the meeting of the subcommittee is called to order and today we're having a hearing on prescription drug it's inflation are drug prices rising too fast and i'll first recognize myself for an opening statement every day in america life is saved an illness is averted or the effects of a disabling condition are mitigated thanks to the innovative medicines produced by the pharmaceutical industry and i also think that it's important to mention the constructive role that the pharmaceutical industry and individual companies have played over the past few years amid various health care debates the industry was an early and active proponent for the reauthorization and strengthening of s chip which we were finally able to achieve earlier this year in addition i want to recognize their efforts to ensure comprehensive health reform is an actor this year well i know that we all have not seen eye to eye on every issue i appreciate the fact that the industry acknowledged very early on that they have a stake in making sure health care reform succeeds and they're willing to make a contribution towards paying for it unfortunately for all the good the pharmaceutical and biotech industry do is often overlooked or eclipsed by reports of behavior designed to maximize profits at the expense of individual patients employers and american taxpayers indeed according to a two thousand and eight public opinion poll conducted by the kaiser family foundation negative views of the pharmaceutical industry appear to be driven by perceptions about the costs of prescription drugs and pharmaceutical company profits that cause their poll shows that seven in ten adults say pharmaceutical companies are too focused on profits and not enough on helping people and nearly eight in ten seventy nine percent believe that high profits are a major factor in the price of prescription drugs and the same proportion feels the drug prices are unreasonable the poll for the suggests that these opinions about prescription drug prices are driven by people's real life struggles paying for drugs for intended dulls reports some serious problem paying for medication either that is a serious for their family to pay for drugs they need not filling a prescription or skipping doses because of cause  and new evidence suggests that prescription drug prices are increasing rapidly most recently the new york times reported on the vendor fifteenth that drug prices have increased by approximately nine percent over the last year and by a least one analysis is the highest annual rate of inflation for drug prices since one thousand nine hundred two at the same time general inflation as measured by the consumer price index has fallen over the past year which means that while people are paying less for other types of goods and services they're paying more for brand name prescription drugs at a time when they are least able to afford to do so and if you know millions of americans are out of work millions are losing their homes millions are without health care coverage shows so it should come as little surprise  members of congress would be alarmed about the idea of drug companies raising prices at a time when so many of our constituents are already unable to afford the medical care they need now some researchers including dr shown tomorrow who will be what we're going to hear from today have suggested there is a link between spikes in prescription drug prices and when there's a legist when there's legislation pending that impacts the pharmaceutical industry's bottom line such as the various health care reform bills currently moving through congress i know that the pharmaceutical industry disagrees with this claim and has suggested that any increases in drug prices are a result of investments in research and development that are necessary to keep new and innovative drugs moving through the pipeline and i would be unfair if i didn't point out the industry you know that this is not you know how should i say it one broad stroke one broad stroke i mean there are companies that are increasing prices and there are others that are not  according to dr shawn tamara's research some drugs some drugs so a no increase some increases were below the average but other drug prices increased by zero most twenty percent such as flomax which appears excessive in my opinion furthermore the surveys on drug prices are unable to account for discounts and rebates provided by minute factor as to wholesalers of purchasers hence there is a level of uncertainty that is inherent in these numbers and that's why we're basically support of a better price transparency and when it comes to prescription drugs i think that that's something that we really need more transparency and i've been advocating that for a long time i think that better reporting and more transparency will help us make sure the drug prices are not rising arbitrarily or to maximize profits and that every american has access to affordable prescription drugs and that's a goal that we all share so we're here today to try to get to the bottom of this latest price increase and we obviously have people that will be talking about some of the reports that have come out and also from the industry and so i want to thank our panel of witnesses in advance for being here today i do have to mention though that i know there's some issue with meyer because we just received his testimony this morning at nine thirty and i it is i'm very upset by that because the rules actually provide that we have to have the testimony much sooner i think it's two days notice when we get at the last minute you know literally as a last minute i know there are some members here they're going to suggest that he shouldn't testify at all i was sort of an inclined initially to say that as well because i haven't had anybody that submitted their testimony so late but i would ask i guess it's my parag of to make the decision and i am going to ask him to to speak this morning all because a lot of this hearing came about because of his initial survey and i think if we don't have the opportunity here from the panel and the hearing this morning won't be as productive but i don't want to sound like a teacher chest i think a student or something but it is meyer and where we didn't get the briefing but all we got was a power point you know i'm not sure i i know that it look let's be honest and i don't want to get into an argument with anybody because i agree with you we are we  are getting testimony late like i know that one of your witnesses i think we got it yesterday which you know is not as bad as getting at the last minute but it is getting to be a pattern that you know we're getting some of this testimony you know a day or earlier rather than two days and so i think we we need to be a little more i don't know what the word is tough on the witnesses and remind them that we needed twenty you know forty eight hours and if the chairman you'll just minor standing that last year in the government reforms committee the same thing happened and i'm just told he has an testify issue it's a pattern now it's not one time when that in his i'm just making a point that it might be a pattern well we ought to be a little  e testified before so i don't want to say that it's a pattern on his behalf but i do i do want to mention that it is important for witnesses on you know both democrat and republican when this is to try to get the testimony and not just you know even twenty four but forty eight hours the rules provide for the forty eight but anyway let me yield to our ranking member mr deal like chairman thank you for holding this hearing on the cost of prescription drugs if the subcommittee isn't channel addressing the high cost of pharmaceuticals i believe that approval of the follow on biological legislation which clearly balances consumer access with strong incentives to innovat essential to achieving this go in two thousand and seven global sales of these drugs reached seventy five billion dollars current estimates suggest that half of all drugs both small and large molecules will be by pharmaceuticals next year while statistics further indicate the spending on biologic drugs is expected to grow twenty percent annually it is very disappointing that this committee during markup of health reform legislation earlier fell short on its commitment to achieve this go unfortunately provisions which aim to truly encourage competition reduce cost and most importantly increase access to critical drugs that currently fall out of the reach of countless americans every day were not included as a part of the bill a both tried to get done instead of government price controls which have a proven track record of declining research and development spending among those nations who have adopted it appropriate incentives which for research and development enhance access to cutting edge drugs is essential as we all know incentives to invest in r and d projects are highly dependent upon legislation this congress puts into place we must ensure appropriate provisions are put in place which continue to promote world class pharmaceutical research and development in the fight for new cures here at home and abroad while ensuring continued access to these drugs by the american people it is indeed a delicate balance also look all day on these testimony and appreciate the opportunity to discuss their decision to support h r thirty nine sixty two particular in light of significant cuts which are prescribed by the legislation within the medicare program i look forward to learning more about the reasons that led well our economy's in a slump the consumer price index has actually gone down yet for pharmaceutical prices in the last year there's been a nine percent increase i must say that when it comes to prescription drugs and and the drug industry nothing surprises me anymore but increases in of this magnitude is really pretty shocking our nation sees  that when drug prices are raised by my nine percent or more over a year that increases the out of pocket costs for drugs it drives up insurance premiums it increases the cost of the medicare d program means more and more citizens some with insurance some without are forced to go without the drugs they need to remain healthy and reports indicate that this problem is getting worse not better the drug price increases over the last year are the biggest we've seen in a very very long time it's hard to escape the conclusion that the industry is positioning itself does issue tickets pricing or enactment of the new health reform legislation they were were met with great acclaim when they announced with the white house and the senate that they were going to take an eighty percent reduction in their price in their profits over the next ten years eighty billion well a nine percent increase in  prices over this last year comes to twenty billion dollars that they're getting in just one year so let us keep this in perspective when americans hear about these soaring drug prices they're absolutely right to demand to know what congress is doing about it in the house led by members of our committee we're trying to tackle this problem last month the house passed historic health care reform legislation and i'm confident the senate is going to follow our example in a very short period of time in our legislation we provided that health insurance including drug coverage for thirty six million citizens who would be otherwise that this company these companies will not just get a blank check as reef we for my health care system we try to strike an important balance that put consumers and taxpayers first we require the drug industry to provide additional discounts for the medicaid program we end the military billion dollar windfall that the industry received when you will eligible enrollees were switch from medicaid medicare part d drug coverage we're requiring the discounts be provided when the government pays for low income people to get health care coverage the house bill uses this money that would otherwise go to the drug companies to help millions of americans afford health care coverage and to close the part d donut hole that's a good policy outcome that's good for america and it's the right right prescription pharma the drug industry made over fifty billion dollars in profits in two thousand and eight fifty billion dollars in profits some of that went to increase their research and development most of it or let's put it this way more of it went to marketing drugs than into r and d so when we look at a drug prices increase of nine percent over the last year it's the highest increase in recent memory and as we try to climb out of our massive recession as more and more americans struggle with the loss of health care coverage and high insurance costs everyone has to pay more because for drugs this is not right we can't afford it the drug companies are playing a shell game when they tell us they're going to take reductions in government expenditure yet they're going to get millions of new customers paying for drugs and yet what we see is at the same time they're increasing their drug prices at a record rate i hope this hearing will help us and for  for the purposes of whatever the majority wants to deem without having a proper analysis having said that medicare d has been one of the most successful federal health care programs originally scored and first year cost for nine billion it came in at forty one overall since its inception its forty percent under projected cost seniors have more choices and it is it is a distinct difference in the direction that we're heading and thirty nine sixty two where medicare incentivizes private insurance to provide access to prescription drugs for people can choose and you let the market work which is just the opposite of what we plan to do when we eventually move t government takeover of health care and thirty nine six to every health care hearing that we're going to have is going to be as the chairman of full committee says in the parameters of the health care bill that's moving through both chambers and rightly it should be so they'll be a lot of great questions because of the calling of this hearing and we look forward to discussing those let me end on just talking about comments made last week which was just birds but was been proved correct by a paper called the californian last week we had the breast cancer decision from forty to forty nine a lot of us said this will start the road down to the government making determinations based upon cost the headline here a state subsidy for mammograms to low income women under fifty and they also say the state's decision announced december first an effective january first follows a controversy all federal recommendations last month that mammograms before the age of fifty are generally not needed however the private health care system has rejected the federal task force recommendations so here you have the public health agency say we're going to accept the safe cost the private insurers are going to keep them which isn't a center for us to stop disparaging private insurance and really be concerned about government here's what dr lawson says what makes me really worried is that the california department of public health wants to save money by taking away a cancer detection program called and said this that discriminates against a gender also discriminates against an income level and it also discriminates against how community clinics can practice medicine that is the road we're heading i reject this path it will be harmful to public health and we'll get a chance to ask questions of those people who are in the room the closed door meetings with the white house and other leaderships on their role in h r thirty nine six colleagues i too am very concerned to see reports of artificially increase drug prices on the heels of a promise made by the drug manufacturers to decrease prices for  consumers last month the a a r p released a study which found brand name drugs increased by nine point three percent the highest drug since two thousand and two just a few months earlier a much touted announcement by the white pharma promised eighty billion dollars in savings on drug costs most notably to help seniors who are struggling to pay for medications in the donut hole at a time when everyone in the health care industry  being asked to put something on the table to contribute something to the reform effort the drug companies where some of the most vocal integrity the quote sacrifice they were making for the cause of health care reform last april i m s addicted the drug sales might actually go down but i m s health a consulting firm paid for by the drug companies to advise them reported a significant increase in prices i certainly understand the need to couple profits with innovation in order to promote science and encourage new therapies and treatments i think that that is essential  not only for to advance what we want to advance but that we retain an american position where we're first in the world because our people benefit from it but as i understand it the house pharma agreement called for reduced drug costs to support coppers comprehensive health care reform and not from discounts from jacked up prices i know that we're going to be hearing from pharma who i understand will testify that reports of rapidly increasing drug prices are false and that the increase was based soley on the listed price of drugs not the discounted prices most americans or the government pay  eager to hear their act their explanation and be able to report these explanations back to my constituents if they're worthy of being reported if they really hold something i'm also eager to hear from a fueled much of the drug pricing debate with their recently released released report as both an interest group for seniors and an insurance company their report may have different implications are just like to add to that the the gentleman from make biologics move them into generics and thereby more and more americans will be able to not only afford them but that that pathway is a very  robust one a smart way to go i don't want to lose this to other countries i think that america is in a position today where it can ill afford that and most frankly we have two medicine because as good as pharmaceutical drugs may be they only treat symptoms they don't go to the cause of the disease so this is biologics are really where the most hope lies so i thank you again mr chairman for the hearing today and i don't mind receiving inputs from anyone at this point because there's such great uncertainty out there especially regarding your very aggressive health agenda it's an agenda that i think is on the  verge to hurt the industry in which we're going to discuss here today and there in turn hurting the health of america and the world i think it's important to look at what we know about drug prices and their relationship with regulations such as price controls which are supported by the majority it's also what's included in their health reform legislation asked by the house is being debated by the senate we ought to be doing is we ought to be looking at the effect of price controls and we can look at the model  that by european countries between one thousand nine hundred six and two thousand and four during this time these countries strengthen their price controls and the controls had a devastating impact upon research and development spending and all that investment then spending in europe on research and development of drugs trailed the united states by fifteen percent so what did this dramatic decline in research and development investment amount to well they have fewer new drugs approved in europe and about seven hundred fewer scientists employed in europe suitable industry research and development grew at nearly one half of the rate of the united states as a kind of john vernon and between two thousand and two thousand and four so here we sit with a potential price controls that will be similar to europe i think america ought to pause actually i think america ought to wake up because there is a wave of socialism that is truly coming to the shores of america and we better wake up now all of us either have friends or someone or a family member that has a narrow so when you disease sudden infant death syndrome there's a very long list and so what is the demand when someone has a narrow narrow spectrum they want them they want the pharmaceutical companies find thank you gentleman from texas mr green chairman thank you for having this hearing on prescription drug prices we've seen many reports on high cost of and rising prices a prescription drug most recent policy institute in november found that between october two thousand and eight and september two thousand and nine the brand name drug prices increased nine point three percent the highest drug inflation since two thousand and two prices for specialty drugs used by medicare throughout the country seniors pay thousands and out of pocket expenditures they are unprepared for with come down on how often college seniors to choose between purchasing medication and food which is not something they should ever have to do this is not the kind of in benefits seniors are and need to be corrected by congress the house passed a health reform bill h r thirty nine sixty two which makes several major changes in prescription drug programs to ensure seniors and low income individuals receive the prescription drug medication they needed an affordable cost h r thirty nine to increase his current medicaid drug rebate that manufactures paid to the government closes program loophole that prevents full rebate payments pharmaceutical manufacturers get the best deal possible for medicare part d beneficiaries disallows secretary to attain large discounts and rebates on drug use by seniors passing on that savings to party and rowley's and to the taxpayers  working on their health care bill right now but they're billed as not allow the secretary didn't go shave the lower part prices and does not create new party drug rebates and does not close the donut hole if we want to make real health care reforms we must and urgent situation as we move forward with health care reform efforts we need to ensure that we aren't just providing access to health care services in theory but we need to actually make it affordable both for individuals and for the government with prescription drugs accounting for ten percent of medical expenditures it's imperative that we assure affordability for the people who rely on them i'm particularly concerned with the impact of rising drug costs on our seniors who for the most part live on fixed income i'm sure all of our colleagues have heard from constituents who literally had to decide each week between medication and groceries because the costs are so prohibitive or other constituents who decide to take only half of their prescription there does age because they can't afford to pay for the entire amount well there are system for assistance programs to help individuals pay for their medications they aren't always reliable and they don't always apply to the particular medication that the senior needs and that's why it's so important that we have this hearing today to look into the possible reasons for the rapidly increasing cost of medication i certainly understand that drug manufacturers must recruit the pensive cost of research and development but at the same time isn't it unconscionable for us to be watching as drug companies profits rise the way they are while more and more of their patients with chronic disease lose their ability to afford lifesaving medication i look forward to hearing our witnesses thoughts on why these price increases are occurring and how we can address the situation the costs as as we move forward and i yield back thank you thank you gentleman from texas mr b chairman i'm sure for people watching this hearing this pointing their wondering what in the world is the purpose of what we're doing here this morning if it is days to the question are prescription drug prices rising too fast than we probably have a couple of concerns in the first is why i would not wait until the report requested by chairman waxman from the general accountability office on this very question was received we really can't debate the proper increase in prices what they should look like until we know the facts not the facts as reported by the new york times or an advocacy group with a policy agenda but that provided by an independent entity which is has the responsibility of providing congress with the information and the second concern is why in the world did we not initiate this in the  subcommittee on oversight and investigations where we have subpoena power if necessary and can take testimony under oath if the concern is that prices are being manipulated and causing harm to american americans on programs under this committee's jurisdiction but that would seem to be the natural place to hold that hearing maybe this is all about that monstrosity of a bill that we passed late in the night a couple of saturdays ago again it's just hard to know but you do have to ask the question where is the general accountability office where is a congressional budget office where the actuaries at the center for medicare and medicaid services that could make sense of some of this for us none of those people are testifying today mr chairman why is that now i know some people look at drug prices and say all drug companies are evil and they shouldn't make a profit we need to take those away from them at this government's history of the past year of manipulating in the market is wrong on so many principles i don't think we should encourage that type of behavior in this committee today but you know what we really don't know if this manipulation does exist what part of it was fostered by the secret negotiations that occurred at the white house in may and june and why has this committee had absolutely no curiosity about what was going on in those secret negotiations in may and june and why is it that so many of these things were built upon hearing in the right work up of the legislation in this committee and on the senate finance committee why is it that pharmacy prices can't be changed why is it that the american hospital association has some of its some of the things that it's brought to the table that are that are judged  what other deals were struck deals with the a m a what about what about the service employees international union we know nothing about that because this committee has had no curiosity about what might have been happening down at the white house under the cloak of darkness to be a transparent process available to american people on c span from start to finish and we can't get the most basic information about what was given up and what was given away during those secret negotiations in may or june now we can also do a lot of stuff on medicare part d got to tell you that the fact that we decided in two thousand and six to work with the market rather than dictate to the market has been responsible for a significant amount of success in the part d program but i suspect we'll hear some of the same arguments that we've heard for years about why that program is not working despite the fact that ninety percent of americans aged sixty five and over have access or have prescription drug coverage today compared to seventy five percent before we started in two thousand and four and that the satisfaction with that program is at an all time high i don't not  gentlewoman from california ms harm thank you mr chairman for holding this hearing let me say to dr burgess that i sat through the tens of hours of mark ups of the health care bill and i heard people were reported by this committee that scuttled that deal and that required for example negotiations for better drug prices under medicare part d so i think whatever it is that the white house did i want to applaud this committee for looking independently at some of those deals and i think the reason we're here today is because we're still enormously concerned about the escalation in drug prices according to the a a r p the wholesale prices not the retail prices of brand name drugs have written risen by nine point three percent in the last year the highest annual increase since one thousand nine hundred two and this comes at a time when the consumer price index has dropped by one point three percent as we head into the holidays and people are strapped to buy anything for their families over the holidays i think it is just unconscionable and immoral that a basic necessity of life which is drugs  s having this unexplained escalation in prices we already spend nearly three hundred billion dollars a year on prescription drugs it is one of the fastest growing areas of health care spending and frankly since the very beginning i have maintained that reducing the cost of prescription medications is the one reform that will have the biggest impact on people so i'm very glad that we're holding this hearing and i just want to say to our witnesses and to others who are looking at this problem that consumers are watching and right now what i think they're seeing is price gouging i yield back thank you the gentleman from pennsylvania mr murphy and what they do i'm particularly concerned here about making sure that we are not having hearings on why drug companies are not inventing drugs to cure disease that would be a sad state of affairs indeed many of my constituents are senior citizens and we know they struggle to pay their high medical bills we know that we've had opportunities sometimes squandered with regard to how we could reduce medical bills by reducing cost of health care through preventive services to making sure that we maintain disease management by making sure we reduce waste in health care over one thing we don't want to do is eliminate drugs that can cause they they can help cure problems after all drugs are not affordable offer little consolation a drug that is not invented offers little cure and as a combined thing we have to make sure this committee does not stand the way of coming up with those cures it's easy to go after companies that make money will companies pharmaceutical companies anybody else who makes a profit as a for profit or nonprofit company and say that they should not be making that kind of money if that cost is passed on the consumer i understand we need to be sensitive to that area and make sure that the prices of any item is not inflated to the point that people cannot afford them however it's also important this committee nor this congress this country stands in the way of coming up with these cures to treat diseases there was a certain other things we have done here we've looked after the consumers we want to make sure we continue to look after the consumers and making sure that these are things that they have generic drugs also are critical function they have grown massively in their use they provide some good choices for people and we need to continue to support generic drug use however they are not involved in the research and development sector and we have to make sure that  the research and development continues on congress funds much of that through and i and i am a lot of studies that take place and we need to continue to do that as well and somehow we have to look at how combining these efforts to fund research and development to fund all levels of research continue on so that this country leads the way in coming up with ways that we can find affordable prescription drugs into that and i'm looking forward to hearing the testimony of the panelists here and see if they can offer us some solutions that's based on how we can maintain this search for cures as well as search for affordable cost back thank you gentleman from illinois thank you chairman sloan i appreciate your having this hearing today the better understand why prescription drug costs are rising exponentially at a time when millions of americans are struggling to make ends meet i assure you my constituents applaud the fact that we're having this hearing today a recent survey of illinois seniors confirm the concerns that i hear from my constituents every single day sixty three percent of r p members in illinois said they were concerned about affording their prescription drugs close to twenty percent reported having to cut back on assess of these pay for prescriptions twenty one percent reported not filling or delaying a filled prescription because they simply couldn't afford it and one in five said they took less than the prescribe amount to make their medicines last longer facing a severe budget deficit our state took the bold step of expanding it prescription drug program called illinois cures are acts designed to benefit seniors and people with disabilities when asked about the reason for the expansion of the illinois health when asked for a reason we asked  rry merom who is head of the own eye health care and family services division and he said quote the cost of prescription drugs has escalated to the point of being an affordable for many of the people who rely on them most especially seniors and people with disabilities no one should have to go without medication to keep them healthy unquote the cost of brand name prescription drugs are rising at a pace that far exceeds price increases for other consumer products my constituents both as consumers and as taxpayers want to know whether the pharmaceutical industry is preparing for health care reform by trying to squeeze every bit of profit they can now health consumers are desperate for health care reform and there are many provisions in h r thirty nine sixty two that would lower drug prices including the language that i had the honor of offering to this committee to eliminate the ban on medicare negotiating for drug prices but they can't afford to have the drug industry use the time between now and the implementation to artificially raise prices and profit at their expense again i thank you mr chairman i yield back thank the you mr chairman and i appreciate you holding this hearing today i'd like to be able to say that i'm shocked that we're here talking about this but sadly i'm not americans pay the highest drug prices in the world we pay between thirty five percent fifty five percent higher than people in other developed countries and we've been paying these exorbitant prices for a long time drug prices account for ten percent of all health care spending over the past year we've been working hard in this committee in congress to make health care more affordable for families businesses and individuals and the affordable health care for america act health care bill contains a number of  aimed at curbing the out of control drug prices for america's families and seniors and yet during this period drug companies increased prices by over ninety percent at a time when inflation was negative increased drug prices hurt us all they hurt older americans on fixed incomes who saw their drug bills increased by five hundred fifty dollars last year they hurt people who have insurance and who now have higher co pays they hurt taxpayers and the government who are now paying higher drug prices and more than anyone else they hurt the uninsured who do not have anyone to negotiate on their behalf there is something wrong when americans are paying record high drug prices and drug companies are reporting such hi profit the c e o salaries at some of the largest drug makers are evidence enough that something is seriously wrong at abbott laboratories the c e o made over twenty eight million dollars last year at merck the c e o made over twenty five million dollars and at pfizer the c e o made over fifteen million dollars and it does not end there drug companies often claim that they must charge higher prices in order to fund research and development for new drugs but the truth is drug companies spend more on advertising than they do on r and d it's time for some answers time for the drug companies to explain why they're raising prices especially right now and i yield back thank you gentleman from pennsylvania mr welcome and thank you for being here today let me just introduce each of you starting on my left is professor stephen chandel meyer who is professor and head of the department of pharmaceutical care and health systems and director of the prime institute at the university of minnesota the second is mr rick smith who is senior vice president for policy research and strategic planning at the farm which is the pharmaceutical research and manufacturing association and then we have kathleen stoll who is deputy executive director of families usa and dr john vernon who's professor department of health policy and management at the university of north carolina at chapel hill and he's a faculty research fellow with the national bureau of economic research and finally is miss bonnie cramer who is chair of the board of directors of a thank you all for being here today we have a five minute opening statements they become part of the record and you may of course with our discretion submitted to tional statements in writing and you may get some additional  i think your mike is not on mr chair and my apologies for being late with my testimony i was rather pressed for time and notice on this particular hearing i'm here to speak on my own behalf as a researcher and one who studied this marketplace for more than thirty years i'm not here representing your or even the university of minnesota other than the fact i'm a professor there and that's where i do my research and also let me comment that the medicare part d drug program has expanded coverage for prescription drugs for people who would not otherwise have had such coverage and it has provided many benefits  and we've made some progress in that area realizing that drugs and drug prices and drug expenditures were an issue and others such as myself researchers in the marketplace  and reflect those price changes in the marketplace and individuals at the public policy institute had an interest in tracking drug prices and i've been doing that for a number of years in the marketplace and we decided to get together and collaborate that collaboration has led to a series of studies of drug prices over the last five or six years with a a r p one of which was the study that got reported in the new york times back about a month ago the details of from seventeen and a half up to twenty eight point two percent increase in price there were twelve cancer drugs in our specially database they ranged from a low of four point nine percent up to twenty point eight percent and again remember inflation overall was negative last year the bright spot is we also tracked generic drugs and generic drugs actually went down eight point seven percent this is one of th inflation the consumer price index for our each of them provide information that's unique and different our index was created to show the difference between brand names and specially in generic not just the aggregate cent for brand name and ten point three percent increase for specialty drugs and the only bright spot there is seven percent decrease in generic drug prices these prices are real they are felt by your constituents thank you chairman ranking member mr chairman and ranking member deal members of the committee thanks for the invitation to testify today c b l reports that pharmaceutical research sector is one of the most research intensive industries in the united states companies investment  discovering new medicines is yielding results also according to c b s many examples exist of major therapeutic gains achieved by the industry in recent years the rapid increases that have been observed in r and d spending have been accompanied by major therapeutic gains extensive research also reports of medicines often reduce spending on other health care services the committee requested that i provide information on prescription drug pricing as a trade association pharma maintains a strict and i trust compliance policy we can neither obtain nor discuss our members proprietary information related to prices the goshi ations or discount strategies my testimony therefore reflects only aggregate market data and publicly available information recent government reports demonstrate the prescription drug cost growth has slowed dramatically findings about drug costs in the government's most recent national health expenditures data are summed up in the c m s reports title national health spending in two thousand and seven slower drug spending contributes the lowest rate of overall growth since year blip between those three in zero seven the average annual growth rate for prescription medicine has dropped by half compared to the one hundred eighty two thousand two period and c m s his most recent ten year projection reduced expected growth in prescription drug spending by five hundred fifteen billion dollars or fourteen compared to three percent for the rest of health care likewise c b o reports from two thousand and four to two thousand and seven drug expenditures grew by an average of just three point two percent per year or slightly less than the rate of growth in overall health care spending since one nine hundred sixty four i m s health have found that the u s market grew by less than five percent only twice two thousand and seven in two thousand and eight and it now projects the growth will remain at historically low four and a half to five and a half percent in zero nine and will be five percent or less in each of the next five years at the same time the drug cost growth has slowed sharply reports like those issued by r p reach conclusions that conflict with government data and that skewed toward finding high price growth these reports exaggerate drug prices trends by failing to reflect the way public policy and the prescription drug market function our system is designed to fund the next generation of medical advances through innovator drugs that have a limited time on the market before going an eric and to achieve cost savings through the high use of generics large powerful payers use a variety of tools such as tiered formularies to negotiate lower brand prices while driving higher use of generics which now account for about seventy percent of all prescriptions we don't believe that each tool used by a purchaser always feels the best possible outcome and we're encouraged by forward looking purchasers who are looking at alternatives that make better use of medicines to improve care a controlled costs nonetheless under the current system drug costs as a whole are growing slowly not fast and consumers use drugs that were once innovator molecules as generics in large volume for many years with little or no return to the innovator the importance of understanding how the market operates when interpreted pricing data is evident in our most recent report eight of the drugs on arps list of the top twenty five brand drugs are sold as generics these drugs are counted in our brand price calculation is zero patients continue to use them at brand prices even though brand price even though brand drugs typically lose nearly all of their sales after going generic one example for a stat and ninety nine percent of the utilization for that stat and on our list of top use brand drugs is now generic and the cost per day of therapy has dropped by fifty eight percent over three years not reflected in the or purport the federal government c p i data on prescription medicines includes a market basket of brand and generics that reflects what consumers actually buy in the three years ended october two thousand and nine drug prices rose by an average of two point three percent per year compared to three point eight percent for all medical care for the most recent year the government's measure of drug price growth was two point seven percent implicit message of reports on brand prices seems to be at the pharmaceutical research company standard a uniquely favorable position in fact the sector is currently characterized by slow growth rapid substitution of generics or brand medicines a projected ninety billion dollars in sales facing generic entry over the next five years and the exceptional challenges inherent in discovering new medicines safely and effectively treat disease through october of this year fifty eight thousand job cuts have been announced in the industry on top of cuts in zero seven  nonetheless there is reason for optimism that new medicines will continue to improve medical care in the future investment in these in pursuing these objectives accounted for by the ten percent of health spending going to medicines is repaid to society and longer healthier more productive lives in conclusion i'll note that the national economic council recently published a document titled strategy for american innovation driving toward sustainable growth and quality jobs which identifies new treatments such as smart and eye cancer therapeutics and personalized medicine as among the twenty first century of grand challenges achieving these challenges views important to improving the quality of life and establishing the foundation for industries and jobs of the future by a pharmaceutical research sector looks forward to  thank you chairman and thank you ranking member deal members of the subcommittee my voice isn't quite as loud as the previous gentleman but let me just say i think we've heard a lot of numbers i'm going to actually give us a little pause from the numbers i've got a few stats for you but i also want to paint a picture of what it means to have rising prescription drug spending and prices for consumers and let me just give you a few numbers but let me mix in some stories increasing access to affordable prescription drugs drug coverage is a top issue for families usa we've seen prescription drug spending by consumers more than double in the last ten years now it's fair to say that that spending is driven by more than just price increases people are using more drugs and in many cases that's a good thing prescription drug use has increased seventy two percent while the population is only growing by a leaven percent that that's a pretty good business proposition i think utilization is also change that means the kinds of drugs people take has has changed and some of the drugs the new drugs on the market the biologics are more expensive that's not necessarily a bad thing because many of them aren't real breakthrough drugs but we do see statistics that show us that spending on biologic drugs is growing nearly twice as quickly as other traditional chemical drugs and the third element of why consumers are spending more on drugs or trying to spend more on drugs is the cost of prescription drugs and that's what this hearings about and drugs are becoming more expensive we can go back and forth  stats i think we should be careful that we understand that reduction in the rate of growth still means you have a rate of growth and what we've seen is that between ninety seven in two thousand and seven retail drug prices which what is what counts for consumers have increased an average of about six point nine percent a year that's about two and a half times faster than general consumer inflation and it seems like that trend might be accelerating it's really hard to say and i leave that to steve so what does this mean for consumers if you look at uninsured consumers uninsured adults half half report that they don't get their prescription drugs filled they don't get their prescriptions filled and they don't think needed refills and i pause here now to tell you a story and i'm not going to tell you a story of a dramatic disease perhaps a rare disease with a dramatic cure and let me just tell you about a single mom that came to our attention she has a severe problem with migraines debilitating her vision is impaired by them and she's really left and able to function and because of her migraine she misses many days of work and many days with her son she doesn't have insurance she does work full time and she finally went ahead exposed to and they went through a couple of different drugs she had some samples and after three or four they found one that works it's actually like americal drug for her so we do think pharmaceutical industry for this breakthrough drug i'm not going to name it and the problem is of course this brand name drug that provides a tremendous relief from debilitating migraines is very very expensive so you know where the story is going she can get the prescription filled she gets six at a time and it really takes hundreds of dollars to fill this prescription for six pills so what she has told us is that she saves her pills and that she gets a headache a real severe migraine her doctor should take it right away don't wait but she holds on to those pills because they're so expensive and she'll go ahead and have a migraine she doesn't take it early when she should in the end of the story is what she shared with me which is she had one pill left one month and it was very expensive she would be able to replace it and her son plays the trumpet he had a recitals coming so she  held on to that pill went through three severe migraines missed time at work missed paychecks in order to be able to take that pill on the day of the son's recitals she ended up having addict that day what she wanted the insurance  that's that's what we're dealing with that the consumer level that we could bring down the name of that brand drug would mean a tremendous difference for this woman who's uninsured that's uninsured she's uninsured many americans who have health insurance are still unable to under insured when it comes to prescription drug coverage and they make difficult decisions too though they paid for coverage because they're under insured or may not have prescription drug coverage at all  two out of five of these folks under insured actually go without fulfilling their prescription following their prescriptions as well so a problem of the uninsured and the under insured of course some folks don't have coverage through their employer and they're in the individual market i just point out that in the unregulated individual insurance market consumers are four times less likely to have prescription drug coverage at all certainly for people with chronic conditions that's where we see the most impact in terms of high prescription drug spending a person with a single chronic condition can spend about thirty percent thirty six percent of their out of pocket loss will be for prescription drugs if it's a person with two or more chronic conditions they're out of pocket spending for drugs can be six times higher than their hospital costs now that's not necessarily a bad thing i'm just giving you a sense of the impact on consumers that maybe those prescription drugs are keeping them out of the hospital certainly we know that there is a toll in terms of reduced quality of life reduced productivity and and sometimes that means not have access to prescription drugs it also means that our health care system has higher costs long term i will tell you one more story the story of a child with asthma both of these this child's parents work full time  they work full time but they have they have pretty good insurance coverage for themselves they have no dependent insurance coverage so their kid is not covered their son has asthma he needs a maintenance drug costs couple hundred dollars a  month because they don't have dependent coverage for their son and they don't qualify for chip by the way their son doesn't get the asthma medication on a regular basis they can afford it it's hundreds of bucks a month these are low wage working parents they've tried things like making their fifth grade son wear a mask when he goes to school to help with the maintenance and the management of the asthma if you've ever tried to send a boy off to school with a mask you know that's probably not going to work too so the end of the story is obviously the child without regular asthma medication to maintain it in monitors keep it under control he ended up in the emergency room and he had a very high cost hospitalization it had a very hard financial  mr chairman and members of the committee thank you for the invitation to testify today my name is john burton and i'm a professor in the department of health policy and management at the university of north carolina at chapel hill and a faculty research fellow with the national bureau of economic research in addition to discussing the issue of rising drug prices i will also discuss the role drug prices drug prices play in firm an industry level or and the investment the latter is of critical importance because considering drug prices in isolation is not useful the trade off between drug prices industry profits and innovation is what's relevant my research on this point is based on funded research published in the peer reviewed economics literature regarding the issue of rising drug prices in the us the conclusions drawn by the eight or p report are based on flawed methods and thus are misleading some of the more serious flaws with the analysis  they a or p report is based on wholesale prices not retail prices or transaction prices which are often substantially lower than wholesale prices and this is because p b s and insurers negotiate discounts often steep discounts and rebates with manufacturers second to the a r p report is an analysis of branded products only the burden to u s consumers of prescription medications associated with access to prescription drug drugs should also consider generic drugs which in the us have among the lowest prices in the world and the highest utilization rate for example approximately seventy percent of all prescription drugs dispensed are generic drugs so we have both the highest utilization rate and also the lowest prices much of this credit goes of course the one hundred eighty four waxman hatch act which did a nice job of balancing innovation with generic competition and three in the eight or p report ten of the twenty five branded pharmaceuticals in their study actually had generic versions currently on the market mandatory generic substitution laws in most states implies that the lower cost generic versions of these ten branded drugs are dispensed to consumers not the branded version in my opinion and based on my experience as both academic journal editor and peer reviewer for academic journals  this study as it stands does not meet the peer review standard for academic publication and that's the hallmark of academic research a better measure in my opinion of drug price trends in the us one that is based on retail prices not wholesale prices and which also captures the cost savings from generic competition and substitution is the prescription drug consumer price index reported by the us bureau of labor statistics the b l s prescription drug inflation rate for two thousand and nine is approximately three percent roughly one third of the nine percent inflation rate reported by the a r p moreover the change in drug price inflation was approximately half that in the most recent year of the change in the inflation rate for non prescription drugs and medical supplies this suggests the small increase in prescription drug prices may reflect broader health sector market dynamics and not an isolated increase in prescription drug prices as previously mentioned the consideration  prescription drug prices in isolation is an incomplete and misleading exercise what must be considered are the costs and the benefits of higher or lower prescription drug prices and specifically the economic trade off between access to existing medicines and access to future yet to be discovered medicine the expected returns on individual or in the projects are directly related to expected pharmaceutical prices and profitability price controls or indirect price controls via such mechanisms as reimportation or technology assessment rationing lower expected net returns for firm shareholders the result will be a decline in the rate of pharmaceutical innovation fewer new drugs will be developed and it will take a longer time to find cures for many diseases unlike the benefits of a price control policy which clearly would be to improve access for today's consumers and seniors explicit or implicit price controls which will produce immediate and observable cost savings through lower drug prices the cost of a price control policy in terms of foregone innovation is much more difficult to appreciate and quantify what might we have discovered how much more quickly would we found a cure for all timers disease these are very nebulous and difficult to appreciate and certainly to quantify but that does not justify not considering these very important costs a full economic analysis considers both both the costs and benefits of any policy for health care reform the sensitivity of r and d spending to pharmaceutical prices and profits has been studied with a variety of different research methods including standard retrospective statistical analyses of industry and firm level data prospect of simulation analyses and financial events studies the research findings have been strikingly consistent and robust i will summarize the results from two recent studies  published in economics literature that i authored by myself and with co authors the first study utilized publicly available firm level financial data and exploited observable differences in the us and non us pharmaceutical profit margins outside the u s most countries have some form of price regulation explicit or implicit using established economic models and statistical techniques we estimated that a new policy that reduces pharmaceutical profit margins in the u s to non s levels will cause firm r and d spending to decline by between twenty five and thirty five percent all things considered a policy that regulates prices in the us towards ample reimportation from foreign markets with poor sales clauses those foreign markets of course having price regulation wealthier theoretically have this effect on us profit the second study adopted a slightly different approach and utilize publicly available in the street level data to study the direct link between u s drug prices and industry level d spending in this study we estimated that for every ten percent reduction in us prices industry r and d spending will decline by approximately six percent we call that in the last just the estimate of r and d with respect to real drug prices in the u this finding is also consistent with an earlier study by harvard economist at them share a in some the empirical evidence suggest that erm r and d spending is very sensitive to pharmaceutical prices and profit as economic theory would predict and the empirical literature supports the key point is that the benefits associated with lower drug prices and it cannot be argued that there would be benefits improved access to medicines that are currently on the market and available would unequivocally com cost lower levels of r and d investment and a reduced rate of form should go innovation it is critical that these costs be balanced carefully against the benefits of associated regulation explicitly or implicitly that regulates drug prices this is particularly true in light of the recent evidence on the significant contributions of pharmaceutical and medical or in the to human health and life expectancies in the u s research that six it suggests the u s is currently under investing in medical and pharmaceutical research based upon the benefits that we enjoy in america as a result of improved quality of life and extended life expectancies thank you very much thank you professor ms kramer thank you mr chairman and members of the health subcommittee i am bonnie cramer i'm chairman of a r p s all board of directors and on behalf of our forty million members thank you for including a a r p and this discussion of brand name prescription drug prices as you know a a r p is deeply committed to making prescription drugs affordable for our members and for all americans and whether we're ready to admit it tonight are not the united states is aging at an unprecedented rate starting on january first two thousand and eleven ten thousand people will turn age sixty five every day and this will continue for the next twenty years when combined with the rapidly escalating brand name prescription drug prices and the fact that older americans use prescription drugs more than any other segment of the population it seems evident that many americans will soon find themselves unable to  access the drugs they need at a price they can afford and that we believe is not acceptable as part of these efforts a a r p s public policy institute working with dr shaw meyer has been reporting on manufacturer price changes for prescription drugs since two thousand and four we have done our prescription drug watchdog report our latest report found as you have heard that average manufacturer prices  widely used brand name in specialty prescription drugs continued to increase substantially between october of two thousand and eight and september of two thousand and nine rising by nine point three percent and ten point three percent respectively now it's been twice said that seventy percent of all present scription drugs are generic but you need to know that seventy six percent of all spending is for brand drugs  prices are a source of concern for many of our members and it can impact their health the inability to afford a prescription drug has been shown to negatively impact patient here and drug regimen many consumers report that they have not fill prescriptions pills and half as a result of high prescription prices these are stories that we hear from our members every day this type of behavior in turn can lead to more expensive health care needs in the future problems for prescription drugs are more common among those taking a larger number of medications such as older adults approximately twenty million a members are over the age of sixty five and eligible for medicare part d benefit which are very hard to enact provides much needed prescription drug coverage for medicare beneficiaries but unfortunately the party benefit currently contains a donut hole where the beneficiary my shoulder the entire cost of the drop as well as continuing to pay their premiums more than three million americans are at risk of falling into the donut hole each year and failing firsthand the impact of rising prescription drug prices unfortunately because the donut hole is indexed to prescription drug spending the donut hole is growing larger each year as a result of more people will fall into the donut hole in the future and that is why we have made closing the donut hole one of our top priority here as part of health care reform but price increases also impact medicare part d and raleigh's it impacts their cost sharing for their brand name prescription drugs a recent a a r p public policy institute analysis of the most most national par y plans shows that in twenty more plans will require co payments up close to one hundred dollars per drug for certain brand name drugs their plans will use co insurance or a percentage of the drugs cost a brand name medicines as high as sixty five percent of the drug costs we are greatly concerned about the future of medicare part d n b which are financed through premiums and general revenues as prescription drug prices continue to increase spending will grow correspondingly which means that all medicare beneficiaries as well as all taxpayers will be required to pay more in order to keep the program solvent now p was pleased to endorse the affordable health care for america's act h r thirty nine sixty two that recently passed the house of representatives four years a a r p has been fighting to make sure that our members and all americans have access to affordable health care coverage to our endorsement was provisions that would close the donut hole which the house bill would begin to do next year and would fully close the donut hole by twenty ni we also support the house bill provisions that would grant the secretary of health and human services the authority to negotiate on behalf of medicare beneficiaries we've also supported provisions that would promote medication therapy management services mr chairman thank you for your continuing efforts to improve the nation's health care system we look forward to continuing to work with you to ensure that prescription drugs remain affordable for our members for all americans for all health care payers i appreciate the opportunity to be with you today and i look forward to your questions thank you ms kramer we're going to have questions now from the members and i'm going myself i'm going to try to get into topics here with you in six years that congress has passed important legislation affecting the prescription drug market in two thousand and three we passed the legislation creating part d and you've analyzed drug prices before an after party went into effect so what happened in the months before part d went into effect and are we seeing the same thing happening now with this health care reform legislation i would thank you for the question mr chairman i would respond by providing observation and pointing you to figure five in testimony that i prepared and basically it shows in the time period prior to medicare part d being first passed and then later enacted remember there was a delay time the time between when it was passed and when part d actually got implemented two thousand three to two thousand and six prescription drug prices did increase during that time period substantially they leveled out if  six plus percent is leveling out in terms of price increases for a brief period and then after the last fall's elections in november when it appeared that health care reform might be a topic that comes into play again we saw an increase this is not a cause and effect relationship but if one looks at the graphs it's pretty apparent that there is an increase do you think it's a coincidence obviously i don't think it is again there are multiple factors that affect the drug companies choice to raise their prices but i think this certainly is one that weighs in the mentality that maybe going into effect is if r and d is as important to them as they say it is and i believe it is i want we as a society want the innovation in r and d and other factors and if they rationalize well if they're going to start controlling or affecting my prices by having a more effective market in some way and i have  control market right now i'm going to push the price as much as i can so when they start squeezing i'm at a higher point on the mountain when they're trying to bump me down a little bit and i'm going to make sense to do that i miss just because i haven't asked i let you have an op about motives as i make clear in my statement i can't discuss pricing decisions and so forth but what i can say is that number one the consumer price index is already been discussed has for the year ended  with the period that a a r p looked at was up about two point seven percent i can also tell you that the prices are negotiated with purchasers who are large sophisticated powerful have many  tools my guess would be and i have to underline guess here sar my guess would be that if a company went to one of these purchases and said we need you to pay us more because health reform is comping it's coming they would be l acquisition cost does not include discounts or rebates that are provided by the manufacturers to whole to wholesalers and when these discounts are factored in it has the effect of lowering the price paid and you stated in your foot knows that there is no consistent comprehensive and publicly reported data sources for this discount and rebate information that gets to the issue of transparency and that's my question how how would better drug pricing transparency help patien and i mean what would you suggest in term trying to create more transparency if we're really talking about an economic market and making wise decisions we need to avoid and i'll use the technical term asymmetric markets where the seller knows a whole lot more about their plans the party plans have reported that they get rebates that are on about ten to fourteen percent of the drugs and they may get some rebates even method they don't pass them on to the consumer and apparently it doesn't lower the premiums because last year part  premiums went up eleven percent and last year they went up seventeen percent the only two places i can see that rebate benefit either the medicare beneficiary or the taxpayer would be lower premiums or lower prescription from insurance company profits and less than twenty percent of it comes from your membership in two thousand and eight i'm told that a a r p generated one hundred fourteen million dollars in royalties from united healthcare corp could you tell me what percentage of those revenues came from the the medicare supplement insurance plans that were offered by united healthcare corporation i don't have that figure with me i will be glad to get it for you those numbers you cited are approximately correct but let me just say that a a r p is not an insurance company we contract with united health care to provide insurance to our members and we provide market changing policies we make sure that our members have the best policies that we can have under state and federal law providing insurance to a a r p members is the reason he was formed over fifty years ago when our founder the private market was not serving older people and it was not serving retired teachers our founder was a retired teacher it is the beginning of our organization but i do want to say one other thing which i've heard that in congress numerous times especially over the weekend i am the chairman of the all volunteer board we had over fifteen to twenty meetings on health care reform details meeting not portion is related to medicare supplement when you announced your endorsement of the health care reform plan you cited the fact that preexisting conditions would be excluded under that legislation and yet  supplemental plan that you still has a six month waiting period and the way the legislation is being crafted is that your supplemental insurance plan will still continue to hail the opportunity for six month waiting period as an exclusionary period was that a condition that was negotiated with the white house as our endorsement not a condition not negotiated with the white house an a a r p has been on record for a long time of supporting here about trying to figure out how to get consumers in the united states the best value for the dollar they're paying scription drugs do you believe that u s consumers are paying a disproportionate share of r and d cost they're not paying their share of r and d particularly other developed countries and i believe that the result is less our india cars and fewer new drugs are discovered and that's a lot to americans as well as people in their own country but aren't you shifting those costs to observation in terms of the individual decisions of companies specific decisions it's hard to say but if you look at the market and by mr smith if other countries are underfunding and we're paying a substantially higher price and we are getting r and which we value we are overpaying we are letting other countries be free riders on that we're paying very quickly i want to what we do with that is a different issue i think we probably need to look for a new model of funding  are rather than funding ten years from now the new drug on the high price of drugs today to the degree that some people can afford them i'm not sure that models working today i want to go quickly to your analysis that brand name drugs increased nine point three percent in your study specialties which you said were primarily biologics increased by ten point three percent isn't it logical that in the brand names where their patents will expire that those prices will escalation i don't i don't recall more than two or three brand name drugs that i've ever seen drop and those are under political pressure but the point is it was pointed out that some of the drugs in our index actually have generic competitors in the market and yet brand name drugs keep going up in price yes but if you build in a twelve year period that prolongs any ability for follow on biologic don't you don't we compound that problem not necessarily i think one has to do a reasoned assessment of what is an appropriate time for recovering that innovation cost an arm because i think if you make it too short you can stifle innovation i think if you make it too long you can drugs over a ten year period has increased seventy two percent well that's a big increase in people using drugs or at least the number of prescriptions so the market for drugs has increased over the last ten  years doctors on a moderate you say that the drugs in the past year have increased on an average nine percent is that a correct it is what we need to parse out increased expenditures from increased prices go up because of increased utilization and increased price and increased changes in the mix price index i report was a r p is a pure price index price only the actual utilization of prescription drugs in the last year to two years has flattened out or even decreased slightly in some therapeutic markets yet the prices keep going up and the private payers the large p b m's report price increases similar to the five point four percent that we show for our aggregate composite index rather than the two point seven percent that c p i has and i would point out dr vernon commented that my study only looked at brand name drugs paranoia he's only read the new york times version of my study because if you read the full study you'll see that we do look at brand names and specialize in generics and we calculate a composite index so you have a composite index of all of those drugs let's parse them out are brand name drugs where the drug manufacturers still holds a patent which means it has a monopoly going up faster an increase for the prices of those drugs in the generic drug that competing with a brand name drug  holder even after their drug is op patent may still be in our index in some cases because those products are still on the market and the prices are going up so we tracked those prices and then we tracked an ericsson are going in opposite directions  nine point three percent up an eight point seven percent down for generic so where there is competition from generics the generics are going down in price and where there's no competition the price of drugs increasing it's increasing and even the brand name when it has generic competition doesn't enter into the economic competition by laura and may lose volume but it doesn't and and this seems to be happening whether the economy is booming or in a recession whether the number years are they pretty level or is nine percent higher than they generally increase over the last ten years let's say that the rate of increase is the highest at least from the data i've done with a a r p i've seen in the last seven years and when i look at other indices and other similar data going back even fifteen years or more this is the highest level we've been at for quite some time now let me go back to the question mr deal as to the specialty drugs which are really biologic for the most part the biologic drugs please or that the new breakthrough drugs but they're very expensive drugs aren't they yes cost thousands tens of thousands of dollars if not in some cases hundreds of thousands of dollars per year and for the most part these drugs have no competition they do not have competition directly and in an economic sense in an economic sense what does that mean as opposed to it would lower the price the drug companies made there may be two drugs for multiple sclerosis and the drug companies may very vehemently compete through advertising and through calls on the doctors that treat those patients but it hasn't had an effect on the price for personal effect on the price is that because one is not substitutable for the other  substitution has been a major mechanism to bring about economic decline of generic prices in the regular drug market and that is not available for the biological products there is no equivalent  a for biological license applicant now there's a bill that promises the developer of a generic drug twelve years of exclusivity and then there can be competition but that competition may not be a substitutable competitor so we're not guaranteed a reduction in prices even after twelve years is that right that's probably correct it depends on the terms of how that bill would bring about or allow other products in the marketplace what you need is an equivalent of the f d a therapeutic equivalence evaluation for normal pharmaceuticals to be developed for the biological markers so they may claim they have to have a twelve year exclusivity because competition is going to drive the down the price of that drug so dramatically but in effect they're going to have a look much longer than twelve years to be cooping a huge amount for their drug so we're really talking about not just a twelve year period but a much longer period in which this drug will have market dominance is next correct that's quite likely and in addition there like to come out with alternate forms and remark that the drug in a different form that has a new patent has a new exclusiv and we have ever agreed in the bill that passed the house and the senate which means there's no end to the monopoly control they're going to have over these biologic drugs and but operate control is it fair to say your experience means higher that's a positive thing i think mistal i would just request that if you have these constituent stories one i would just ask if they have gone to their member of congress to to ask for assistance we deal with folks in many of the similar situations and i would also highlight the fact that if their members are not willing to provide those names to to my office we will try to intervene because i know there are pharmaceutical have options in which they can provide discounted or low cost drugs for free and we use those operations frequently in my congressional service i don't have time i have limited time but i just want to throw that out as an option  for the stories that you've given us today to mr smith we've heard a lot about what about the deal between farm and the white house can you explain what that deal is  congressman what i can do is i wasn't asked to come and explain the deal today i can try to give you sort of i've been told it are pretty well public knowledge oh yeah i mean there there's not there's been public announcements by the white house i believe a r p attended a public announcement of the initiative at the white house or in public announcements from the finance committee so our our board concluded that in line plan so my question is do you have an insurance plan or do not what i said is that we contract with united and other health insurers to provide insurance to our members we also contract with for the fifty to sixty four ird party insurance carrier the plan incorporated a portion of the total premiums collected for the use of its intellectual property which is reported as royalties in the consolidated statement of activities at the correct it's correct that we make a boy you act the sale of a reclaiming my time so you're acting as a grander trust and in essence when this profits are made through the selling of this insurance s about twenty four percent you operate without this six hundred fifty three million dollars in annual revenue for i've already answered that question we were founded on provide ok can you operate currently without this revenue that you  already have a selling insurance yes or no we have never looked at that i don't know how to do that so if you're without six hundred fifty three million dollars you don't know if your operations will change well obviously it would change of thank you very much  revenues the gentleman from illinois has this you know this consent to enter into the record a consolidated financial statements from december thirty first two thousand and eight and two thousand and around here when advocacy organizations indoors legislation i remember not that many years ago when my friends on the other side of the aisle had their arms wrapped around a pig hugging them so tight because they were supporting medicare part d and all that came with it today they're attacking the hell out of our pay because they have endorsed this side of the aisles of health care universal health plan for the american people so i guess as kurt vonnegut said and so it goes but i can't help but make the observation and  i guess that's the way it goes around here now the thank you for each one of you for coming in to testify i think if we could stay away from good guys and bad guys we would just be much better off what we need to do is to scratch below the surface and see what it is that is causing the prices to be what they are which we all know is a burden to the american people and especially older citizens in our country i believe in research and development i believe in science it's at the heart of all of the work that i've done here in congress some say that favors men and doesn't help others i think that that's a source of pride to our country and i want to keep that innovation alive but i also think that we can do a much better job with what the costs are now the house has already passed the health care reform legislation and hopefully the senate is going to do the same as we go to conference i think it's important we get some perspective and how provisions in these bills will help to reduce drug costs the house bill has numerous provisions protect taxpayers and all citizens from increasing drug prices it increases medicaid rebates it provides insurance with drug coverage for thirty six million citizens it requires pharmaceutical manufacturers to give a fifty percent rebate for drugs in the donut hole it closes the part d donut hole which the other side all created together with and thought it was terrific then now it's costly and we're being attacked for what it costs to plow back and fill that hole but fill this hole we must do because of what it's doing to second to that is and it allows the secretary to negotiate for lower part d drug costs now the senate bill contains some of these provisions but not all it doesn't close the part d donut hole it doesn't allow the secretary did to negotiate and it doesn't create new part d rebate so to dr chandel meyer let me ask you generally do you believe the provisions in the house bill or the senate bill would do a better job of protecting seniors and taxpayers from rising drug prices i mean it's a softball question but i still think we need to get the answer on the record i believe there are many useful provisions in the house bill that would assist in that  goal as with many tools that we have in society though it all depends on how they are implemented and how they're implemented miss cramer do you agree that we have strongly supported the house bill we are working every day in the senate to try to get the completely let me ask about a specific provision in both bills it's a provision that requires manufacturers to provide a fifty percent discount on brand name drugs in the donut hole my understanding is that this offer was made by the drug manufacturers part of their negotiations with the senate and the white house now this is not a bad provision we have it in the house bill as well but it seems to me that it has some problems what manufacturers give which in this case is a fifty percent discount man manufacturers can take away by increasing the base price of their drugs so the doctor my understanding this correctly as manufacturers increase prices can they also wipe out many of the benefits of the fifty percent i believe they can and they have the market part of their current price increases for this year they have come close to wiping out the whole eighty billion over the next now let me ask the panel i mean whomever would like to step up and answer that what do you think is the best way to protect us from what i just described of the increase of the of the prices says to us that we need to get socks on this octopus because if they if the rate continues to rise as much as it already has and the questions i'm going to direct all my questions to a a r p and to ms kramer ms kramer my first question to your knowledge has a r p been contacted by the justice department concerning alleged large kickbacks why are you calling royalties that you received from insurance companies for your method gap plans a matter that as you know chairman rangle suggested he would be referring to the justice department during the rules committe hearing on h r thirty nine sixty two last month to my knowledge today you know well if you do hear of that and i have that information that the justice department is looking into that would you be willing to let the committee know that you have been informed by the just following good thank you the second question today roughly a million customers purchase medicare advantage plans roughly eight percent of the market and two point eight million medigap plans representing roughly thirty percent of the medigap market share and a pillow go under the house and senate health reform bills medicare advantage plans would be cut again i'm sure you know this bad as much as one hundred sixty billion dollars yet medigap plans do not and do the same cuts under the house and senate bills medicare advantage plans would be forced to pay eighty five percent of revenues received medical claims yet medigap would only be subject to pay sixty five percent of his revenues on clay are you aware that medigap plans are not held of the same eighty five percent standard as all other insurance products but medicare and non medicare policies under the house all the senate health reform bills yes and no i was not aware that was a r p be willing to forgo this the house and the senate health reform bills would cut medicare advantage plans as much as one hundred sixty billion dollars cuts as c b l figures will boys three million seniors to lose that coverage and then revert to the traditional medicare and eight million more if insurance companies are forced to stop selling altogether health choices are as we all know medicare advantage plans off of seniors benefits that has a significant market share and would stand to gain substantially i see a significant conflict of interest in your support of legislation that would allow you to gain customers and therefore the royalties from a product in which you have a significant market share namely medigap plan because seniors are being forced off of medicare advantage plans for which a r p product because those making well below two hundred fifty thousand dollars a year you pay this additional payroll point five percent increase in the medicare payroll two point nine to three point four  like to have it is three the one we do not support that and the senate bill does not fully close the donut hole which is our top priority primarily blame metabo and that you do not support the version of health care reform  in the senate bill that raises a payroll tax a half a percent saying that we have not endorsed the senate bill as of this time and i want to ask you specifically a yes or no question as the chairman of the prices increased nine last year we heard a lot of that study by dr vernon and in your testimony how do you respond to that criticism is your study present a true picture of what is going on with prescription drug prices marketplace where consumers get the benefit of rebates i have never met a consumer nor have i directly received a rebate from a drug company and i've never met a consumer who says they have supposedly the provision loans expect a beneficiary spending in the coverage gap as much as eight hundred two thousand and eleven offices contact many companies on behalf of our seniors who have entered into the donut hole and not should not be advocate but we don't have the phone logs we don't have the e mails we don't have the minutes from those meetings and we're in the dark as to what was what i read in the newspapers it created an eighty billion dollar deal to help the health care bill get through ok that sounds like a good thing but i don't know what gave up i don't know what the white house it is just difficult to evaluate of course you do have the congressional budget office sitting back there and say wait a minute if you're doing something you should have been doing in the first place we don't actually score that is a savings does at eighty been billion dollars decline i would just like to point out since i was criticized  for the aspect of negotiation from the secretary of h h s with part d i mean the congressional budget office who we should have at this hearing by the way they should be here but they sat at that very table last meeting that we had that that affects their prices and so that it would be logical that they are looking for ways to buffer their revenue for as much as they can as long as i get that speculation it would be better if we were all if we were all on the  conducted research in the lab which is primarily the type of research conducted by and i am a national science foundation and i have research funded by the centers for medicare medicaid services well when you when that's done what percentage of that research is there to percent university minnesota's around fifty percent it concerns me that so much money is set out to do actual research but over fifty percent goes things have nothing to do with research should we stop giving universities money  their overhead at these outrageous rates of nearly two thirds or half or more that doesn't even go to taking care of the things they're supposed to do what do you think well first as a mischaracterization the fifty one percent overhead means about a third of the money goes to overhead it's fifty one percent on w are indirect costs that are related to the cost of conducting that research in fact university of minnesota asking a lot of the cost a lot of the costs that the universities get in these things are not nestl going to the research which is helping save lives and develop new drugs things that we should keep just tell me have oversight over that you tell me that something that is a massive amount of the in you don't know how much it is i don't know what portion is for the part a dollar dollar amount you don't know congressman i've answered because i'm trying to get an answer to that so you have a donut hole in your plan i'm sorry you have a donut hole in your medicare part d plan yes we do you do and yet you make millions and millions and millions of dollars  after all you're a nonprofit organization why don't you use that money i understand you executive director makes how much money i'm sorry how much of your executive director get paid he doesn't get paid what the senate so much did i get how much does drugs and i'm concerned how much it cost people but i want to get to the bottom of this and so you have the cost of manufacturing the drugs you have the profits company make you have research and development those drugs you have every time i want to get to the bottom that but there's also the cost of administering plan cramer if you'd like to answer you well as i said i believe our audit to report moments ago was entered into your record which would include the information the congressman is asking and also the nine ninety which is public document would include the information on our executive director salary i also said that it's around eight hundred thousand dollars why not use that money to close the donut hole what we we tried to answer your question as best she could and we do have the documents that were entered into the record by mr shimkus we have about i guess we still have another thirteen minutes so i'd like to get a couple more people in caps is next thank you mr chairman and in your written statement you referenced a whole calculator to get it on the record for this to today's discussion would very briefly tell us what that is it is a new online tool that became effective in july it is dot org it helps individuals calculate and track their out of pocket expenses that helps individuals locate cheaper alternatives for their condition it provides a personal medication record and it also provides personalized letters if individuals decide they want to pursue cheaper generics and helps them begin the conversation with their doctor it's extremely popular we have served almost one hundred over one hundred eighty thousand people since it came online in july that's a thousand people a day thank you very much there was an article in the new york times this weekend pretty disturbing one about the high cost of drugs treating cancer in a reported that a new medication called folotyn is going to be sold for about thirty thousand dollars a month now for the record drug company should be able to make a profit we need a profitable and successful domestic pharmaceutical industry but i'm going to ask you mr smith  what good do breakthrough treatment do when they're unattainable for almost all the people who need them most is there any point at which your industry simply says no we can't charge this much  actually drugs absolutely need to be accessible for them to do good that's one of the reasons that we're trying to help support a health reform bill so you know in terms of this particular issue i don't know anything are hanging by a thread here's the shocking part of the story as it was reported in the newspaper the drug hasn't even been shown to increase the life expectancy of those who take it if a manufacturer is going to charge thirty thousand dollars a month for a drug i would think that they particular issue either using this story or one other one but i'm focusing particularly on life threatening diseases diseases that are lumped together as cancer and the way that the  cost of treatment has gone up doctors you might want to speak to that or maybe miss her so i did not see that article in new york times this week and i will go back and look for that in our own studied the twelve cancer drugs that we had in especially area those twelve drugs all went up in price in the price increase in one year range between four point nine percent as much as twenty point eight percent increase in price and that compounds over time of course as prices keep going up but was able to raise their price dramatically in the marketplace even though it's not even effective let me see if it what you think we should do now how can this legislation of health reform address this particular  that's where you find in this sort of back and forth between good and bad common ground among all of us and wanting to see that everyone's in the system and has out of pocket protections so they can have access to drugs now drugs should be evaluated to make sure they bring more value and new value to what's already on the market thank you very much we have seven minutes left i'd like to get mr bleyer in if that's ok jim and the other members will come back my opening statement i made some comments regarding the impact of price controls in the european union is part of your study and now that you've had a chance to examine thirty nine sixty two and some of the price had any contact with this committee any contact with this committee or their staff relative to the sweetheart deal that you have in in section one zero two of h r thirty nine sixty two i e most insurance plans are required to have a medical loss ratio of eighty five percent however this bill that passed the house allows medicare supplemental insurance plans such as medicare supplemental insurance plan to have a medical loss ratio of sixty five percent i'd like to know study with professor go look at the university of connecticut regarding the exodus of r and d investment from europe to the us that is certainly true i mean we've seen regulations of pharmaceutical prices in the e u become more stringent  the u s now being largely the only price unregulated market for pharmaceuticals in the world and certainly the prize in terms of both basic research which could be done globally but attempt implicit or explicit to control drug prices there have been bills on reimportation technology assessment and perhaps negotiated drug prices does represent a very serious threat to the incentives to undertake r and d and to be frank it's remarkable research by economists at yale and the university of chicago have shown that the benefits of pharmaceutical innovation and medical innovation have been astounding and far exceed the levels of investment and the cost of that investment suggesting we should be doing more medical research more pharmaceutical research because the benefits exceed the costs now that being said i'm not denying the fact that cost containment measures would benefit consumers of existing medicines that are on the market it would make them more affordable improve access and improve health but i think we have to consider that cost and that benefit and specifically that benefit of low cost medicines today with what it would mean for the rate of innovation in the future and i think the latter is an order of magnitude greater than the former research out there and i thank you i thank you there has been no contact with the committee looking at the medical loss ratio we advocate on behalf of members of the congressional budget office said that there are thirty nine sixty two will result you asking wow well congressman i don't work for united health care so i don't know that i can answer that question well i find it really hard to believe well first of all there's going to be a tremendous shift supplementals which you offer and i cannot believe that you run organization that you've never really calculated what the potential income flow to the organization that is really really surprising  guess you're trying to guard yourself in exchange for questions about why you endorse the overall package but i think it's now obvious thank you now we're going to have four votes on the floor maybe half an hour a little more i'm assuming i don't think will be much longer hearing as a physician i am of course well aware of the importance that pharmaceutical companies have made to the advances which have made and will continue to make the advances that they will continue to make in our health and health care overall of americans including the patients i have served over my lifetime are living longer and better quality lives because of the products that the companies have created unfortunately that's not true for all of the medicare part d is made a substantial improvement people of color the elderly disabled and the poor continue to not be able to afford medications that they need to keep them healthy despite some of the free and discount program i know the medication costs are not the only cause of increasing health care spending i'm also not against profits and most definitely i support the research and development which has resulted in better lives for all of us but i do not discount the report either as a tell the true story of people across this country who cannot advocating for its membership for seniors and really for everyone and health care retirement security and things that all of us care about and i would assume that the membership dues alone don't support these activities is it safe to say that the royalties that we've heard so much about this morning are used to make important services available to your members and to fund advocacy efforts and issues that even some of those companies that are paying those royalties may not agree with a this is on pricing so i can understand this better at the point at which generics come on the market is has a brand name producer generally with their lot their costs to research and develop those products and if so why then do the costs continue to go up after that point especially in excess of what the inflation is and i ask that because when you see the new technologies come on the market usually really expensive and after a few years their prices but it's the opposite of pharmaceuticals can you explain that for me you have to start out that i would also add that we have very intense generic competition at patent expiration for very large successful products the price of generics is driven very rapidly down to the market manufacturing cost of pharmaceuticals we have the most competitive lowest price highest utilization rate of generics in the world very successful as a result largely of the hatch act i would also say that there is  uncertainty whether pharmaceutical prices have indeed been rising as fast as has been reported in this hearing and also i would add one more point and that is that the suggestion that the firms are raising prices in anticipation of health care reform is not at all clear certainly the most comparable recent legislation to the current legislation was the clinton health security act where we saw firms pledging publicly that got them in trouble with the f c restrain drug prices there are other factors like compressed product life cycle cash flows as a result of patent challenges intensify generic competition that could be driving what we're observing in the pricing  pharmaceuticals but isn't the same as well as a mix of biologics and pharmaceuticals a shift towards more costly to develop biologics which have higher prices and fewer pharmaceuticals  been on the market for years technology has the same kind of competition but their prices go down well i think there are a lot of dynamics factors and certainly the market is very different now as i said we have much more intensive generic competition  have a higher rate of patent challenges we have a lower productivity with respect to pharmaceuticals and we're seeing more biologics on the market which have a higher financial cost of capital and higher manufacturing costs so we're seeing that country would not be where it is not the investment in research and development that the pharmaceutical companies make although it would be a lot higher and better all of us were able to participate and had access to those did believe that there has to be a tradeoff off we're making already but we're not doing it very consciously we're doing it more implicitly rather than explosively in america we may generate much for the world it finds new medicines but we probably have a higher percentage of our population as a developed country who don't have access to medications than any other developed country and so that's why our health status overall is down around the world at the top of that list so we are making that trade off already and something that happens with the profits as i understand the drug companies keep their books and the profits they report to wall street has already been cost it out at that point  we're looking at profits of fifty one billion dollars in two thousand and eight and nineteen percent return on revenue and and over the last or since o five hundred eighty billion dollars in profits and this is after the r and b so that makes this kind of r and d justification for where the pricing is less compelling to me if i'm understanding sort of how the books are kept on that i have to say mr smith i know you can't comment on the motives but i have no doubt that the pharmaceutical companies are running up the price in anticipation of health reform based on past experience with them doing that we see it also happening with the health insurance industry there's evidence that the premiums for next year's renewals have been sky high with the recent notices that have gone out the disappointing thing with the well yes it cuts both ways i'm disappointed maybe that the health insurance industry didn't make a deal the way pharma did but i'm disappointed that pharma having made a deal  appears to be price gouging in anticipation of what's coming so they can establish a new a new baseline my question was the deal as it's referred to i guess was about eighty billion dollars is that represented by the fifty percent discount that is expected to be offered to people in the donut hole or does that account for some a lot of things as well percent discount to the coverage gap as you know both bills both house and what we see in the senate includes very substantial increases in the medicaid rebate very substantial extensions of the medicaid rebate across too much broader population that applies to today beyond the currently uninsured population become eligible for medicaid as you know the senate bill includes some other fees and as you know both bills include provisions to create a pathway for follow on biologics that also come with a pretty sizable government score well i would hope that the contribution  farmers willing to make would increase in in relationship with the change in the baseline on the pricing that's that's appearing to occur right now in other words if it the time the deal was made the pricing was here and that meant that a fifty percent contribution to the cost  donut hole at that pricing represented this amount of money then if the pricing is going up substantially then the now needed to cover a fifty percent discount would also go up and beyond that the amount needed to get you back to the anticipated discount for the consumer would even be more so i just hope that pharma i ready to stick with the deal it made in terms of the effect or the benefit it would have on the consumer in relationship to the increase in the thank you let me thank all of you for coming today i know this is not an easy issue the way it works is members can still submit written questions for the clerk and i think the clerk supposed to get back to you within ten days or so so we still may get additional written questions and i know that a number of you said you were going to respond in writing that some of the questions that were asked by the members as well days so we would have it that opportunity to evaluate those before we get into this ping pong match with the senate with whatever they're going to do at the end of the year i don't i mean the way the rules are we usually have ten days for members to submit questions and then we send them to the witnesses and i mean i don't think five days is enough time i would ask that you get back to us you know fairly quickly but i don't want to put a date on it because i think that  know it depends how complex they are but please get back to us you know as quickly as you can once you get the questions and mr chairman i mean i think you'd acknowledge it's unlikely that this health care bill is going to go to a conference well i think it'll probably go to the con if it's passed in by the senate by the holidays we probably go to conference in january it all depends on when the senate passes a but the intention is to go to  conference i don't know how we could avoid that given there are probably going to be major differences between today is way we would avoid it is that your speaker would say we just simply have to accept what the senate does and we will acquiesce to the senate bill before the end of the year i mean you know dr burgess i can't predict that right now that's not what everyone is saying they're saying that there will be a conference and i think it's likely that there will be well i'm depending upon you as my subcommittee chairman to advocate that there be a conference and it be a real do not have to worry about my advocating for a conference i will advocate for a conference i assure you have the same way you advocated for subsidy barked out i'll yield back i guess we're done so without objection the sub