it will come to order first of all as most of you know we've had votes on the floor that have detained us we apologize for the light start of this markup and the hearing today we have an unusual combination today of first of all a markup on a piece of legislation h r eleven thirty two and as the usual custom of the committee is we will have opening statements from the committee as to that piece of legislation following the markup of that bill we will then move to the hearing itself and unfortunately according to the rules of the committee we will hear opening statements again on that issue we may also have the privilege of voting again on the floor which may interrupt the process again so  we will do our best to proceed as orderly and as fast as possible in that regard i first of all recognize myself then for an opening statement today the committee will consider h r levon thirty two the national all schedules prescription electronic reporting act and i would like to thank congressman norwood and polonium strickland who over the past two years have expended a great deal of effort and time in the putting together of this legislation but i also especially like to recognize and thank chairman whitfield of the oversight subcommittee who is with us today for his leadership and his dedication is they have continued to work on this issue and it is due to their efforts and the efforts of their staff this bill is coming before us today last subcommittee on health held a hearing on the issue of prescription drug abuse at the hearing the committee heard testimony about the devastating impact of prescription drug abuse like diction toxic cotton and the addiction and the effects it has on families and communities description drugs when used properly can provide true benefits for those surfing from pain and from chronic conditions however the inappropriate use of prescription drugs can have devastating effects on individuals and families boarding to the national survey of drug use and health the misuse of prescription drugs like pain relievers and stimulants is the second most common form of illicit drug use coming from the mountains of georgia i've seen firsthand how some of the communities in appalachia have been impacted by prescription drug abuse over twenty states have taken steps to assist health care professionals and law enforcement officials to prevent drug abuse through prescription drug monitoring programs have a reports indicate that when a state establishes such a program the abuse and diversion of prescription drug shifts to contiguous states that don't have such a program last year this committee attempted to address this problem proving legislation similar to the bill that's before us today h r eleven thirty two ensure that when drugs cross state lines description drug monitoring programs can still be effective the legislation will provide health care professionals to to provide appropriate medical care like pain management while preventing addiction to these medicines before there is a problem again i commend my colleagues on both sides of the aisle for their dedication in addressing this important issue and i urge the members of the subcommittee to vote in favor of this legislation i now recognize my friend the ranking member of oh five minutes for his opening statement thank you mr chairman i will be much briefer than that in interest of time and thank all the witnesses and all the people here for waiting through all these roll calls prescription pain reliever stimulants and other controlled substances play a crucial role in our health care but when misused as the chairman said the same medicines can be enormously destructive some are addictive some are life threatening many are both as these medicines proliferate so unfortunately does the risk of misuse over the last decade use of prescription pain relievers increased by nearly two hundred percent while the use of stimulants increased by more than one hundred fifty percent some two million americans misuse prescription medications for non medical purposes thousand nine hundred of those taking prescription drugs for non medical purposes were new users in other words the words the problem isn't just growing six bloating to combat this abuse physicists physicians and pharmacists need information this legislation the culmination of hard work and compromise by mr pallone mr wickfield by mr norwood and mr strickland will provide the information in coordination necessary to stem the misuse of prescription medicines the legislation creates grants to establish state run programs for prescription monitoring that will be administered coordinated at the federal level some twenty states currently have such a program in place are working to develop one fighting prescription abuse prevail non medical use are difficult problems that  requires require doctors and law enforcement authorities to acquire and share information for this reason groups including the american medical association and the american society of interventional pain physicians have lent their endorsement to this legislation i think this bill's an important step forward in this fight and i'm pleased to support it thank you thank you gentlemen without objection all members opening statements will be a part of the record does anyone wish to make an opening statement at this time  thank you very much mr chairman you know i'd like to begin by thanking my friend ed whitfield he and his staff have done amazing work since we developed this legislation last year and i'm sorry that under our rules he cannot be recognized but i certainly for all the hard work he's done i also appreciate their efforts of our democratic co sponsors mr boehner mr strickland the office of national drug control policy reports that six point two million americans have abused prescription drugs that is why i have been one of the most vocal advocates on the necessity to address the abuse of prescription medications patients correct about own doctor shopping and prosecute those medical professionals who violate the high standards of their profession the real reason is because i've seen this it work firsthand in my previous life and i know this needs to be brought under control we must also recognize that over thirty million americans suffer from chronic pain thankfully effective prescription medications are available to provide relief however bad actors risk ruining access to those who are in chronic pain to address prescription drug abuse without harming legitimate users we need to target abusers we need last identify rogue doctors pharmacists and addicts who are contributed to the problem we need see that bring more accountability to patients and healthcare professionals indeed we need h r eleven thirty two as a present time over twenty states are operating such programs but they do not work as well as they could our legislation addresses the two most important reasons why first there are not enough of them and secondly existing programs to done effectively share information across state lines our legislation addresses both of these problems by encouraging states to establish programs where none exist and encourage communications between the states this legislation encourages states to establish programs fast this legislation has also been crafted to protect privacy and security any data collection a great deal of work is going into that effort the monitoring programs we will encourage simply allows practitioners to determine if a patient has already obtained a prescription for a controlled substances this will benefit patients practitioners and those who are dealing with the addiction we need to start closing the obvious loopholes in the system and h r eleven thirty two does just effort to address the problem of non medical use of controlled substances establishing databases that contain information on prescriptions for such substances may helps to stem the practice of individuals seeking prescriptions for multiple providers for the purpose of non medical use however the bill state to state disclosure and uniform electronic format provisions promote the development of in essence a national prescription database network that will potentially contain individually identifiable medical information on millions of americans as we develop measures that create databases and silly date the sharing of information we must carefully consider their privacy implications in the past few months we have seen a series of incidents in which databases containing sensitive information have been compromised choice point a company that holds data on millions of americans acknowledge it files on as many as one hundred forty four thousand individuals had been stolen over three hundred thousand files were breached at lexis nexis which maintains databases containing so security numbers driver's license of imation and other personal data and just recently master card stated that the eves had access financial information to a potentially millions of consumers in the company's computer network these examples serve as a reminder of the importance of ensuring that h r eleven thirty two contains sufficient privacy protections with respect to the personal medical data contained in the databases supported by the bill these databases include information concerning prescriptions for legitimate medical reasons such as recovery from surgery we do not want to discourage individuals from seeking medical care out of fear that their health information will be in appropriately accessed or disclosed when i raise privacy concerns during consideration of a similar measure last year the majority added several privacy related provisions of the bill such as the requirement that the secretary of h h s study and report on the privacy protections for the database system while such provisions were a step forward i could not support the bill because of remaining privacy gaps one of the main concerns i raised last year was that since the bill facilitates the creation of in essence what is a national database the bill should contain minimum federal privacy standards for the database last year's measure contain no such provision i'm these are this year's bill contains a provision requiring the secretary to develop minimum requirements regarding the privacy related criteria states proposed for their programs in their grant applications however i believe that consumers privacy experts and other interested parties should have the opportunity to review and provide input on the minimum requirements developed by the secretary and the bill in its current form does not provide for such an opportunity i am also concerned that the bill authorizes access to database by virtually anyone with federal and state health departments and the da as well as their agents as long as individuals certify the information is for research by their agency potentially hundreds of thousands of individuals would have access under this category there may be ways to place limits on such access to that do not impede health research by state and federal health departments while i cannot support the measure at this point because of privacy concerns i understand th mr whitfield the mr polonia are interested in working with me to address these privacy matters i'm hopeful that we can develop mutually acceptable privacy protection provisions before the full committee marks up th thank gentlemen anyone else on the majority side wish to make an opening statement anyone on the minority side must belong thank you mr chairman one of the fastest growing areas of drug abuse in our nation today is a diversion  prescription drugs and this is an issue that affects all areas of our nation in all income levels health care practitioners and pharmacists desperately need electronic monitoring systems to ensure that they are prescribing and dispensing schedule two three and four controlled substances that are medically necessary the mark up version of h r eleven thirty two as was mentioned represents a compromise developed between myself congressman whitfield congressman norwood and congressman strict when and i'd like to thank my colleagues and their staff for their hard work on this bill and their effort to come together on a bipartisan basis to alleviate the prescription drug abuse problem that plagues our nation the legislation being marked up today is for the most part similar to the legislation that was reported out favorably by the full committee in the last congress and it was agreed to by the house under unanimous consent there have also been some improvements made to the bill including stronger requirements for the protection of sensitive medical information that being said i know there are still some concerns which have been expressed by my colleagues with regard to the medical privacy issue and i look forward to working with members on the committee specifically mr waxman to allay some of those concerns this legislation would create a fully funded mandate to all fifty states in the district of columbia to develop a prescription drug monitoring program and a controlled substance to three or four that is prescribed will be electronically reported by the physician or pharmacist to the state's primary monitoring authority upon certified requests physicians and law enforcement can access the information in these databases in an effort to prevent prescription drug addiction and to crack down on bad actors that are contributing to the problem as a result of the leadership the american society for interventional pain physicians passage of this legislation through the subcommittee today will move us one step closer in providing a strong and effective approach to addressing prescription drug abuse and crime everyone here including the bush administration agrees that rampant prescription drug misuse and abuse is a growing problem millions of americans who take prescription medications take them responsibly however there is relevant data that indicates that there are also nine million americans including children teenagers and seniors who use prescription drugs for non medical reasons and this can result from reading various multiple medications and thereby becoming vulnerable to misuse or it can result from illegal sales of prescription drugs and prescription forgery without the databases created by states practitioners and pharmacists have no way of knowing with any certainty whether a particular patient may be receiving the same or incompatible controlled substances from other practitioners patients may be receiving prescriptions for these medications from multiple practitioners and this is particularly troubling in light of the fact that such controlled substances can be the subject of abuse misuse and trafficking and have the potential for dangerous drug interactions i think we can all agree that the unmonitored prescribing of these medications pose a serious public health issues a number of states including california hawaii idaho illinois indiana kentucky michigan nevada new mexico oklahoma texas and utah have created prescription diet data banks for controlled substances but the state programs that need the uniform are integrated this proposal for state mandates mandated prescription data banks with intrastate communication makes good sense from a public health perspective and i look forward to passage of this bill in the subcommittee today and i hope we can move it to the full committee quickly and eventually to the house floor and again i want to thank everyone who's been involved in what i consider important bill i yield back chairman i was prepared to introduce an amendment today's markup but i'm going to hold off with the understanding that we are going to work cooperatively to address my concerns and i want to make make it clear that i'm a supporter of this bill and i want to com d my colleagues on this committee for their efforts to address prescription drug abuse i think that it's important for states to create prescription drug monitoring programs and i further believe that it's important for this congress to the whereabouts of illegal prescription drugs unless we do this we will never be able to get a handle on these controlled substances and ensure that they are being used for their legitimate medical purposes but this is an indication this is an issue of drug enforcement not drug treatment and although the two issues are related we shouldn't conflate nor confuse them what we do in this congress to create incentives for states to be partners with the federal government enforcing the legitimate medical use of legal prescription drugs should have a minimal adverse effect on the state's ability to provide substance abuse treatment services to her citizens simply put i do not want my state of illinois to be hindered from delivering treatment services to my constituents on the south side of chicago i don't want a mother of three who is a hurry an addict to lose her desperately needed drug treatment because this congress made an insensitive decision that states need quote adequate incentives in a quote to create a monitoring program fox a cotton the two issues should not be carelessly and casually linked my home state of illinois already has a p n p under a department of justice competitive grant program also known as the hell rogers prescription drug monitoring program was named after our colleague from kentucky i have been informed that it would take some time and some effort the illinois department of public aid to speak switch gears and reorient our current state in p m p to meet the new criteria set forth in this bill again i think the criteria set forth in this bill are in fact good and i'm confident illinois will create a p m p that is completely compliant with the goals of this bill but of illinois citizens and my constituents  suffered by losing valuable drug treatment services for everything from alcohol abuse to crack addition addiction then we are not doing our jobs and this bill has been one problem but creating many others and districts like mine across t country drug abuse takes a heavy toll on our citizens not only is drug addiction a health issue for millions of americans but is also a social economic issue that negatively impacts the social fabric of our communities drug abuse creates too high crime lost economic opportunities and broken families we should be punishing poor and working class communities across america by diminishing their drug treatments funds because we are trying to solve a problem that is not entirely related so mr chairman i hope that we can work this out from here too for committing and i pledge to be cooperative and constructive in this effort i think we all agreement on these issues and we can come up with a solution i know that together make an opening statement saying and then the chair calls up the bill h r eleven thirty two and ask clarke to report a chair a legendary tim and bill to provide for the salvation of a controlled substance non program in each state without objection the first reading of bill is dispensed with a bill we will be open for in memory of any point so order chair recognizes mr norwood for the purpose of offering an amendment in the nature of a substitute and asked the clerk to report the title the substitute to offer by missing r word of georgia without objection the first reading of the amendment is dispensed with so ordered cher recognizes mr norwood five minutes to explain the amendment thank you very much mr chairman as most of us know this bill will allow states through federal grants to establish and improve state based programs to monitor schedule two three and four controlled substance this will help curb illegal access this legislation passed the house last year but the senate ran out of time i along with mr whitfield and our supporters on the other side of our most notably mr polonia mr strickland have worked hard to address concerns particularly over privacy that we all have that were raised last year in the committee we also considered suggestions to improve the less legislation i think we started out with a great deal but somehow know they have managed i think to make this bill even better in that light i am offering amendment in the nature of a substitute that contains technical changes from the bill we passed last year we'll have our touch you know many of these changes just briefly first we have included language that guarantees that the state receiving a grant get a minimum of one percent of appropriated funds the secretary of h h s is also directed to develop minimum requirements while a state can go above and beyond the secretary will have guaranteed a minimum standard for securing information accessing any database and database accuracy if the state could meet these minimums then they wouldn't get any of the federal money but seeing what states are already doing i don't really believe that will be much of a problem our language would also make sure that each interested state demonstrates that it has enacted legislation to implement a monitoring program one of our main those was to make sure that border states were talking to each other for example illinois has five border states connected to it so any state applying for an improvement grant whose neighboring state has a current monitoring program has to prove it could communicate with the state or has a plan to do so the amendment also directs the sector these monitoring programs have had a negative impact on patient access to treatment or enrollment in research of clinical trials if the secretary determines that there had been a negative impact somewhere he can take action to address that issue last year a legislation directed the secretary to give an in depth report to congress two years after an act that my minimum requires a secretary report back to congress after three years however it also mandates that the secretary look at the effectiveness of the monitoring programs that we are encouraging this report will cover the process which states and sharing information with each other any problems that had been encountered will be laid out as well as recommendations to fix these issues call oversight finally the report would cover the penalties that states have passed on authorize use or disclosure of an information collected by their monitoring program finally my mammoth says that if a monitoring program is a covered entity then hipaa requirements apply plain and simple i believe all of these changes have not only improve this bill a pretty much just common sense mr chairman i didn't thank you and i urge all of our committee members for their support and that you back about a month i thank the gentleman further discussion on the amendment in the nature of a substitute is there any amendment to the on then made in the nature of a substitute if not question now occurs on the amendment in the nature of a substitute all those and will slay i those pose no guys appear to have it as have it in the amendment is a great question now occurs on favorably reporting the bill as amended all those in favor will signify by saying i i those oppose no appear to have it as have it in the bill as favorably reported as amended without chair called a hearing daughter days hearing will examine problems with medicaid reimbursement to prescription drugs and explore possibilities of reform this is the second hearing that the energy and commerce committee has held on this issue and i'm pleased that we're moving forward to fix this broken system of medicaid drug payments medicaid has created a system that only a health care bureaucrat could love one where generic drugs help keep medicaid cost artificially high generic drugs are supposed to promote competition and lower cost but under medicaid rules the system has been turned on its head according to a recent c b l report the largest single factor contributing to the rapid increase in markups on prescription drugs under medicaid was the use of new york generic drugs what is truly outrageous is that these prices are rising because states are paying prices for scription drugs based on manufacture reported average wholesale prices or a diabetes as my former colleague mr greenwood noted several years ago  could also stand for and what's paid in many instances a to b p bears little or no resemblance to what pharmacists really pay for drugs this is especially true for generic drugs in a recent report c b s to may today average markup between what medicaid pays the pharmacy for each prescription and what the pharmacy or host mailer actually pays for the drug has dramatically increased they estimated that between one nine hundred ninety seven and two thousand and two the average markup on generic drugs increased by nearly seventy nine percent purpose scription generic drugs have a critical role to play in containing soaring drug cost my concern however power ever is that because of a big t medicaid is missing out on a large portion of these call savings i want to increase medicaid use of generic drugs but not at the expense of rapidly increasing drug cost pharmacies gain substantial medicaid margins on many generic drugs but the purpose of this hearing is not to vilify the pharmacist pharmacists believe that the current over pay much for prescription drugs are necessary to offset medicaid dispensing these which they assert do not cover the true cost of the services that they provide to medicaid beneficiaries i believe that any effort to reform medicaid drug reimbursement must reflect three basic principles transparency accuracy and fairness payments for drugs must be transparent to the purchaser without hidden pay much that undermine competition pay must must also accurately reflect the costs pharmacists pay for the drugs finally medicaid reimbursements for both drugs and dispensing these should fairly pay pharmacies for all the cost of training medicaid treating medicaid beneficiaries fairness is essential so that medicaid beneficiaries continue to get access to community pharmacy services both the administration and the national governors association have included changes to prescription drug pricing and their medicaid reform proposals i hope that this is an issue where we can found our bipartisan consensus and work together to solve the problem i want to thank all of the witnesses both on this panel and the one that will follow for today's hearing for taking time to attend the hearing is an important and worthy issue of this committee's attention and i hope the hearing will help us in our efforts to reform the system that i believe is obviously in need of change mr brown to recognize you for an opening statement thank you mr chairman and welcome dr hope again for joining us and other distinguished witnesses on the other panel i appreciate your decision was chairman of focus on pharmaceutical payment reform under medicaid i've actually heard rumors that the intent is to focus solely on the pharmacists and from the chairman's opening statements on generics but i'm sure that wouldn't be the case cvo just completed a study on drug rebates i'm sure neither side of the aisles going to ignore that analysis and the hearing intitled examining options with an s for payment reform it would make no sense to focus on one small piece of the cost puzzle and ignore the bigger ones in all the medicaid debate raises in the medicaid debate raises the most notorious cost issue of all drug prices prescription drug spending is the fastest growing component of health care spending inside and outside government programs tax dollars are scarce commodity they should be used wisely and drug companies should be made to charge the government a fair price that's what the rebate program is all about small business dollars also are a scarce commodity they should be used wisely too and drug companies should be made to charge businesses a fair price and american family dollars are scarce to drug companies should be made to charge every american a fair price while we do nothing more and more americans purchase their medicines from canada because they can't afford medicines in this country and that's not good for our drug stores frankly the prescription drug industry issue isn't a medicaid issue it's a health care issue affecting every individual and business in our country so the question is will taking action to reduce drug prices and medicaid stifle innovation while taking steps to reduce drug prices outside medicaid stifle innovation there's been talk recently about profitability in the drug industry so we checked on that according to the most recent listing of two thousand  profitability drug makers are nearly four times four hundred percent the median for fortune five hundred industries and government analysts including the s and p industry watcher hermance after less think the outlook for the drug industry's bright  interview mr cephus highlighted the drug industry's capacity for reap get this for repatriating foreign earnings how could the drug industry have ample foreign earnings if the price controls that they always talk about in foreign markets are so draconian according to a recent study by donald light of columbia university in new york that's in this country price controls in canada britain and other countries are not too low to sustain a brisk pace of r and prices in these countries are more than sufficient to cover operating in r and d costs and to provide for healthy profits that's why drug makers sell their products in those countries that's not to say price controls can't have a dampening effect on r and d it's to say they don't need to have a dampening effect with careful effort the u s can secure a lower drug prices and increased r and d the drug companies can earn astronomical profits after all on a single blockbuster product maybe they'll be prompted to reduce their emphasis on those blockbuster drugs in further diversify our in the efforts based on this testimony mr calcio witness from the american enterprise institute is not a big fan of price controls clearly he's an advocate of free market competition we all are and he's right that price controls distort free market competition however no one understands that the consequence that would no one who understands the concept would confuse the prescription drug market for a competitive free market in a free market you would have a large number of small producers each of which charges similar prices reflecting consumer demand in a free market the government doesn't hinder competition by granting patent extensions rather than a large number of small produces the drug markets characterized by a small number of large producers each of which has a pot patent monopoly the stowed on them by the much despised government over the products that they make as a result drug makers have infinite market power not only to decide how much to charge for medicine but as a practical matter frankly in many cases who lives and who dies indulging the fantasy that the drug market bears any resemblance to the idealized college textbook free market is a waste of time and money to the american people don't have of course we should cry or the drug industry to charge fair prices that can be our first step but it shouldn't be our only one we ought to require the drug industry to charge fair prices to every american medical innovation loses value with every person who doesn't have access possible solutions to problems with medicaid system reimbursement for prescription drugs which the energy and commerce committee and the o and i subcommittee reviewed extensively last december for the past few years this committee has been examining the appropriateness of using the average joe sale price or e w p s or you referred to it payment methodology for reimbursement of prescription drugs we found it to be inaccurate three and inefficient in medicare which all only lead to the inclusion of provisions in the medicare prescription drug law which are expected to say fifteen billion dollars over the next ten years the o and i subcommittee hearing last year was to determine whether the federal government pays too much for prescription drugs under the medicaid s subsequently reported the medicaid reimbursement system is a lot of growing disparity between what states pay for prescription drugs and what it actually costs pharmacies to taint the show definitively that medicaid pays too much for prescription drugs these over payments have resulted from a flawed payment policy that makes it difficult if not impossible to determine the actual cost of retailers paid to manufacturers the drugs that they provide the current use of a w b or the list price of a drug if you purchase it was actually paid to calculate these cause falls far short of the standard we should demand it's clear to me that the use of a based reimbursement as a payment benchmark under medicaid is fatally flawed the potential remedies for this flawed payment policy are varied and certainly complex what's clear however is that states in the federal government simply cannot cannot continue to pay more than a shit for prescription drugs under medicaid allowing this inefficient practice to continue its cause seeing medicaid millions of and millions of dollars that otherwise could be used to help those who rely on medicaid meet their basic healthcare needs so i'm hopeful most chairman under your tutelage at this committee can craft a fair and efficient policy for the reimbursement prescription drugs under medicaid which must be part of any comprehensive effort to modernize  value program i commend you for focusing our attention on this issue and look forward to learning how to day's witnesses believe we can improve medicaid reimbursement of prescription drugs thank you mr chairman i yield back i thank the gentleman  the ranking member mr dingell is recognized for an opening statement this term and i thank you for holding this hearing it is an important i believe that it is clear that we can help both beneficiaries and taxpayers by making sensible changes to the payment system for medicaid prescription drugs currently drug companies are being overpaid generic drugs are being underused utilize the taxpayers in the beneficiaries of the program are being hurt but as we examine the various options for reforms i caution my colleague the changes that would have the effect of shifting more of the cost burden to beneficiaries and providers could be dangerous and counterproductive we will hear a good deal today about payments to pharmacists improvements to their payments if done right could benefit both the farm sees and save money for the government but the medicaid policy is multi faceted and there are many other options for reforms to prescription drug policy that we should not ignore as we hear from the congressional budget office the drug companies to have something to offer medicaid has generally been doing a good job of getting rebates for manufacturers the medicaid program accounts for fifteen percent of us spending on prescription drugs with that level of purchasing power medicaid should really get a good discount they should get the best in our repeat that they should get the best as a government accountability office will testify there's certainly also need for greater accountability particularly on the part of centers for medicaid and medicare services c m s in their administration of the rebate program c m s has been lacking in issuing guidelines on how manufacturers should calculate the rebates so that the inspector general because of this laxity has been unable to conduct appropriate audits and that is a matter of which we should go today this two could save money for the states and the federal government and it would not harm the beneficiaries of the program we should also explore ways to increase the use of generic medicines an opportunity to save money for the program without compromising beneficial  access to good care some states should choose arizona have done an outstanding job of increasing the use of generic drugs this saves medicaid and its programs significant funds other states have not moved far along that path we must see to see that to it that they begin that process but as we consider these changes we must protect the access to medicines for more than fifty million americans who depend on medicaid for their care already one in four adult medicaid patients cannot afford to fill a needed prescription this burden falls disproportionately on the sick in medicaid where more than forty percent of the patients with two or more chronic conditions could not obtain needed medicines because of the cost in states that have implemented multiple cost per drop controls such as prior authorization and preferred drug list the danger precluding gas access is even greater given that medicaid was designed to ensure access to medical care for the poorest and sickest americans what we should be addressing now is how to expand rather than to have restrict access to needed health care by those who are most vulnerable in our society again i commend you mr chairman for holding this hearing i hope we will consider all the options for improving medicaid prescription drug programs not just the narrow issue of payments to the pharmacist at the same time as keep in mind but a benefit that is affordable or unaffordable for those to need does force clearly an unavoidable benefit is no benefit at all payment reform should not mean that those who need care under prescription medicines in this country in reducing health care costs prolonging life and quality of life that said the medicaid program has experienced a rapid increase in spending for prescription drugs a combination of factors is driving this growth including increases in beneficiaries drug utilization and drug prices nearly half a medicaid drug cost are for low income seniors who are dualie eligible for medicare and medicaid that's important to not eligibles or transferred to part d in recent years most all states have work to implement a pharmacy cost containment measures but congress has a responsibility to make sure that every dollar of the program goes to those citizens who deserve it and need we also have an obligation to closely guard the taxpayers dollars unfortunately the current reimbursement system doesn't always match these go states are required and should reasonably reimburse pharmacies ye they lack access to actual cost because of this medicaid reimbursement based on average wholesale price does not match the price incurred by retail pharmacies the part just the very drug so i think most can agree that a isn't where we need to be although it was a government out there is still not where we need to be but where do we go it is average sales price is that it well a s p does not reflect a retail pharmac p prices i don't feel that should be overlooked but a s p is an outdated price it doesn't take into account different classes of trade pricing and lead pharmacies at a loss when brand manufacturers raise their prices if a p has been in effect this year if it had been in effect this year for medicaid when many brand name increases prices over six percent pharmacies would have been significantly affected this is something to note before we risk impacting pharmacies especially in areas where access is already an issue especially since pharmacies in rule areas often take a large amount of medicaid prescriptions i want to be clear that price competition is a very good thing generic drugs have a critical role to play my concern is that under a w p r e s p retail pharmacies are not given incentives to dispense generics pharmacies would still make more money under a s p plus six system for brands than  would for generics c m s should share with the states the price data it collects to develop better estimates of acquisition costs i'm also interested to hear from eyewitnesses on how cost savings can be found by addressing the disconnect between the formulas used to calculate the rebates and reimbursements also think states can do a better job managing rebate billings and collections and the day we see can't go looking to the pharmacist to fix all our problems i'll put the rest of it in the record mr chairman but say we should undertake this hearing with a go of comprehensive reform that works with governors to reduce medicaid costs for prescription drugs through a multi pronged approach thank the gentleman mr waxman for an opening statement mr chairman i'm pleased the subcommittee is holding this hearing today reform in the medicaid medicaid payment policies for prescription drugs is one of the legitimate areas where we potentially can achieve program savings without harming beneficiaries are undermining basic protections in this program in my view however the savings we achieve in this area should be reinvested in medicaid to help make necessary changes in the program to better serve beneficiaries and to help states meet the physical demands of the program having said that let me make just a few points that i hope will guide us as we look into appropriate drug payment policy reforms first we need to be sensitive to the impact of the changes we make on the access of beneficiaries to needed drugs to the extent we are overpaying for drugs as in some cases we clearly are we need to fix that but i'm concerned that the proposal included in the administration budget does not accurately reflect the acquisition costs for pharmacies and could in some cases result in a loss of access for recipients second we need to recognize the that increased utilization of generics is one of the most effective ways to reduce drug expenditures we must be sure that the reforms we undertake do not have the unintended effect of undermining the use of generics where they are available basing the payments of the pharmacist on a percent of the cost of the drug raises some serious concerns in this regard third we need to remember that most of our drug expenditures are for brand name drugs that don't have generic versions available this is where the dollars are and we certainly should ask the brand name companies to contribute to the savings we seek in this area increasing the rebate should be the first option on the table in my view fourth transparency in drug prices would provide significant help to the state and hospitals and other members of the so called three forty b coalition that use the medicaid discount system if states had access to the best price information for example i believe they would have in place systems that would not result in the overpayments we see with systems based on the average wholesale price which we know is easily manipulated and finally c m s needs to do a better job of administering the best price and rebate system so that we are basing our payments on accurate information the study g a o did at my request indicated a lack of clarity on the policy and little real monitoring by c m s all of which resulted in inaccurate information on which the payments were based this situation allows manipulation of prices by the companies further it fails to capture the effect of discounts that p b m's received we need to change that whatever reforms we put into place will only be as effective as the accuracy of the information on which they are based i look forward to hearing from our witnesses today i thank the gentleman it appears we do have a series of at least two votes if we have other opening statements that we may try to get one or two more and if they are short any one on majority side wish to make an opening statement you wish to make no mistake in his speech mr chairman i hear recognize for that purpose i was going to serve in my opening stating for the record now still do that but i just can't help myself after listening to some of the comments that i've heard here this morning in the year two thousand when i was miles away from think about running for congress congress passed a copyright extension for mickey mouse for an additional fifty years presumed that the research and development cost on mickey mouse had been recouped back in the one nine hundred thirty s but for whatever reason we've extended it well into this century our patent protection of this country for pharmaceuticals runs for ten years and we can argue whether that's an appropriate time or not maybe it needs to be a little bit longer and maybe drug prices could come down but the fact remains that it is the regulation in the pharmaceutical environment in my opinion that is a cause for a great deal of the price increase in the price inflation that we see in our pharmaceuticals in this country remember paul ehrlich in germany at the turn of the century was trying to find the silver bullet to cure syphilis alexander fleming actually found the silver bullet in what he thought was a spoiled petri dish but it was the pfizer corporation that developed the commercial production of penicillin that saved lives on the battlefield more war two newborns in the nursery the staff of cockle epidemics of the one nine hundred fifty s and let us not forget that that's those are uniquely american companies syntax corporation that discovered the precursor for estrogen in the cactus out in west texas made the commercial production of estrogenic compounds available in this country and its chairman i've lived under a system of price controls in my previous life my whole professional career it's called medicine and we lived under medicaid and medicare price controls i don't think federal price controls are the way for us to go and i would urge this committee to not go down that path differential pricing and lack of transparency and pharmaceuticals have been a big problem in this country certainly all of my professional career that's been a battle that i have fought i was grateful two years ago or last year actually when the medicare prescription drug act was passed and we had the discount card that allowed for  transparency in drug pricing in the medicare system which i think allowed drug prices to come down and i think we could work a lot harder in that regard in bringing some transparency and some commonsense to the marketplace but i don't think federal price controls and i don't think punishing pharmaceutical companies are the correct way to go about that i'll submit my formal statement for the record i thank the gentleman i believe we will spend on opening statements and come back after the votes but before we do so mr shadegg who's got a conflict and we're not probably be here for the second panel i would recognize this time to introduce one of our second panel members thank you mr chairman alan clue that in my opening remarks i want to thank you for holding this hearing and continuing the dialogue on medicaid reform i also want to witness on this panel and our witnesses on the remaining panels i think this is an important discussion and i applaud you for proceeding in this direction i particularly want to thank anthony rogers who will appear on the second panel he is the director of the arizona health care cost containment system which is arizona's medicaid program as the ranking member of the full committee already indicated that program has been widely recognized across the country as being a model for reform of the access program  mr rogers is a veteran of the health care industry has worked both for hospitals and health plans he was the general manager of state sponsored programs for wellpoint health networks and was also the c e o of one of california's largest health plans l a health care plan  today he successfully directs his access program as a indicated which provides coverage to more than a million arizona and and i think does it right indeed it's had great success in holding down the cost of  prescription drugs within the program and some of the best arizona has been i believe a pioneer in this area for more than twenty years ago we embrace the waiver process to create a viable alternative to traditional medicaid it is a managed care alternative and since that time access has been nationally recognized as recognized for its success in containing costs while providing beneficiaries access to very high quality care i do want to thank the chairman for this opportunity and to mention that savings in the prescription drug program alone have been outstanding a two thousand and three study found that access had the lowest pharmacy cost in the entire medicaid program nationally not only did the program as a whole cost less but the per member per month cost was the lowest in the nation again i welcome mr rogers to testify here and encourage the committee to continue to look carefully at the access model the thank the gentleman committee will stand in recess painting completion votes on the floor maybe we'll come back to order we will proceed with our opening statements as members continue to come back again and well mr allen is coming and mr allen our recognize you for an opening statement thank you thank you mr chairman for calling this hearing to examine options for controlling rising drug costs in the medicaid program we need to examine a wide range of options rather than place and do burden on beneficiaries by cutting benefits  raising cost sharing there needs to be sound evidence that any proposed solution will actually achieve savings and will not further drive pharmacies from the medicaid program it seems premature to recommend moving to average sales price quote plus some factor what would this factor be and how would this be determined states have been squeezing pharmacy dispensing fees in the last few years so pharmacies in some states including maine are gravely concerned about the impact this would have on their ability to serve their customers fourteen pharmacies have closed in maine since september two thousand and three i believe that we must increase investment in evidence based research on prescription drugs last congress i introduced a bipartisan bill twenty three fifty six the prescription drug comparative effectiveness act it authorized fifty million dollars in funding to anti aging and twenty five million dollars in funding to the agency for health care research and quality the bill directed these agencies to examine existing research and if necessary conduct new research including head to head clinical trials in order to develop valid scientific evidence regarding the comparative effectiveness the cost and comparative safety relative to other drugs and treatments for the same disease or condition my bill would essentially provide a consumer reports for prescription drugs giving doctors and their patients valid evidence based information on how drugs that treat a particular condition compare to one another section ten thirteen of the medicare law makes an initial investment in evidence based research authorizing the agency for health with health care research and quality to conduct outcomes research on prescription drugs and other treatments this provision was not funded at the full fifty million dollar level but rather at fifteen million dollars in fiscal year two thousand and five in two thousand and six facing rapidly rising drug expenditures and large budget shortfalls states have been have been examining various measures to rein in drug spending including you to utilizing evidence based reviews of the clinical effectiveness of drugs in the same therapeutic class in two thousand and three a group of states joined to form the drug this review project which funds systematic reviews of drug classes this information can be utilized to help state pharmaceutical and therapeutics committees make informed coverage decisions for their medicaid preferred drugless the drug effectiveness review has thirteen member states has completed studies on fifteen classes of drugs and has nine more currently scheduled for review this approach would yield i believe lower costs and a higher quality  committee is discussed in a hearing last december which is that a to b p is a wildly inappropriate number to use as a reimbursing mechanism for federal programs i think everyone here can agree on that i look forward to hearing from our panel sedated to help the committee craft a plan that will most accurately reflect the costs involved in preparing and dispensing drugs to the medicaid population without overcharging the system as a w p has done i want to stress however that it's imperative that we choose real reforms that will slow the growth curve of this program and not simply increase price controls or impose defacto taxes on sectors of the medicaid program that will become the very small share of medicaid spending in two thousand and six i'm encouraged that our committee will be looking at into how we can save taxpayers money by updating how states pay for prescription drugs currently states are using a w p which is unfortunate because that's costing our taxpayers a lot of money and over payments we need to remember however that we're not talking about how to increase existing burdens on specific medicaid providers simply to raise money into a broken program as we found in every hearing that we've had on this issue medicaid is broken and we have to fix it we have to enact real reform i'm confident that what we ultimately will develop is a fair mechanism to pay pharmacists adequately so they can secure almost everybody is feeling the effects of rising care costs including state medicaid programs just yesterday the center for studying health system change released a study that found that growth in medical costs far outpace outpaced the growth of wages for the eighth straight year in fact in two thousand and four the growth in medical costs was four times the growth in wages and the implications of these rising costs are clear more and more americans will be unable to in for afford insurance more and more americans will either join the ranks of the forty five million who are uninsured or join the ranks of the fifty million who rely on medicaid the safety net for their health care in two thousand and three gross medicaid drug expenditures were close to thirty billion dollars and states received about five point six billion dollars in rebates these are obviously significant amounts of money if savings can be gained through changes in the medicaid drug reimbursement system and we conclude that these changes do not negatively affect beneficiaries this is certainly an area that we must explore it seems abundantly clear to me that some of the key ingredients prerequisite to reform include accurate information and greatly increased transparency from all transaction participants i look forward to the days discussion like ven also can easily manipulated i think is a strong interest to me i also would like to say that i'm very proud of the men and women who work in the drug industry i'm proud of them because we have an enterprise whereby we recruit great talent all over the world to come here to again press the bounds of science great discoveries that improve the quality of life of our people the problem is that everybody then demands it and the social systems of the world think that they're quote entitle to it and they then really press us in what i would call real trade issues and penalize the companies parent companies of america that we can also then multinational companies so i was i was a little concerned when i heard this slam when we last last year to allow these companies to repatriate those those dollars back to america i think that was a pretty good thing a great move but now to somehow slam that as if saying to these drug companies all i think you're making profits overseas that is one of the shallowest things i've ever heard because a multinational corporation or to do business in any country they have to create an entity to do business so that's why they call in multinationals so when  to a big company if you want to do business in another country you create a what subsidiary and then of that subsidiary whether you want to sell your product in that country you've got to create that entity so you might be in a hundred countries all over the world and you've got  hundred entities out there and of those entities whether it's by sale you might have warehousing you might do manufacturing you might do some marketing everywhere you create an entity you then have government you have a taxing authority and those taxing authorities they have an expectancy that they get an allocation of a percentage of the props based on the business enterprise in the lifecycle i just dumbfounded that we have really smart people love to just make some simple little attack that's ridiculous so let me just let me be executed us and i'm going to end where i finish i'm proud of the men and women who work in the drug industry that benefit our society and benefit the world based on their discoveries and i'm pleased that they were able to bring back a percentage of those profits to america so we can continue in our new discoveries our challenge is as we look toward our own quote social systems that we have in our own free market system of america and how we can make improvements  we appreciate your patience he told me though that if we were working on the legislative branch appropriations bill for us just take just as long as we need and he wasn't making any complaints so that's in fact what the rule was that we just voted on we are in plea indeed plea to have you here as most of the members of this committee know he is a frequent person to testify and we have always appreciated his candor he is the director of the congressional budget office and i'm pleased to recognize you now for your testimony your written testimony of course is a part of the record thank you mr chairman mr brown members of the committee the cd is very pleased to be here today to testify on this important topic we have submitted for the record two reports that we have done recently on payments for prescription drugs in federal programs and general medicaid in particular and i thought i would devote my time at the outset to an overview of the payment system and the places where those reports address to review the kinds of payment flows that are in the medicaid system so the blue arrows are the easy ones they are the traffic takes prescription drugs from the drug manufacturer through a wholesale pharmacy chain and to medicare beneficiary that is the delivery of the healthcare itself the remainder of the discussion is about the smaller green arrows which is the set of transactions financial transactions that support the delivery of the pharmaceuticals and there is one small point that i will offer at the outset which is that this is a stylized depiction of many different state systems and it will fit nope individual state exactly for details on particular like like that from that i'll leave that to the side instead focus on the triangle of payments that connects the program pharmacies in the drug manufacturer now in the context of this business pharmacies and wholesalers negotiate with drug manufacturers for the price at which they will acquire the drugs to deliver to beneficiaries and those market based prices are the foundation of the business transaction by which they acquire these drugs in turn they is a dispensing fee usually a fixed amount of three to five dollars meant to cover the cost of storage and consultation dispensing and the remainder is an attempt to compensate through some proxy for a typical market price at particular transaction and in recognition of the fact that it is higher than typical market transactions a typical reimbursement fifteen say twenty percent below the awb those monies are sent from the medicaid program to the pharmacy in compensation system recognizes that on the whole these transactions are above yet what it really costs the entire system to liver these drugs and so there's a requirement that manufacturers in order to have the drugs considered provide rebase the medicaid program as a whole and that's the third part of the triangle payments from drug manufacturers back to the medicaid program now as with all of the considerations today there are differences between those drugs which are brand name drugs and those drugs which are generics program as a whole will be a distinction between rebates on brand name drugs which average about thirty percent and rebates on generics which average about eleven percent that set of transactions is the heart of the report and the second t slides summarize the two key findings that we have the first is to compare payments that go out from the medicaid program to the pharmacies with payments that actually come into the drug manufacturer the payment coming into the drug manufacturer is what i would call the acquisition price the payment going out would be the the total payments of pharmacies and everything in between is by definition called the markup this covers all parts of the distribution chain including wholesalers where appropriate so  go the second slide you can see that in two thousand and two and overall average for all drugs in the system medicaid paid sixty dollars almost sixty one per prescription that can be broken into these two pieces money is actually flowing into the manufacture forty seven dollars and moneys which are to cover acquisition by cover markets by pharmacies about fourteen dollars now there's a big difference between if we could just stay back in the previous life there's a big difference that you can see between the generic drugs and the brand name patented drugs are a name drugs are much more expensive on the whole ninety seven dollars on average generics new new generics those which have been introduced forty six dollars older ones about fourteen and there's a big difference in the pieces of those overall prices as well for the brand name drugs the acquisition cost payments manufacturers the bulk of the cost the markup a much smaller percentage in contrast for new generics the acquisition cost simply low and the markup is thirty two dollars a much higher piece of the overall price now one of the things to note in this in thinking about the incentives involved is that because of this high markup there's a clear incentive to where possible steer beneficiaries to a new generic drug and from the point of the system as a whole this may be desirable because the total cost is much lower and those incentives would should be an important part of the thinking and any reforms that the committee might want to consider and then i'll close with the final slide which shows the second piece of  analysis which is after consideration of rebates how much does the manufacturer actually reap from delivering prescription drugs to different types of federal buyers here you can see a diversity  bit higher than the v a average price this is reflective of the ability of an entity like the v a to control its formulary to deliver not just beneficiaries but also doctors in training and provide a variety of incentives for manufacturers to give them a better deal thinking about those private sector incentives in reforming the medicaid system as a whole is also an important part of a there's a lot of material in the reports a pretty high speed overview we're happy to be here to farm's based on the average wholesale price but the rebates are calculated on the average man a fact price obviously when we use different scales to judge things it gets more complicated for everybody to understand is there any advantage if any to going to using one price to calculate both the rebates and the playing with the pharmacist and what are the pros and cons of that that the typical price of a market transaction that medicaid can then use as a proxy for reimbursement in moving to some other index which is convenient because it's a list price and out there easily accessible are probably three different things to consider the first is the degree to which it's readily available one of the advantages of a w p a is it's always available it's updated by the manufacturers if it's available to timely fashion so would pharmacies for example are they the v a is it hospitals or is it closer to the kinds of retail pharmacy transactions you see in the private market and then the third would be the impact of going to a new index would have on private sector bargaining if you went to a different index and manufacturers knew that that was going to affect reimbursements might change the way they cut the deal with their other customers so those three things will come up regardless of whether you go to m p or and average sales price or whatever it may be the testimony that we heard from the national governors association last week reiterate it's something that i think many committee members have said both publicly and privately and that is that we do not want to make changes that are going to adversely affect the pharmacist because many of those really are the point of contact for health consultations within small rural communities in particular the current structure which as you outlined i think on your second chart indicates that the markup for new or brand name generics is the highest category of markup which the pharmacist  in the pharmacist gets the keep that markup is that right the pharmacist and whoever else might be in that chain wholesalers get some and some ok but it would still be more profitable in this scenario for a pharmacist to be able to prescribe or to  fill a prescription with a new generic is that right yes is that an appropriate incentive in your opinion it's clear that if you look at the total cost of the system the new generic  cheaper total cost of the system then is a brand name drug if they're therapeutically equivalent that would seem to be the kind of incentives you'd want to bet in the system whether it has to be that big i think is the question of the hour ok in your december last year report you highlighted that some of the largest markups happen in the new single source generics and that's one of the areas you focused on could you go through the how the average markups o each of these various levels are arrived at and how how does this discrepancy happen in those variations the computations are the same in each case you'll take the list  price and take you fifteen or twenty percent of it and that will be the appropriate reimbursement the real action is in the degree to which the actual transaction between the pharmacist and a manufacturer  and that provides a clear incentive for adoption by the pharmacists and as a result you get this disparity between those single source generics and then say older ones that are in the table where you don't see a big discount from the list but even in spite of that as your chart indicates there's still significant savings to the system to go that route all right well thank you mr brown you're recognized for questions competitors in the market so if you include them with the with the brand names it skews skews it down if you will the average price if you put them with generics it skews up the average generic price so that either way the drug industry wins is i correct about that to be honest i don't know how we but certainly to the extent this is an issue and we'll get back to it with a clear answer about how the complications were done for our study one thing that we will do is check the sensitivity of the results to class on one way or another it's a very straightforward thing to check and the second is to provide the overall coffee at that's true in this area which is our results are for particular years and for the rules that were in place in those years and results are going to differ as new drugs roll out but it could once again check on that ok ok because i mean it's it's it's it's hard for me to think it congress to which to achieve savings the first deals are the payments by states to pharmacists which we will discuss at some length the second deals with the rebates or mandatory discount given to states by drug manufacturers as we've discussed because they are such a large purchases of drugs i i'd like you to tell me how much money could be saved from the statute increasing the rebate paid by this from the statutory fifteen point one to safe to say twenty percent and i ask that before you answer and that'll be my last question it's pretty clear from what we've seen with the profitability the drug industry the fifteen for the four times the as i point out my only statement to the four hundred percent profits larger than other companies in other industries and the fact that i in europe and around the world they can't make any money from that so tell me one what you think of moving it from fifteen point one to twenty percent if you're willing to do that but maybe more importantly tell me what kind of money it would save  by by increasing the rebate the basic rebate being moved from fifteen to twenty percent would save about six hundred million in two thousand and six and a bit over three billion dollars over the five year budget window so  those are the magnitudes the money is involved the rebate structure has two pieces the basic rebate and then and additional rebate for those drug prices that rise more rapidly than inflation and i think it to think about sort of desirability of modifying the rebate structure and think about all the pieces and not just one isolation but those are the monies that would be involved in any proposal that might go in that direction to the drug industry to the drug industry continue its  for the past several years has been the tradeoff between the sort of any year reduction in prices given that production costs are actually a small fraction of things and then the incentives over time for the development of new chemical  drugs will be beneficial and this is something about which we have been deeply interested in which we're actually working on at this time i won't prejudge the outcome of our looking at that but we are working on the links between retail pricing and r and d and it's something that will continue to work with your staff do they spend more in marketing or they spend more on research i don't know the exact numbers of my head but it's again something that as we finish  not look happy exact numbers i just said that they spend more in marketing around research num you three of four parts state as i understand it concurrently to go shoot pharmacy reimbursement rates so one question is why does medicaid continue then to overpay for drugs if the states already have the ability to negotiate lower prices i would go on continuing on can't we make this process more simple we were going to hear from the next panel arizona relies on health plans to negotiate drug prices for medicaid beneficiaries and they reported some of the lowest prices in the market so i guess could we have more states follow the arizona model and have health plans handle these negotiations and i guess there's a there's a government just having the government handle these negotiations just necessarily complicate the process so if you're able to kind of get a handle on all those necessary in order to be get the get get the best price for the drugs well first of all i want to share my sympathies you want all the acronyms so i'm new to the area and i found it absolutely frightening  and i think that it is useful to think about it in really three steps step number one is do the private entities in the in my simple diagram pharmacies versus from the factors do the private entities have sufficient incentives and abilities to negotiate hard for low prices and that that's a question about whether you're happy with the power of the pharmacy and wholesalers relative to the drug companies in cutting it a good deal and if those incentives and tools are in place that should be sufficient in a market economy if not then you might want to bring the government in with extra leverage second satisfaction of people with the prices received and then given that the ability to see them very easy to reimburse and so there are really three different steps there number one is power of the negotiation step two who gets to see the negotiation and then step three having been able to see it directly or have to approximate the problem of the a t p is a bad approximation to the market deal how do you do the reimbursement with the wide diversity of experience in the states i think that's a great laboratory to really look and see where it seems to be the most successful and there is a model is one that certainly stands out it doesn't look like mostly other medicaid programs and accounting for all the differences the heavy reliance on managed care for example it's something that we'd be interested in working with you on well why aren't the states taking a good look at the arizona model or are they and what do you think coming down the pike as a floor of the french is my governor is concerned about this problem is he is he does he is he familiar with it do you know i suppose i should ask him and i don't know if he is trying to put that into effect in florida or take a look at it or maybe some sort of you know some sort of a pilot project i don't know  thank you thank you thank you dr for being here i wanted to ask you a couple questions about to start with the issue related to the dual eligibles those people who qualify for both medicare and medicaid the medicare modernization act includes a provision known as claw back by which the states must pay back to the federal government a portion of the savings that they receive from the transition of low income medicare beneficiaries who get their prescription drugs f medicaid over to the medicare drug benefit under that law the base here for determining the payments is two thousand and three and my state among others has taken significant steps to save prescription drug costs under medicaid in the interim in maine what we've done is we've used prior authorization we created a prior authorization requirement so essentially what would happen those states like maine would not get credit for those savings and we would be overpaying the federal government for the so called savings that we would have and i wonder if the c e o s that examined this issue and whether or not if you've given any thought to the cost implications if congress were to move the base year for the claw back from two thousand and three to two thousand and four we have looked at this a little bit the key issue is the way to claw back is calculated starts with for that number it would actually not make it easier for the states that in fact it would go the other direction but it will differ by state and so i don't know the particulars experience with maine but for the system as a whole that wouldn't be the case that it would lower the clawback well obviously my constituents care a lot of what happens in maine i just i raise it as an issue a real challenge i think and one other quick issue i just want to mention i don't expect you to deal with this but  i'm very concerned about the transition under the new medicare law the dual eligibles in six weeks starting january first two thousand and six we are expected to move six million americans who now get their prescription drugs through medicaid to medicare plans which they don't know about yet we don't know about yet we don't know if their drugs are going to be covered i just suggest that that is an area both jay rockefeller and i have legislation to deal with it but it it is putting up your second your second chart again if we if we could have that the pharmacy's profit margin has been an increasing significantly as you pointed out a newer generic drugs and in response to mr bill rockets question you referred to incentives of the manufacturers and i wanted to have you elaborate if you could a little bit on the incentives of the manufacturers i mean my information is that the inflation of the list price to the pharmacies is driven in part by the manufacturers desire to to expand their market share and they know the pharmacies will make more if they if markup to a pharmacy that computation is between what you actually sell it and what the list price is so the manufacturer who wishes to have lots of beneficiaries use their drug has a clear incentive to make that gap as large as screen it shows the markup for generic newer generic drugs to be thirty two dollars and ten cents and the markup for older generics to be nine dollars ninety cents and you know we think when we think there is a  markup and we talk about a markup generally we would think it is the pharmacists who are doing the markup but in this case there is a profound and strong incentive for the manufacturer to have a higher list price for the reason you indicated i see my time has run out a i thank you mr chairman because the more i listen to this the more ridiculous this system sounds and i think it probably is if we can't do better than this then we all need to have our heads examined this is just you know one of the worst examples of government gone awry that i can i think i've ever seen now i want to ask you a question dr in theory  a w p is the price that the drug manufacturers suggest that the wholesalers charge retail pharmacists right but you testified that that varies greatly b uncovered any information as to a w p variance related to the socio economic makeup of a region in other words is there any read you know connection relationship between pharmacy reimbursement rates and medicaid benefits access to pharmacies particularly in rural areas because you know rural areas have the last the least opportunity to have a choice in where they go to get their drugs and so on can you please discuss what the implications would be on beneficiary access by moving to a pharmacy reimbursement payment based on a s p i think it will depend exactly what is meant by moment exists only under medicare part b and whether that particular calculation is the one that you would want to use for reimbursement pharmacies when it's really not comparable and completely comparable to the kinds of transactions that the pharmacy is going to make and medicaid so you might want to have a different measure of sales a different set of retail sales put into that index and so that would be probably the first thing that would be important and the second of the issues that i mentioned earlier how quickly will this be available can you do this a d how will the use of these transaction prices change the kinds of transactions that are actually done and reported it just seems to me that doing something simple could outweigh those three things because i just think this is so unnecessarily complicated and maybe when i understand the issue better i won't feel that way about it you've discussed a number of potential methods for cutting medicaid prescription drug costs each of which essentially put the onus of cost savings on pharmacies or drug manufacturers i'd like to hear your thoughts on the matter of increased co payments system has studied the feasibility of a consequences and we're trying to investigate in all areas of our work what we can learn about those trade offs and i don't think there's anything definitive we have offered this one but it's a very important issue and i appreciate your observations i just think it has to be  weighed with the fact that people have to be responsible for their own health and that they have to play a responsible part in what they do and how they spend their money mr chairman i yield back thank you so much like selected federal programs this charts very informative and one thing i would note is that we do not have a box for error on that chart for the prices paid by medicare as we all know medicare will begin its prescription drug benefit in six months and i'm wondering whether the congressional budget office plans to update this chart to reflect the discounts off average wholesale price received by medicare we will certainly work with the congress and provide them anything this requested we don't have a specific plan to do that at the moment and we did feel was appropriate to leave that issue out of this report given the transition at the moment would be impossible to do a fair job on that but that's something we'll be happy to continue to work with this committee on if it becomes important i think it's going to be vital for congress to understand where medicare will fall in the spectrum of federal programs that purchase drugs i'm wondering what sort of information the congressional budget office will need in order to provide such an analysis and as a follow up you can tackle both at the same time whether you are sufficiently able to get that information from c m s or whether you require any legislative change to derive the information that you will need to  my understanding c m s will require drug plans under the the medicare program to make public the prices they negotiate and that will be an important element in being able to analyze it there are some details about the delivery of that information that may not make it possible to do it in a way that's exactly comparable to this but we will work with c m s and see if we can't get the information necessary to do that but i think from what we know right mr chairman i'm new to the committee so i'm digesting all this i actually agree with barbara that sure is convoluted the way all this is put together so i hope this process will help to simplify some of that but i do have a question i want to ask you because i keep hearing from people who come into my office and talk to me about people who are involved in medicaid one way or the other and they say that moving to end of the system would really come at the expense of the retail pharmacist and i want to ask you and again a policy a little bit on what she was talking about but is the plus six percent really unfair to retail pharmacists let's talk about the as it's currently configured the concern is that those folks who are using the s p in the medicare program have a greater ability to negotiate with the manufacturers and get lower prices th would retail pharmacies who have to provide a wide array of drugs they can't limit the formula they have to provide the drugs the beneficiaries are prescribed when they walk in and so there may be a differential billing to negotiate that sort of piece one of whether the s p's a good comparison as it's currently configured the plus six changes incentives as well because there are six percent of a brand name drug could be potentially large number of people that are charts where six percent of a generic drug would be much smaller and incentives will come into play and the question would be is it desirable to shift incentives in that way and move people toward brand name drugs other things equal which might be more expensive from the system right the other thing compared to physicians and hospitals etc can you just briefly when you can think of the mechanics of this negotiation you go to the manufacturer and say look if you give me a good deal all my guys are going to use your drug your drug on obligation to provide whatever drugs on the prescription once one was in the door you can't make that same promise you're may not be in the same position and when the bargaining takes place and it will be a different outcome as a result thank you wholesale price essentially the manufacturer's list price for a drug to a system where states pay pharmacists based off the average sale price an average of prices paste paid by certain purchasers i have heard concerns which i would like to hear you address that average sales price is not representative of the price that pharmacies actually are able to purchase medicine for because the f p includes prices from hospitals and other organizations that get deeper discounts and pharmacies get it's not that it's the pharmacist isn't at a disadvantage based on the large quantities that hospitals may be at a disadvantage it would not be the same for the pharmacist and a large hospital the hospital to have a better negotiating position and be able to strike a better deal so why is this an advantage to pharmacies then to be in to the best advantage it's a do it it is a disadvantage so the way that structured that's other things we know that the president is proposing something that might not resonate too well with one segment  of the drug dispensing industry as it is very central to medicaid and medicare to ok i'll move to another concern of the president's average sales price based proposal and that is that it would pay f p plus six percent and that six percent would be intended to fully or partially compensate pharmacies for dispensing stocking counseling patients and other activities however six percent of one hundred dollars drug is much more than six percent of a ten dollar drug and so on and as best as i can tell that flat six percent has no relationship to what the pharmacist is actually doing or the pharmacies actual overhead what those overhead cost may be and i'm concerned that such a concept would provide perverse incentives for example for pharmacies to actually dispense the more expensive prescriptions medicines not the least expensive ones because it would be in their interest to do so which would drive prices up all the way around do you have comments to say on that i think the first point i'd like to emphasize is that the question of whether the six percent or  fee covers the pharmacist costs that's something that we were unable to address in our report i won't be clear about that we don't have a comprehensive measure of their cost of dispensing prescription we tried to get some  for growth in their cost by looking at the wages of the kinds of people would be in the pharmacies but we couldn't in any scientific way say that numbers bigger enough to cover their costs the second piece of the interview but you know what it was based on  the six percent do not present proposal and then you know i think you summarized the incentives we've heard discussed earlier six percent more expensive drugs more than six percent of a cheaper drug and again other things being the same the incentive to get a larger reimbursement would push you to the more expensive drug we've heard discussed today some of the concerns about attempts now with the proposals the rollouts proposals that there are efforts to restrict cost and that as a couple of my colleagues have said on the other side certain populations for example in rural areas might be really restricted by or at least have no choice when it comes down to to the actual minute medications that they need for example the national medicaid buying pool which attempts to bring up a large number of of medicaid populations in several states to do in order to negotiate deeper discounts and some of the this might result in hampering beneficiaries from receiving the medications that they need and we're not talking about frivolous most medications many times we're talking about life saving medications and this is a situation that i would like to hear you come in on i'm really concerned that that we now are finding a situation not just with medicaid patients but one in two uninsured for example one in three publicly insured and one in six privately insured working age adults with at least one chronic condition have reported not purchasing all of their prescription drugs because of cost concerns and this reporting is increased from sixteen point one percent in two thousand and one to eighteen point three percent so the number of people reporting these kind of concerns is not diminishing is there any way of seeing the end result of what's being posed as as addressing this at all not from what we have in front of us today the studies that we've put together are national studies they use national prices they are typical outcomes across states which do have differences and they will differ both in urban regional dimensions but they do reflect the basic notion that th pharmaceutical market is a national market and that the ability to manufacture and distribute it is not a regional phenomenon that that that is a national phenomenon i think we think these are sensible studies to do if there are important with us so long just to go back for a minute to the average wholesale price and then your average manufacturers price is the included in the average manufacturer's price do we do we clue the costs for research and development or is that simply the cost for the active ingredient in the vehicle and then later gelatin capsule the average wholesale price is a list price the average manufacturing price is a transaction price and reflects just the outcome of the negotiation the transaction of the pharmaceutical itself so the nomenclature of average the use of the word manufacture in there is is in fact it's not erroneous but it's actually negotiated price so that it wouldn't necessarily reflect just the cost of manufacturing the pill it's the manufacturers sale price and presumably they're going to not sell in a way which makes it makes them unable to cover their full costs and recover those costs so research and development would be would be included in that on something that was still covered under patent presumably not included on something that had left the coverage from the patent protection  from the from the manufacturer's point you have a clear incentive to cover all your costs research and development manufacturing distribution marketing whatever they may be the flip side of that is of course the other side of the negotiation wants low prices and this is the outcome sold at the just above the cost of manufacturers or are there healthy profit margins built we haven't done a particular analysis of profit margins what one sees is the not terribly surprising result that with the loss of  protection the entry of generic competition retail prices tend to come down from single source patent protected drugs but how that price is relative to production costs in the margins as a result of something that's not covered here for if you want just looks at the medicaid bar and look at the v a bar and they're not they're not the same and you raise the question gee why wouldn't they be they're both government programs why don't we get the same price and the answer is the v a carries with it into its negotiation some clout that the medicaid program cannot because it has the ability to pick a formulary and deliver that formulary to the veterans and as a result negotiate strongly with t including the formulary it's a training ground for doctors and so they can go to the manufacturer and say we can expose these young physicians to your products and that's an advantage to manufacture so those dimensions to the negotiation matter and that's one reason why you might see those bars be different because the programs are there both federal programs on the face differ in their substance but i thank you for explaining that so clearly on the do you have an opinion we heard from several of us up here today that this is not the system that any one of us would hope to construct if we were setting up today to build the system do you have an opinion as to what type of system that congress ought to aspire to i think that the consensus of the committee that i've heard today is that when the system was designed to use a sticker price to proxy the actual market transactions between pharmacies wholesalers manufacturers it failed to do so and that the rough justice adjustments that came after the fact discounts are made of rebates fail to capture the actual costs of transactions the harder question which to which i think there's no single answer is how to better reimburse based on market transactions get close to what it actually costs and do that in a way that does  not destroy the incentives for the pharmacy the mark as a whole to negotiate hard and have low prices if you just say we're only going to reimburse for the lowest price ever found in the united states that's a clear incentive to not drive down too hard and in dr holt seeking the two thousand and five c b l budget options book says that allowing states to increase cost sharing from three dollars for adults and zero for children to five dollars and three dollars respectively will result in a one in one point nine billion dollars savings over five years the budget option book also states that a potential drawback of this proposal is that a quote reduction in the use of appropriate health care services could also result for instance previous research has shown that poorer individuals facing higher co payments displaced worse health displayed worse health measures is another example of the introduction of co payments for prescription drugs and several state medicaid programs was found to lead to many beneficiaries going without their medications is it the case that some portion of the one point nine billion dollars that is saved  is result of medicaid beneficiaries foregoing necessary and appropriate medical care and services including prescription drugs due to the higher co payments it's certainly the concern there's evidence that it happens as part of the reaction to higher co pays what fraction that would be passing up desirable medical treatment we don't know but it's an element of the behavioral response and so therefore a portion of that savings is really people foregoing needed medical care and factor in how much is coming from that respect it is not currently feasible for us to draw a line between those parts of cost reduction which are just better shopping and skipping luxuries from those parts of the contract are skipping things you shouldn't well we appreciate the work that you've done on this issue and i hope you'll continue to look at it dr whole thing and many of us are concerned about the transition of the dual eligibles those individuals who are rolled in  medicare and medicaid to the new medicare prescription drug benefit in two thousand and six in particular many dual eligibles have chronic illnesses and take multiple prescription drugs those living with mental illness for example are already subsidized already stabilized on a particular drug regimen and abrupt change in their medications would cause great harm under the new law these dual eligibles will no longer get their medicines from medicaid but they'll have to go into the medicare drug plan medicare prescription drug plans may not include all medicines that a low income individual needs on their formulary and some individuals will get although enrolled in these plans without any consideration of what medicines they  need the cost burden of paying out of pocket course is going to be insurmountable for many of these individuals a number of us are interested in exploring ways to ensure continuity of treatment for these low income elderly and disabled individuals for example one option might be to require medicare drug plans to cover all medicines that an individual was taking prior to the transition to the medicare drug benefit for a certain period of time so they could either change a more appropriate plan or find a way to continue taking their medicines if unable to switch to another product has c b l examined this issue do you have any sense of the magnitude of costs or even potential savings associated with such  a beneficiary protection we've looked at this to the extent that we've tried to understand the transition to a new drug benefit in our baseline and there are aspects of the transition that have features like the ones you mentioned certain class of drugs the formula requires that all the drugs be available that the dual eligibles can switch plans as necessary perhaps because they don't have the drug they've been stabilized on there's an appeals process so there are aspects expansive guarantees during the transition period it doesn't sound like you would be all that much different than what you've already looked at if you're if you're suggesting that they have some of these drugs available to people in some cases you know the anti psychotics and things it doesn't sound like  very different at all but there may be examples where it is different we just haven't run across those yet so if there's some particulars they want bring to our attention be happy to take a look well perhaps you could look at this kind of option if we spelled it out to see if how much of an additional reduction in savings we might find but this bike be a way to help those people who would be affected by an abrupt cut off of the drugs that they're already condition to using and won't be able to afford otherwise there is also another feature of this is there is a provision for advanced refills and extended supplies to literally take the current medicaid program and use it as the bridge to the to the new drug plan and to the extent that that helps  certainly appreciate you being here and thank you for your candid answers to some of our questions just before my question someone had some have suggested that and some on this committee have suggested that some of the drug manufacturers actually spend more on advertising than they do and research and development that of course is absurd the drug companies spend enormous amounts of capital and enormous make enormous investments in research and development perhaps sometimes the television advertisements that people see on t v are a little bit more obvious than that than the countless people and labs and scientists and researchers and clinicians and others who who make make up the investments that go into finding the new cures and the new treatments and the new drugs but just to clear the the air and to clear the record it's it's absurd to suggest that companies spend more on advertising than they do on research and development of these drugs point is there a policy rationale for that in my estimation that's not reform that's simply change in a changing some of the numbers of the system is as it's currently in place to try and raise additional revenue but if we're talking about reforming the system trying to fix some of the problems that we face in your estimation with c b s is there any policy rationale reform rationale for for raising the rebate to twenty percent  didn't originate proposal you'd have to talk to those who are into doing this for their rationale the economics i think set up an incentive system where the rebate is a lower net received by the manufacturer that's what that does lowers the price they get but they still have the opportunity to access a large client pool by by entering the medicaid program and so it's the trade off of being in versus being out versus getting a higher or lower price once you're in and  that's that's the trade off underneath all these kinds of policies doesn't amount to a tax on the manufacturer you could label this anything it's a lower price to the manufacturer i could think of a lot of things to label it but reform minded rationale policy rationale for this it's simply looking for money in a in a system which isn't producing enough money proposers at the best position to answer that question enough the prescription drug component of medicaid amounts to about fifteen percent the program is that correct check the number more like that number back to you it's not i'm not asking for a specific decimal point the estimates that i've seen is said that after the drug benefit for medicare goes into effect and that because of dual eligibles obviously and other things that the prescription drug component for medicaid will will drop much lower than that us perhaps by two thirds you know down to maybe six percent does this seem like to you from a budget standpoint to be looking to talking about raising the rebate now to twenty percent we're going to try and raise the rebate on a shrinking portion of the of the medicaid be covered by the medicare program the estimates that we provided for this this proposal would recognize the transition and so would be built off a base that recognized the doors heading into the medicare program and out of medica so the numbers you've got it are consistent with that the more general point is that with the shifting population mix impacts in the medicaid program that spill over to private sector outcomes you know prices negotiate an exit that will be smaller in the future than they've been in the past and that will be something we'll have to think about in looking at the response of manufacturers pharmacies beneficiaries to different incentives that come up in the payment system but as you've acknowledged and as you said to listen to your report states that there is currently and senate for pharmacists to dispense generics because of that quote unquote markup since we already have this incentive to dispense generics how do we increase generic use those ation by changing from average wholesale price to another reimbursement model asked a question and i'm sure i understood how that crease right i mean the intent has been  supply the newer generic drugs but if we moved to another motto will there still be that incentive that's far from obvious i guess one of the examples that came up was providing as people a six where you'd have to worry about  undermining the incentive for generics and moving the balance back toward incentives to provide brand name drugs so i think that's an important thing to keep your eye on if you if you go forward with changing the payments mechanism they stay on the current incentive should we already have higher rates of you as a sion when generics are available the ultimate utilization is going to depend on first and foremost the medicine and whether it's the right medicine and then secondly the relative prices and the incentives to deliver it and so  without knowing you know what the nature of the underlying prescription necessary is you can only answer that ok great thank you mr chairman i yield back i thank the gentleman and mr brown suggested we lock the doors for any other members come in and i want to ask any more questions of we're not going to do that but dr sagan we do appreciate your patience to be with us today and for your testimony as always and we'll let you get back to doing some of the scoring that some of us are interested in some other issues as well the thank you as always a great witness thank you the last second panel if they will come forward once again i think this panel for your patience as well very distinguished group and i will make very brief introduction so we can hear your testimony as quickly as possible our first witness is mr anthony rogers we already heard a rather in depth introduction from shadegg he of course is the director of there as well my health care cost containment system mr craig fuller is president and chief executive officer of the national association of chain drug stores miss cathy king is the director of health care at the u s government accountability office and ms kathy gifford is principal of the health management associates of indianapolis indiana and mr jack kalki is a resident scholar of the american enterprise institute a very distinguished panel so we'll start with you mr rogers and i would add that all of your written testimony as a part of the record get about the arizona model especially the results that we've been able to achieve related to our pharmacy benefit what you have on our slides and go the next sli e shows a little bit about how we started we started as a medicaid waiver back in one thousand eighty two twenty two twenty three years ago we still are a waiver  program the waiver does allow us to operate a statewide mandatory medicaid managed care program that requires the members to enroll in a contracted health plan the members receive their medicaid services including pharmacy benefits through their health plan now access reviews the actuarial models for each health plan and we set our rates and stablished pm pm capitation and what's important about this is that this is the nature of aligning the financial incentives for the health plans because they compete against each other on quality and on service but they also compete in a way that  relates to their capitation if one health plan is out of alignment capitation we can see this and those health plans are able to play off of that and keep our costs down so the managed competition model works very well for arizona go to the next slide our model is a full risk model it creates a strong motivator on the part of plants to operate cost effectively to come up with innovative ways to control costs and prescription drug benefits is one area that our plans been very innovative our plans also are in competition for the members and they compete by their networks the networks they offer the members and they compete by their reputation whether they get a reputation as a good plan and oftentimes that is dependent on how the positions as well as other members describe a plan so a lot of our plan growth is due to choice and there's a lot of loyalty the plans next we have a single we have no single state medicaid formulary the state contracts with the plans they establish a formulary and this is allows the plans to negotiate very good prices each plan develops a specific formulary and there's always concern well will the plans of up an appropriate formulary where they're at risk for the whole medical cost and so what they're managing is not just a formulary but what happens to that member if they don't get access to their medication and i think that's going to be reflected in some of the later slides in terms of the results that we've been able to achieve if you look at this concept is very similar to what you're trying to do with medicare and that is you're having medicare plans as as pharmacy plans compete for members based on their their formal or that they offer as well as to maintain their costs and so the federal government potentially can get benefit from that kind of competition the keys to our success are simple plans negotiate with input from their providers on their formulary design they have contractual relationships between the providers and the plans and this is extremely important because our plans are responsible for assigning each member to a primary care physician it is the physician who is key to controlling your prescription costs once they get on board they control the generic use they can help you with controlling your costs and having a good primary care network is also key non formal or a drugs are allowed and prescribe with prior authorization so if you look at our generic performance you'll see that our generic performance is very next one these are some of the tools that the plans use to control prescription costs including step therapy which means try the generic first of that doesn't work then go to a brand or a different drug and this is in consultation with the provider because they're assigned to a primary care provider that relationship is key to controlling costs prior authorization procedures are also another tool as appropriate quantity limits so that the plank and see if a member is shopping so to speak for drugs and those limits allow the plan then to interface with the member this is why our case management system by our plans is so important when they see a member who is over utilizing medications they can then have them talk to that member but they are still at risk for any negative consequences with that member not getting access to their medications each of our plans has a close pharmacy network which means they contract with our pharmacy network they are not required to offer any willing pharmacy provider but all of our pharmacists pharmacies are covered in our state and then finally we also have a mandatory as a tool we have a mandatory generic use as the first option for services next place so couple things about our managed care program there are no limits on prescriptions as some states have established to control costs we have no limits there are very few quality issues  complaints of the one thousand two hundred quality issues we investigated last year only one percent had to do with medications and quality issues are everything from a physician prescribing the wrong dose for a child that has to be addressed and the plans pick these up and so those are part of the quality issues we oftentimes will evaluate exceptions to the process are considered and physicians are able to request non formulary drugs as well and then we have a highly competitive environment and this is been due to the fact that as access to health care cost containment system we are part of the competitive environment in arizona and so it has estab one with providers but with pharmacies a very good competitive environment for our medicaid for medicare as well as for commercial and i slide this is basically the bottom line results that we see and this is  everybody is very interested in the arizona model now i have run health plan started health plans i've run run hospitals county hospitals clinics and one of the things about arizona it's known in the industry as uniquely managing the population well in fact even the arizona citizens voted to expand access to more people in arizona in two thousand two because of the results they saw i'd like to just bring your attention to a couple of things in our q care program our generic use is ninety three percent for drugs that compare to other states we took drugs on our formularies as well as drugs and other state formularies to compare and so that's not all of the drugs but that was those drugs we could compare the average prescription cost is significantly lower because of our generic use and the ability to plants a negotiated good prices long term care you see the same results very high generic use and a very low overall cost per prescriptions and if you look at our town of population and this is one population that is always sensitive to us about drugs and drug use are per member per month cost for drugs is lower than  both other states managed care as well as fee for service and that's due to the maturing of our program that doesn't happen right away but as your program mature as you can really get good results next slide what i asked my director of pharmacy to do is to look at where we were today we have a report that was done by the lewin group that really established arizona as a model  in terms the data that they found with other programs so i asked my pharmacist check again to see how we're doing and these are the results a month ago that he read that he got seventy percent generic use as compared to the other states that he was able to get information our dispensing fee is two dollars which might be low compared to other states but again we have a very competitive environment in arizona and so when you have competition you have the benefit that occurs from that let me go to the last line the last slide basically tells you what our strategic focus is controlling medical cost inflation improving quality health care and assessable the primary care services reducing the number of uninsured in our state reducing the fragmentation of services and ensuring that there's adequate infrastructure to oversee our programs it's important to know that the success of this program has been due to arizona learning how to manage manage care and i think that is the key to our success i want to thank you mr chairman thank you mr fuller thank you mr chairman mr brown i represent the national association of chain drug stores we have over two hundred retail members with over thirty five thousand stores and hundred twenty thousand pharmacists across the country this is a very very important issue to us and we're grateful for the chance to testify my statement went on at some length about a variety of issues i'd like to give you some highlights with some very quick charts if we could turn to the reform principles the next page i think it's important as you look at alternatives to think about three principles on the medicaid payment system reforms should reflect current market prices they should be prices as i think you said mr chairman that are transparent that are known and verifiable secondly the savings that you seek in the program should somehow be proportionate to the program's expenditures and all explain that a minute and finally behavior in medicaid that supports the policy objectives you're seeking should be rewarded the next slide just gives you a very quick picture of our view of retail pharmacy today we're fifteen little over fifteen percent of what's happening in our stores is related to medicaid which makes it a very important segment i should add that in rural communities this number is larger and in some urban communities this number is larger which puts more pressure on both rural pharmacies as well as urban pharmacies the next slide is really a recap of i think some things that have been said medicaid drug program spending is up because there are more medicaid recipients using prescription drugs there are more prescription drugs being used per recipient which in my view is a good thing because the value of medication today is is very important in terms of the overall health care costs the cost of the prescriptions is up partly because of the ingredient costs and we'll show you we think not so much because of the dispensing fees in fact the next slide shows you twenty two years experience of what the average average prescription cost where today it's about two thousand and two the average prescription both generic as well as brand was about fifty seven dollars that's  en over time the cost of dispensing has stayed rather low in the next slide actually demonstrates how over that twenty two year period the dispensing fee paid has actually gone down this next slide is complicated but it is terribly important the green bars are the product costs the drug costs associated with prescriptions dispensed under medicaid as projected by c m s as well as c b o t from two thousand and five to two thousand and ten as the product cost of the medication the bar just to the left in each case of that green bar is the gross margin that the pharmacy receives we take exception to c b l we've sent them a letter and it's appended to your material this notion that there's a markup there's a cost associated with dispensing and it's that gross margin that has to cover that cost the cost of stocking the medication paying the pharmacist doing the transactions and that sort of thing that leaves that small yellow bar which is the net margin into in the proposal that's before you to use a s p p and as a reform mechanism to save money that's the red bar just to the left of the yellow bar is in each case from two thousand and six to two thousand and ten slightly larger than the yellow bar and what this suggests is that the to us using the government's numbers is that the utilization of a s p pricing as it's been proposed to save money from retail pharmacy would actually seek to more money than retail pharmacy actually makes by dispensing a drug or said another way we'll lose money every time we dispense a medicaid prescription and that as some say you can't make up for in volume that's the that's the major and that's go provide an access problem because retail pharmacies simply won't be able to provide the level of service or one in fact be able to participate in the program at all the next slide and i've got to move i'm going to cover this quickly because p s been discussed in the next slide just mention some of arkansas turns about a s p first of all it doesn't really recognise classes of trade this is very important we don't negotiate with brand manufacturers on priced we buy the bad acacia at the price it's sold to our retailers at usually through a wholesaler in retail pharmacy we pay a higher price than other people buying exactly the same drugs hospitals p b s or others so to any average for us is it puts us at a disadvantage because we're paying a higher price given the quote class of trade retail pharmacies in it's also outdated it's two or three quarters behind it does lack transparency it also discourages generic dispensing the next slide talks about a w b we're all interested in moving off of that it also references and we've we represent to the committee that that using host cell acquisition cost or whack is actually a number that exist in nature i know you've heard a lot of acronyms but this is actually a published price that you can go to and look up and it's updated frequently and if you're looking for a way to pig what number as to what retail pharmacy is paying today that we believe is a good way of doing it the next slide mentions a s p i've referred to that it talks about the average manufacturer's price again this is not a price that exists in nature so to speak it's a calculated price and there are delays associated with it the next slide the goals of pharmacy payment reform i want to skip over because i've made the point that we really do recommend whack pricing be used for brands but we also go to the next slide want to emphasize the importance of generic think that was borne out by mr rogers statements but this is what we're spending today on the three types of drugs that are dispensed in medicaid one hundred twenty two dollars for a patented brand drug sixty five for off patent brand and twenty dollars as for a generic thank you can see why it's desirable to increase generic utilization if you go to the next slide what that says today is that we have over fifty percent on the left over fifty percent of the prescriptions being filled with generic drugs but there's a ways to go because eighty three percent of the money is actually spent on brand drugs the next slide simply shows how this works with one type of disease state gastrointestinal disease not sure exactly why we picked this but the fact is there's three brands up there there's one of  that's lower than the three brands but the generic brand is fifty six cents giving a fairly dramatic savings the next slide what is comes from data that we received for the first quarter of this year i've got to find out why arizona isn't better represented on this chart but it looks at dispensing rates by state and we provided in your packet a list of all fifty states their average in the first quarter that we from from the n b c health numbers was fifty one percent generic dispensing what this shows you is there is a wide range in the country from the forty percent group to the sixty percent group if you move generic dispensing closer to up to or closer to sixty percent as several states have achieved or as arizona has its it has achieved seventy percent literally our calculations are would be a three to have billion dollar savings per year the letter next to the last slide talks just briefly about tiered co pays i know that's something that's of interest we need to make one important point there are to are co pays today between fifty cents and three dollars the problem is that we can't collect those co pays from many patients indeed some states actually promote the fact that the law doesn't the pharmacist to collect that money to big problems to the pharmacy that's simply a lost fifty cents or one dollar or three dollars per script that does add up and it is significant to a suite that cost for you the payer it's the difference between our prescribing a twenty dollars drug or one hundred twenty dollars drug so the payers cost by losing this tool could easily be  hundred dollars per prescription so if you're going to look at co pays to your co pays and we think that's a reasonable thing to do it's very important that that that tool not be turned to but then the gaited by the end by making it as a matter of law something that we can't we can't collect we do believe in conclusion that we are and want to be part of the solution we do believe that disproportionate savings from pharmacy to reduce the access to patients because pharmacies just won't be able to participate in this program and we do strongly believe that part of the solution has to be found in rewarding behavior on the part of the pharmacy as well as the patient to pursue the kinds mr chairman and members and members of the subcommittee thank you for inviting me to be here today to discuss geos report on medicaid prescription the medicaid prescription drug rebate program the hours late and i'm going to try to be very brief there's been a lot of talk here today about how medicaid reimbursement is based on the a w p but i want to talk for a moment on how the rebate is calculated it's calculated as the difference between the best price which is defined as the lowest price to any manufacturer in the a m p the average manufacturer price which we have talked about today which is the lowest price i'm sorry the average price paid to a manufacture  wholesalers for drugs distributed to the retail pharmacy class of trade so the rebate is calculated as the difference between those two or fifteen point one percent whichever is greater the drug rebate program is administered by c m s and you know we were asked to conduct a study on that and we focused mostly on the oversight of the of the program and we had three basic findings one we found that c has oversight does not ensure that the manufacturer reported prices of drugs or the price determinations that are set are consistent with the rebate lall the agreement entered into with manufacturers or the guidance developed by c m s in administering the program we found that c m s conducted only limited checks for reporting errors in the prices that manufacturers reported and in addition c m s only reviews the manufacturer's price determination methods when they ask for rick for recalculations a prior ruby eight the o y g the office of the inspector general has also issued a number of reports on the rebate program they identified a number of factors that limited their ability to verify the accuracy of drug prices including a lack of clear guidance by c m s on how the a m p should be calculated in some cases the o g also found problems with manufacturers price determination methods and reported prices we found that c m s had not followed up with manufacturers to make sure that the problems identified by the b had been resolved are second finding is that we found considerable variation in the print in the methods that manufacturers use to determine the best price in the a m p and i should tell you that under the law manufacture there's are allowed to make certain assumptions differing assumptions when determining the best price in the a m p we found that manufacturers made varying assumptions about which sales and prices to include an ex clue from their calculations and that manufacturers differed in how they accounted for certain price reductions fees and other transactions determining the best price in the a m p in some cases the manufacturers assumptions could have lowered rebates and in some cases they could have raised the rebates are third finding is that the rebates that the manufacturers pay to states may not reflect certain financial concessions that operate in today's complex market for example the role of pharmacy benefit managers which was not in vision to the same extent in one thousand nine hundred when the rebate law was passed the guidance that c m s has provided does not clearly identify how manuf how the p b s have to deal with price concessions as a result of our report we made two recommendations the  first is that we recommended that c m s issue clear guidance on the how manufacturers should determine their prices and the definitions of the best price in the a m p and we also recommended they update this guidance as additional issues arise this is important in a market that's changing quickly our second recommendation is that c m s implement in consultation with the zero i g systematic oversight of the price determination methods employed by pharmaceutical manufacturers and a plan to ensure the accuracy of the prices that manufacturers report h h s agreed with us on the importance of guidance to manufacturers but dissing greed with our conclusion that they had exercised inadequate this concludes my prepared statement thank you thank you ms king gifford understand you are under some time constraints we will be pleased to hear you thank you mr chairman members of the committee my i'm a former state medicaid director myself and now a principal of health management associates along with my colleague sandy kramer i recently prepared a report that discusses potential federal options to help contain medicaid drug costs and i would like to share some of those options with you today i think maybe go right to slide four as you know drug spending is a significant cost driver in the health system generally in a particular burden for medicaid programs virtually all states have implemented pharmacy cost containment measures and while the federal government has been generally supportive more could be done i believe at the federal level to assist states and promote efficiencies across the country i want to focus touch briefly very briefly on for general areas first what has been disk discussed here a lot already assisting states to be more prudent purchasers at the retail level second manufacturer maximizing manufacturer rebates reducing the young going to cost burden on states in the new medicare drug benefit and finally promoting the delivery of evidence based cost effective pharmaceutical care now we've already talked a lot about the issues with a w p and those have been clearly stated for the committee already i think the federal government could be more proactive in providing states with better data on actual drug acquisition costs and put you know ice on the top and three categories one come up with a new data source and that's what we've been talking about a s a p to improve the accuracy and reliability of a w p data potentially by linking it to the medicaid drug rebate or three changing federal law to allow a limited release to states of confidential drug pricing data that's currently available to c m s for purposes of the medicaid rebate program now please note that the first option  p s implementing that would in my opinion be no small undertake king for all states to benefit the federal government would need to handle the data collection and timely pricing for tens of thousands of drug codes used by a typical medicaid program compared to the relatively small number of drug codes that are currently subject to s p pricing under medicare part b ultimately the benefit to states will depend heavily upon the effect of this of the federal government in calculating and reporting the s p prices  next slide and one more slide federal government could assist states to max with maximize manufacture rebates by increasing the federally require minimum rebate as lists recently suggested by the n g doing so could help states compensate for the loss of market leverage they will experience in their supplemental rebate programs when the new medicare drug benefit takes effect next year the last option on that slide i'll touch on briefly relates to the budget proposal to eliminate the best price requirement from the medicaid rebate formula while no one really knows what the fiscal impact of this would be i am concerned that in the short run dropping the best price requirement could undermine existing state preferred drugless to the detriment of states from both  administrative standpoint next slide i have included federal policy options relating to the new medicare drug benefit because states will be directly affected through the clawback formula by growth in part d spending i have therefore suggested removing the m m a noninterference provision preventing h h s from the goshi aiding better drug pricing even if he had chest chose not to negotiate for better prices i think the repeal of this provision may nevertheless promote better drug pricing for medicare as drug manufacturers may be more likely to exercise restraint in their pricing decisions to avoid provoking a response from h h s next slide please and finally let me turn to what i suggest this presents the greatest hope for a long term drug cost containment and that is the billeted to manage drug utilization using evidence based tools basically making sure that the right drug is made available to the right person at the right time and in the right amount all health public all health care is public and private would benefit from an expansion of the existing base of evidence based recent research few states however earn a position on their own to undertake the needed research efforts to fill in the gaps we've already discussed i believe section ten thirteen of the enemy that recognized this need and fifty million was authorized for this purpose in two thousand and four but only fifteen million was actually budgeted in two thousand and five and a like amount was proposed in the budget for zero six by the president i believe a greater investment in comparative effectiveness research now would reap substantial long term savings and that concludes my testimony mr chairman  mr chairman for inviting me to testify today's hearings i will briefly summarize the main points in my written testimony which i've submitted for the record we all know that government reimbursement mechanisms often create vested interest in efficiencies and unexpectedly high costs what seems reasonable when a program is created eventually becomes unreasonable as conditions change in the various parties take advantage of opportunities to reduce costs or increase compensation to one of the most common problems is the growth of cross cross subsidies these can be difficult to reduce or eliminate regardless of how adverse their consequences may be in the end however the only reasonable solution is to rework the program or limit cross subsidies and replace them with a transparent system of direct cost base reimbursement the medicare part b reimbursement plan for on college drugs is an example of how systems can go astray and how difficult it can be to fix things in medicare part b overcompensation occurred largely because reimbursement was based on a w p as drug sellers competed by lowering prices far below a w p the resulting distortions finally compelled congress to legislate a cost based reimbursement system as part of the medicare modernization act of two thousand and three more recently medicaid reimbursement for drugs obtained through retail pharmacies has begun to move along a similar path toward excessive reimbursement for filling prescriptions especially prescriptions as in year two thousand and two compared to ten dollars for older generic drugs and fourteen dollars for all drugs this pattern appears to reflect the oddities of an a w p based reimbursement system rather than differences in actual costs i urge congress and  m s to change the current medicaid pharmacy reimbursement plan to one the focuses more directly on covering reasonable costs one way to do this would be to use the average sales price or a s p as defined in the medicare modernization act assuming this is a reasonable measure of drug acquisition cost by pharmacies another would be to use a suitably defined a m p or average manufacture price either approach would probably be superior to the highly artificial a now used this change should be combined with a reasonable compensation to pharmacies for the services they perform in filling medicaid prescriptions although a fixed percentage markup might be appropriate in some cases such a plan as we have heard carries a danger of distorting incentives yet again in effect rewarding pharmacies for filling more expensive prescriptions something closer to a fixed payment per prescription may be a better solution i believe that new reductions in what medicaid pays drug manufacturers would be inadvisable even today those amounts of to well below the lowest prices in the private sector we should be where i would suggest of yet more reductions in the payoffs to research firms for developing the kinds of drugs that are most useful to medicaid beneficiaries as valuable as today drug is today's drugs are it's perfectly clear that medicaid patients desperately need a new generation of such crucial tools anti psychotics anti depressants and diabetes treatments finally i urge congress and the states to make reasoned use of co payments in order to control drug costs of course such a tool should take account of the limited resources of patients who for the most part is served by medica precisely because they lack substantial income and assets but a new os co payment program drawing on the extensive experience with the private sector could control the overuse of some drugs without impeding the use of essential drugs whose value both to patients and the anybody anticipated that she would have to rush before the hearing was of with get airplane but those what's happened today mr rogers we've been hearing great things about arizona from this shadegg for a very long time and i'm beginning to understand now why he's been  that let me just sort of review a few things i mean it seems like that all we really need to do is sort of pat in there as on a model and and it would work for the rest of the country let me review what you said you have the highest generic usage in the country apparently and that's one of the things we've been trying to encourage is greater generic use you have a very high degree of patient satisfaction less than one percent attributable to the pharmaceutical part of the complaints you you're doing it in an environment in which you have no co pays which is certainly one of the concerns that the pharmacies have as we talk about the idea of maybe raising co pays of the  collectability of that and whether or not that's going to just have to be absorbed by the local pharmacist who never really effectively can collect that you don't have a problem because you don't have co pays and you don't have to deal with this issue that we're talking about whether to raise the rebates rebates you don't get any rebates and i correct all of those features as you are well they've got to be something other than the good a or an arizona that makes it all work let me ask a few questions that come to  mama you're doing it through a private plans how many different plans do you have in the state we have seven different acute care plans we have  term care plans and these are both for profit nonprofit as well as public plans some of our public organizations counties have their own plan and i believe i understood you to say that all of your pharmacies are included in some plan is that correct that's correct so there's nobody left out of this approach correct ok i'm just full i guess i'll ask you the next question then are there any change rug stores that don't go into arizona because they have this plan in place that you know of i'm certain that no one is staying out of arizona because of this plan and indeed i think most of them not all of them are participating in the plan what is your reaction to the two payment to the pharmacist for filling the prescription i would assume that in addition to that there is compensation through the plans back to the pharmacist in addition to the filling of the prescription is that right mr rogers dispensing fee is a flat fee that the plans pay but depending on what they negotiated rates there may be dollars in there with the pharmacy retail pharmacy and each it's a what is what is your reaction to that arrangement very good question and we have recently seen work completed out of the university of texas that amalgamated information right think forty different chains on what the cost of prescribing was in these programs now the it's important to understand that there's a there's a lot of flexibility that the states have as you've heard about in arizona but the but on it but the range of costs in prescribing were from eight dollars and fifty cents to about ten dollars and fifty cents the average is nine dollars and forty five cents which is set another way the pharmacy has to recover the cost what it paid for the drug and it probably has to find a way to recover about nine dollars and forty five cents or it's losing money that doesn't mean that the dispensing fee has to be nine dollars and forty five cents because there are other ways of getting there i think i think the one concern i would have it would be if if it was interpreted to me that it's simply a two dollar dispensing fee covered the pharmacist cost that would be an air there's got to be a mechanism in place for which you are part of that negotiation that exact rogers referred to it's not to say that it's not fair but it's but pharmacies can only participate and i've already said they do participate in this they can only participate if they can recover their costs the costs are they pay for the product recover the cost of dispensing the medication and make some small margin in the margin the profit margin is very very small  you probably are not prepared to do this today but would you give me a follow up on what your pharmacist in arizona have to say about the planned they participate in and their degree of satisfaction i think i'd be very interesting in this item and i might just close in my ten seconds  this ball when asked the question of c b s about how do you make any relationship to what we can predict in medicare part d i think you made the point in your presentation that if you want some comparisons as to maybe what to expect in medicare part d yours is a very good example of that and if that's an example you are currently thirty eight percent below the national average own pharmaceutical cost as i understand it and if in fact you are eleven percent below the next most cost effective state that is that big michigan so i suppose we sorta could produce an answer to say that if we want some degree of speculation maybe there isn't a plan would be a good way to reach that conclusion would have been adequate stipe i think arizona is unique because of the fact that we have managed care and the  its managed care as well as bad form pharmacy benefits so our members are already used to that the key is that again the provider is the one who gets leverage to prescribe brand or prescribe generic and the key is will the providers behavior change because they are in m m a we don't know yet but that's our concern thank you my time's expired mr from mr rogers thank you for explaining a very good system in spite of facts to the contrary there is a pretty strong ideological bias on this committee that the private sector always does things better and can be counted on to deliver darn near anything to t sternness over to private and public not for profit the private sector prod for profits and not for profits and let them go to work or what kind of oversight do you have to make sure that that they are serving the people of arizona thank you for that question no i think the role that the state plays is to assure that the member first is getting the services that they're supposed to get we contract with our health plans to assure that services are rendered so we have a significant oversight responsibility what we gain from the help plans is there negotiating power they have information and they can position in a way that oftentimes is difficult for a single state to position themselves so we've been able to take advantage of that but the reality is that the state has to be part of this as a public private partnership and that's how we refer to ourselves as a public private partnership taking the best of what health plans have to offer public nonprofit as well as for profit as well as the best of what the state can offer in terms of assuring that things are done according to our requirements in the interest thank you in the interest of mr  wants to try to finish before we go vote because you would all have to wait for another forty five minutes to an hour and my guess is you probably don't want to do that let me just kind of the i will go will lessen my five minutes i appreciate what you said about arizona not having co pays  think that's very significant specially in light of the fact that the governors came in here saying that we needed co pays and that we needed to co pays and what that when there was all kinds of evidence that that that drives people out of the system based on the story brief i can answer that question based on the study that we conducted ok it's not an issue we've looked at what do you think what does g a o think of the of the california of the arizona plan is it is it is it working is  is the quality there is is there good school customer satisfaction etc i hate to give you another i don't know but we haven't evaluated it you know you have not evaluated it as that's that's not something you're charged to do though is it like the cat the arizona plan the pharmacists in arizona well you know i think it's a plan they certainly participate in and it's certainly meeting the needs of many people in arizona it's a managed care plan some are speculating that the medicare programs may in fact move to managed care because you're really working on on all the health care costs associated with with that patient there do have to be incentives clearly to drive generic utilization and i think understanding how those incentives work inside of managed care is important if particularly if you're if there is a desire to turn away from the co payments the standalone plans that don't have some of the incentives and find pharmacists that are relatively happy today they are they are i would say that they are participating in and in the program and the economic model is one that clearly they can most could live with they i don't think there's a problem of participation i do promise to get back to the chairman and through him to the committee on a little bit more analytic document there and i would like to ask maybe you know there will be a number of inquiries coming of which you would be responding and familiarity with that is as a as a physician when an insurance company did step therapy they were basically practicing medicine without a license but it sounds like it sounds like in your model as that concept was developed further that you do have buy in from your from your providers and i think you know the chairman's enthusiasm for your program is well founded but the key there is apparently how you how you treat your providers and how you use the word leverage to break that down for the committee and tell us how you how you've managed to do that real quickly managed care has gotten a bad reputation because of how it's been managed if you will and it has oftentimes inappropriately leveraged providers by lowering raw it's and creating additional hassle the key to controlling medicaid costs is really having your providers buy into how your medical models work and so we don't balance our budget on the backs of our provider rates because we save in so many other areas including impatient  able to then allow our providers especially our primary care physicians who are so important to have appropriate rates and so that's the first premise of the program i think the other is the fact that we have multiple plans allows the provider to choose between plans if they don't like a particular plan if they feel that plan has too many hassle factors if you will they can choose to contract with a different plan and many of them do they have their plans they like and two or three that the contract with then the member chooses the plan based on the provider network so it's a balanced approach to the market it allows a member to make a choice based on the provider network and to choose a provider within the plan that allows a provider to choose a plan they want to contract with and the plans themselves and compete for both providers as well as members it was chairman i would just point out that i think the state of arizona is very fortunate to have mr rogers in charge of that pla i suspect it would not work as well with his steady hand on the on the hill and perhaps we ought to see if we can still have a way for the it's time for you to shine in them at the national at the national level so i feel that the community pharmacists pay to the changed or pharmacist pain that if the co pay is not paid your is essentially the one who is paying that and of course that would be true in the at the physician or hospital level as the director of h h s to be able to negotiate drug prices what do you have an opinion about that yes i think that would be a bad idea i think we're much better off if we have a social situation more like the one that was just described in their zone where you have competing buyers and competing sellers if you have only one buyer only one buyer the danger is that you're going to start forcing prices down towards marginal cost and what that does is it reduces the payoff from research and development and in some point with your wholesale acquisition cost and that seems to be a war as you use the term a real world representation of what things actually cost and you might just provide the committee a little bit more information about that in and perhaps mr chairman that's something we should look into as well so i thank you for bringing that to our attention we certainly will do so well thank you i appreciate the members cooperation and i certainly appreciate once again participation of this panel really is one of the better hearings i think we've had on this and we are beginning to to broach the subject as you can tailor and try to educate ourselves and you have been very helpful in that endeavor and we thank each of you we apologize again for the time delay you may very well be asked to respond to some written questions that panel members that committee members might have and we'd appreciate your doing that as well thank you again for your presence this the hearing is