FDA. I think that people just take for granted what the
FDA actually does for our drug supply and the oversight that they
provide. Even with the oversight that is provided by the FDA, in the
last several years, there has been a significant increase in the cases
of counterfeit product that has shown up in the US. And that is what we
know about. What we don't know is how much other counterfeit product
might be out there out there, because many of the counterfeit cases
surface because of adverse reactions that have shown up.

If drug reimportation is allowed, it'll essentially bypass the oversight
that is provided by the FDA. And it will reduce the safely of the drug
supply in the country. The true origin of the drug supply will become
questionable; we may think they are coming from Canada, or some other
country that has a well-established regulatory system, but we wont know.
They could very well be coming in from some other country elsewhere in
the world. The storage and handling conditions those drugs have been
exposed to are unknowns. Within this country we have a well-regulated
system; once it is opened up to outside of the country, anything could
be happening to those.

The Internet already represents a loosely controlled border and FDA,
Customs, a number of the regulatory authorities in this country have
repeatedly said that they do not have the resource or ability to control
what's coming into the country through the mail system. And we know that
millions of parcels are coming into the country through the mail
services. Surveys that have been done on those show that many do not
comply with the U.S. regulations for pharmaceuticals. So, we do not
believe that allowing drug importation is in the best interests of the
U.S. population, and this will increase the risks to the drug supply.

I think where we need to focus, even in the US, is: more vigilance is
required. There are proven technologies that can be inserted today, into
pharmaceuticals, that can help protect the supplies. There are low
impact that can be put into the pharmaceuticals, that can readily be
integrated into the manufacturing processes, and that are relatively low
cost. For the cost of running a couple of advertisements during Super
Bowl, would pay for putting authentication features into an entire
company's portfolio of products. So, the costs are not high, relative to
what we are talking about.

The recent FDA report that was published on combating counterfeit
pharmaceuticals highlights the issues in this country, and sets out
recommendations that we should be looking at to improve the security and
ensure the safety of products for this country. And, I think that's
where we need to start \-- before we even contemplate opening our
borders. There are variety of technologies, both overt and covert, that
allow inspection to be done all the way from the consumer or patient
level, back to the government regulatory agencies or the company's
themselves. So we believe that, as part of good manufacturing practices,
all drug products should incorporate some type of technology that allows
their simple and authentication.

Our currency is protected that way. You can imagine, if that was
counterfeited, if it were completely and in such a way that was
undetectable, would completely undermine the security of the country.
Pharmaceuticals can take a similar approach to putting overt and covert
authentications throughout the chain, all the way down to the patient.

RFID technology is in development and we believe there are some
promising new technologies coming along there, but realistically that
technology is years away before unit-level marking will be possible and
before a real net can be put around the drug supply. So, we do have
technology that can work. I believe that, once this technology is
incorporated into products, an ongoing, low-level inspection process can
be put into place that can flag counterfeit drug supplies before they
get to the patients and before that gets to the point where it's
discovered.

Just examples of what companies are starting to do now. They are
starting to put authentication features into both the products, the
dosage forms, as well as the packaging to protect them. There's a whole
range of different products, from different companies, that are
available today that can go into these products -- from overt
technologies that can be seen in the field, to covert technologies that
inspectors can use to quickly assess whether a product is authentic or
not. And even, down to the dosage form where there are companies now
that are building authentication features into the dosage, so that once
it's separated from the packaging, it can be quickly revealed if it's
authentic. I'd like to thank the panel for the opportunity to speak, and
would address any questions you might have.

Carmona -- Thank you sir. Task force members, any questions? I would
like to ask one, then. As far as authentication goes, certainly it's an
issue we've heard some testimony on prior, and we've done a lot of
reading. What is your opinion -- and you've mentioned already that the
state-of-the-art is maybe a couple of years away \-- do we have
technology that could allow us to be able to guarantee the safety of
imported drugs today? Or in the near future, for that matter.

Rittenburg -- I don't think we have that today and I question whether we
will have that in the future as well. Because I think once you move
beyond the point where there's direct oversight on what's happening with
those products \-- how they are being handled, how they are being moved
through the supply chain. What we currently have in this country through
the FDA. Once you move beyond that, and extend the supply chain, you
then open up the possibility for other things to happen. Whether it's
the quality of the product, because of the way it's been handled, or
whether there are actual counterfeits that have been inserted into the
product that's coming through the chain. So, I think it's pretty
difficult. Even with new technology that's coming an the RFID, the
technology that's being developed, I think we are many, many years from
where that will be implemented at the unit level to protect product.

Carmona -- Even at the unit level, as I learned about the technology out
there \-- and, certainly at the unit level \-- we were very concerned.
Because, as you looked from the larger batch level to a bottle and then
to an individual does, to have that type of technology would be
important. But the concerns that come up are the ones that the Bureau of
Printing and Engraving has faced for years. That is, as advanced as they
are, as technologically proficient, your adversaries are always trying
to stay a step ahead you and develop countermeasures to your
countermeasures. In other areas that we deal with, across the board, as
it relates to homeland security and our counter-terrorism efforts, the
concern is always that the adversaries' goal is to be able to identify
the measure that we've put in for authentification and then counter it
somehow. Do you anticipate that this will be an ongoing issue, in your
area of expertise?

Rittenburg -- Absolutely. That has been addressed. The counterfeiters
are extremely clever and they are finding ways to compromise each
technology as it is developed and put out there. So, there has to be a
migration path of technologies; there has to be a multiplicity that's
used. I think, to really get at the issue, you can't just put technology
into the product. You need to couple that with a field program, where
there is some low-level of testing going on throughout the supply chain.
And the manufacturers right now that we're talking to are all
considering implementing those types of audit programs themselves, so
they can get an early warning signal if something breaches the supply
chain -- and hit it before it gets to the patient. We mark a lot of
fuels in this country. All of the oil companies routinely send samples
of their fuel for analysis for EPA purposes to show that they have the
right octane boosters and things in there. The pharmaceutical industry
could do a similar thing to show that the population of drugs that's on
the market is safe and that there are not counterfeits that are not
breaching the supply chain.

Carmona -- I have an additional concern; this will be my last question.
It's that, even with best case scenario for authentication and, as you
said, it would have to be coupled with some low-level of surveillance as
well, keeping gin mind the dynamism of this whole process with the
adversaries trying to keep one step ahead of us. You know, the concern I
have is that, if we were dealing with clothes or tires and there's a
defect---you pick it up and take it off the market. But, there's no
acceptable casualty rate with this. I mean, it really has to be 100
percent certainty that the public is safe. So, the bar is raised to the
highest of anything that I've been involved in, certainly. Id' like your
comments -- I'll ask you to be a visionary being that this is your area
of expertise -- can we ever get to that point? I don't want to sound
complacent, but that we are satisfied that we can bring that degree of
protection to the American public?

Rittenburg -- I think we can get close to that level, we can get very
close to that point where we have a very high level of confidence that
what's out there is safe. I think to say that 100 percent is going to be
very difficult to do.

Carmona -- Thank you. Any other questions?

Sachdev -- Yes, just very quickly on the field test kits. What's the
reliability of those? False positives would probably be more important
than false negatives,

Rittenburg -- Yes; the field test kits have 100 percent accuracy. The
way they are developed, I mean there are several types of field test
kits -- you're talking about the packaging and then with the product.
Authentication features that are put within a product, the field test
kits for those will detect the markers that are in the product with 100
percent accuracy.

Sachdev -- One hundred percent; but product-specific?

Rittenburg -- Yes.

Sachdev -- Yes one follow up question to that. On your slide you list
several types of technology -- overt, covert, forensic technologies
including the laser marker and the authentication. And, you've
identified the technology you'd need, including field instruments, lab
analysis, in order to actually deploy and assess the validity of that
technology. One of the questions we've been tasked with is to provide an
estimate of the costs of this. Without, obviously, having you provide
any information that is specific to your products, do you have, or are
you aware of, or could you submit to us, general cost information
associated with these specific types of technologies? That would be
helpful to us in answering the questions that were posed to us.

Rittenburg -- Yes. The costs of the technologies are not a highly
significant cost. To try to put it into terms you might understand for
the products; you are talking tenths of a cent, or a handful of cents
per unit to put technology in.

Sachdev -- To put technology in. But, what about the costs to actually
validating the field-testing, the lab results? Have you estimated what
those costs would be when you add them to the costs of the, say,
hologram or reversible ink, or things that aren't just visual
inspections.

Rittenburg -- We'd put that at similar costs as the technology itself to
put in there. We're talking a similar cost. Like I said, the cost of
running advertisements during the Super Bowl, I mean, you're talking
several million dollars to advertise. Those sorts of costs will go a
long way to covering a company's portfolio of products.

Carmona -- It's an interesting point you bring up, because as we go from
the larger unit-packaging authentication, down to unit dose, and then we
get into billions of doses over time... certainly, those tenths of a
cent add up when you get down to the specific unit dose. I know that's a
tough question to answer, but it's something we'll have to grapple with
as well in weighing a cost benefits analysis of any programs that we
might consider or recommend in our report. So, if you do have any
information that you work with, or know of in your work, we'd certainly
appreciate it.

Rittenburg -- It's certainly a substantial cost, but if you look at this
as a GNP process, and look at the things that are already happening out
there, there are things already happening out there in terms of
logistics. There are inspectors already in the field looking at product
quality and looking at expiration dates. They can also, at the same
time, be looking at the authentication features that are in those
products to quickly authenticate those. The fellow from the pharmacies
talked about getting product back and they don't know if it's real or
not, and it might go out again. If features are in there, there will be
the ability to qualify that for redistribution. So if you integrate it
into the systems that are already in place, the costs aren't going to be
as awesome as they might appear if you look at it on a stand alone
basis.

Carmona -- Thank you, sir, very much; any other questions? Thank you, we
appreciate it. The next speaker is James Love from the Consumer Project
on Technology.

Our next speaker, James Love, from the Consumer Project on Technology.

[James Love, Consumer Project on Technology]{.underline}

I have hard copies here for people if you want to get a copy. I work for
a small organization, that is a small association. We're mostly about
intellectual property rights; the major part of our focus is on
medicines. A lot of my work is done outside the U.S., I spend a lot of
time in developing countries, I do a fair amount of work with the
European Commission, international commissions. I'm going to give a bit
of an international flavor to my discussion here.

The first point I wanted to make is that, if you think that about what's
taking place here about people in America thinking it's unfair to pay
more than people in other high-income countries, parallel trade is a
particular trade to address this problem. I think people have focused on
some of the particularly problems of bringing medicines across borders;
I'm not going to get into that. I'll get to the quality issue in a bit,
but if the US wants to have European prices, if it wants to have prices
similar to other countries, you could do something simple.

Like, you could issue a compulsory license on any patents that, for
drugs where the price is higher in the US than in other countries. In
fact, (garbled) Brown actually proposed that legislation a few years
ago. You wouldn't have to worry about taking drugs from one country to
the other. You'd just basically make it a very strong incentives for
companies not to charge higher prices in America than they do elsewhere.
That's something you can do.

Now, people may feel that they may not want to do that. They may not
want to have official price controls and what they want to do is go the
more free trade route. Now, I think that's a legitimate route to go,
that's what Europe does. I mean, Europe is trying to build an efficient
market in Europe, so they have a system of parallel trade. It is not, as
has been portrayed by some, some rocket science impossible thing. It's
been going on for a really long time. IMS had a report in October 30,
2002, where they talk about the drug companies always try to scare
people about parallel imports, but it's a well regulated industry in
Europe and supply significant parts of some countries' markets,
particularly in Northern Europe.

I'll just quote from this report, they say that the "products are high
quality, well-distributed and cannot be criticized for their inferior
quality compared to brand name products, and the market is growing."
Now, IMS is, as you all know, not some sort of Marxist outfit. I mean,
these are guys that are a consulting firm for big Pharma. And big Pharma
is concerned about parallel trade because they like to price
discriminate from country to country. The European Commission wants to
have a more efficient domestic market, so they allow this, it's a strong
measure of public policy.

That's sort of the first point, that if you want cheaper prices, there's
lots of ways to get it in the U.S. Number two, if you want to do
parallel trade, it's not impossible. Just pick up, get a passport, and
like, look around. It's harder there, because they actually do a lot of
translating of the packages. They allow people to rip off the blisters,
translates the package inserts, all sorts of stuff.

Now, getting back to.. a couple of legal things here. We think that, if
you do parallel trade between other countries, it needs to be limited to
countries defined by the World Bank as "high income". Some of the
earlier proposals on parallel trade included South Africa, for example,
because South Africa has a good regulatory system. But it's wrong to
permit parallel trade at this point in history between middle and low
income and high-income countries. A single trade is not good for the
low-income countries, and it's not good for the high-income countries.
So, to the degree, and I think that most of the proposals are talking
about high-income countries. But, I just want to say at the outset,
everyone who works on these issues, I think, is opposed -- or should be
\-- to parallel trade between developed countries and developing
countries.

The WTO framework for dealing with... there's an issue I think I heard
talked about this morning, that it should be addressed more clearly and
that is that there's is a patent issue that you have to deal with. IN
the Jazz-Camera decision in 2001, the circuit court just threw in as an
aside, that hadn't been included in the brief by either of the parties,
that they didn't accept international exhaustion of patent rights. They
didn't accept the first sales of international exhaustion of patent
rights. It was really a new change in the US law; didn't get much
attention, but it should have. If you want to permit parallel trade, you
have to fix patent law because of the Jazz-Camera decision. If you
don't, you'll change all of the regulatory things and they'll just hold
them up in the border on the patent issue. There's a lot of people who
know more about this than I do, my training's in economics, not law, but
I know a fair amount about this decision.

Secondly, just as an aside, the TRIPS agreements allows countries to go
with exhaustion of rights, for exhaustion of rights, but there is just a
technical problem in the TRIPS. It says that exhaustion has to be the
same in every country, they don't allow you to pick rich countries
versus countries as two separate classes.

Now, we have complained about this for years, and we've asked the US
Trade Representative in the European Commission to change the TRIPS so
that countries that permit parallel trade can discriminate between poor
countries and rich countries. you should be able to discriminate between
rich and small countries. So they can say, fine for rich countries, not
fine for poor countries. I mean this is actually helping big Pharma out;
they actually have an interest in market segmentation between rich
countries and poor countries. And we agree with them on this, that's a
legitimate interest. This is something that should be fixed. It was
something that was proposed in the DOHA agreements last year, but it was
rejected because there was this sort of other tactical things that
people were doing; but it should be fixed.

Now. there's, more recently, a big problem with these bilateral
agreements. The US is in the Australia agreement, the Morocco agreement,
the Singapore agreements, they have these provisions that are designed
to prevent \-- and make it illegal to do \-- parallel trade in patented
goods. These things have to do principally in areas where there are
patents involved. What these agreements say is that the provisions, if
there is a contract that says you can't do parallel trade, it has to be
stopped at the border. And, the USTR guys, they know what the heck
they're doing; we know what they're doing. We talked to them about this.
The last guy that was working on this is now working for Abbott Labs.
Because he left the USTR, like most of these guys do, and went to work
for the industry. What we're saying is that you can't have this
discussion here and have the USTR running around plastering the universe
with 25 bilateral agreements saying you can't do parallel trade. I mean,
that's illegal. You have to pick up the phone and call the USTR and say,
"Hold your horses; we're having a public policy debate, don't do those
agreements until we sort it out at home."

Next, there's an international treaty on something called the Hague
Convention. Now, the Hague Convention, on limitations on foreign
judgments, has been reduced now to a contract convention. We have asked
the State Department -- which is heading up the US delegation \-- and
the European Commission and other delegations, pulling from the Hague
Convention these issues of parallel trade doctrine generally, and I
think the decision is still out, but these are issues that will address
this thing.

Carmona -- Sir, could you sum up please?

Love \-- Yes, sir. In the *New York Times* today they had a long story
about Guenevir, generic name of Conovir, which is sold by Abbot
Laboratories. Now the price here is ten times higher than it is in
Canada. It only used to be twice as high, but Abbott Laboratories
decided on a five-fold increase last December. Now, that drug and other
drugs like (garbled) was invented on government grants. The government
has rights in those patents, and it could be as a matter of policy just
declared, by Tommy Thompson, that any drug developed on a government
grant should not be priced more expensive in the U.S. than it is charged
in foreign countries. Because the argument that you need the higher
prices to pay for R&D is just absurd in this case, where you are talking
about government-funded drugs. Now, Tommy Thompson will have to make a
decision and he's been asked to send a strong signal.

Now, on the R& D issue, and this is the last part of my presentation, it
is true that, if you do things to lower the prices in U.S., that will
reduce the profits of big Pharma. And to the degree that investments are
driven by profits, that will have a negative impact on R&D and
innovation. Now, one possibility is just to throw up your hands and say,
we can't do any protection of consumers, the drug companies can do what
ever they want to, so. A lot of people have said that today and a lot of
people would say that. A different way is to decide that you need a new
policy to compensate when a consumer protection thing reduces the
profits of a company, to ensure that R&D stays the same.

We have proposed, to parallel traders, that they have to contribute 15
percent of the difference between what they buy drugs for from foreign
companies and what they sell them for here. Then you have a mechanism to
ensure that \-- as the profits fall \-- the R&D is held constant. That
would do it. Now, more generally what we've been trying to do is to get
is European Commission and the US generally to start thinking about this
from a trade framework. We've been influenced a lot by what Commissioner
McClellan's been working on at the FDA, where he's actually, I think, on
the right track in focusing attention that the inequality between what
we pay for R&D and what the public sector and the private sectors pay
for and what the rest of the world does. It's so far out whack that it's
not really sustainable. Plus, you run into all sorts of things like
border controls, patents laws, the prices of drugs here, versus the
prices of drugs in Africa. There's a whole series of issues related to
the crazy way we fund drugs' R&D.

Carmona -- We need you to sum up right now, OK.

Love \-- I will, I will conclude right now. In the longer run, what you
have to do is to find different ways to fund R&D and getting money to
developers and entrepreneurs rather than creating 20 year marketing
monopolies that lead to the kind of predictable problems that you have
in this country right now with the cross-border trade in drugs, and the
kind ethical problems that you have in Africa right now. You have to
fund our R&D more than we currently have \-- to a greater extent than we
do now. We have invited the representatives of the European Commission
and the US governments and other governments to participate in
discussions on this in the fall of this year .... and I can't explain it
right now. Thank you very much.

Carmona -- We need you to sum up right now.

Love \-- OK, I am summing up.

Carmona -- Thank you. Task force members, any questions? Thank you sir,
I appreciate your presentation. The next speaker is Mr. Raymond Keating,
Small Business Survival Committee.

#### Raymond Keating, Small Business Survival Committee

Good afternoon, I want to thank you for the opportunity to speak today
regarding the potential impact of prescription drug importation or
reimportation. I serve as the chief economist for the Small Business
Survival Committee, we have 70,000 members across the country; we are a
nonprofit, nonpartisan group that works on a wide range of policy issues
that affect the entrepreneurial sector of our economy.

The idea of allowing for the reimportation of prescription drugs from
nations that impose price controls is another unfortunate example
whereby some politicians choose to ignore political reality in order to
score a few short-term political points. Allowing reimportation from
countries in which the government sets the price of prescription drugs
would be quite dangerous.

We've heard about the safety issues and the dangers on that front, and
that is clearly a major and very real concern for all of us. But I would
like to talk a little bit about the economic dangers involved with
reimportation, from a basic economics perspective. Unfortunately, as is
the case whenever the government inserts itself into market, price
controls come with a mighty and \-- in this case \-- potentially deadly
cost. Small businesses, specifically small pharmacies, would pay a big
price. Make no mistake, we certainly believe competition is a good thing
for consumers and the economy. And it small pharmacies are challenged in
the marketplace by more efficient and innovative competitors, so be it.
That's the free market process.

However, allowing for importing drugs from countries with price controls
is not real competition. It's government regulation that would have the
effect of severely hurting local pharmacies and maybe driving many of
them out of business.

Then there is the entrepreneur. It's easy to imagine the doctor of
scientist with the love of research and a passion for improving and
saving people's lives. Perhaps that person has the talent, knowledge and
vision to pursue a cure for some kind of cancer or another illness, and
is on track for a potential breakthrough. However, undertaking such
research is a high-risk endeavor. Capital must be raised from investors
in order to proceed.

Consider the example of biotech. Venture capitalist John Clarke was
quoted recently in the *Palm Beach Post*, noting, and I quote: "For the
past two decades, it has been the premise that the smaller biotech
companies would be the true engines that fuel the biopharmaceutical
industry." Biotech ventures are entrepreneurial, they are high risk,
they need capital to discover, develop and commercialize new medicines.
As the article reported, and again I quote, "These early-stage biotech
companies need enormous amounts of money to sustain them."

But how many entrepreneurs and investors will be willing to take such
risks if, in the end, even if they beat the very long odds and end up
succeeding \-- the government is going to set prices and limit their
returns? For anyone with a basic understanding of economics, the answer
to this important question is clear: Few, if any, would make such
investments.

Of course, the same goes for the established pharmaceutical firms.
Researching and developing new medicines is risky and costly for these
firms as well. The pharmaceutical research and manufacturers of America
have noted the costs and risks involved, and I'll just quote them very
quickly. On average, it costs \$802 million to develop new drug, up from
\$138 million in 1978. It takes 10-15 years to bring a drug from the
laboratory to FDA approval. The risks are formidable, one in every 5,000
compounds screened is approved, and so on.

It's also worth noting that investment in research and development has
accelerated twice as fast in the U.S. than in Europe over the last
decade. And eight of the top 10 drugs in terms of sales, originated in
the U.S., and only two in Europe. Again, Europe has price controls; we
don't.

Innovation gets hit hard when price controls are put into place. There
have been many reports and I know that some folks have talked about this
today. One recent report from Bean and Company \-- which was presented
to the governments of the world at an economic forum in January -- they
noted that pharmaceutical profits have shifted away from Europe and
toward the U.S.; rates of return on R&D are much higher in the U.S. than
they are in Europe. They also noted that this is not a free ride for
Europeans: they have their costs too. They have lost investments to
America, lost jobs, have fewer value-added drugs, and fewer drug
launches. Obviously, all of this hurts patients. Also remember what Ms.
Wong-Reiger said about the lack of R&D in Canada and the waiting period
involved in new drugs.

Price controls, including the reimportation of prescription drugs might
sound good to some, but the economic reality is quite grim. It is
instructive to note that in all but five years from 1979-2003,
pharmaceutical companies boosts their R&D spending by double digits per
year. The years when they didn't were 1994 and 1995, the years when the
Clinton health plan debate which threatened to impose price controls. It
also happened in 2002 and 2003, and it's no coincidence, I don't think,
that we were having the reimportation debate heating up at the time. We
also had an attack on patent protections during that time.

One other study that I think is worth nothing. University of Connecticut
professor John Vernon projects that 50 years of price controls would
reduce the number of new medicines by 60 to 73 percent. And if the US
had price controls from 1980 to 2001, there would be between 330 and 365
fewer new medicines today. I don't think that a centralized, politicized
fund, in terms of what we heard earlier, where money would be pooled and
somehow distributed is not going to provide the innovations that
consumers expect and need. Price controls through reimportation of
prescription drugs will hurt small businesses, entrepreneurs,
investment, innovation, and therefore, ultimately, patients. Thank you.

Carmona -- Thank you sir. Task force members? Dr. Raub.

Raub -- If we were to eschew price controls, as your analysis clearly
suggestions, what are we supposed to do? Should we just tread water with
the current system? Or is there some other direction that you would
recommend?

Keating -- Well, I think we have some systems already in place today.
Obviously, you have government programs that help lower income
individuals to buy prescription drugs. We have the expansion of Medicare
going forward. We have other solutions, actually, like health savings
accounts, which we are big fans of at the Small Business Survival
Committee. And, those are wonderful because you put the patient in
control of the dollars so you have your own money in your own account. I
know I heard a speaker talking about people being willing to shop
around, and that's critical in the market process and it so often
doesn't happen when a third party payer is involved. When someone else
is picking up the tab, what do you care what the price is? But if it's
your money in your account, and you deposit it along with the employer
\-- or some combination \-- that would help the process as well. I have
to say, the whole political debate is interesting because we seem to be
having a lot of attacks essentially going on the pharmaceutical
companies. Which is quite striking to me. It's not like these companies
are providing a service that *hurts* people --quite the opposite. I
guess I'm just making a political comment, that we're having this
discussion on an industry that, basically, saves lives.

Raub -- The witness who preceded you made reference to instances where
the federal government has had a substantial investment, and suggesting
that the government might have a different view in that arena. Is that
practical, from your experience?

Keating -- I think when you look at the numbers, especially in terms of
recent years, I've seen the numbers of what the NIH invests and what the
industry invests, and the industry investment is bigger than the entire
government investment. I've heard a lot of talk that it's really the
government funding that's behind our new drugs. I don't see much
evidence of this, but I hear it bandied about a lot. When you look at
the numbers, I don't think it holds up very well.

Azar -- Just on that point, under the Bayh--Dole Act, where the
government funds some initial research... and the Bayh-Dole act was
intended, as I understand it, to promote the commercialization of
research so it wouldn't just sit on shelves in government research
libraries or be made public domain information where nobody would have a
commercial incentive to actually turn primary research into
commercialized products that, as you said, could save lives. As I
understand it, the Clinton Administration and NIH actually decided that
to try to use any authority to price- regulate costs that might be
generated from research funded by the Bayh-Dole Act, would actually
impair the willingness of entities to invest the hundreds of millions of
dollars that are actually needed \-- in addition to the primary research
\-- in order to save lives. Do you have a perspective on that? Do you
agree with the Clinton's government's approach there?

Keating \-- In terms of not imposing price controls? Yes I would agree
wholeheartedly with that. The Clinton Administration problems came in
1993, really in 1994-95, when the push was on for national health care.
In that effort, the big morass, there was discussion and debate and the
emphasis about price controls coming into the equation \-- and we saw
the effect. You know, we saw the drop-off in research and development
spending. So, on that case, I would agree with them; on the other case,
I would not.

Carmona \-- Other questions? Thank you, appreciate it.

#### Jamie Martinez, Latinos Unidos Health Access Alliance

Good afternoon, my name is Jamie Martinez. I am the chairperson of
Latinos Unidos Health Access Alliance, which is made up of Latino
activists from around the country. It is a great honor to be here today,
to be part of this presentation, and to bring you some awareness of our
concerns in the Latino community.

As the Latinos that are involved with health and safely in our
communities, our primary mission is to advocate for access to quality
health care services and treatments for the Latino community to reduce
health disparities. I have spent 35 years of my life working with the
Latino community as a worker. I come here talking to you today as a
worker who has spent 35 years in the grassroots. It reminds me of the
days of working with Cesar Chavez, the 60's and the 70's, when
pesticides -- dangerous chemicals -- were being dumped on the poorest of
the poor, the forgotten poor, the farm workers. And I learned from him
at a very early age that safety plays a very important role in the lives
of workers.

And as I sat here all day today listening to the experts, I believe that
what we do here today will determine the future of the next generation.
I remember children being born without hands, without legs, deformed
because of those chemicals. And it took years of research to find out
about the poisonous chemicals that caused cancers, about the toxins. And
we started talking to the consumers about the problems that we faced
when we have unsafe working conditions.

It is a sad state of affairs that here in America today we have almost
45 million people uninsured, underinsured. Two-thirds of them are
working poor, who make 200 percent of the federal poverty level. And
one-third are Latinos, one-third are workers. Disproportionately many of
those without health insurance are the Latino working families. I see it
in the communities where I live and work everyday. And increasing access
to affordable medicines is important, but I believe, not at the expense
of safety.

Mr. Carmona and the members of the Board here, I thank you for the
opportunity to be here to present our views. The public should be aware
that prescription drug importation is unsafe, and hurts patients'
health. Maybe no one else notices or cares whether importing medicines
is good or bad for Americans until someone we love is harmed by
medicines that contaminated, adulterated or counterfeited. Medicines
that come from all over the world, using Canada as a post office.

In order to remember to understand more these safety concerns, I
remember working in the factory back in 1966. I was a member of a safety
committee. And I will highlight some of the important issues for us as
workers in America. As members of the working class, we were always
fighting for the safety of the workers and protecting the laws that we
have on the books right now. We passed laws that protected the health
and safety of our communities. There were long struggles for workers
that lobbied for these laws. Laws such as the 1970 Occupational Health
and Safety Act, the 1969 Coal Mining Health Act. The establishment of
these laws protected the health and safety working people in America.

Whether in the work-place or in the prescription drug importation
industry, the safety protections should be one of the most important
issues here before us today. What we decide and what we do with this
committee will determine the safety and welfare of our young generations
and our consumers.

Congress has debated the issue of drug importation many times, despite
the fact that the Senate has approved this legislation three times for
these safe, cost effective measures. There are some members on the Hill
right now that are trying to do away with safety laws that protect
workers and safety. For example, there are some lawmakers that would try
to eliminate 16 health and safety protections from federal law. Existing
law already allows drug importation under certain condition where the
health and safety of Americans can be assured.

Even the law I heard being talked about today, that the Wisconsin
Governor talked about that he went to Canada, they found some
prescription companies that they want to do business with and they are
encouraging citizens to do business with. But at the same time, I do not
understand that they have this ... you can cross the border but beware
and sign these waivers. They cannot verify that these drugs are safe
that imported to Canada from other countries \-- Third World countries
\-- from Indonesia, from China, from India and from Pakistan and other
countries.

Even though we have safely laws on our books, we cannot turn back the
clock and reverse the safety laws that we have as protection. One thing
I know for sure; there is no way for us to ensure that imported
medicines will be safe and effective. Many people think, if they import
drugs from Canada, they are actually medicines drugs from Canada -- same
medicines the Canadians are getting form their pharmacies. But, the
truth is that we have no way of knowing where these imported medications
came from, or how they were manufactured, or the quality of the
medicines. The reason is that the FDA, Health Canada, the US drug
importation agency or US customs agencies have said that they how safe
they cannot monitor every package sent through their mail systems, nor
can they determine the safety of any drugs being mailed through their
ports.

In March, 2004 the Pharmacy Alliance for Canadians released a report,
showing that Canada cannot sustain the U.S. demand for pharmaceuticals
through its regulation systems, citing that nearly half of their
medicines for chronic conditions are actually being shipped to the U.S.

This gap between the supply and demand for prescription drugs in Canada
is already being filled by drugs through the black market and by people
who wish to take advantage of American's belief that medicines they
import are will actually be from coming from Canada. They have already
noted increases in drug imports from other countries including
Singapore, up 30 percent, Ecuador, up 198 percent, China, up 43, Iran,
up 2075, Thailand, up 52 percent. The majority have documented
counterfeit problems; none have agreements with Canada. Since these
drugs cannot be sold to Canadian citizens, it is likely that they are
bound for the U.S. and will end up in the corner drug store. No one with
any sense will approve this program Thank you very much for your time.
On behalf of the Latino community, we will continue to educate.

Carmona -- Senor Martinez, I have a question. You know, today we have
heard a lot of about the importation issues with Canada. I know you are
from Texas; and we also have a Southern border, where people from the
South go across to Mexico to get cheaper drugs. This is an issue for the
Latino population there. We are looking at this issue more globally, to
consider the risk for the entire U.S., so I'd be I'm interested in your
perspectives on the Southern border also and problem we have there.

Martinez --I live 150 miles from the border. I see elderly people
getting g up early in the morning, 6 am, they are elderly, retired,
grandmothers, poor families, and apparently they get on the buses go to
the border. Because of the security, they and spend hours crossing the
border and then buy at discount prices. Our concern right now is to
educate them on patient assistance programs so and how they can tap in
to these programs so they don't they don't have to travel that far and
be at risk. We can't tell if the drugs are counterfeit, fake or
contaminated \-- the risk is there. The FDA has documented this the
risk, there are tens of hundreds of documentations of that. We try to
educate people who are low income to help them learn how they can get
access to cheaper drugs.

Azar -- You spoke at great length about the safety concerns about
imported drugs. I was wondering if you have a concern about a
disproportionate impact on the Latino community from a two-tiered safety
system? One that would be the FDA gold standards of drugs, and the other
would be another system of dugs that seem like they are almost safe,
almost the FDA system.

Martinez \-- There is a two-tiered system. People that are on welfare,
that are incarcerated -- they will be subjected to diluted drugs that
are not of quality. We need to have affordable quality drugs for all
human beings in our society. The aspect of approving unsafe drugs, and
reversing laws that we have to protect the safety and welfare that we
have now, it's not the answer. We need to come up with solutions that
will work for all Americans. If someone gets a hold of a contaminated
drug, it doesn't matter if you are rich or poor, doesn't matter.

Carmona -- Other comments? Thank you. Our next speaker is Frances Smith,
Consumer Alert. Is Frances Smith here from Consumer Alert? No, not here
anymore. Then, I think that our agenda, as listed, is complete. We have
one person who signed up later, Nancy Martin, Pharm-D. Is Nancy Martin
here?

[Nancy Martin]{.underline}

Good afternoon; my name is Nancy Martin. I trained here in the US, and I
practice currently as a community pharmacist in the state of New Jersey.
I thought it would be worthwhile making a point that I think is germane,
but which hasn't been addressed before. I think that prescribers are
fundamentally not aware of their habits \-- I think that this is really
overlooked in this issue. Dr Crawford asked about this several times, in
terms of, what is the root cause of the issue, in terms of access to
affordable medicine in the U.S.?

Prescribers are not aware of the cost implications of their habits.
There is a lack of awareness of whether they have the right drug, at the
right dose, for the right patient, at the right time, and for the right
reasons. To achieve this basic understanding, we have to understand what
the alternatives are for an individual. I don't think that everyone who
leaves surgery needs a \$4 anti-inflammatory, as opposed to the one that
they can get over-the-counter for some few cents. Providers are not
fundamentally aware of this when they give a patient a sample of a
product that they have just received.

This is really important because it gets right to the crux of the
matter. The crux isn't about importing product that are available at a
lower cost. The issue is, are we on the appropriate medications that we
need? This is not being addressed and it is within the scope of this
panel, because it is about access to affordable care. It is not
appropriate for us to be on the wrong agents. It may be that we need for
controls to be put in place to ensure accountability for prescribers,
for them to understand the cost implications of their prescribing
habits.

Carmona -- A quick comment. The issue you raised is one that we raised
in our first hearing. More globally, I'm thinking about health literacy.
We usually mean this with respect to the public \-- not understating the
drugs and the regimens. But, there is also a component of health
literacy that I think you're alluding to, and that is that is the
prescriber, and understanding cost effectiveness, understanding the use
of generics and so on. So, I think that your points are very well taken
and, in a comprehensive review, we need to look at all of the aspects as
you have pointed out. So, I thank you for your remarks. Task force
members? Yes, Dr. O'Grady?

O'Brien -- Yes, it seems to me that you have two points that you are
making there. One has to do with quality and, at the same time, it seems
to me that you also wove in there a lack of price sensitivity on the
part of the prescribing physicians involved. And, I think we have seen
that; it is one of the areas that we have seen in some of the research
that I have done, that our office has done, when you look at managed
care versus fee-for-service. Part of that is within a managed care
organization. When you are not only writing the prescriptions, but also
paying for them, there is that sort internal communication that goes
back to the providers saying "Are you aware that what you wrote is 25
times more expensive than the alternative?" And I think that although
they have been criticized for being overly cost sensitive, it's is one
area, when you look at growth trends in terms of drug pricing. It's also
an area in terms of two types of care; your ability to, sort of, manage
both in terms of maintaining, and dispensing quality but also being
price-sensitive at the same time. From my work, I agree with notion that
there is not a high level of price sensitivity among most prescribing
physicians. I had always hoped that, because my side was the more
economic, that there was high attention to quality, but both of your
points are well taken.

Martin \-- It not only extends to the prescriber \-- which is beyond the
physician, because there are allied health care providers who also
prescribe \-- but throughout the whole health care system and the
consumer. I don't' think that people are aware of the costs of the
health care system. And that really is the crux of the issue, because
you would demand to understand all of your alternatives, just as you
would for any other product you procure, if you understood your options.

Raub -- Just an observation -- you could also add the sensitivity to
litigation; the \$4 pill is sometimes seen as a bigger shield than the
20 cent one. That too also is contributing to the root cause.

Carmona -- Other questions, comments? All right, I think those are all
extremely good points. I know that, having been in academic medicine for
some years, it was always a challenge to get our residents and medical
students not to order the latest drugs because that was the last rep
they spoke to and they had it fresh on their mind -- but to remind them
to think about what actually provides the greatest remedy at the lowest
cost. This is a matter of challenging them and injecting this into the
educational system, whether that's on rounds or when pharmacist is doing
the prescription.

All right, are the re any more members of the public who would like to
say something? Anyone who came in late or signed in that I am not aware
of who would like to say something? I want to thank the public who has
come today and spent their time with us. This is essential for us in our
deliberations, to provide recommendations to the Secretary and Congress.
I would like to thank the task force for their commitment to this kind
of boot camp approach; we made it through the day. I'd also like to
thank the media for hanging with us, and helping us to get this story to
the American public. After all, we understand the huge responsibility
that we have in making these recommendations for the American public and
without you we can't get the story out. We want to make sure the
American public understand what the issues are, and that we are working
to get the best practices on their behalf. Thank you all very much.